Commission Report to the Council - Measures taken by the Commission in response to the comments accompanying the Council Recommendation - Follow-up Report on the 2000 financial year
Date: 2002-12-23
Institutions: European Commission
Subjects: common agricultural policy, financial control, financial management, general budget (EU), institutional reform, interinstitutional relations (EU), operation of the Institutions, report

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 23.12.2002
COM(2002) 772 final

COMMISSION REPORT TO THE COUNCIL

Measures taken by the Commission in response to the comments accompanying the
Council Recommendation

Follow-up report on the 2000 financial year

COMMISSION REPORT TO THE COUNCIL

Measures taken by the Commission in response to the comments accompanying the
Council Recommendation

Follow-up report on the 2000 financial year

FOREWORD ............................................................................................................................. 3

INTRODUCTION...................................................................................................................... 4

1.

2.

3.

4.

5.

6.

7.

8.

9.

CHAPTER 1 - OWN RESOURCES ......................................................................... 10

CHAPTER 2 - COMMON AGRICULTURAL POLICY ......................................... 13

CHAPTER 3 - STRUCTURAL MEASURES........................................................... 17

CHAPTER 4 - INTERNAL POLICIES..................................................................... 23

CHAPTER 5 - EXTERNAL ACTION ...................................................................... 27

CHAPTER 6 - PRE-ACCESSION AID .................................................................... 32

CHAPTER 7 - ADMINISTRATIVE EXPENDITURE ............................................ 35

CHAPTER 8 - FINANCIAL INSTRUMENTS AND BANKING ACTIVITIES..... 38

CHAPTER 9 - THE STATEMENT OF ASSURANCE AND SUPPORTING
INFORMATION........................................................................................................ 39

10.

ANNEX – SPECIAL REPORTS 2000...................................................................... 42

2

FOREWORD

the  measures 

In  accordance  with  Article  276  (3)  of  the  EC  Treaty  and  Article  89  (8)  of  the  Financial
Regulation and as in previous years, the purpose of the Commission’s Follow-up Report is to
set  out 
the
Recommendation on Discharge for the general budget and the ECSC operating budget. This
report is  the response to the  Council’s demands in the  specific  comments  accompanying  its
5 March 2002 Discharge Recommendation. It should enable the Council to have at its disposal
all  the  necessary  information  on  Commission  actions  taken  when  it  discusses  its  next
Recommendation for the Discharge 2001.

in  respect  of  observations  accompanying 

it  has 

taken 

3

The  measures  taken  by  the  Commission  in  respect  of  each  Council  recommendation  are
described in the boxes.

INTRODUCTION

1

The Council is pleased to note that the Commission's implementation of initiatives to
improve  its  management  and  accounting,  many  of  which  originated  in  the  Court's
annual report, shows the value of that report as a tool for monitoring the legality and
regularity  of  financial  management  as  well  as  for  assessing  its  quality.  It  therefore
insists  on  the  need  strictly  to  follow  the  recommendations  expressed  during  the
discharge procedure.

The Prodi Commission is making an unprecedented effort to modernise and improve financial
management.  In  this  context,  the  discharge  procedure  is  seen  as  an  opportunity  for
constructive  dialogue  between  the  Institutions  in  order  to  identify  areas  for  potential
improvement.

2

The Council welcomes the several positive aspects noted by the report, while being
aware that the Commission has not yet achieved the objectives it has set itself in the
framework of its reform. In that context, the Council wishes to stress the importance
it attaches to the recasting of the Financial Regulation, which is the true keystone of
the Community's financial system.

The  Commission  feels  that  it  has  already  achieved  a  lot  in  its  Reform  activities.  The
Commission’s synthesis report for 2001 contains a detailed analysis of the implementation of
Reform. The main elements of this analysis are as follows :

- Priority setting, allocation and efficient use of resources

Milestones were identified and introduced via a strategic planning and programming  (SPP)
activity, brought into place via the Reform. The preparation of annual management plans by
all  services  was  a  major  step  forward.  Activity-based  management  has  helped  the
Commission to focus its activities on clear priorities with clear objectives. Without prejudice
to any further improvement, it can be concluded that the Commission delivered in 2001 what
had been announced in the White Paper, and that this represented a significant achievement
given the considerable time and resource constraints under which services had to work and
the fact that such a major change can only be implemented on a progressive basis.

- Human resource policy

The process of consultation with the staff and “concertations” with the trade unions led to the
following results:

(1) The October 2001 “Global Package for the reform of personnel policy”, which comprised
15  chapters.  The  first  nine  were  for  final  decision  of  the  Commission:  the  social  strand,
covering  measures  on  family-related  leave  and  flexible  working  arrangements;  equal
opportunities; social policy and infrastructure for staff; moral harassment; training; mobility;
reporting  wrongdoing;  discipline;  maintaining  professional  standards;  recruitment;  middle
management; pay and pensions. The last six issues were discussed for final orientation of the
Commission:  appraisal  and  promotion;  career  structure;  non-permanent  staff;  mediation
service; flexible retirement and general review of the Staff Regulations.

4

(2)  On  20  December  the  Commission  approved  a  draft  Regulation  on  modifications  to  the
Staff  Regulations  and  implementing  rules  for  appraisal  and  promotion  with  a  view  to
submitting  them  to  the  inter-institutional  Staff  Regulations  Committee  for  an  opinion.  The
draft Regulation incorporates all changes to the basic rules governing the European Public
Service, which the Commission deems necessary.

(3)  The  Commission  adopted  the  remaining  decisions  during  the  first  quarter  of  2002
(guidelines  on  Job  Descriptions;  guidelines  on  mobility;  the  conduct  of  administrative
enquiries and disciplinary proceedings; the rules applicable to national experts seconded to
the  Commission;  reporting  wrongdoing,  social  policy,  the  mediation  service,  training
guidelines  and  maintaining  professional  standards,  appraisal  and  promotion).  The
Commission  also  decided  to  submit  the  draft  Regulation  to  the  Council  with  a  view  to
finalising the legislative process by mid-2003.

- Audit, financial management and control

The Reform aims to make procedures simpler, faster and more accountable by decentralising
management  responsibility  to  those  closer  to  the  decision-making  process  and  improving
transparency.

(1) In 2001, based on an assessment of the associated risks, organisational structure and cost
effectiveness,  the  Commission  services  implemented  new  financial  management  circuits
outlining the key stages involved in the authorisation of financial transactions and respecting
the basic principle that the initiation and verification functions of a transaction should be kept
separate. Each Commission service also appointed an internal  audit  capability to assist the
Director-General or Head of Service in verifying the effectiveness of internal controls.

(2) Also in 2001, the Internal Audit Service became independent from the Financial Control.
Its role is crucial for giving assurance to the Commission through its independent opinion on
the quality of management and control systems.

(3)  The  central  financial  service,  created  in  2000,  focused  in  2001  on  the  proposal  for  the
recast of the financial regulation, on the definition and guidance on internal control minimum
standards  and  risk  management  for  the  Commission  services,  on  the  reinforcement  of
contract  management  and  public  procurement  in  the  Commission  services.  In  addition,
special  attention  was  given  to  the  requested  support  through  help  desk,  training  and
information. Finally, the necessity to enhance the central financial information systems led to
focus  action  on  the  overall  quality  of  the  existing  system  and  the  development  of  new
functionalities  set  out  in  the  White  Paper  (contract  database,  central  invoice  register,
recovery management).

(4)  The  Directors-General  and  Heads  of  Service  produced  in  May  2002  their  first  Annual
Activity  Reports  for  2001.  These  reports  show  that  significant  progress  has  been  made
although there remains much to be done to improve the financial management systems.

(5) The issue of internal control and financial management has been given new impetus by the
new  Financial  Regulation,  which  mirrors  the  key  principles  of  the  financial  reform,  and
which  takes  effect  from  1st  January  2003.  The  transfer  of  the  centralised  prior  approval
function means that services will need  to focus  on  their state of  readiness  for assuming full
decentralised  responsibilities.  The  supporting  central  financial  and  accounting  information
systems  are  being  developed  to  ensure  that  they  conform  to  the  requirements  of  the  new
Financial  Regulation  (in  particular  as  regards  the  new  workflows  within  the  authorising

5

services and the types of transactions). The Commission is also in the process of examining
how  it  can  move  towards  the  respect  of  accrual  accounting  principles,  which  involves
changes  both  to  the  accounting  rules  and  to  the  computerised  system.  This  project  was
launched through a memorandum to the Commission by Mrs Schreyer in July 2002 which will
be followed by a Communication setting out the project plan in December 2002. In tandem,
the Commission is also continuing to take action to improve the performance of the current
computer system.

It can therefore be seen that a lot of Reform activity has taken place, and the recasting of the
Financial  Regulation,  which  has  been  decided  unanimously  by  the  Council  after  a  very
intense  process  has  been  achieved  in  very  short  time  and  with  the  necessary  review  and
debate of interested parties.

(cid:1)  The Commission’s  accounting framework  and its  accounting system  were developed at a
time when cash accounting was in general use across the public sector, and mainly served
the purpose of budgetary accounting. The procedures also had to be designed to reflect the
provisions of the Financial Regulation. The Commission’s accounting system was designed
for cash accounting and has only been adapted to a limited extent to meet the requirements
of modern general accounting.

(cid:1)  The  Commission  has  already  introduced  elements  of  accrual  accounting  in  the
presentation  of  its  financial  statements  in  recent  years.  Nevertheless,  the  reliability  and
accuracy  of  the  data  used  to  produce  the  financial  statements  are  not  optimised,  mainly
because some balance sheet data and information for annexes to the accounts are drawn
from sources outside the official accounting system.

3

The Council notes the persistence of significant surpluses at the end of the financial
year.  This  tendency  could  affect  the  credibility  and  sound  management  of  the
Community budget.

The  origin  of  these  surpluses  lies  in  incorrect  estimates  of  both  revenues  and
expenditure. The Council urges the Commission, with the collaboration of Member
States, to make more precise estimates of sources of finance and to adapt expenditure
estimates to real requirements.

The  Commission  continues  to  develop  and  improve  its  approach  to  managing  the  budget.
Building  on  the  2001  implementation  plan  and  in  line  with  the  joint  declaration,  the
the  budgetary  authority  with  a  more  comprehensive
Commission  has  provided 
implementation plan for budget year 2002

Steps have been taken to improve the forecasting of payments from the Structural Funds (see
point 3.1).

The own resources forecast entered in the preliminary draft budget is drawn up on the basis
of the most recent spring economic forecasts  from DG  ECFIN  and after  consultation of  the
Member  States  in  the  Advisory  Committee  on  Own  Resources  (ACOR).  Furthermore,  the
forecast  is  subsequently  revised  at  an  ACOR-meeting  (normally  held  in  April)  during  the
budgetary  year  in  question  on  the  basis  of  that  year’s  spring  economic  forecasts.  Member
States’ payments are adjusted accordingly through a supplementary and/or amending budget.
The Commission is always striving to improve the accuracy of its forecast. It should, however,
be remembered that the own resources forecast concerns economic aggregates (GNI, the VAT

6

base,  EU  imports  etc)  that  are  subject  to  considerable  swings.  Some  degree  of  forecasting
error is consequently unavoidable.

4

The Council  must  stress  that  the  fact  that  most  expenditure  takes  place  in  Member
States  and  is  administered  by  national  bodies  does  not  alter  the  Commission's
ultimate  responsibility,  under  the  provisions  of  the  Treaty,  for  implementing  the
budget.

Although  the  ultimate  responsibility  for  executing  the  Community  budget  rests  with  the
Commission, those in charge of implementing the common policies also bear a management
responsibility.  This  point  has  been  given  increasing  prominence  by  the  Court  of  Auditors,
which in its Annual Report tends to distinguish more clearly between the roles of individual
players.

As it points out in its analysis of the replies by the Member States, the Commission has taken
note of the Member States' concern to make the Annual Report of the Court of Auditors into a
tool for improving financial management and their determination to take full account of the
observations  and  recommendations  addressed  to  them.  The  Commission  pays  special
attention  to  the  various  questions  raised  by  the  Member  States,  particularly  as  regards  the
simplification  of  the  regulatory  framework  (see  below),  and  intends  to  provide,  within  the
specific context of the individual policies, any assistance the Member States might require in
order to ensure that the regulations are uniformly and effectively applied.

The Commission also believes that discussions and consultations should be launched on how
to  strengthen  its  powers  to  conduct  inspections  and  impose  penalties,  which  in  the  medium
term could lead to practical proposals based on existing mechanisms, such as the inspection
rate and financial corrections.

5

Regarding the present discharge procedure, the Council must emphasise its concern
about  the  fact  that  the  Court  has  not  yet  been  in  a  position  to  issue  a  positive
Statement  of  Assurance  (DAS),  because  of  the  unacceptable  level  of  errors  in  the
operations  that  underlie  payments,  noting  nevertheless  that  the  Court  has  given  a
positive assessment on own resources, commitments and administrative expenditure.
The  Council  is  also  curious  about  the  fact  that  the  numerous  positive  findings
mentioned by the Court in its report are not reflected, inter alia, in the level of errors
in the guarantee of the certifications issued.

The  positive  assessment  by  the  Court,  which  also  covers  the  accounts,  is  for  a  significant
number of operations and demonstrates the achievement of the Commission not only where it
is fully responsible for its activitivies but also in a more stable, shared environment such as
for  own  resources.  However,  the  Commission  is  committed  to  improving  the  situation  in
respect of payments and is confident of the positive effects of the Reform process to improving
its financial management.As regard Structural Funds, the Commission points out that with the
Council Regulation No  1260/1999  and implementing Commission Regulations  No  438/2001
and  448/2001,  a  framework  has  been  established  which  should  ensure  better  financial
management in Member States, resulting in a more acceptable level of errors in transactions
underlying  payments.  A  similar  control  regulation  has  now  been  adopted  for  the  Cohesion
Fund, Regulation 1386/2002.

6

The Council appreciates the efforts that the Court is making to develop the DAS into
an  audit  and  management  systems  analysis  tool  but,  while  welcoming  the  Court's
following  up  of  previous  observations,  reaffirms  its  request  that  it  should  also

7

establish indicators allowing progress to be monitored from one  year to the next. It
nevertheless welcomes the fact that the Court's approach in the present report better
permits detection of risks and of improvements by sector of activity.

The  Commission  is  willing  to  work  with  the  Court  in  determining  representative  indicators
which  can  also  be  used  by  the  Commission  not  only  to  measure,  but  also  to  improve  its
financial management performance.

The  Council  recognises  the  technical  problems  of  auditing  such  a  broad  range  of
activities as that covered by the Community budget.

With  a  view  to  the  best  possible  use  of  existing  resources  and  to  achieving  a
proportionate cost/benefit ratio, it therefore supports any initiative that would move
towards  improving  the  links  between  audit  work  done  by  the  Commission  and  the
Member States and the Court's own audits.

While recognising its  independence, the  Court is  asked  in  this  context  to  extend  to
other budget sectors the practice, already applied in the context of the CAP, of using
the findings of  Member  States' paying  agencies.  It could  also use the results  of the
audits and controls carried out by the competent national institutions and make use of
the information and expertise of the Commission's internal audit service.

This  method  could  prove  very  useful,  given  the  increased  risks  inherent  in
enlargement,  arising  from the diversity  of  political  and administrative cultures  with
which the Commission will in future be faced in implementing the budget.

The  Commission  will  be  happy  to  provide  any  relevant  assistence  to  the  Court  in  the
accomplishment  of  this  task,  as  needed.  For  the  Structural  Funds  ideas  for  closer
coordination  of  audit  work  have  been  launched  in  a  series  of  papers  on  simplification  (see
below).

7

The Council refers to the joint declaration by the European Parliament, the Council
and  the  Commission  on  commitments  outstanding,  formulated  during  the  Budget
Council  of  22 November  2001.  It  insists  on  the  need  to  abolish  abnormal
commitments  outstanding  in  the  medium  term  and  expects  the  Commission  to
present, at the same time as or before the preliminary draft budget for 2003, an action
plan  for examination of all dossiers  with  associated risks  noted  at  the  beginning  of
the 2002 financial year.

1. The Joint Declaration of November 2001 required the Commission to present to the Budget
Authority  an  action  plan,  and  a  series  of  reports  based  on  the  dates  30.4.02,  31.8.02  and
31.12.02,  on  progress  made  in  the  examination  of  all  ‘potentially  abnormal’  commitments
(some 16 000 items).

2. The action plan, and first progress report covering the period January 2002 to end- April
2002, were submitted in June 2002 to the Budget Authority with the PDB 2003. By 30 April
2002 the Commission services had examined  27%  of  all  the  commitments  (Declaration  and
non-Declaration lines together) falling under this definition)

3.  A  second  progress  report  covering  the  cumulative  situation  January  to  end  August  2002
was submitted to the Authority on 15 October 2002. This showed that under the Declaration

8

lines, by end August 2002 the Commission had examined some 1850 commitments  (74%) of
the total cases (2500) to be examined under these lines.

A further report will be prepared based on the situation at 31.12.2002.

4. A new Joint Declaration was agreed at the ECOFIN Council of 25 November 2002. This
follows  closely  the  approach  adopted  under  the  November  2001  Declaration:  a  new  action
plan to examine the potentially abnormal commitments at the start of the 2003 financial year
will be submitted with the PDB 2004, and reports will be based on examinations at 31 March,
31 July and 31 December 2003

8

The  Council  insists  on  the  need  to  strengthen  the  protection  of  the  Community's
financial interests. In this context, it recalls the importance it attaches to the work of
the  European  Anti-Fraud  Office  (OLAF)  and  reiterates  its  wish  to  see  the  last
obstacles to the proper operation of the Office removed as quickly as possible.

The restructuring of the Office is over and a period of consolidation is under way. The Office
now  has  three  Directorates,  respectively  for  Policy,  Legislation  and  Legal  Affairs
(Directorate A), Investigations and Operations (Directorate B) and Intelligence, Operational
Strategy and Information Technology (Directorate C).

With regard to the appointments of the Directors for Intelligence, Operational  Strategy  and
Information Technology and for Investigations and Operations, the Director Intelligence was
appointed early in 2002 while the appointment of the Director Investigations and Operations
has now been confirmed.

A recruitment exercise has been launched to fill the remaining vacancies in the Office and it
is hoped to complete this before the end of 2002.

Like  the  Court  and  the  Commission,  it  calls  on  the  Member  States  concerned  to
complete  procedures  for  ratification  of  the  Convention  on  the  Protection  of  the
European Communities' Financial Interests.

All  the  Member  states  have  now  formally  ratified  the  Convention,  however,the  second
protocol,  which  is  an  integral  part  of  the  Convention,  remains  unratified  by  five  Member
States.

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

9

1.

CHAPTER 1 - OWN RESOURCES

1.1.

Budgetary management

The  Council  notes  that  the  balance  from  the  implementation  of  the  budget  for  the  financial
year 2000 was very large. It therefore calls on the Commission to refine its budget estimates
to avoid excessive surpluses in the future. It could if necessary envisage adjustments during
implementation as the Court suggests, to take into account significant changes in revenue, and
make corrections, if necessary, through a supplementary and amending budget.

In  respect  of  resources,  for  the  2002  Budget  rather  than  wait  for  the  usual  supplementary
amending budget (SAB) to be presented in the spring, the Commission presented on the 27th
of February an amending budget to take into account significant changes in revenue arising
in  particular  from  a  potential  large  surplus  for  2001  and  the  consequences  of  the  new
Decision on own resources.

The  Commission  continues  to  closely  monitor  implementation  of  the  budget  during  the
financial year. In June 2002, as set out in the Joint Declaration (SN4608/08), the Commission
provided to the Budget Authority its implementation plan for the 2002 financial year covering
headings 2, 3, 4 and 7. A preliminary overview for the end-June implementation position was
also  given.  The  Commission  examined  the  2002  plan  at  end-August  against  actual
implementation and reported to the Budget Authority in October, providing a revised plan for
the  remainder  of  the  year.  A  progress  report  on  the  end-October  position  compared  to  the
revised plan was provided in November. In addition the annual end-year budgetary technical
adjustment proposal (global transfer) to re-balance payment appropriations was presented to
the Budget Authority in October.

The Commission should also in general improve the quality of the information attached to the
revenue  and  expenditure  account  and  in  particular  it  should  provide  sufficient  explanatory
analyses.

The Commission has been improving its financial reporting for some time and is continuing to
look  to  make  improvements.  The  Commission  informs  the  European  Parliament  and  the
Council on the payments and commitments situation on a weekly basis.

1.2.

Specific appraisal in the context of the Statement of Assurance

The  Council  welcomes  the  fact  that  the  outcome  of  the  checks  carried  out  has  allowed  the
Court of Auditors to obtain sufficient  guarantees to ensure the legality  and  regularity of the
traditional own resources recorded in the Member States and to give, within the limits of the
audit,  a  reasonable  assurance  of  the  reliability  of  the  system  set  up  by  the  Commission  for
collection of the VAT and GNP resources.

It notes, nevertheless, that progress remains to be made, particularly on the administration and
supervision  of  anti-dumping  measures,  including  the  use  of  existing  databases,  and  on
keeping separate accounts for customs debts, as the Court mentions in its report.

The Commission continues to focus on the operation of the B accounts during its own audits.
With a view to improving the management of the separate accounts, in particular the write-off
procedure, the Commission proposed a modification of the regulation in 1997. This proposal
still remains with the Council.

10

1.3.

Protection of the Community's financial interests in the area of Own Resources

The  Council  welcomes  the  Court's  initiative  in  examining,  in  the  context  of  the  DAS,  the
situation  regarding  recovery  of  own  resources  from  the  point  of  view  of  protection  of  the
Community's financial interests.

In this context, it supports any step by the Commission to intensify dialogue with the Member
States to make it possible to compare the effectiveness of the tools at national administrations'
disposal  for  protecting  the  Community's  financial  interests.  In  particular,  it  supports  the
Court's recommendations on VAT and notes the measures already taken by the Commission.

As regards VAT, the Commission, among other actions, has pursued its efforts to strengthen
administrative  cooperation  between  Member  States,  it  has  continued  to  develop  a  common
approach  to  risk  analysis  for  the  purposes  of  control  and  has  conducted  a  thorough
examination  with  the  national  administrations  of  the  Court’s  recommendations  concerning
the use of economic statistics as a check on possible levels of tax evasion.

1.4.

Follow-up to previous observations

The  Council  welcomes  the  progress  accomplished  as  a  result  of  the  steps  taken  by  the
Commission  following  the  Court's  previous  observations  and  encourages  it  to  continue  its
collaboration  with  Member  States,  and  particularly  as  regards  the  application  of  the  transit
procedure, to resolve the problems that procedure raises.

The  Commission  has  continued  its  efforts  for  improving  the  application  of  the  transit
procedure  by  finalising  the  TRANSIT  REFORM,  IN  PARTICULAR  STRENGTHENING  the
guarantee system, issuing a provisional version of the "Transit Manual" and adopting several
administrative arrangements. It has TAKEN further steps aimed at the concrete application,
by  the  target  date  of  1  July  2003,  of  the  New  Computerized  Transit  System  between  the
COUNTRIES APPLYING the Convention on a common transit procedure of 1987.

Findings  from  Commission  inspections  suggest  that  the  situation  in  Member  States  is
improving overall although unevenly. The Commission has closely cooperated  with  customs
internal  audit  services  in  Member  States  who  made  some  inspections,  which  were
subsequently  evaluated  by  the  Commission.  The  Commission  will  continue  to  follow  the
evolution  of  the  transit  regime  in  particular  the  roll-out  of  implementation  of  the  New
Computerised Transit System.

The  Council  also  invites  the  Commission  to  follow  the  guidelines  of  the  Court  on  the
desirability of requiring regular reports from Member States on the quality of their statistics
on GNP, in the context of the forthcoming GNP Directive.

This observation is addressed in the draft Commission proposal for a GNI Regulation that is
currently  in  written  procedure  to  replace  the  current  GNP  Directive.  If  it  is  adopted  early
enough  in  2003,  the  first  annual  reports  on  the  quality  of  statistics  may  be  expected  in
October  2003.  Article  2(3)  of  this  draft  proposal  foresees  that  Member  States  will  have  to
transmit to the Commission (Eurostat) a report on the quality of their statistics together with
their annual GNI figures.

It  would  also  encourage  the  Commission  to  continue  its  efforts  to  improve  procedures
regarding harmonisation of the various sets of statistics to ensure a full accounting treatment
of the bases of calculation of the VAT and GNP resources.

11

The Commission has continued to seek ways of taking account of the recommendations made
by  the  Court  of  Auditors,  and  this  has  led  to  a  number  of  improvements  in  internal
procedures.  These  include  the  development  of  new  safeguards  to  ensure  that  the  results  of
controls are accurately reflected at the accounting stage and the adoption of standard tables
for recording changes in the bases of calculation in a traceable and transparent way.

12

2.

CHAPTER 2 - COMMON AGRICULTURAL POLICY

2.1.

Budgetary implementation

The  Council  reiterates  its  concern  for  compliance  with  the  principle  of  transparency  in
implementing  agricultural  expenditure.  Precision  in  budget  forecasts  is  essential  for
transparent  and  effective  management  of  appropriations.  In  this  context,  it  calls  on  the
Commission to continue,  working  closely  with Member States,  to  improve  the  reliability  of
estimates  of  budget  requirements.  In  exercising  its  management  powers,  the  Commission
should also attempt to make it easier to interpret the implementation of appropriations, so as
to avoid the distortions to which the Court refers in its report.

The  Commission  establishes  its  budget  forecasts  for  the  financial  year  (FY)  on  the  basis  of
hypotheses  and  activity  statistics,  concerning  agricultural  markets  and  direct  payment
schemes, which rely mainly on information provided by the competent services of the Member
States.Following the Council's wish, the Commission will intensify its collaboration with the
Member States in this area.

The  budget  estimations  for  the  sub-heading  dealing  with  CAP  market  measures,  do  not
remain  steady  throughout  the  year  but  tend  to  fluctuate  along  with  the  dynamics  of  market
developments of the different agricultural products.

With  regard  to  the  sub-heading  involving  rural  development  programmes,  their  effective
execution can still diverge from the financial programming decisions for the FY in question
because  Member  States  did  not  realise  planned  expenditure  as  forecasted  due  to  delays  in
carrying  out  investment  schemes,  control  of  lodged  claims  etc.  Furthermore,  in  both  cases,
delays  longer  than  foreseen,  due  to  supplementary  controls,  queries  etc  in  liquidating
payment files, can contribute to differences between forecasts and execution of the budget.

Therefore,  transfers  between  budget  items  are  an  essential  tool  in  the  management  and
execution  of  the  budget  in  the  dynamic  world  of  agricultural  markets.  Furthermore,  in  the
case of the EAGGF-Guarantee section of the budget, the number of transfers, due to its very
detailed  budgetary  nomenclature,  appear  to  be  more  numerous  when  compared  to  other
headings  of  the  budget  which  have  a  simpler  nomenclature.  Nevertheless,  this  situation
contributes significantly to the objective of transparency in the execution of the budget.

Therefore,  transfers  between  budget  items  made  in  the  course  of  the  execution  and  the
management of the EAGGF budget can not be characterised as distortions.

Finally, it should be pointed out that the Commission updates its budget estimations at least
twice in the course of the FY on the basis of the observed budget execution pattern of the year
and  of  additional  information  concerning  developments  and  management  of  agricultural
markets and rural development programmes.

The  Commission’s  efforts  to  improve  the  precision  in  the  budget  gave  good  results  for  the
financial year 2000. Expenditure amounted to 99% of appropriations. However, even the best
forecasting  system  cannot  be  100%  accurate  because  of  unforeseeable  events,  such  as
changes  in  the  exchange  rate  and  in  the  agricultural  markets.  The  expenditure  for  2001
amounted to 97 % of appropriations because of market conditions better than foreseen.

13

The Commission took note of the Court’s observation in relation the Volume I of the Revenue
and Expenditure Account 2000. Changes are made in the 2001 account, to follow the Court’s
remark.

Finally, the Council welcomes the immediate implementation of a new computerised system
of agricultural  expenditure management  (AGREX),  which  will  make  it  possible  to  optimise
use of the database.

AGREX2 implementation progresses on schedule.

2.2.

Specific appraisal in the context of the Statement of Assurance

The Council notes that the level of substantive errors remains, in the Court's opinion, too high
and  that  the  evolution  of  the  trend  shows  no  signs  of  improvement;  it  stresses  in  this
connection that most of these errors are recurrent and occur at the level of the final recipient.
The  Court  and  Commission  are  also  invited  to  agree  on  an  unambiguous  definition  of
substantive errors and a method for verifying changes in the incidence of errors over time.

The  Court  of  Auditors  and  the  Commission  make  considerable  efforts  to  reconcile  their
respective  views  as  to  what  constitutes  a  substantive  error.  Nevertheless  disagreement  will
foreseeably remain for a number of cases each year.

The incidence of errors can be followed over time, although the number of cases involved in
most  measures  does  not  allow  many  useful  conclusions  to  be  drawn.  The  vast  majority  of
errors are small overdeclarations of land or animals by the beneficiary. In no other measure
is a pattern discernible.

The Council notes, however, that the financial impact of some of these errors is reduced by
the Commission's application of the appropriate financial corrections.

The  Commission  agrees  that  financial  corrections  reduce  the  financial  impact  of  errors.
However,  it  should  be  remembered  that  financial  corrections  are  imposed  for  inadequate
management by the Member States, and not simply for overclaims by the beneficiary.

The Council notes that some of the errors detected by the Court concern small amounts and
nevertheless reaffirms the point of view it had already indicated the year before on the need to
strengthen controls, emphasising qualitative aspects so as to ensure a good cost/benefit ratio.

The majority of errors detected concern small amounts. Of the extrapolated errors identified
by the Court 30 out of 39 are errors of less than 10%, while 22 relate to monetary errors of
less that €200 and a further 7 are less than €1000.

Regrettably, a number of beneficiaries continue to overclaim each year, either deliberately or
by ignorance of the rules. The Commission is trying to strengthen the quality of controls and
the deterrent effect of them (through sanction provisions). It will note the Council’s concern
that the cost/benefit ratio of controls must be considered.

In  this  context,  it  stresses  that  the  Court's  analysis  shows  the  persistence  of  gaps  in  the
supervisory systems of numerous Member States. The Council therefore supports the Court's
request  to  the  Commission  to  revise,  simplify  and  improve  the  quality  of  the  information
which  it  exchanges  with  Member  States  to  take  better  advantage  of  the  Integrated
Administration and Control System (IACS).

14

New regulatory and practical measures have been introduced to ensure improved quality of
information  from  Member  States.  Revised  reporting  procedures  for  the  annual  supply  of
animal  premium  statistics,  in  conjunction  with  Regulation  (EC)  No  2419/2001  entered  into
force on 1st January 2002 and will lead to greater transparency and enhanced audit potential.
Furthermore,  and  although  it  must  be  stressed  that  Member  States  have  a  responsibility  to
properly  apply  agricultural  legislation,  the  Commission  services  have  issued  a  series  of
guidelines  and  examples,  to  be  followed  up  by  audits  of  expenditure,  which  will  ensure  a
correct and uniform implementation.

Finally, the Council takes the view that setting clear criteria for allocating Community aid and
generally simplifying the rules should help resolve certain anomalies noted by the Court.

The Commission shares  the Council's  view that  simple  and  clear  legislation  is  essential  for
sound  and  efficient  management.  The  more  complex  the  rules,  the  more  difficult  and  costly
they will be to implement and manage. Furthermore, complexity both increases the scope for
errors  and  irregularities  to  occur,  and  at  the  same  time  makes  the  task  of  control  more
difficult. This is a question of importance to all sectors, not only agriculture. The Commission
has  previously  acknowledged  that  criticism  of  the  complexity  of  European  agricultural
legislation is often justified, and over the last few years it has made simplification one of the
guiding  principles  in  its  deliberations  on  the  common  agricultural  policy  (CAP).  The
directorate general for agriculture has undertaken simplification work for a number of years,
and this has become established as one of its main priorities. Simplification guidelines for use
within  the  directorate  general  are  already  in  place,  to  ensure  that  there  is  a  general
awareness  of  the  need  for  simplification  and  its  purposes  and  objectivesA  simplification
working group which includes representatives of the member states was created in the second
half of 2000. Furthermore, the need for simplification has been taken into consideration in the
reflections on the mid-term review.

The Commission therefore fully shares the Council's view that simplification has an important
role to play in reducing the level of anomalies noted by the Court of Auditors.

2.3.

Clearance of accounts

Regarding flax aid, the Council is closely following the administrative and judicial procedures
currently in progress, and when the time comes will draw the appropriate conclusions within
the scope of its powers.

Aid  for  flax  is  being  dealt  with  in  the  context  of  the  Commission’s  clearance  of  accounts
procedure.

2.4.

Follow-up to previous observations

The Council notes with satisfaction the legislative and financial progress made following the
observations of the Court and urges the Commission to continue its work to correct remaining
deficiencies, where applicable. In particular, it recommends the Commission to use inter alia
the  latest  Court  of  Auditors  special  report  as  a  reference  point  for  a  mid-term  analysis  of
developments in the dairy sector and to continue its cooperation with Member States  with a
view to the effective operation of the IACS.

In its Mid Term Review Communication of Agenda 2000 the Commission has made specific
reference to the recommendations of the Court of Auditors Special report on the Milk Quota
regime, durum wheat and dried fodder.

15

The  Commission  services  continue  to  play  an  active  role  in  the  organisation  of  Member
States’ procedures, not only through observations and recommendations given in the context
of  its  on-the-spot  audits  of  expenditure,  but  also  by  means  of  experts  group  meetings  and
distribution  of  guidelines  and  interpretations  intended  to  ensure  uniform  approach  and
application.

16

3.

CHAPTER 3 - STRUCTURAL MEASURES

3.1.

Budgetary management

The  Council  points  out  that  2000  was  the  first  financial  year  of  the  new  Structural  Funds
programming  period  2000-2006,  which  meant  that,  as  in  1989  and  1994,  the  year  was  to  a
great extent spent on implementing the new provisions of the rules on structural measures and
on  programming  work.  The  year  2000  was  also  shaped  by  work  on  winding  up  the
programmes from the 1994-1999 period.

It  regrets  the  numerous  delays  in  implementing  the  2000-2006  period  and  especially  in
adopting  the  programmes,  including  the  Community  initiatives.  It  urges  the  Commission  to
comply better with the regulatory time limits and to take all necessary measures internally to
prevent  such  delays  recurring.  It  notes  in  particular  that  it  was  not  possible  to  approve  any
programmes in 2000 concerning the new Community initiatives (Leader, Equal, Interreg, and
Urban).

The Commission recognizes that part of the delays in the approval of new programmes could
have  been  avoided  if  the  procedures  had  been  simpler.  While  the  Commission  believes  that
the overall result in the 2000-06 programming exercise was positive in terms of the quality of
the new programmes adopted and their management, a process of reflection has already been
launched to see what can be learned from it, both for the benefit of the current programmes
and especially those after 2006.

The main reason for the length of the approval process for Community Initiative programmes
were  the  preliminary  stages  required  by  the  regulations.  Each  step  in  the  process  was
achieved in the minimum time possible, however. The process was delayed to some extent by
late  submission  of  programme  proposals  by  Member  States.  For  example,  only  24  of  72
INTERREG  III  programmes  and  13  out  of  70  URBAN  II  programmes  were  received  within
the six months’ deadline.

The  Commission  is  considering  how  to  simplify  the  programme  approval  process  in  the
future.  It  would  like  to  ensure  that  the  legislative  timetable  in  the  Parliament  and  Council
enables programmes to be negotiated before the beginning of the implementation period. For
the  candidate  countries  the  pre-accession  instruments  are  preparing  them  for  the
programming and management of Structural and Cohesion Funds. In the current period the
Commission is endeavouring to streamline rules and procedures as far as possible without or
with only minor changes to the legislation. It has also reformed its payment procedures.

The Council is aware of the weaknesses that remain in budget forecasting and implementation
in  the  field  of  structural  measures  and  notes  the  Court's  remark  that  the  network  of  budget
information  exchange between  the Commission and the Member  States  was  not  sufficiently
effective.  It  urges  the  Commission  to  continue  its  efforts  to  equip  itself  with  appropriate
instruments to improve budget forecasts.

The  Structural  Funds  regulation  (1260/99)  requires  Member  States  to  submit  detailed
payment  forecasts  to  the  Commission  by  30  April  each  year  to  cover  that  year  and  the
following year. The Commission has made efforts to improve the reliability of these forecasts
so that they can become a management tool, despite the inherent uncertainties  (expenditure
deriving from large numbers of individual projects) and the Commission’s lack of experience
with the new reimbursement-based payments system, and has regularly reminded the Member

17

States  of  their  importance.  In  2002  all  Member  States  have  supplied  the  forecasts.  Once
analysed;  the  forecasts  can  be  used  in  establishing  the  levels  of  payment  appropriations
required under each objective in the following year's budget. So far, however, they have been
too  late  to  be  included  in  the  draft  budget,  which  has  to  be  submitted  by  the  Commission
before the Member States’ replies are received.

However, in order to improve the budget forecasts from the Member States, the Commission
will henceforth:

- inform on a regular basis the Budgetary authority by Member States on the outcome (and
errors) of the forecast inquiry.

- and send the forecast request not only to the Permanent Representations, but also in copy
via the geographical units in the Structural Funds DGs to the Management Authorities of the
different  programmes.  Thus  the  Commission  will  use  the  existing  relations  of  the
geographical units with programme managers in MS in order to obtain more reliable figures,
based on data obtained programme by programme.

It is convinced that the new regulatory measures, along with the new financial structure and
the current Commission reform process, will ultimately lead to improved quality of forecasts
and  implementation,  and  it  urges  the  Commission  to  continue  its  efforts  to  simplify
management and to speed up implementation of appropriations for structural measures.

The Commission recognises that the application of the new measures governing the Structural
Funds has not always had the desired effect of simplifying management.

Since  the  informal  Council  in  Namur  in  July  2001,  where  this  question  was  discussed,  the
Commission has begun to examine ways of simplifying the application of the provisions, while
retaining  the  positive  aspects  of  the  reform  of  the  regulations  adopted  in  1999.  The
discussions are concerned both with the improvements that can  be  made  during  the  current
period and those which should be planned for the period after 2006.

While for the current period the Commission is utilizing the scope for simplification offered
by interpretation of the present legislation and better coordination, in future legislation it will
have to review the  distribution of responsibilities between the Commission  and  the  Member
States  under  the  system  of  shared  management,  in  which  the  latter  bear  the  bulk  of  the
responsibility for defining the objectives of the Structural Funds and for managing funds.

The debate on simplification is continuing. The subject was discussed at a special meetig with
Ministers for Regional Policy on 7 October 2002 and at a technical level at a joint meeting of
the Structural Fund committes on 19-21 November.

The  Council  also  notes  the  Commission's  commitment  to  clarify  and  make  uniform  the
application  of  the  new  regulatory  provisions  on  automatic  decommitment  of  commitments
unused  at  the  end  of  the  second  year  following  that  of  the  commitment,  and  to  inform
Member States to that effect as soon as possible.

In  the  case  of  the  2000-2006  programming  period,  application  of  the  automatic
decommitment  rule  (“n+2”)  will  have  the  effect  of  encouraging  the  implementation  of
payments and reducing the RAL by reducing commitments. The Commission drew attention to
this rule and the risks it entails in letters sent in November 2001 to all the Member States and
in May 2002 in a communication to Member States explaining in detail how the rule would be

18

applied.  Since  then,  the  Commission's  departments  have  kept  the  Member  States  regularly
informed of the implementation rate, programme by programme.

It welcomes the fact that the information on structural measures presented by the Commission
in  Volume  I  of  the  revenue  and  expenditure  account  is  fuller  than  for  previous  years,  and
urges the Commission to continue with its efforts to clarify as recommended by the Court.

Regarding  the  period  1994-1999,  the  Council  notes  the  Court's  observations  on  the
adjustments  made  to  commitments  and  urges  the  Commission  to  adopt  final  decisions  on
these  interventions  as  quickly  as  possible.  It  urges  the  Commission  rapidly  to  close
interventions  relating  to  the  first  phase  (1994-1996)  of  Objective  2  and  to  fill  the  gaps
concerning overall information on the progress of interventions on the ground.

By  the  end  of  2001  the  Commission  had  completed  the  process  of  confirming  the  final
financial tables for 1994-99 programmes with a very few exceptions due to late submission by
the Member States concerned. By June 2002 good progress had been made with the closure of
1994-96  programmes,  with  only  29  of  the  72  remaining  to  be  closed.  On  1994-99
programmes generally some information on their progress towards closure was given in the
Commission’s annual report on the Structural Funds for 2000, but the report concentrates on
the launch of the 2000-06 period programmes.

Information on how Member States are using the Structural Funds should improve as a result
of computerisation and stricter enforcement of reporting obligations. Innovations introduced
in this area in the new period include: the common Structural Funds financial database SFC,
the linking of interim payments to submission of annual reports, better forecasting of payment
claims,  coding  of  projects  according  to  a  standard  classification,  reporting  of  financial
corrections  and  recoveries,  and  access  to  detailed  project  information  for  analysis  before
audits.

The Council also reiterates the importance it attaches to a swift winding-up of the last cases
from the programming periods before 1994.

The  Commission  has  reduced  the  number  of  cases  outstanding  to  a  handful  of  particularly
contentious cases or cases involving legal action which is still going on.

As  of  30  June  2002  the  balance  of  outstanding  commitments  from  pre-1994  programmes
amounted to €370 million, or 0.6% of the total funds commitetd between 1989 and 1993. By
the  end  of  2002  only  cases  that  cannot  be  closed  until  the  completion  of  legal  proceedings
should remain.

3.2.

Specific appraisal in the context of the Statement of Assurance

The Council notes that, according to the Court, as for previous  years, the level of anomalies
recorded in the  declarations of  expenditure  for periods  prior to 2000 remains high.  It  notes,
too, that some of the substantive errors detected  in expenditure  statements  do  not  affect  the
amounts of Commission payments. It nevertheless notes the Court's remark that the frequency
of the anomalies noted increases the risk of impact on the Community budget.

A rigorous application  by  the Member  States and the Commission of  the  closure  procedure
laid down in the Community regulations, and notably Article 8 of Regulation 2064/97, should
give reasonable assurance that non-eligible expenditure is excluded prior to payment of the
final balance.

19

All the substantive errors detected in connection with the Structural Funds and the Statement
of Assurance for 2000 were made either at national/local level, or at final beneficiary level.
The Commission has taken appropriate steps to remind the competent authorities of the need
to ensure strict application of the rules in force and to make the appropriate corrections as
quickly as possible.

Furthermore,  the  Council  notes  the  remarks  of  the  Court  on  possible  weaknesses  of  the
internal  control  procedures  concerning  commitments  in  the  field  of  structural  measures  and
urges the Commission to make the necessary changes and adjustments.

The Commission did not share the Court's view of weaknesses in internal control procedures.
In any event there are procedures in place, which would normally ensure that  errors of the
type found by the Court would not recur.

It welcomes the Commission's commitment to produce an information document on the rules
concerning the eligibility of expenditure and in that setting to clarify questions concerning the
application of the new rule on the eligibility of VAT owed by public authorities.

The Commission has in the last year clarified eligibility of  VAT with  Member States, where
this  was  required.  The  existing  rule  proved  to  be  sufficiently  clear.  In  the  light  of  repeated
requests  from  Member  States  to  reduce  the  number  of  interpretative  or  other  notes,  the
Commission feels that a further information note is now superfluous and  risks complicating
matters.  However,  if  Member  States  request  further  information,  the  Commission  will  be
willing to present an information note.

As in its recommendation on the  discharge for the 1999 financial  year,  the Council stresses
the importance it attaches to the supervision and control of the closure of programmes and the
need to make the necessary releases without delay in the context of commitments outstanding.

The Commission shares the Council's view that closure of programmes should be carried out
rigorously and efficiently so that, on the one hand reasonable assurance can be obtained that
non-eligible expenditure is not subject to Community co- financing, and on the other that the
final balance is paid within the due time limits where the request received from the Member
State is complete and correct.

Regarding  the  Court's  observations  on  the  financial  control  of  structural  funds  expenditure
and on the implementation of Regulations No 2064/97 and No 1681/94, the Council refers to
its conclusions on the Court's special report No 10/2001, as set out in the Addendum to this
recommendation, in particular its request for additional  guidelines on the implementation of
those Regulations.

The Commission draws attention to the very detailed guidance which has been given on the
application of Regulation N° 2064/97 since it adoption and the regular meetings which have
taken  place  with  Member  States  in  which  it  has  been  discussed.  In  2001  and  2002  the
Commission  carried  out  a  wide-ranging  audit  of  the  Member  States’  compliance  with  the
Regulation. An interim report on the conclusions of  the audit was presented to the Member
States  in  October  2001.  In  preparation  for  closure,  the  Commission  has  recently  provided
further  specific  guidance  on  the  application  of  Article  8  of  the  Regulation  by  way  of
information  notes  which  have  been  distributed  in  the  Committee  for  the  Development  and
Conversion of the Regions and at a joint meeting for all Funds in February 2002.

20

In the autumn of 2002 the Commission services and OLAF are carrying out an audit of  the
reporting  and  follow-up  of  irregularities  by  Member  States  under  Regulations  1681/94  and
1831/94.

The Council takes note of the Court's observation that the Commission units responsible for
control of the European Regional Development Fund (ERDF) and of the Cohesion Fund made
fewer  checks  in  2000  than  in  previous  years,  inter  alia  for  reasons  connected  with  the
Commission's internal reform process,  and  that  those units  planned to prioritise the  audit of
management  and  inspection  systems.  It  welcomes  the  Court's  observation  that  the  services
responsible  for  control  of  the  ERDF  and  of  the  Cohesion  Fund  have  initiated  a  number  of
measures  to  improve  the  preparation,  scope,  quality  and  monitoring  of  their  checks.  It  also
notes the Commission's commitment to increase the emphasis on auditing closure of measures
in its work programme for 2002.

Whilst the transitional process in 2000 resulting from the reform did in some cases have an
impact on the number of on-the-spot checks carried out, it can be seen  now  that this was a
temporary  phenomenon.For  example,  for  the  ERDF  the  number  of  on-the-spot  checks
increased to 70 in 2001 from 52 in 2000 and 61 in 1999. For the Cohesion Fund the figures
are  6  in  2001,  3  in  2000  and  7  in  1999.  In  addition,  in  2001  80  audits  on  the  spot  were
carried  out  by  external  auditors  contracted  by  the  Commission  to  verify  directly  managed
projects financed under Articles 7 and 10 of Regulation 4254/88. Further reinforcement of the
audit  units  has  taken  place  in  2002,  which  will  be  reflected  in  a  continuing  increase  in  the
level of audit activity, in particular for the Cohesion Fund.

The  Commission  confirms  that  it  has  carried  out  audits  on  a  sample  of  closed  Objective  2
programmes  (1994-96)  during  the  first  half  of  2002.  In  2003,  it  will  carry  out  a  more
extensive audit enquiry  on  a  selection  of  programmes  for  the  1994-99  period  for  which  the
request for final payment is received up to the end of March 2003.

3.3.

Follow-up to previous observations

The  Council  welcomes  the  various  measures  taken  by  the  Commission  in  response  to  the
Court's observations on Community financial instruments specifically intended for small and
medium-sized  enterprises  (SMEs),  and  considers  that  the  new  2000-2006  regulatory
framework  will  make  it  possible  to  provide  the  Commission  with  additional  instruments  to
remedy the weaknesses noted.

The  Commission  takes  note  of  the  Council’s  statement  regarding  Community  financial
instruments.  Improving  the  financial  environment  for  business  is  a  key  objective  of  the
“Multiannual  programme  for  enterprise  and  entrepreneurship,  in  particular  for  small  and
medium  sized  enterprises  (2001-2005)”1.  Approximately  70%  of  the  overall  budget  is
reserved for financial instruments with the aim to help bridge some of the gaps or failures in
capital  markets.  These  initiatives,  which  are  managed  by  the  European  Investment  Fund
(EIF),  target  especially  start-up  companies  and  SMEs  through  Start-up  and  Guarantee
facilities as well as Seed Capital instruments.

It  urges  the  Commission  to  take  into  account,  in  the  framework  of  the  new  Leader  Plus
Community initiative programme, the Court's observations on certain shortcomings observed
in the implementation of the Leader Community initiative.

1

Council Decision of 20 December 2000 (2000/819/EC)

21

                                                
The Commission is looking at these points and will be aware of them for the new programme.

The Council restates the importance it attaches to Community policy on equal opportunities
for men and women, and emphasises the importance of adequately following up the content
of its Recommendation linked to the discharge for the financial year 1997.

The  Commission  has  constantly  endeavoured 
the  Council
recommendations as  regards  the  Community  policy  on  Equal  Opportunities,  and  notably  in
the design of the framework strategy on Gender Equality for years 2001-2005 .

into  account 

take 

to 

22

4.

CHAPTER 4 - INTERNAL POLICIES

4.1.

Budgetary management

The  Council  notes  the  improvements  made  by  the  Commission  regarding  the  revenue  and
expenditure account in the part of it that concerns internal policies, and urges the Commission
to continue its work on harmonising presentation and making it more exhaustive, in particular
as regards the part concerning the results of budget implementation.

The Commission will continue to develop its reporting.

(see reply to item 7 of the Introduction)

4.2.

Specific appraisal in the context of the Statement of Assurance

The  Council  welcomes  the  Court's  new  audit  approach  concerning  the  fifth  framework
programme,  consisting  of  an  analysis  of  the  systems,  since  this  contributes  helpfully  to
identifying potential weaknesses connected with the operation of the programme, whether at
the level of implementation, of monitoring or of controls.

The Council warmly urges the Commission to remedy the problems identified in the analyses,
for  example  regarding  the  gaps  in  internal  control  procedures,  in  the  correct  and  uniform
application of operational procedures and of working methods, or in the quality of computer
resources to manage proposals and contracts. It notes, for instance, that cases of overstating of
real costs by beneficiaries are at present hard to identify, in particular because of the limited
number of checks carried out, the restricted scope of a posteriori financial audits and the lack
of contractual sanctions.

The Council hopes that the Commission will implement the Court's recommendations in this
field to a clear timetable.

The Commission welcomes the Court’s new audit approach consisting of a systems analysis
of the management of the 5th Framework Programme for Research. This has set a standard,
which  should  be  generally  applied  as  a  basis  for  future  Declarations  of  Assurance.  The
systems  audit  of  research  is  still  ongoing,  and  updated  results  and  recommendations  have
been announced for a Special Report on this subject, which is not yet available.

Many  of  the  management  problems  identified  in  the  systems  analysis  are  not  limited  to  the
research area. They continue to be addressed in the context of the Commission reform and its
Internal Control Standards. The completion of the financial circuits, manuals and check lists,
regular reporting on key indicators for management and by management, continuous training
and recruitment of financially qualified staff are key areas in this respect.

More  specifically  for  the  implementation  of  the  Research  Framework  Programme,  a  priori
controls  of  financial  viability  of  contractors  have  been  established  at  a  high  professional
standard.  For  the  5th  Framework  Programme  work  has  started  on  improving  the
computerised management systems. For instance, a system has been set up in DG TREN for
processing  expenditure  statements  at  both  beneficiary  and  Member State  level.  The
a posteriori financial  audits are steadily  increasing  (for DG  Research  from  220  in  the  year
2000,  to  232  in  2001  and  expected  280  in  2002)  to  achieve  the  target  of  about  10%  of  the
auditable  contractors  during  the  duration  of  the  5th  Framework  Programme.  A  pilot  action
for audit certificates has been recently set up. Although in the Fifth Framework Programme

23

there are no specific contractual sanction clauses, the Commission is entitled to withhold or
recover  payments  in  case  of  contractual  non-compliance.  At  the  same  time  recovery  efforts
have been intensified and often make use of the effective possibility to compensate at the time
of  subsequent  payments.  However,  the  increased  pressure  on  contractors  has  to  be
accompanied with additional explanations and clarifications to assist them in complying with
the various requirements of different sources of funding in the research process.

For  the  6th  Framework  Programme  the  matters  raised  were  the  subject  of  Commission
proposals which were endorsed by the legislative authority as regards their main points.

The Commission should continue setting up and developing compulsory key controls for all
the Research DGs, supplement existing documentation in support of the controls and follow
them  up  adequately.  The  Council  furthermore  urges  the  Commission  to  study  closely  the
Court's  recommendations  on  the  inclusion  of  sanctions  clauses  in  model  contracts  for  RTD
actions.

As  set  out  in  item  1.2.2  of  its  Action  Plan  for  2001-2003  on  protecting  the  Communities’
financial interests and the fight against fraud, the Commission intends to propose an initiative
in  the  area  of  direct  expenditure  to  integrate  administrative  measures  and  penalties.  This
work is ongoing. With regard to Actions 73 (Advice on contracting), 74 (Contracts database)
and  94  (fraud  proofing  of  legislation  and  contract  management)  of  the  White  Paper  on
reform, a process of revision of contracts is under way in order to include clear clauses for
the  protection  of  financial  interests  (standard  clauses  concerning  checks  and  sanctions,
making them more effective).

The  rules  of  participation  of  the  6th  Framework  Programme  explicitly  refer  to  Council
Regulation No 2988/95. Model contracts will – wherever appropriate - provide for sanctions
as recommended by the Court.

The Council would encourage the Commission to carry on with its efforts on harmonising and
simplifying  operational  procedures  and  its  working  methods,  and  on  improving  computer
systems  to  provide  them  with  the  functions  needed  for  drawing  up  contracts  and  for
payments.  In addition,  the  Council notes the  Commission's  intention  to  set  up  an  integrated
computer  system  with  a  shared  database  for  the  next  research  framework  programme,  and
urges it to liaise with Member States in doing this.

Great efforts  to improve the  computer system used to manage contract  production,  projects
and  payments  under  the  5th  Framework  Programme  continue  to  be  made.  Harmonised
concepts for proposal evaluation, negotiations and contracts have been jointly defined by the
research  DGs,  with  specific  rules  to  accommodate  the  requirements  of  the  individual
programmes.  In  addition,  the  five  Research  Directorate  Generals  have  charged  an  inter-
service project office with the development of a common integrated computer system for the
next framework programme by the end of 2002. In line with the aims of the “e-Commission”,
this  system  is  designed  to  maximise  the  use  of  electronic  transactions,  both  internally  and
between participants and the Commission, at every step of the process from the submission of
proposals to the closure of projects as well as to facilitate the easy production of management
information  and  statistics.  Based  upon  modular  principles,  the  system  will  be  adaptable  to
reflect  the  evolving  needs  of  FRAMEWORK  PROGRAMME6  and  subsequent  framework
programmes.  Where  appropriate  and  feasible  within  the  limited  time  available,  the
Commission will liaise informally with Member States on the system, in particular in relation
to the new electronic proposals submission system.

24

4.3.

Other observations of the Court

The  Council  takes  note  of  the  various  measures  taken  by  the  Community's  Joint  Research
Centre (JRC) following the remarks of the Court in its special report No 10/2000 and urges
the JRC to continue its reforms and improvements,  e.g.  on  the  overall  management  system.
Particular attention  should be paid to  control  over the contracting  cycle on  the various  sites
and  to  due  compliance  with  the  procedures  for  awarding  contracts.  Regarding  the  use  of
service contracts, the Council urges the JRC duly to take the Court's remarks into account.

The  Commission  confirms  that  reforms  and  improvements  have  taken  place  on  the  overall
management system. In particular a system of double control, splitting up the operational and
administrative  aspects,  has  been  put  in  place  throughout  the  JRC's  Institutes  and
Directorates.

The  Contracting  cycle  and  in  particular  compliance  with  the  procedures  for  awarding
contracts is monitored by a group which analyses files, documenting the procedure followed,
before submission of the sames to the CCAM.

In view of the dismantling of the CCAM, the group will adopt a sampling system in order to
analyse  files  concerning  markets  to  be  awarded,  before  the  Authorising  Officer's  decision.
Moreover a continuous system of "a priori" legal support is centrally available, in order to
advise  AO  prior  to  the  undertaking  of  any  action  related  to  contracts  award  or  for  legal
matters in general.

The Court's remark on the use of service contracts have been fully taken into account by the
JRC.

Regarding  the  audits  carried  out  by  the  Commission  in  the  field  of  internal  policies,  the
Council  welcomes  the  fact  that,  overall,  the  Commission  has  considerably  increased  the
number  of  its  audits  in  comparison  with  1999,  and  the  number  of  contracts  audited,  but  it
hopes  that  it  will  pay  closer  attention  to,  inter  alia,  questions  connected  with  the
implementation  and  monitoring  of  recovery  and  the  transmission  of  updated  data.  In  this
context, the Council much regrets that the Employment DG was not able to provide data on
these questions, but notes the Commission's commitment to take a full inventory.

The Commission continues to take measures in order to reinforce the financial audits:

Thus, for instance, in the research area, financial audits have been increased in 2001, while a
pilot action for audit certificates  has been set up:  contractors  are  required  to  submit  along
with  their  cost  claim  an  audit  certificate  issued  by  an  external  independent  auditor.  The
Commission  has  concluded,  whenever  necessary,  general  contracts  with  specialist  auditing
firms  in  order  to  increase  significantly  the  number  of  audits  of  recipients  of  its  financial
assistance and any intermediaries involved. Hence, in the Education and Culture area, in the
first  half  of  2002  alone,  contracts  were  concluded  with  these  firms  for  almost  100  audits,
marking a significant increase in auditing in the field of education and culture.

The increase in audit efforts and the increase in recoverable amounts in the year 2001 have
led  to  a  refinement  of  the  recovery  procedures  to  reinforce  the  monitoring  and  the  timely
implementation  of  the  recoveries.  The  Commission  has  adopted  on  3  December  2002  a
communication on measures taken specifically to reinforce the recovery of amounts, both for
direct and indirect management.

25

DG  EMPL  carried  out  the  in-depth  analysis  announced  both  to  the  Court  and  the  Council
concerning  audits  and  recovery  orders.  As  regards  the  audits  and  controls,  DG  EMPL
provided the Court with up-dated figures for years 1999, 2000  and  2001 . This information
was  sent  to  the  Court  in  February  2002  in  the  framework  of  the  preparation  of  the  2001
Annual Report.

26

5.

CHAPTER 5 - EXTERNAL ACTION

5.1.

Budgetary implementation

The  Council  regrets  the  persistence  of  a  very  marked  concentration  towards  the  end  of  the
financial  year  of  implementation  of  commitment  appropriations.  As  regards  payment
appropriations,  it  welcomes  the  fact  that  their  spread  over  the  financial  year  is  much  more
regular than the spread of commitment appropriations, in all fields, though there is still some
measure of concentration in December.

In  commitment  appropriations,  the  measures  introduced  by  the  Commission  are  having
positive effects. This year the target was to commit at least 50% of available appropriations
in the first nine months of the year. At end-September, the rate was 51.5% at the accountings
level (and 60% at the ordonnateur level) to be compared with a rate of 35% at end-September
2001.

Regarding commitments outstanding, the amount of which  at the end of 2000 is increasing,
the Council notes the efforts of the Commission, which undertook a thorough review of "old"
and  "sleeping"  commitments,  and  at  the  end  of  1999  drew  up  an  action  plan  to  reduce  the
overhang of RAL; it hopes that these appropriations will therefore be decommitted as part of
the Commission's actions and in accordance with the current regulations.

There  has  been  a  perceptible  stabilisation  of  the  RAL  between  2001  and  2000:  given  the
constant  disparity  between  commitment  appropriations  and  payment  appropriations  for  all
previous financial years, the stabilisation of the RAL achieved in the field of external aid is a
clear reflection of the active policy to improve disbursement rates and portfolio management,
leading  to  a  high  level  of  decommitments  associated  with  the  closure  of  projects
(approximately € 580 million).

Available data suggests that the increase in volume of RAL dating back five years and over is
the result of steady and substantial growth in commitment appropriations between 1994 and
1998, despite a steady increase in payments between 1998 and 2001 (€2 258.67 million paid
out in 1998, €2 522.10 million in 1999, €2 992.50 million in 2000, and €3 266.,60 million in
2001).

However, the Commission is conscious of the need to monitor the proportion of old RAL in its
external  aid  management  portfolio.  Since  2000,  the  administering  departments  have  been
pursuing an active policy of systematic examination and closure wherever possible of old or
sleeping external aid commitments. This systematic examination and the closures made have
also  led  to  a  large  number  of  decommitments  in  2001  as  mentioned  above  (approximately
€580 million).

As regards the accounting and administrative information needed to analyse the development
of RAL in greater depth, particularly in terms of the state of execution on the ground and the
nature of the payments made, the CRIS Data Entry system (Saisie) and the accounting system
adapted to the new demands of the Financial Regulation as regards types of payments should
make this kind of analysis possible from 2003.

The  Council  regrets,  as  the  Court  does,  that  the  documents  drafted  by  the  Commission  to
transmit  financial  information  during  this  financial  year  have  not  made  possible  an  overall
view  of  the  field  of  external  actions,  while  the  Commission  does  produce  this  kind  of

27

information for its internal requirements. It also shares the Court's view that the Commission
ought to explain the reasons that led it to an implementation that differed from the estimates
and  that  it  should  have  systematically  provided  comments  on  the  implementation  of  the
different headings that would have shown the actual use of the appropriations.

These  comments  are  noted.  The  Commission  is  developing  its  reporting  to  better  meet  the
needs of users.

The Council urges the Commission to continue introducing performance indicators in all new
programmes coming under the heading of external actions.

The  Commission  considers  of  major  importance  indicators  of  results,  and  therefore,  in  the
framework  of  its  programming  process,  has  launched  joint  work  with  Member  States  and
other donors in order to move towards a common approach on the use of result indicators to
monitor  country  performance.  Guidelines  have  been  prepared  on  this  question  for  use  by
Commission services in programming external aid and they were reviewed in October 2002
at a further meeting  with  Member  States  experts.  The  Commission  intends  to  disseminate  a
final version early in 2003. The monitoring and review of all Country Strategy Papers will in
due  course  be  based  on  result  indicators,  closely  linked  with  the  Millennium  Development
Goals and drawn wherever possible from national Poverty Reduction Strategy Papers.

5.2.

Specific assessment in the context of the Statement of Assurance

The  Council  notes  that  the  audit  work  carried  out  by  the  Court  concerning  the  financial
year 2000  only  covers  the  TACIS  programme,  this  being  part  of  a  series  of  in-depth  audits
covering  different  parts  of  the  external  actions  in  the  budget  field  each  year.  While
recognising  the  value  of  more  targeted  and  thorough  studies,  the  Council  regrets  that  the
programme chosen for this financial year represents only a small part of total expenditure on
external actions and recalls the hope it expressed in 1999 that their number would be extended
to well-specified areas. It nevertheless welcomes the  fact  that  for  the  restricted  scope  of  the
audit the Court  was able  to conclude that overall  the  contracts  awarded  by  the  Commission
and the payments under the Tacis programme were legal and regular.

In addition, the Council welcomes the introduction of the new practical  guide to procedures
for  EC  external  aid,  and  supports  the  Court's  recommendations  to  the  Commission  with  a
view  to  giving  greater  attention  to  the  quality,  experience  and  training  of  project  managers
and to strengthening its internal control system.

As recommended by the Court of Auditors and Parliament, the Commission concentrated its
efforts on improving the quality and professional experience of project managers.

Since 2001 EuropeAid has organised a number of management training courses spread over
three weeks.

The  training  offers  two  options :  the  EDF  and  the  budget.  This  training  is  regarded  as
essential  for  all  staff  called  upon  to  manage  external  aid,  whether  at  headquarters  or  in  a
Delegation.

The course is organised on a modular basis and is made up of the following modules :

- Reform, the Office and deconcentration ; - Life expenditure Cycle ;

28

- Ethical standards ; - PCM courses; - EDF Financial Procedures (EDF option) ; - Financial
execution  (budget  option) ;  -  Contractual  Procedures  (budget  option) ;  -  Management
information systems (MIS, CRIS, OLAS and SINCOM).

These courses are constantly being assessed and this has enabled us to adjust the content and
duration  of  the  CRIS  and  SINCOM  courses,  as  well  as  the  OLAS  courses  (financial  and
operational management and statistics). In addition, in the light of the new guidelines decided
on  by  EuropeAid,  changes  have  been  made  to  a  number  of  courses  (PCM  and  ECOFIN
courses)  and  in  other  cases  existing  modules  will  be  extended  (Practical  Training  on
contractual procedures. Service Module – Grants Module – Supplies and Works Module).

Between July 2001 and the end of 2002, EuropeAid will have organised 15 training courses.

Some  of  the  courses  have  already  taken  place  in  the  Delegations,  organised  by  the
geographical  Directorates  responsible.  The  Compact  Module  is  in  the  process  of  being
finalised  and  will  be  able  to  be  organised  in  the  Delegations  at  their  request  and  with  the
agreement of the competent geographical Director. This module includes courses on financial
and  contract  management,  management  information  systems,  AIDCO  guides  and  manuals
and project identification and preparation.

Some  courses  can  also  be  organised  at  the  Delegation  on  request,  such  as :  -  Reform,  the
Office and deconcentration ; - Life expenditure Cycle ; - Ethical standards; - PCM courses; -
EDF Financial Procedures (EDF option) ; - Ecofin courses.

The next steps include linguistic diversification, coordination of course content, the creation
of  multidisciplinary  and  multilingual  teams,  and  making  course  material  available  to  the
Delegations via the Training website.

5.3.

Follow-up to previous observations

The Council welcomes the Commission's follow-up to the Court's special report No 25/98 on
nuclear safety, which has meant that it can now have a strategy for the future and follow up its
projects  better.  It  also  notes  that  has  slightly  reduced  the  time  needed  for  payments  and
applies the rules more strictly.

A  constant  decrease  of  both  number  and  amount  involved  of  pending  invoices  has  been
achieved in the nuclear safety unit. (e.g. from May 1999 to May 2002 the number decreased
by 70% and the amount by 80%). The delays (150 days from tender submission to signature
of the contract) involved in the procedure for contract launch in equipment procurement are
strictly obeyed, which has a positive effect on the project contracting pace.

However,  it  takes  note  of  the  Court's  remarks  on  the  shortcomings  that  still  remain,  in
particular the lack of indicators, failure to comply with the regulations on calls for tenders and
the significant delays in paying local service providers.

All  projects  since  1999  are  accompanied  by  a  LogFrame  specifying  verifiable  criteria;
indicators  thus  exist  for  individual  projects.  With  regard  to  the  evaluation  of  the  overall
impact of the program, the IAEA (the official body of the UN Convention on Nuclear Safety)
report of 2000 mentions that the level of nuclear safety has improved in general in the  CIS
and  notoriously  in  some  Tacis-supported  power  plants.  The  report  indicates  that  the
Commission through the Tacis program has made a substantial contribution to this positive
development. Nevertheless the Commission is now drafting Terms of Reference on the safety

29

relevance for a contract to develop verifiable indicators for the assessment of the impact of
the nuclear safety program.

Regarding the Council's remark on compliance with the regulations on Calls for Tender, the
Commission  has  realised  the  risks  of  conflicts  of  interest  in  case  Western,  on-site  technical
assistance  firms  (assisting  the  beneficiary  in  drawing  up  the  technical  specifications  in
equipment projects) are involved in  tender evaluations  etc. Therefore  the  JRC have become
fully involved in all evaluations for supply and works contracts. The mentioned Western firms
do not play a role anymore in the tender process.

Concerning  the  Council's  statement  on  delays  in  the  payment  of  local  sub-contractors,  the
Commission  states  that  it  has  no  influence  on  the  contents  of  sub-contracts  made  to  local
service  providers.  But  in  view  of  the  strong  decrease  of  the  number  of  delayed  payments
(mentioned above), local service providers should receive timely payment for their invoices.

It notes with satisfaction the information provided by the Commission on the negotiations in
progress with international donors (IMF, World Bank, OECD) to find a common definition of
output indicators so that data comparability can be achieved.

5.4.

Other observations

5.4.1.

TACIS cross-border cooperation programme

The Council regrets the limited impact of this programme resulting from the delays in the first
stages of implementation and from the need for a stronger framework for dialogue.

The Commission  acknowledges that  the  impact  of the programme  was  limited  at  the  time  it
was examined by  the Court of Auditors  (four  years  after  the programme  began).  The  Court
itself  noted  that  at  best  only  a  modest  impact  could  be  expected  due  to  the  limited  funds
available.  The  programme  experienced  some  start-up  problems  which  have  now  been
resolved.

The  programme  has  achieved  some  measurable  results.  One  border  post  was  completed  at
Leushen  in  Moldova  in  2001;  four  border  crossings  were  completed  in  2002,  Salla  and
Svetogorsk  on  the  Finnish/Russian,  the  border  post  in  Chop  on  the  Hungarian/Ukrainian
border, and the post at Kameny Log on the Belarus/Lithuanian border; and one bridge, the
Jagodin  over  the  Bug  River  between  Ukraine  and  Poland  with  its  access  road  was  also
completed  in  2002.  These  have  contributed  to  more  efficient  and  effective  controls  and
reduced  waiting  times.  Construction  of  a  new  border  post  at  Bagrationovsk  between
Kaliningrad  and  Poland  started  in  June  2002  and  will  be  completed  in  early  2003.  In
addition, work  on  the border demarcation  between Belarus and Lithuania started  in  March
2002.

5.4.2. Common Foreign and Security Policy (CFSP) management

The  Council  shares  the  concerns  of  the  Court  regarding  the  delay  between  the  Council's
decision and the first payment. It also considers that the rate of implementation of the CFSP
budget is linked to the fact that actions under this policy are not entirely programmed, since
some are subject to ad hoc utilisation in the light of the international situation.

The  Council  welcomes  the  fact  that  the  Commission  has  taken  measures  to  reduce  time
needed  for  payments,  namely:  use  of  standard  contracts,  the  fact  that  the  Commission

30

concerned can take decisions without going through the College of Commissioners, to launch
projects faster, and the fact that the Commission's reorganisation envisages one person being
in  charge  of  each  case  until  it  is  concluded.  It  urges  it  to  continue  its  efforts  to  take  the
necessary measures and find solutions to the problems that still remain.

The  Commission  agrees  that  speed  is  often  an  important  factor  in  CFSP.  However,  it  is
equally important to invest on the proper shaping of the overall implementation framework in
order to avoid problems during the implementation phase and to ensure quality output. The
first  payment  will  only  be  made  after  the  implementation  framework  and  the  respective
responsibilities and obligations have been codified in a contract between the Commission and
the implementing body. Moreover, the rapid launching of an action is largely dependent on its
proper preparation prior to the Council Decision.

The  Commission  shares  the  Council’s  view  that  the  rate  of  implementation  of  the  CFSP
budget is linked to the fact that actions under this policy are not entirely programmed, since
some are subject to ad hoc utilisation in the light of the international situation.

The Commission is pleased to inform of yet another recently adopted measure with a view to
speedier  launching  of  CFSP  actions,  namely  the  introduction  of  sub-delegation  from  the
Commissioner to the Director-General of DG External Relations to take financing decisions.

31

6.

CHAPTER 6 - PRE-ACCESSION AID

6.1.

Budgetary implementation

The  Council  regrets  the  pronounced  concentration  of  its  commitments  at  the  end  of  the
financial year, due inter alia to the late commitment of the ISPA and SAPARD programmes
and to the increase in commitments outstanding arising from the very low uptake of payments
for  those  programmes.  It  takes  note  of  the  problems  encountered  by  the  Commission  in
implementing these new  instruments and  shares  the  Commission's  concern  to  avoid  making
payments in poor conditions.

the  continuing  weakness  of  public  administration 

Late commitments for Sapard were, inter alia, the consequence of the fact that 2000 was the
first  year  of  implementation  of  this  very  complex  instrument.  The  concentration  of  ISPA
commitments  at  the  end  of  the  financial  year  are  a  direct  consequence  of  the  delays  in
developing  the  legal  and  administrative  framework  of  this  instrument.  The  Commission  is
cognisant  of 
the  candidate
countries.These  problems  and  difficulties  were  recognised  in  the  2001  Progress  Reports,
Accession  Partnerships  and  Strategy  Paper.  Therefore,  the  Commission  has  identified  the
challenges ahead for the candidate countries and has undertaken and continues to undertake
extensive measures to ensure that, upon accession, the candidate countries will have in place
effective control systems for the management of EU funds. These measures currently include a
threefold approach:

in 

- Firstly,  in  the context  of  Chapter 28 of  the  negotiations,  the  Commission  closely  monitors
the candidate countries’ commitments to build up a fully functioning public internal financial
control  system  (PIFC)  and  to  further  develop  the  external  audit  systems  for  which  the
Supreme Audit Institutions are responsible. The PHARE programme has been and continues
to  be  used  to  support  both  the  legislative  alignment  process  and  the  requisite  institution
building for implementation of PIFC and external audit systems at both national and, where
required,  regional  levels.  Through  the  twinning  instrument  EU  Member  States  have  been
actively engaged as partners in this effort and over 30 twinning projects are being carried out
in this and closely related areas. Furthermore extensive work has  been and  continues  to be
undertaken  by  SIGMA  including  peer  reviews  and  other  measures  to  carry  the  process
forward.

-  PHARE  funds  are  being  used  to  assist  OLAF’s  ambitious  efforts  to  build  candidate
countries' own institutional capacity in the fight against fraud, particularly in relation to the
management of EU funds.

-  Thirdly,  through  the  process  of  the  gradual  introduction  of  an  extended  decentralised
implementation  system  (EDIS)  for  pre-accession  funds,  the  Commission  will  help  the
candidate countries to build up “systems-based” rather than “transactions-based” financial
management and control systems. This process has started and an initial analysis in the areas
of systems, staff, internal controls, financial responsibility, audits  and procurement is being
carried out.

The action plan for building institutional capacity as indicated in the 2001 Strategy Paper is
also being engaged in this effort. However, ultimate responsibility for this issue resides with
the candidate countries themselves. The Commission, in partnership with the Member States,
can provide the methodology and the means but only the candidate countries can guarantee
the results..

32

It  emphasises  the  importance,  for  public  acceptance  of  the  enlargement  process  in  Member
States, of efficient financial control and fraud prevention in the candidate countries, similar to
those currently in existence in the Member States.

The Council shares the  Court's  view  that  the  Commission  should  speed  up  the  analysis  and
the  new  expenditure
setting-up  of 
programmes,  and  provide  candidate  countries  with  the  maximum  guidance  and  technical
advice in time to help them make the necessary commitments.

implementing  arrangements  accompanying 

the 

6.2.

ISPA

The  Council  welcomes  the  fact  that,  despite  the  delays  in  developing  the  legal  and
administrative framework of this instrument, the Commission has succeeded in approving and
committing a large number of projects for the year 2000.

The Commission would like to emphasise that the preparation of candidate countries for the
new  pre-accession  instrument  started  already  before  the  adoption  of  Regulation  EC  No
1267/1999  (the  ISPA-Regulation)  in  June  1999  and  efforts  were  intensified  thereafter  and
before the entry into force of the basic legal  framework. Both the Commission  services and
Candidate countries need some time to set up the necessary administrative structures, but - as
noted  by  the  Council  –  have  succeeded  in  deciding  a  sufficient  number  of  ISPA  projects
(measures) to commit the available appropriations.

However,  it  asks  the  Commission  to  continue  its  efforts  to  make  good  the  shortcomings
emphasised  by  the  Court  in  its  annual  report,  in  particular  as  regards  poor  assessment  of
requirements  in  terms  of  technical  support,  weaknesses  of  internal  coordination,  poorly
harmonised working methods regarding the assessment procedure and the follow-up given to
the  comments  of  the  various  DGs  and  the  challenge  of  setting  up  this  instrument  for  the
candidate countries.

The  Commission  pays  highest  attention  to  the  deficiencies  identified  by  the  Court.  It  has
encouraged  candidate  countries  to  use  technical  assistance  funds  that  are  available  under
ISPA for the preparation of project applications and activities that need to be carried out for
complying with the requirements of the extended decentralised implementation system – EDIS
(in  2001,  the  Commission  decided  about  30  technical  assistance  measures  for  project
preparation,  and  it  makes  available  technical  assistance  funds  for  EDIS  in  all  ten  ISPA
beneficiary countries).

Internal  coordination  in  this  field  is  governed  by  the  empowerment  procedure.  The
empowerment  decision  of  12  July  2000  (SEC(2000)  1197  PV  1487),  which  defines  the
services that must be consulted on ISPA measures before these can be presented to the ISPA
Management Committee and decided by the Commission. Moreover, internal coordination is
also assured through the regular meetings of the Co-ordination Committee at Directors level
of the Commission services concerned; and an audit working group.

In  addition, it reminds  the Commission that one of  its essential  priorities is to complete  the
process of decentralisation effectively while retaining strengthened controls, and as quickly as
possible, so that it can begin to consider the transition from the ISPA funds to the Cohesion
Fund.

ISPA  is  currently  implemented  on  the  basis  of  the  Decentralised  Implementation  System
(DIS):  ex-ante  approval  of  the  tendering  and  contracting  process  is  exercised  by  the

33

Commission, but the beneficiary country is responsible for the implementation of the project,
and  in particular for the  financial  management  and  control.  Article  12  of  the  Coordination
Regulation provides for  the  waiver  of  this  ex-ante  control  when  certain  conditions  are  met,
resulting  in  extended  decentralised  implementation  (EDIS).  The  Commission  is  providing
technical assistance  funds through ISPA to  undertake  necessary  steps  towards  EDIS,  as  set
out  in  the  "Roadmap  to  EDIS  for  ISPA  and  PHARE  ".  It  is  hoped  that  for  a  number  of
countries and sectors conditions are so that the Commission can waive the ex-ante approval
early in 2003. While the candidate countries are strongly encouraged to move toward EDIS,
it  should  be  recalled  that  they  are  in  any  event  responsible  for  the  setting  up  of  adequate
financial management and control systems by virtue of Article 9 of Regulation 1267/1999 (the
ISPA Regulation).  For all 10 ISPA beneficiary countries  DG  REGIO  has  undertaken  in  the
period  October  2001  until  January  2001  systems  audits  to  assess  to  what  extent  the
beneficiary countries have established such systems, to assess the adequacy of these systems
and to provide recommendations. In the second half of 2002, DG REGIO has followed up on
these actions.

6.3.

SAPARD

The Council welcomes the efforts of the Commission and the candidate countries to approve
all  the  rural  development  programmes  within  the  deadlines  set  and  to  complete  in  a
satisfactory way the procedure for drawing up and  signing  international  agreements, despite
the complexity of the legal framework involved in this kind of instrument.

The  legal  framework  set  up  for  SAPARD  is  largely  analogous  and  thus  not  more  complex
than  the  requirements  to  apply  Community  co-financed  policies  in  Member  States.  The
Commission  also  recognises  the  efforts  made  by  Candidate  Countries  to  accomplish  this
important  work  and  to  complete  the  various  components  in  a  time  frame  that  generally
compares well with that of Member States.

It  notes  the  Commission's  intention  to  prepare  the  candidate  countries  at  the  time  of  their
accession, when the SAPARD instrument expires, by strengthening their capacity to use the
structural  funds  and  the  EAGGF  Guarantee  funds,  as  regards  projects  such  as  calls  for
tenders,  and  by  continuing  with  technical  support  during  the  period  running  up  to  their
accession.

By  May  2002  seven  of  the  ten  beneficiary  countries  had  secured  Commission  conferral  of
management  Decisions.  Such  Decisions  are  taken  only  when  the  country  concerned  has
demonstrated  it  has  the  capacity  to  apply  the  SAPARD  instrument  on  a  fully  decentralised
basis. Such capacity, in view of the nature of SAPARD provisions which as pointed out above
are largely analogous to those required to apply Community co-financed policies in Member
States,  is  relevant  also  to  application  post  accession  of  structural  funds  as well  as  EAGGF
guarantee funds. As regards the remaining three countries they are making progress towards
securing such conferral decisions. Technical support continues to be provided in accordance
with needs under the PHARE instrument. It is also provided, within the constraints of Council
Regulation 1268/1999, via SAPARD.

34

7.

CHAPTER 7 - ADMINISTRATIVE EXPENDITURE

7.1.

Specific appraisal in the context of the Statement of Assurance

The Council welcomes the fact that the Court considers the operations and accounts covered
by heading 5 of the financial perspective satisfactory as a whole, as was already the case for
the financial year 1999.

The  Council  also  welcomes  the  significant  improvement  in  the  management  of  tangible
assets, other than property, thanks to the implementation of a new inventory system (ELS).

The  Council  also  notes  with  satisfaction  that  the  Court  considers  that  the  procurement
procedures  applied  in  the  institutions  are  in  general  legal  and  regular  and  that  the  control
system complies with the Financial Regulation. Like the Court, it urges all the institutions to
continue to improve these procedures, in particular through a system of preventive measures
and training actions for authorising officers and managers.

Since end 2000 the Commission has implemented an extensive training programme in budget
and  financial  administration/procedures  targeted  mainly  at  authorising  officers,  managers
and financial administrators. The programme covers both the procedural aspects as well as
the  operational  aspects.  In  2001,  162  courses  were  organised  in  this  area,  involving  over
4.600  participant  days,  making  it  one  of  the  most  important  training  areas  in  terms  of
participation. The efforts are being continued in 2002 and 2003 putting particular emphasis
on the new Financial Regulation.

7.2.

Follow-up to previous observations

(a)

Follow-up  to  Special  Report  No  8/98  concerning  the  Commission  departments
specifically involved in the fight against fraud

The  Council  welcomes  the  fact  that,  following  the  Commission  Decision  of
28 April 1999 establishing the European Anti-fraud Office (OLAF), the fight against
fraud has  a more  appropriate  administrative framework, granting  the  Office  greater
independence than its predecessor, UCLAF. It notes with satisfaction that the initial
problems  of  personnel  recruitment  have  been  almost  entirely  resolved.  It  urges
OLAF  to  define  its  priorities  and  strategies  well  and  to  continue  to  improve,
modernise and effectively use its information system.

The structure and the establishment plan of the European Anti-Fraud Office have now been
adjusted to reflect its new tasks and priorities.

The Office is conscious of the need to have clear priorities and strategies in all its areas of
responsibility. Now that all the  management posts have been filled,  further  progress can be
made  on  the  setting  of  priorities  and  strategies.  The  establishment  of  its  Intelligence,
Operational  Strategy  and  Information  Technology  Directorate  underlines  the  priority  the
Office gives to an enhanced use of intelligence  and information systems in the fight against
fraud.  The  Intelligence  Directorate  aims  to  provide  a  more  proactive  role  for  the  Office  in
defining  operational  and  strategic  priorities.  It  will  do  this  by  collecting,  analysing  and
disseminating  all  kinds  of  information  from  various  sources  intended  to  provide  assistance
both  to  the  Office’s  partners  in  the  Member  States  and  to  its  own  operational  and
investigation staff.

35

The Office will continue, together with its institutional partners in the Member States through
the  Advisory  Committee  on  the  Co-ordination  of  Fraud  Prevention  (COCOLAF),  in  the
European Parliament through its Budgetary control committee and the services concerned in
the Commission, to refine its priorities and strategies.

Furthermore, the Office has already made clear that its highest operational priority is in the
area of internal investigations where a policy of zero tolerance towards internal corruption is
pursued. All cases related to enlargement are also accorded a high priority.

The Office will continue to offer its assistance  to the Member  States  in the  co-ordination of
transnational cases following the Community platform of services approach.

The  Council,  like the Court,  believes  that  simplification  of  the  administrative  steps
and  procedures  is  necessary,  to  facilitate  and  speed  up  the  progress  of  enquiries
within the institutions.

On 19 February 2002 the Commission adopted a decision in order to improve efficiency and
speed of the conduct of administrative inquiries and disciplinary proceedings (C(2002)540).
By  this  decision  a  specialised  office,  IDOC  (Investigation  and  Disciplinary  Office  of  the
Commission)  was  created.  IDOC  consists  of  a  multidisciplinary  team  of  experienced
investigators and qualified lawyers. Its main tasks are to conduct coherent and professional
inquiries and to prepare disciplinary proceedings.

With a view to ensure  efficiency  and  speedy  action  IDOC  has  been  directly  attached  to  the
Director General of DG Personnel and Administration.

The  new  procedural  rules  on  the  opening  and  conduct  of  administrative  inquiries  should
result  in  a  more  effective  preliminary  investigation  of  suspected  wrongdoing.  In  particular
Article  3  of  the  aforementioned  decision  obliges  IDOC  to  exercise  its  powers  as  rapidly  as
possible.  Article  5.4  of  the  decision  ensures  that  inquiries  shall  be  conducted  continuously
and over a period of time, which is proportionate to the circumstances and complexities of the
case.

All  these  measures  will  allow  the  Appointing  Authority  to  define  the  possible  infringement
more precisely, which should avoid delays in disciplinary proceedings at a later stage.

Action  has  also  been  taken  regarding  the  modification  of  the  Staff  Regulations.  The
Commission  has  proposed  simplified  proceedings,  in  particular  regarding  the  opening  of
disciplinary proceedings and through the possibility of a rapid procedure in case an official
recognises his or her misconduct. In addition the Disciplinary Board will have a more stable
composition  and  will  therefore  be  able  to  operate  more  professionally.  Finally,  the  official
concerned  will  be  entitled  to  give  evidence  in  writing  instead  of  being  heard,  which  should
also accelerate the procedure.

(b)

Follow-up  to  various  previous  observations  made  by  the  Court  concerning  the
institutions' management of expenditure on buildings

The  Council  points  out  that  the  Treaty  does  not  allow  European  institutions  to
borrow.

Nevertheless, in the light of its conclusions on the Court's special report No 5/2000,
the  Council  considers  it  necessary  that  the  institutions  should,  before  undertaking

36

large  building  projects,  inform  the  budgetary  authority,  especially  on  the  multi-
annual financial implications.

The  Commission  has  several  times  promised  to  inform  the  budgetary  authority  before
undertaking any large or sensitive building project.

This  was  the  case  with  the  Palmerston  crèche,  when,  by  letter  of  18  March  2002,  the
Commission informed the President of the Council Budget Committee that it intended to rent
the Palmerston building with a purchase option.

The Commission will continue to follow this procedure for any future large building project
with multiannual implications.

7.3.

The pay system applicable to EU employees

The Council notes the Court's observations on the need for a match between the pay system
and merit.

In  a  career  system  the  link  between  merit  and  pay  is  essentially  through  promotions.  The
promotion  systems  in  the  Commission  have  always  been,  and  still  are,  primarily  based  on
merit.  The  new  evaluation  and  promotion  system  that  will  be  in  operation  as  of  2003
strengthens this link even more. Finally, the proposed modifications to the Staff Regulations
include  a  new  career  system  where  the  weight  of  seniority  will  be  drastically  reduced  in
favour of a salary progression through successive promotions.

As regards calculating the basic minimum pension, the Council agrees with the Court on the
need for harmonisation on this point.

The Commission can confirm that an agreement has been found between the administrations
of  the  Institutions  with  a  view  to  harmonize  this  practice.  On  28  May  2002  the  CPQS
(Preparatory Committee for questions related to the Staff Regulations) agreed on a common
basis for taking into account years of service for the purposes of calculation of the minimum
pension. The basis agreed was that of real years worked, not including additional bonus years
attributed to the official by way of a transfer of pension rights..

37

8.

CHAPTER 8 - FINANCIAL INSTRUMENTS AND BANKING ACTIVITIES2

8.1.

Guarantee Fund for External Actions

The  Council  expects  the  Commission  and  the  European  Investment  Bank  (EIB)  to  reach
agreement  as  soon  as  possible  on  the  system  of  annual  fees  to  be  received  by  the  bank  for
managing the Guarantee Fund for External Actions.

A new fee structure has  been agreed between the  EIB and the Commission.  It  is  applicable
from  01  January  2001.  The  corresponding  Convention  was  signed  on  the  26  April  and  08
May 2002 by the respective Presidents.

8.2.

European Investment Fund

The Council notes the new distribution of rights in the EIF's capital structure and is curious
about  the  practical  consequences  in  the  management  of  risk  capital  activities  for  which  the
Fund is responsible.

The Community is represented in the EIF’s Board of Directors by two members, one being the
present  Chairman  of  the  Board.  This  ensures  a  balance  between  the  pursuit  of  Community
objectives and commercial principles and practices of the EIF.

As  regards  the  pilot  project  "Growth  and  environment",  the  Council  also  notes  the  Court's
observations and the Commission's replies and urges the latter to complete its assessment of
the project as soon as possible and to continue its monitoring and supervision work.

An internal evaluation of the Growth and Environment initiative has been carried out and the
report is scheduled to be submitted to the Commission in late summer 2002. The Commission
services continued in 2002 the monitoring and supervision work that they had started in early
2000. In July 2002, the Commission had carried out sample-based controls, monitoring visits
and  internal  audits  concerning  5  Financial  intermediaries  who  at  31  December  2001  had
extended  2,442  loans,  i.e.  51.7%  of  total  number  of  loans  granted  by  all  intermediaries
approved under Growth and Environment. These 5 intermediaries had provided loans  for a
total  amount  of  €  918  million,  representing  more  than  49%  of  the  total  loan  volume  under
Growth and Environment as at that date. As in the past, the Commission’s observations and
recommendations  have  been  transmitted  to  the  EIF  who  has  been  invited  to  take  the
appropriate measures, where necessary.

The Council welcomes the fact that the Commission, the Court and the EIF have reached an
agreement  allowing  the  Court  adequately  to  supervise  the  Community's  share  in  the  Fund's
capital.

2

In  accordance  with  the  provisions  of  the  Treaty,  discharge  only  covers  the  implementation  of  the
Community  budget.  Lending  and  borrowing  are  therefore  not  covered  by  the  discharge,  except  as
regards those aspects linked to implementation of the budget.

38

                                                
9.

CHAPTER  9  -  THE  STATEMENT  OF  ASSURANCE  AND  SUPPORTING
INFORMATION

The Council regrets that the Commission has still not been able to obtain an overall Statement
of  Assurance  on  the  legality  and  regularity  of  the  operations  underlying  the  financial
statements, except for the positive assessment regarding revenue, commitments and operating
expenditure; it regrets that other sectors have not been able to receive this positive assessment
as it had hoped during the last financial year and considers this situation unsatisfactory.

The  positive  assessment  by  the  Court  is  for  a  significant  number  of  operations  and
demonstrates the achievement of the Commission not only where it is fully responsible for its
activitivies  but  also  in  a  more  stable,  shared  environment  such  as  for  own  resources.
However, the Commission is committed to improving the situation in respect of payments and
is  confident  of  the  positive  effects  of  the  Reform  process  to  improving  its  financial
management in the fullness of time.

The  Council  acknowledges  that  the  implementation  of  reforms  that  the  Commission  has
already  begun  inevitably  requires  a  maturing  period  and  notes,  as  the  Court  does,  that
progress  has  been  made  in  some  sectors.  It  hopes  that  gradually  this  progress  will  have  a
positive effect on the Statement of Assurance. The Council must stress in this context the fact
that it regards the conclusion of the recasting of the Financial Regulation as a priority, and in
general it supports any measure that tends to simplify the regulatory framework.

The  recasting  of  the  Financial  Regulation,  which  has  been  decided  unanimously  by  the
Council  after  a  very  intense  process,has  been  achieved  in  very  short  time  and  with  the
necessary review and debate of interested parties. In recent years, the Commission has taken
both horizontal and sectoral initiatives in order to improve regulation. These respond to the
general  obligations  to  respect  the  proportionality  principle  (cf.  Protocol  to  the  Amsterdam
Treaty)  and  to  the  growing  recognition  of  the  need  for  better  and  simpler  regulation.  In
particular,  the  Commission's  internal  procedures  for  planning  and  programming  of  work
have  been  significantly  improved  (allowing  in  particular  for  the  results  of  policy  and
programme  evaluations  to  be  fed  better  into  policy  design).  Moreover,  the  Commission
proposed  in  June  2002  a  major  action  plan  on  better  regulation,  introducing  inter  alia  a
common framework for ex-ante assessment of its initiatives.

The  Council  welcomes  the  new  approach  that  the  Court  has  followed  in  its  report  on  the
Statement of Assurance, which gives more precise and better substantiated information on the
location and causes of problems by field of activity, and analyses on the supervisory systems,
thus providing the budgetary authority with  a  better basis for its assessments,  and  considers
this a step in the right direction.

The  Commission  is  also  appreciative  of  efforts  by  the  Court  to  provide  better  information,
which the Commission can then use to improve its financial management processes.

The Council notes nevertheless that the Court's report does not contain sufficient information
on,  at  least,  trends  in  the  incidence  of  errors  observed  in  the  sectors  concerned.  In  these
circumstances, the Council can only reiterate its request that the Court provide at least enough
information for an objective comparison of progress made in relation to the objectives set, and
to adopt a method that makes it possible to assess the results from one year against another.

39

The Council reiterates its request to the Commission to develop such objectives in the context
of improvements to the action plan.

The Commission will work with the Court to define useful measures, at its request.

information  on  advances  and  payments  on  account, 

The  Council,  while  noting  the  fact  that  the  revenue  and  expenditure  account  and  the
consolidated balance sheet faithfully reflect the revenue and expenditure for the financial year
at  31 December 2000,  remains  concerned  by  the  persistence  of  recurring  errors  and
inadequacies  which  led  the  Court  to  express  reservations  on  the  subject,  particularly  as
regards 
the  overstatement  of
commitments  still  outstanding,  "off-balance-sheet"  commitments  corresponding  to  legal
obligations that have not been the subject of the required budgetary commitments and the lack
of budgetary commitments. The Commission should as a matter of utmost urgency implement
the action plan that it has drawn up in order  to modernise its  accounting  framework,  which
envisages evolving from a cash accounting towards an accrual accounting system and to take
it into account in the amended proposal for the recasting of the Financial Regulation.

In recent years the Commission has undertaken to reform its accounting system and change
from a cash-based system to an accrual-based system. The European Court of Auditors  has
acknowledged improvements in the accuracy of accounting expenditure. This will improve the
presentation of the Communities'  financial  situation  in  future.  The  Commission  has  already
introduced  elements  of  accrual  accounting  when  drawing  up  the  annual  accounts  but  the
information  does  not  yet  come  from  an  integrated  system  of  accounts.  To  modernise  its
accounting  framework  still  further,  the  Commission  has  included  in  the  new  Financial
Regulation,  adopted  in  June  2002,  new  accounting  rules  which  refer  to  internationally
accepted accrual accounting principle. However, the introduction of this new approach will
take time and will take the form of successive stages covering several financial years.

The Council notes the Commission's commitment to strengthen and develop internal control
systems. It asks it to ensure that the existing rules are strictly applied as regards the checking
of  the  management  and  control  systems  of  Member  States  in  implementing  the  Structural
Funds. The Commission should also remedy the weaknesses detected in the operation of the
IACS and further extend the supervision mechanisms in that part of agricultural expenditure
not  covered  by  it.  It  further  urges  the  Commission  to  continue  its  efforts  effectively  to
implement supervision systems for other expenditure categories.

to  possible  systemic  deficiencies 

In 2001 and 2002 the Commission devoted a considerable proportion of its audit resources to
verifying  the  management  and  control  systems  put  in  place  in  Member  States  for  the
Structural  Funds  for  the  2000-06  period.  It  is  preparing  a  report  on  its  conclusions  for
presentation  to  Parliament  by  the  end  of  2002.  In  its  audits  the  Commission  pays  close
attention 
in  management  and  where  appropriate
recommends  remedial  action  or  applies  financial  corrections.  The  Commission  is  also
endeavouring  to  improve  the  effectiveness  of  its  audit  work,  through  computerisation  of
planning  and  follow  up  (SYSAUDIT),  timelier  delivery  of  audit  reports  and  better
coordination  with  the  work  of  national  audit  bodies,  including  making  better  use  of  the
reports  supplied  to  it  under  bilateral  agreements.  This  process  is  consistent  with  the
Commission's internal reforms including the annual management declarations. This process
should be fully completed by the end of 2003.

40

In the Agricultural sector, the Commission actively promotes good administrative and control
practice by issuing guidelines and clarifications at specially arranged expert groups and also
bilaterally on request.

As concerns the extension of supervisory mechanisms to that part of agricultural expenditure
not  directly  covered  by  IACS,  it  is  recalled  that  Council  Regulation  (EEC)  No  3508/92
requires the administration and control systems applied to certain Community aid schemes to
be set up so as to allow a common functioning and the exchange of data between them and
IACS.  The  deadline  for  this  “compatibility”  is  fixed  as  1  January  2003  at  the  latest.  The
Commission services have already taken steps to monitor this development.

As regards the setting up of the SINCOM 2 accounting system, the Council is perturbed by
the operational deficiencies indicated by the Court and asks the Commission to make it a high
priority to make the system more secure.

Significant  efforts  have  and  are  continuing  to  take  place  to  improve  SINCOM  2  from  a
number of aspects, including security (see reply to box 2 (5) of the introduction).

41

ANNEX - SPECIAL REPORTS 2000

The  Annex  hereto  contains  extracts,  requesting  Commission  actions,  of  the  Council’s
conclusions, with Commission responses thereto, on the Court of Auditor’s special reports.

(cid:1)  Conclusions  on  Special  Report  No  6/00  by  the  Court  of  Auditors  concerning  the
granting  by  the  Community  of  interest  subsidies  on  loans  by  the  European
Investment  Bank  to  small  and  medium-sized  enterprises  through  its  temporary
lending facility

No points for the Commission to comment on.

(cid:1)  Conclusions  on  Special  Report  No  16/00  by  the  Court  of  Auditors  on  tendering

procedures for service contracts under the Phare and Tacis programmes

The  Council  expresses  its  concern  about  practices  which,  in  some  cases,  led  to
reduced  competition,  inadequate  provision  of  information,  possible  confusion  of
interests,  inconsistent  evaluation  practices  and  shortcomings  in  the  management  of
files.

The Council is of the view that the Commission needs, in particular, to monitor the
situation regarding staffing and financial control. This is particularly important in the
light of the increased decentralisation of the management of the PHARE programme
and, to a lesser extent, that of TACIS. For this purpose the new Financial Regulation
– currently under revision – will serve as a basis.

The Council invites the Commission to continue to draw upon the Court's report to
improve  further  the  effectiveness  and  efficiency  of  the  tendering  procedures  for
service  contracts  under  the  PHARE  and  TACIS  programmes  and  to  inform  the
Council by the end of the year of the measures taken to this effect. But the Council
recognises  that  improvements,  especially  those  concerning  public  procurement,  are
closely linked to the provisions of a revised Financial Regulation.

Improvements  to  procedures  are  continuing  to  be  made,  in  particular  to  take  into  account
weaknesses noted. The Commission reports back regularly on its initiatives and can report on
these activities to Council at its request.

(cid:1)  Conclusions  on  Special  Report  No  18/00  by  the  Court  of  Auditors  concerning  the

programme to supply agricultural products to the Russian Federation

The Council recommends that:

–  in  future,  food  aid  programmes  should  take  due  account  of  the  experience
acquired with the food aid programme in Russia and should provide guarantees of
efficiency and smooth operation;

–  in the event that long-term support of the Russian agri-foodstuffs sector becomes
necessary, means of supporting Russian agriculture other than food aid should be
considered in order to avoid problems in the market mechanisms;

–  the  Union  should  strengthen  cooperation  with  the  humanitarian  organisations
working in Russia in order to enhance the coordination of humanitarian efforts.

42

The programme to supply agricultural products to the Russian Federation was decided by the
Council  in  December  17  1998.  The  programme  was  the  EU’s  response  to  a  plea  from  the
Russian  Government  to  assist  in  addressing  food  availability  brought  about  by  the  dual
impact  of  the  1998  economic  crisis  and  the  failure  of  grain  harvests,  and  is  unlikely  to  be
repeated in exactly the same way. The lessons learned will be applied in any future exercises,
in particular  the need to have dedicated  resources,  right  from  the  start  of  the  operation,  to
assess  the  type  of  products  to  be  supplied  and  to  determine  a  system  of  product  pricing  in
advance;

In the event that long-term support of  the  Russian agri-footstuffs sector becomes necessary,
means of supporting Russian agriculture other than food aid should be considered in order to
avoid problems in the market mechanisms.

(cid:1)  Conclusions on Special Report No 21/00 by the Court of Auditors on the management
of the Commission's external  aid  programmes  (in  particular  country  programming,
project preparation and the role of delegations)

The Council invites the Commission to:

–  define  further  the  allocation  of  responsibilities  between  headquarters  and

delegations;

–  ensure the appropriate competence is in place for each post at headquarters and in

the field;

–  propose  measures  for  how  to  ensure  closer  collaboration  between  ECHO  and
delegations  in  order  to  improve  the  linkage  between  relief,  rehabilitation  and
development;

–  work,  together  with  the  budgetary  authority,  towards  a  reduced  number  and

differentiation of budget lines;

–  remedy  weaknesses  analysed  by  the  Court  in  the  description  of  responsibilities,
counterpart  contributions,  objectives  and  timing  of  the  financial  proposals  and
agreements;

–  reinforce planning and systematic monitoring throughout the programming cycle,
instruments  and  performance

in  particular  clarifying  objectives, 

through 
indicators;

–  further  clarify  the  routines  for  lesson-learning  and  for  operationalising  and

implementing policies;

–  organise  its  work,  in  the  context  of  multi-annual  programming,  so  as  to  also

balance the workload of the committees throughout the year.

The Council calls on the Commission to concentrate in particular on operationalising
and implementing  the joint declaration  on  the  European  Community's  development
policy  and  to  translate  the  recommendations  made  by  the  Court  of  Auditors  into
concrete actions and to consider these recommendations in the Programme of Action
for implementation of the EC Development Policy.

43

The Council will follow up the progress made by the Commission in improving the
efficiency  and  effectiveness  of  EC  development  cooperation  and  invites  the
Commission, in its annual report on development cooperation, to inform the Council
and the European Parliament of measures taken.

On the key elements of the reform of the external service launched in May 2000, the following
results have already been obtained by July 2002:

- On the intention to obtain a better match between programming of assistance and political
priorities, through the development of Country and Regional Strategy Papers. So far over 110
Country Strategy Papers have been prepared;

- On the aim of a more coherent approach to delivery of projects, with the whole project cycle
managed by a single new entity: EuropeAid Co-operation Office. Since then, old and unspent
commitments have been halved;

-  On  the  objective  of  the  management  of  these  projects  at  a  more  local  level,  through
deconcentration of responsibilities to the European Commission's Delegation offices. By the
end  of  2002,  all  Delegations  in  Europe,  Central  Asia,  the  Mediterranean,  Asia  and  Latin
America as well as 13 Delegations in the ACP region will be working with this new model.

fully  subscribes 

The  Commission 
lines
rationalisation. It already proceeded to rationalisation within some budget chapters in 2002
and  2003  PDB  and  would  thus  expect  support  of  the  budget  authority  if  further  steps  are
taken in this direction.

the  Council  recommendation  on  budget 

(cid:1)  Conclusions on Special Report No 22/00 by the Court of Auditors on evaluation of the

reformed clearance of accounts procedure

The  Council  considers  that,  since  there  are  too  many  paying  agencies  in  certain
Member States,  steps have  been  taken  to  improve  their  operation  in  those  Member
States in order to respond satisfactorily to that situation.

The Council notes the Court's comments on the technical improvements that need to
be  made  in  the  activities  of  national  certifying  bodies,  while  regretting  the  lack  of
Community  databases  for  comparing  Member  States.  It  would  like  the  comparison
elements available to make it possible to improve the information of those bodies.

The Council considers that, in general, recourse to the conciliation body has worked
satisfactorily.  However,  there  are  still  improvements  to  be  made,  and  therefore  the
guidelines for the intervention of that body must be governed by independence  and
efforts to find a compromise in order to prevent an increase in Community litigation.

The Commission considers that Member States could take further steps to limit the number of
Paying  Agencies.  A  number  of  Paying  Agencies  continue  to  exist  without  real  justification,
and could easily be closed. Furthermore, a number of Paying Agencies fail by a wide margin

44

to  meet  the  accreditation  criteria  but  the  Member  States  often  do  not  take  adequate  action
persuant to Council Regulation 1258/1999 Article 4(7)3.

The  Commission  promised  to  consider  the  proposal  of  the  Court  to  establish  a  database  of
error  rates.  At  the  moment  it  cannot  see  that  the  benefits  justify  the  costs.  Almost  all
Certifying Bodies report a rate of error under the 1% materiality level. For the small number
of cases where a higher rate of error is identified financial corrections are proposed. This is
set out clearly in the summary reports. Comparisons of Total Error (or Upper Error Limits)
are only valid if the whole population can be examined using statistical sampling techniques.
However,  many  Certifying  Bodies  are  unable  to  use  statistical  sampling  for  the  whole
population for perfectly valid reasons. Any comparison would therefore not be valid.

The Commission shares the Council's favourable opinion of the conciliation procedure, and
feels that it has played a role in the general improvement in the procedure for the clearance
of accounts. The independence of the Conciliation Body is already a clear requirement  laid
down in Commission Decision No 94/442/EC which, as amended by Decision 2000/649/EC of
12  October  2000,  states  that  the  five  members  of  the  Conciliation  Body  must  be  "selected
from among eminent persons offering every guarantee of independence and highly qualified
in EAGGF Guarantee Section matters or in the practice of financial audit."

As  regards  attempts  to  reach  a  compromise,  the  Commission  would  point  out,  as  it  has
already  stated  in  its  reply  to  Special  Report  No  22/00  of  the  Court  of  Auditors,  that  it  is
legally obliged to exclude expenditure from Community financing where that expenditure has
not  been  effected  in  compliance  with  Community  rules  and  therefore  cannot  accept
compromises that would not be compatible with this obligation. The Commission nevertheless
follows  the  conclusions  of  the  Conciliation  Body  where  they  are  better  suited  than  its
departments'  initial  proposal  to  the  nature  and  seriousness  of  the  infringement  and  to  the
financial damage caused to the Community.

Finally, on the matter of disputes before the Court of Justice, it should be pointed out that the
Treaty  confers  this  right  on  the  Member  States  and  that  neither  the  Commission  nor  the
Conciliation  Body  can  place  restrictions  on  it.  In  this  connection,  the  Member  States  may
lodge an appeal against a clearance decision, even if they have obtained a reduction of  the
proposed financial correction through the conciliation procedure.

(cid:1)  Conclusions  on  Special  Report  No  23/00  by  the  Court  of  Auditors  concerning

valuation of imported goods for customs purposes (customs valuation)

No points for the Commission to comment on.

(cid:1)  Conclusions  on  Special  Report  No  1/01  by  the  Court  of  Auditors  on  the  URBAN

Community initiative

No points for the Commission to comment on.

3 

which requires the Competent Authority to replace the Paying  Agency if the accreditation criteria are
not  met  or  to  give  clear  instructions  about  the  improvements  to  be  made  and  a  timetable  for  their
implementation

45

                                                
(cid:1)  Conclusions  on  Special  Report  No  2/01  by  the  Court  of  Auditors  concerning  the
management  of  emergency  humanitarian  aid  for  the  victims  of  the  Kosovo  crisis
(ECHO)

The  Council  invited  the  Commission  to  report  back  before  autumn  of  2002  at  the
latest on the follow-up given to the Court of Auditor's Report. It also recalled its 29
May  2000  conclusions,  when  examining  Special  Report  No2/2000  of  the  Court  of
Auditors,  in  which  it  recognised  the  desirability  and  usefulness  of  the  Court  of
Auditors  continuing  to  produce  special  reports  on  EU  activities  in  the  Balkans.  In
this  respect,  the  Council  recommended  that  the  special  reports  should  also  aim  at
assessing the impact of the aid provided.

The  Court  identified  a  need  to  simplify  the  regulatory  and  procedural  framework  for
humanitarian  actions.  In  the  context  of  administrative  reform,  recasting  of  the  Financial
Regulation and of its implementing rules, the needs of Humanitarian actions have duly been
taken  into  consideration.  ECHO  is  developing  the  Framework  Partnership  Agreement  to
further  enhance  clarity  and  compliance  with  both  the  adapted  rules  and  the  mandates  of
ECHO and its international partners, especially the UN.

The  Council  is  already  aware  that  the  Commission  approved  a  new  framework  decision
procedure  for  emergency  procedures  to  give  further  flexibility  in  responding  to  such
situations. This new procedure has allowed ECHO since 2001, to become a first wave donor
in all breaking emergencies since it has been introduced. The new procedures enable ECHO
to  make  a  decision  in  the  case  of  new  emergencies  inside  a  given  framework  and  within  a
maximum  delay  of  72  hours.  Since  these  new  procedures  have  been  adopted,  the  new  'first
emergency  procedure'  has  been  applied  4  times.  In  all  cases  the  Commission  approved  the
funding  Decision  with  in  a  maximum  of  3  days  after  the  emergency  occurred.  A  fast  track
process for the disbursement of funds (5 days) then follows these decisions.

The  larger  negotiations  between  the  Commission  and  the  United  Nations  family  to  develop
new streamlined  working  practises  as  well  as  the  development  of  strategic  dialogs  with  the
UN and other international partners are active and well advanced. The revision  of the  EU-
UN agreement will take some time further as, among other matters, the UN and the EC have
to agree on quantifiable and measurable performance indicators. However, it is intended that
by the end of 2002, the negotiations should be substantially advanced. This will however also
depend on the capacity of the UN system to quickly meet the next phases of the dialog.

(cid:1)  A  UN-EC  sub-group  working  on  the  issue  of  reporting  has  identified  a  number  of  areas
where improvements can be made and will be the linchpin of the revised Agreement. The
Commission is already willing to exempt its UN partners from interim financial reporting
for  contracts  of  12  months  or  less  provided  the  UN  partners  provide  ECHO  interim
narrative  reports  that  contain  sufficient  operational  information  to  be  able  to  assess  the
impact of the results achieved.

(cid:1)  In  May  2002  the  Commission  completed  an  exchange  of  letters  with  the  UN  Secretariat
General in order to prolong the financing of indirect costs at the World Food Programme
until such time as the UN-EC Agreement is finalised.

(cid:1)  Conclusions on Special Report No 3/01 by the Court of Auditors on the Commission's
management  of  international  fisheries  agreements,  together  with  the  Commission's
replies

46

The Council has examined Special Report No 3/2001 by the Court of Auditors on the
Commission's  management  during  the  period  1993  to  1999  of  the  fisheries
agreements concluded with Morocco, Mauritania, Greenland, Senegal and Argentina,
which  together  accounted  for  92%  of  the  payments  charged  to  the  financial  year
1999. 4

While  noting  the  explanations  given  by  the  Commission  as  to  the  actions  taken  it
calls  upon  the  Commission  to  increase  its  efforts  to  remedy  the  shortcomings
identified by the Court of Auditors.

The Council notes the presentation of the external evaluation report in 1999 5 while
observing  that  it  was  not  adequately  discussed.  The  Council  therefore  considers  it
necessary to have an in-depth exchange of views on the 1999 evaluation report and
the 1997 Council Conclusions based on an updated evaluation by the Commission of
the  1999  report  and  the  experience  gained  in  the  meantime.  It  is  noted  that  such  a
discussion  could  provide  valuable  input  for  the  general  review  of  the  Common
Fisheries  Policy.  The  Council  further  urges  the  Commission  to  present  a
comprehensive  analysis of all third countries'  agreements  before  considering  a  new
external  evaluation.  This  analysis  should  aim  at  a  general  policy  review  including
non-quantifiable  elements  such  as  the  Union's  political  relations,  the  strategic
importance of the Community's fleet presence in the waters of the third country, the
economic  and  social  costs  of  the  non-conclusion  of  fisheries  agreements,  the
contribution of fisheries agreements to sustainable fisheries throughout the world and
the development effects of the agreements for the third countries.

The  Council  invites  the  Commission  to  come  forward  with  proposals  that  seek  to
address the deficiencies outlined in the 1999 report and the Court of Auditors' report.
Monitoring  and  evaluation  of  agreements  need  to  be  improved  yet  further  with
greater  emphasis  on  the  sustainability  of  stocks.  In  particular,  it  invites  the
Commission  to  set  up  an  on-going  monitoring  system  and  to  define  criteria  and
performance  indicators  for  each  of  these  agreements  in  order  to  measure  their
effectiveness throughout their lifetime.

In accordance with its 1997 conclusions, the Council calls upon the Commission to
consider  to  what  extent  a  greater  flexibility  in  the  implementation  of  fisheries
agreements can be achieved.

In  accordance  with  its  1997  conclusions,  the  Council  notes  the  need  to  avoid
underutilisation  of  fisheries  agreements.  In  that  context,  the  Council  recalls  its
invitation  to  the  Commission  to  examine  the  feasibility  of  reattribution  of
underutilised  fishing  possibilities  to  other  Member  States,  without  prejudice  to  the
principle of relative stability.

In  accordance  with  its  1997  conclusions,  the  Council  invites  the  Commission  to
present appropriate proposals for sharing the cost of agreements in a more balanced
manner  by  extending  the  scope  for  shipowners'  payment  of  licence  fees  in  a  non-
discriminatory manner, and to improve the cost/benefit ratio of the agreements.

4

5

The  Council  has  noted  that  two  of  the  agreements  concerned  (with  Argentina  and  Morocco)  are  no
longer in force and that new fisheries protocols with Greenland and Mauritania have been negotiated.
11763/99 PECHE 181.

47

                                                
The Council invites the Commission to explore the appropriateness and feasibility of
introducing  financial  guarantees  and  advance  payments  from  shipowners  in  all
fisheries agreements, as a means to avoid underutilisation of fishing possibilities.

a) Comprehensive analysis of agreements

In December 2002, the Commission will present a communication setting out a framework for
Community action for distant-water fishing which will take account of the conclusions of the
Council of October 1997, the 1999 evaluation report, the 2001 Court of Auditors' report and
the  experience  acquired  by  the  Commission's  departments  in  implementing  fisheries
agreements.

In  its  communication,  the  Commission  will  suggest  redirecting  its  action  in  the  field  of
fisheries  beyond  Community  waters  towards  the  introduction  of  sustainable  fisheries  by
means of fisheries partnership with developing countries.

The  Commission  is  eager  to  promote  the  rules  and  principles  of  good  governance,  and
recommends the use of the existing evaluation instruments and insists on the need to follow up
future partnerships.

The comprehensive evaluation of fisheries agreements will be launched in 2003.

b) Definition of performance indicators

The  Commission  has  started  work  on  launching  a  study  which  will  define  criteria  and
performance  indicators  for  bilateral  agreements.  The  study  is  expected  to  be  completed
during 2003.

c) Re-use of fishing opportunities between Member States

To maximise the use of fishing opportunities offered by fisheries agreements, the Commission
always  transfers  fishing  opportunities  which  have  not  been  used  by  one  country  to  other
countries which have requested them, with due regard for relative stability.

Similarly, it systematically tries to obtain the best value for money for the Community budget,
taking account, among other factors, of the ship-owners' contribution.

Against  this  background,  the  protocols  negotiated  most  recently  by  the  Union  (Senegal,
Angola, Kiribati) include an increase in the ship-owners' contribution.

(cid:1)  Conclusions on Special Report No 4/01 by the Court of Auditors on the audit of the
EAGGF  –  Guarantee  –  the  implementation  of  the  Integrated  Administration  and
Control System (IACS)

The Council recommends:

–  that the Commission clarify the IACS rules in order to end interpretation problems

and facilitate the imposition of sanctions;

–  that the Commission should make continuing efforts for increased  simplification

of the IACS rules;

48

–  that the Commission plan to conduct cost/benefit assessments of the IACS on the

basis of sound financial information on sanctions;

The  new  IACS  Regulation  (EC)  No  2419/2001  entered  into  force  on  1st  January  2002,
accompanied  by  a  series  of  guidelines  and  clarifications,  which  has  significantly  simplified
the  administrative,  control  and  sanctions  procedures.  Although  considered  as  a  major  step
towards simplifying controls, the new Regulation is also deemed to have strengthened overall
control of expenditure. However, it is emphasised that to maximise potential benefits, Member
States  will  in  many  cases  have  to  adapt  their  administrative  and  control  procedures
accordingly.

Improved  regulatory  reporting  procedures,  especially  as  regards  information  on  sanctions,
will facilitate  cost / benefit assessments  of the IACS. Please verify also answer given above
(introduction to chapter 10).

(cid:1)  Conclusions on Special Report No 6/01 by the Court of Auditors on milk quotas

The Council recommends that this Special Report should be used as a contribution to
the Commission's mid-term review on the development of the milk quota system.

In  its  Mid  Term  Reform  proposals  of  Agenda  2000  the  Commission  has  made  specific
reference to the recommendations of the Court of Auditors Special report on the Milk Quota
regime.

(cid:1)  Conclusions  on  Special  Report  No 7/01  by  the  Court  of  Auditors  concerning  export

refunds – Destination and placing on the market

The Council recommends that:

–  the Commission should be responsible for the approval of supervisory companies,

as is already the case for food aid;

–  when  approval  is  withdrawn  from  a  supervisory  company,  it  should  also  be

suspended with respect to all companies within the same group;

–  the  Commission  should  be  responsible  for  maintaining  and  updating  files  of
model  proofs  of  arrival  which  can  be  accepted,  and  should  coordinate
verifications in non-member countries;

–  the  Commission  should  examine  ways  of  ensuring  that  refunds  are  not  paid  on
products  which  are  subject  to  reduced  rate  of  import  duty  in  non-member
countries and in the EU under free-trade agreements where a carousel situation is
observed;

–  the Commission will examine the possibility of requiring proof of arrival only in
cases  of  doubt  or  for  high-risk  destinations  by  implementing  alternative  proof
(transport documents, invoices) and alternative checks.

The  use  of  supervisory  companies  as  part  of  the  procedure  for  paying  export  refunds  on
agricultural  products  under  Commission  Regulation  (C)  No  800/1999  or  in  the  selection  of
supervisory  companies  responsible  for  "monitoring"  for  the  mobilisation  of  products  to  be

49

supplied as Community  food  aid  under  Council  Regulation  (EC)  No  1292/96,  are  intended  to
meet different objectives.

The Commission is responsible for providing Community food aid and in order to coordinate all
the  operations  involved  in  supply  it  employs  the  services  of  supervisory  companies,  called
"monitors", who are responsible for carrying out quality and quantity checks and supervising the
packaging and labelling of products. These checks are carried out throughout the supply chain,
from the factory, before loading, during loading, up to final delivery. To carry out these checks,
the  Commission  employs  the  services  of  a  number  of  such  supervisory  agencies,  selected  by
invitation to tender, and pays them for the services they provide.

The  Commission  has  made  a  thourough  exam  of  the  export  refunds’  procedures.  The
amendments to Regulation (EC) N° 800/1999, were adopted by the Commission on 11 July 2002
and published under Regulation N0 1253/2002 on OJ L 183, 12.07.2002, p. 12.

Work  has  begun  on  preparing  an  invitation  to  tender  procedure  for  the  production  of  a
catalogue of customs forms and stamps used in 51 non-member countries.

The Commission is examining the Council's recommendation that refunds should not be paid on
products which are subject to reduced or zero rates of duty on import into the European Union.
The Commission has already considered this question in connection with relations between the
European Union and the Central and Eastern countries and especially the three Baltic States.

An easing of the  conditions  relating  to  proof of arrival  at  destination  as  recommended  by  the
Council  is  not  feasible  because  the  fact  of  requiring  such  proof  only  in  cases  of  doubt  or  for
high-risk destinations would entail a potential risk of losing control of exports to countries for
which there is no refund. It would also expose the European Union to considerable criticism for
the  way  in  which  it  carries  out  the  monitoring  and  control  of  its  subsidised  trade  with  third
countries,  particularly  in  view  of  the  fact  that  it  entered  into  an  international  undertaking  to
refrain from granting refunds for exports to specific markets.

The  Commission  takes  the  view  that  the  presentation  only  of  transport  documents  and
commercial invoices in the case of differentiated refunds would not provide sufficient guarantees
of arrival in the third country for which the refund is paid.

However,  as  part  of  the  administrative simplification  of  the  procedure for  presenting  proof  of
arrival, the Commission has doubled the amounts set out in Article 17 of Regulation (EC)  No
800/1999, for which it is not necessary to provide proof of importation – the transport document
alone is enough. This amendment is included in the Regulation mentioned in the second indent.

Moreover,  EAGGF  auditors  are  planning  to  visit  international  maritime  transport  companies
this  year  to  assess  on  the  spot  the  possibility  of  making  use  of  data  relating  to  movements  of
vessels and containers for inspection purposes.

(cid:1)  Conclusions on Special Report No 8/01 by the Court of Auditors concerning refunds

for the production of potato and cereal starch and potato starch aid

The Council recommends that:

(cid:1)  with regard to the scheme for starch production refunds the Commission:

–  simplify the administrative measures for calculating refund rates;

50

–  clearly  set  out  the  checks  which  need  to  be  carried  out  in  order  to  redress  the

shortcomings in checks identified in this area;

–  focus checks more closely on financial risk;

(cid:1)  and  with  regard  to  aids  for  the  production  and  processing  of  starch  potatoes,  it

recommends that the Commission:

–  clearly set out regulations to enable uniform checking in the Member States.

The method of calculating refunds is currently under examination in the light of the findings
and  conclusions  of  the  study  to  evaluate  the  starch  sector  ordered  by  the  Commission.  All
factors affecting the calculation and hence the competitiveness of the Union's products will be
analysed,  including  the  relative  value  of  the  refund  in  the  cost  price  of  the  product,
substitutability between starches and the effect of transport costs.

(cid:1)  Conclusions on Special Report No 9/01 by the Court of Auditors on the Training and

Mobility of Researchers programme

The  Council  stresses  the need for the Commission to  check  systematically  whether
all  criteria  (e.g. age  limits,  female  participation)  it  establishes  for  euroconferences,
practical  training  courses  and  summer  schools  are  respected.  In  particular,
information should be obtained on sponsorships received from other entities for these
events,  and  procedures  should  be  altered  to  ensure  that  all  necessary  checks  are
carried out and that total sponsorship/funding does not exceed the total costs of the
event.

The  Commission  verifies  systematically  the  criteria  linked  to  eligibility  of  costs  (age,
nationality) before proceeding to payment.  The other criteria to  be  promoted  (geographical
equilibrium,  gender  parity,  participation  from  less  favoured  regions,  from  industry)  are
verified on the basis of responses to questionnaires distributed to participants. Moreover, for
the corresponding activity under the 5th Framework Programme,  the  Commission has made
sure  that  the  cost  statements  contain  a  requirement  to  declare  total  costs,  and  that  the
contract excludes any profit for the contractor.

The  Council  looks  forward  to  the  Commission  managing  mobility  actions  with  the
utmost  rigour  and  with  reinforced  internal  audit  measures  being  applied  during  the
course of the  current Fifth Framework Programme and the  future  Sixth  Framework
Programme.  The  latter  is  likely  to  expand  considerably  Community  activity  and
expenditure in this important area.

Internal audits were carried out between 2001 and 2002 into the IHP programme as regards
financial  channels,  data  processing  and  the  pilot  scheme  for  the  transfer  of  certain
contractual activities of the "Administration and finance" unit to the operational units with a
view to improving the quality of project management through greater integration of scientific
and  contractual  aspects.  Action  is  currently  being  taken  on  these  comments  and
recommendations.

Internal  audit  standards,  including  for  the  programme  for  training  and  mobility  of
researchers,  have  been  introduced  in  accordance  with  a  detailed  action  plan.  Its  aim  is  to
provide better control of activities in relation to objectives.

51

The standards introduced will be incorporated in the planning of management arrangements
for the future framework programme.

(cid:1)  Conclusions  on  Special  Report  No  10/01  by  the  Court  of  Auditors  on  the  financial
control of the Structural Funds – Commission Regulations (EC) No 2064/97 and (EC)
No 1681/94

Accordingly,  the  Council  considers  that  the  Commission  should  continue  to  give
respective
clear  and  consistent 
responsibilities,  for the  application of  the Regulations  concerning  the  programming
period 1994-1999 and those concerning the programming period 2000-2006.

in  particular 

instructions, 

identifying 

the 

Coordination  for  the  application  of  Regulation  2064/97  between  the  Structural  Funds
services is assured by the Regional Policy Directorate General, which also has taken the lead
since August 2000 in both checking the compliance of Member States with the requirements of
the Regulation, and providing advice and guidance. In view of the detailed recommendations
made in the framework of the audit activity, as well as the information provided in meetings
under the bilateral administrative agreements, and the replies to individual queries, there is
no reason why Member States should not be fully aware of their obligations.

For  the  period  2000-06  Regulation  438/2001  has  taken  over  the  provisions  of  Regulation
2064/97 for the Structural Funds, while Regulation 1386/2002 applies them for the first time
to  the  Cohesion  Fund.  The  Commission  is  conducting  audits  of  the  systems  Member  States
have  put  in  place  to  meet  their  obligations  under  this  legislation,  in  particular  regarding
independent  auditing  of  systems  and  projects  and  the  provision  of  audit  certificates  before
closure. It will present a report on the new systems at the end of 2002.

(cid:1)  Conclusions  on Special  Report No 11/2001 by the Court  of Auditors  concerning  the

Tacis Cross-Border Cooperation programme

While  taking  note  of  progress  made  since  the  end  of  the  audit  period,  the  Council
expresses its concern about the slow implementation of the Tacis CBC programme,
notably in relation to its main component dealing with border crossing facilities and
border  management.  The  Commission  is  therefore  encouraged  to  continue  and
intensify its efforts to speed up the implementation of the programme particularly in
this field and urgently consider how the EU assistance can be better focused with the
aim of improving effectiveness and efficiency of border control and transit at Phare-
Tacis crossings.

The Council welcomes the successful funding under the small project facility (SPF)
and  encourages  the  Commission  to  increase  further  the  proportion  of  SPF  in  the
overall  funding.  The  Council  also  welcomes  the  intensification  of  the  work  of  the
CBC programme on the Tacis-Phare borders.

In the context of developing a strategic approach concerning the present  and  future
external borders of the Union, the Commission is invited to continue and intensify its
efforts  to  improve  coordination  and  interoperability  between  Tacis,  Phare  and
Interreg.  External  coordination  could  also  be  improved  by  establishing  dialogue
between the NIS beneficiaries and their counterparts in the EU and Phare countries.
In  this  context,  the  Commission  is  invited  to  consider  ways  to  ensure  that  Phare
funding is made available more easily for projects at Tacis-Phare borders.

52

Following  these  conclusions  and  the  Court's  report,  the  Commission  is  invited  to
report  to  the  Council  on  measures  taken  to  enhance  the  impact  of  Tacis  CBC
programme not later than the end of June 2002.

The  programme  has  achieved  some  measurable  results.  One  border  post  was  completed  at
Leushen  in  Moldova  in  2001;  four  border  crossings  were  completed  in  2002,  Salla  and
Svetogorsk  on  the  Finnish/Russian,  the  border  post  in  Chop  on  the  Hungarian/Ukrainian
border, and the post at Kameny Log on the Belarus/Lithuanian border; and one bridge, the
Jagodin  over  the  Bug  River  between  Ukraine  and  Poland  with  its  access  road  was  also
completed  in  2002.  These  have  contributed  to  more  efficient  and  effective  controls  and
reduced  waiting  times.  Construction  of  a  new  border  post  at  Bagrationovsk  between
Kaliningrad  and  Poland  started  in  June  2002  and  will  be  completed  in  early  2003.  In
addition, work  on  the border demarcation  between Belarus and Lithuania started  in  March
2002.

The  Commission  takes  note  of  the  Council's  wish  to  increase  further  the  proportion  of  the
Small Project Facility in the overall funding. The Small Project Facility has been identified as
being well-suited to promoting integration across the borders at both local and regional level
by linking Tacis projects with INTERREG and PHARE projects

Strengthening  coordination  between  Tacis  CBC,  INTERREG  and  PHARE  has  been  and
continues  to  be  a  priority  for  the  Commission.  Since  most  of  the  present  Tacis-PHARE
borders are expected to become Tacis/INTERREG borders in 2004 the emphasis of the work
has  been  very  much  on  the  latter.  In  April  2001  the  Commission  published  "A  Guide  to
bringing INTERREG and Tacis together" which contained a number of practical measures to
facilitate preparing and implementing joint projects across the borders. The implementation
of  the  guide  is  progressing  well  and  further  procedures  to  link  these  two  instruments  are
being developed. A seminar was held in St Petersburg in November 2001 where participants
of all the relevant NIS countries, candidate countries and Member States had the opportunity
to  discuss  issues  related  to  the  co-ordination  between  the  different  Community  instruments
and cross border co-operation more generally as one of the key elements of the EU's strategic
approach on its present and future external borders.

In  candidate  countries'  border  regions  adjacent  to  NIS,  PHARE  national  programme  funds
can be used to support social and economic activities of a cross-border nature. In so doing,
PHARE  national  programmes  can  provide  the  matching  funds  required  for  improving  co-
ordination with the Tacis cross-border co-operation programme.

In  border  regions  adjacent  to  NIS  countries,  candidate  countries'  authorities  are  being
encouraged  to  enhance  the  use  of  the  PHARE  national  programme  funds  to  support  social
and economic activities of a cross-border nature, thus addressing potential new dividing lines
on the future borders of the Union. A well- designed proximity policy, building on the present
policy framework, will ensure that the enlarged EU and its neighbours deepen their common
interests and activities.  The PHARE national programme funds provide candidate  countries
with  the  flexibility  needed  to  promote  economic  and  social  development  in  their  border
regions,  to  develop  cross-border  relations  and  good  neighbourliness  with  adjacent  non-
candidate  countries.  In  so  doing,  the  PHARE  national  programme  funds  can  provide  the
matching funds required to further develop co-ordination with the Tacis-CBC programme.

The  Commission  welcomes  the  Council’s  invitation  to  report  on  the  above  mentioned
measures taken to enhance the impact of Tacis CBC.

53

(cid:1)  Conclusions  on  Special  Report  No  12/01  by  the  Court  of  Auditors  concerning
structural measures to improve the employment situation: the impact of ERDF aid on
employment  and  ESF  measures  to  combat  long-term  unemployment,  together  with
the Commission's replies

The Council considers that the evaluation of the impact of structural interventions on
employment needs to be improved in order to maximise the effects.

The Council considers that, in any case, any improvement in evaluation should take
account  of  the  diverse  nature  of  the  interventions  and  methods  used  to  assess  the
impact  of  interventions,  together  with  national  and  regional  practices,  and  that,
consequently, evaluation should not mean the harmonisation of procedures, methods
or techniques.

Finally,  with  regard  to  the  role  of  the  European  Social  Fund  in  supporting  the
European Employment Strategy, the Council is of the opinion that additional efforts
must be made to ensure that the Fund is fully integrated into the Strategy, and would
point  out  that,  with  the  reform  of  the  ESF,  there  will  henceforth  be  a  closer  link
between  the  activities  supported  by  the  ESF  and  the  four  pillars  of  the  European
Employment Strategy.

The Commission considers that the  Regulation  for  the  Structural  Funds  2000-2006  sets  out
more  clearly  the  framework  for  evaluation  than  was  the  case  in  the  past.  In  addition,  the
Commission  has  provided  guidance  for  the  different  stages  of  evaluation  which  should
contribute to an improvement in the quality of evaluations and the effectiveness and impact of
structural interventions.

The  Commission  does  not  seek  to  harmonise  procedures,  methods  or  techniques,  but  its
guidance  aims  to  disseminate  best  practice  and  to  encourage  Member  States  to  develop
methods which will enhance the quality of evaluations undertaken.

The  Commission  agrees  with  the  fact  that  the  methods  to  evaluate  the  impact  of  structural
interventions  on  employment  could  be  further  improved.  However,  since  the  nature  of  the
interventions  is  quite  diverse  and  the  objective  of  the  interventions  is  to  improve  efficiency
and  impacts  within  Member  States,  the  Commission  considers  that  it  would  not  be
appropriate to impose any particular method or technique to evaluate the impact of structural
interventions.  The  Commission  prefers  to  favour  comparability  through  the  use  of  shared
terminologies, definitions and approaches, where appropriate.

Since  the  approval  of  the  new  ESF  Regulation,  the  Commission  has  endeavoured,  together
with  the  Member  States,  to  reinforce  the  integration  of  the  ESF  into  the  European
Employment  Strategy.  The  mid-term  review  of  the  Structural  Funds  will  provide  an
opportunity  for  strengthening  the  links  between  the  four  pillars  of  the  Strategy  and  the
activities supported by the ESF.

(cid:1)  Conclusions  on  Special  Report  No  13/01  by  the  Court  of  Auditors  concerning  the

management of the Common Foreign and Security Policy (CFSP)

(cid:1)  Conclusions on Special Report No 14/01 by the Court of Auditors on the follow-up to

the Court's Special Report No 19/98 on BSE

54

The Council recommends that the Commission propose the improvements necessary
to introduce a more efficient system of cattle identification and registration ensuring
that  the  origin  of  the  animal  and  the  holdings  through  which  it  has  passed  can  be
traced in the event that BSE is diagnosed.

The  reinforced  regime  for  identification  and  registration  of  bovine  animals  introduced  by
Council  Regulation  (EC)  No.  820/97  and  carried  over  in  Regulation  of  the  European
Parliament and of the Council (EC) No. 1760/2000 provides for the tracing of the origin of
any animal as well as the holdings through which it has passed. Member States must set up a
computerised  database  containing  information  on  all  bovine  animals  and  all  movements  of
bovine  animals.  The  Commission  is  following  the  implementation  of  the  system  of
identification  and  registration  of  bovine  animals  in  the  Member  States  by  Food  and
Veterinary Office inspection missions providing recommendations when necessary.

55