Report from the Commission - Fourth Report from the Commission on the operation of the inspection arrangements for traditional own resources (2000 2002) (Article 18(5) of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000)
Date: 2003-06-11
Institutions: European Commission
Subjects: auditing, financial control, financing of the EU budget, fraud against the EU, management audit, own resources

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.06.2003
COM(2003) 345 final

REPORT FROM THE COMMISSION

Fourth report from the Commission on the operation of the inspection arrangements for
traditional own resources (2000-2002)

(Article 18(5) of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000)

   
TABLE OF CONTENTS

Introduction.................................................................................................................. 3

Legal framework and objectives of inspections........................................................... 4

Legal framework .......................................................................................................... 4

Objectives of inspections ............................................................................................. 5

Operation of the inspection system at Community level ............................................. 5

Checks on regulations .................................................................................................. 7

Checks on documents................................................................................................... 7

On-the-spot inspections................................................................................................ 8

Inspections by the Commission in 2000-02................................................................. 8

Methodology ................................................................................................................ 8

Procedures for carrying out inspections....................................................................... 9

Summary of inspections............................................................................................... 9

Main results of inspections .......................................................................................... 9

Follow-up to Commission inspection measures ........................................................ 12

Financial liability of the Member States .................................................................... 17

Application of Article 17(2) of Regulation No 1150/2000........................................ 19

Assessment of the inspection arrangements............................................................... 21

General assessment .................................................................................................... 21

Relations with the Court of Auditors ......................................................................... 21

Joint Audit Arrangement............................................................................................ 22

Inclusion of the acceding countries............................................................................ 23

Conclusion ................................................................................................................. 25

1.

2.

2.1.

2.2.

3.

3.1.

3.2.

3.3.

4.

4.1.

4.2.

4.3.

4.4.

4.5.

4.6.

4.7.

5.

5.1.

5.2.

5.3.

5.4.

6.

2

REPORT FROM THE COMMISSION

Fourth report from the Commission on the operation of the inspection arrangements for
traditional own resources (2000-2002)

(Article 18(5) of Council Regulation (EC, Euratom) No 1150/00 of 22 May 2000)

1.

INTRODUCTION

Every  three  years  the  Commission  compiles  a  report  for  the  European  Parliament  and  the
Council on the operation of the inspection system for Community own resources, pursuant to
Article 18(5)  of  Council  Regulation  (EEC,  Euratom)  No 1150/00  of  22 May 20001
implementing  Decision  94/728/EC,  Euratom  on  the  system  of  the  Community's  own
resources2 ("Regulation No 1150/2000"), which has since been replaced by Council Decision
2000/597/EC, Euratom of 29 September 2000.3

The  first  report,  covering  the  period  1989-92,  was  submitted  to  the  budgetary  authority  on
4 January 1994.4  The  second,  covering 
the  period  1993-96,  was  submitted  on
8 December 1997.5  The  third  report,  covering  the  period  1997-99,  was  submitted  on
5 February 2001.6

This report describes and analyses the operation of the inspection system for traditional own
resources  for  the  period  covering  2000,  2001  and  2002.  It  outlines  the  follow-up  action  on
cases  up  to  31 December 2002.  The  report  is  structured  as  follows:  outline  of  the  general
objectives pursued by  the Commission  via inspections concerning  traditional  own  resources
and  presentation  of  the  legal  and  regulatory  framework  surrounding  the  various  inspection
arrangements,  followed  by  a  description  of  the  inspection  system  operating  at  Community
level.

The  report  goes  on  to  describe  the  Commission's  inspection  measures  carried  out  between
1 January 2000  and  31 December 2002.  It  then  assesses  the  results  of  the  inspections  and
draws  conclusions  and  assesses  the  Commission's  inspection  measures.7  Finally,  the  report
outlines  the  financial  and  regulatory  follow-up  to  these  inspections  and  summarises  their
impact  with  regard  to  the  development  of  the  various  rules  in  place.  The  Commission  has
considered  it  appropriate  to  refer  to  specific  cases  to  illustrate  certain  situations  concerning
the follow-up to inspection visits.

1

2

3

4

5

6

7

OJ L 130, 31.5.2000, p. 1.
OJ L 293, 12.11.1994, p. 9.
OJ L 253, 7.10.2000, pp. 42-46
COM(93) 691 final of 4.1.1994.
COM(97) 673 of 1.12.1997.
COM (01) 32 of 5.2.2001.
The report focuses on the checks made by the Community institutions (the Commission and the Court of Auditors).
It  does not  cover  the  checks  made  by  the  Member States,  the  detailed  results  of  which  are  set  out  in  the  annual
report drawn up under Article 280 of the Treaty.

3

                                                
Finally,  this  fourth  report  gives  an  account  of  the  outcome  of  other  Commission  moves  to
improve the arrangements for collecting traditional own resources, in particular the question
of the financial liability of the Member States and the joint audit arrangement. It also tackles
the aspect of traditional own resources as regards the implementation of the preferential trade
agreements and preparation of the acceding countries.

2.

LEGAL FRAMEWORK AND OBJECTIVES OF INSPECTIONS

2.1.

Legal framework

Inspection of the system of collection of own resources is based on three pieces of legislation.

Council  Decision 2000/597/EC,  Euratom  of  29  September  2000  constitutes  the  legal  basis
for the Community own resources system. It defines the own resources that are entered in the
Community budget.

The  legal  arrangements  for  the  implementation  of  Decision 2000/5978  are  contained  in
Regulation  No 1150/2000  of  22  May  2000.  This  regulation  establishes  the  system  for  the
collection of traditional own resources (Article 2), the rules for entering these resources in the
normal account (the "A" account) or the separate account (the "B" account) (Article 6(3)) and
the  procedure  for  making  them  available  to  the  Commission  (Article 10).  It  also  contains
provisions  governing  the  obligation  on  Member States  to  report  certain  information:
communication  to  the  Commission  cases  of  fraud  and  irregularities  exceeding  €10 000
(Article 6(5)),  applications  relating  to  the  waiving  of  the  obligation  to  make  own  resources
available to the Commission (Article 17(2)) and inspections (Article 18(2) and (3)).

Regulation No 1150/2000 is currently being amended to incorporate the provisions of Council
Decision 2000/597/EC, Euratom of 29 September 2000 on own resources.9 The new proposal
also  takes  over  part  of  the  draft  amendment  of  Article  17(2)  sent  to  the  Council  in  1997,
where  it  is  still  being  examined.  The  draft  amendment  is  described  at  point  4.5.1  of  this
report.

Council  Regulation  (EC,  Euratom)  No 1026/99  of  10 May 199910  applies  to  inspections
carried out jointly with the national administrations of the Member States under Article 18(2)
and (3) of Regulation No 1150/2000.11 It lays down the rights and obligations of the officials
appointed by the Commission in the exercise of their powers of inspection.

8

9

10

11

Replacing Decision 94/728/EC, Euratom - OJ L 293, 12.11.1994, p. 9.
OJ L 253, 7.10.2000.
OJ L 126, 20.5.1999, p. 1.
Pursuant to Article 18(2) of Regulation No 1150/00.

4

                                                
2.2.

Objectives of inspections

The  collection  of  traditional  own  resources  may  be  checked  in  different  ways:  checks  on
documents,  checks  on  regulations  and  on-the-spot  checks.  Inspections  have  three  specific
objectives:12

– 

– 

– 

to  maintain  a  level  playing  field  between  economic  operators,  regardless  of  where
goods  are  cleared  through  customs  in  the  European  Union.  The  Commission  must
ensure  that  the  Member States  apply  Community  rules  uniformly  so  that  any
malfunctioning does not lead to the distortion of competition;

to improve the situation as regards recovery. The Commission must check that the
Member  States  comply  with  their  responsibilities  when  it  comes  to  collecting  own
resources. This objective is concerned with ensuring not only that they assume their
responsibilities  with  regard  to  the  Community  budget  but  also  that  the  financial
burden is shared out correctly among the Member States;

to inform the budgetary authority. From the inspection findings the Commission is
able  to  judge  the  effectiveness  and  diligence  of  the  Member  States  with  regard  to
collection,  take  the  measures  necessary  to  remedy  the  situation  and  ultimately  to
report to the budgetary authority on this basis on the implementation of the budget in
terms of revenue.

3.

OPERATION OF THE INSPECTION SYSTEM AT COMMUNITY LEVEL

The  system  for  the  collection  of  traditional  own  resources  is  subject  to  several  types  of
control within the Commission: the audits carried out by the  Budget Directorate-General in
its  capacity  as  authorising  department  for  budget  revenue  and  the  inspections  relating  to
recovery  of  Community  entitlements.  The  Commission  is  also  required  to  respond  to  the
observations  made  by  the  Court  of  Auditors  in  connection  with  the  inspections  carried  out
under  Article 248  of  the  Treaty,  contained  in  its  Annual  Report,  special  reports  or  sector
letters, and also the requests made by the European Parliament during the discharge procedure
in respect of the implementation of the budget.

Responsibility  for  collecting  traditional  own  resources  is  delegated  to  the  Member States.
They thus assume responsibility for implementing the system and, according to the rules laid
down in Council Decision 2000/597/EC, Euratom of 29 September 2000, they are allowed to
retain a collection fee of 25%13 of all amounts of own resources established. The Commission
ensures that the Member States apply the Community regulations correctly and reports to the
budgetary  authority.  This  complementarity  of  the  Member States'  and  the  Commission's
responsibilities results from the current division of inspection visits between the institutions of
the European Union.

12

13

These three objectives are described in detail in the Commission's third report (COM (2001)32 of 5.2.2001).
From 1.1.2001.

5

                                                
The  Member States  are  required  to  carry  out  checks  themselves14  and  to  report  to  the
Commission.  However,  these  checks  carried  out  at  national  level  do  not  mean  that  the
Commission need not exercise its powers in this field. Its own checks thus enable it to ensure
that  the  Member States  are  all  complying  with  their  Community  obligations  to  the  same
extent and to see that the own resources made over to the Commission by the Member States
correspond  to  what  is  legally  due.  To  this  end,  Community  revenue  is  monitored  from  the
chargeable  event  to  entry  in  the  Commission  accounts  via  the  procedures  of  establishment,
entry in the accounts and making available.

To achieve this, the Commission15 carries out three types of inspection: checks on regulations,
checks on documents and on-the-spot checks in the Member States. The Community control
and  inspection  arrangements  for  traditional  own  resources,  as  provided  for  at  Community
level and implemented by the Commission, can be represented schematically as follows:

Type of check

Scope of inspection

Checks on
regulations

Checks on
documents

Procedure applied to
collect traditional own
resources in the Member
States
Accounting information
reported by the Member
States

Other information
reported by the Member
States

Regulation
No 1150/2000

Article 4(1)(b)

Article 6(4)

Article 7

Article 6(5)

Article 17(2)

Article 17(3)

On-the-spot checks

Joint inspections

Article 18(2)

Autonomous inspections

Article 18(3)

Arrangements

Checks on Member States' provisions
concerning the system for collecting
traditional own resources

Monthly statement of A account and quarterly
statement of B account

Annual summary account of entitlements
established and recovered
Cases of fraud and irregularities involving
entitlements of over €10 000

Applications to waive the making available of
sums over €10 000

Annual report on outcome of inspections in
Member States
Joint  inspections  by  the  Member States  and
the Commission
Autonomous  Commission  inspections  on  its
own initiative

14

15

Article 18(1) of Regulation No 1552/89.
The inspections carried out by the Commission, in particular those conducted by DG BUDG (B/03), are not all the
inspections carried out by the Community institutions. The Court of Auditors is empowered to carry out audits in
this field (Article 248 of the Treaty) and the European Parliament can also play an inspection role (Article 276 of
the Treaty).

6

                                                
3.1.

Checks on regulations

This  type  of  check  involves  looking  at  the  Member State's  customs  and  accounting  laws,
regulations  and  administrative  provisions.  Checks  are  made  in  particular  during  the
preparation of inspections, during the follow-up to such inspections or on examination of the
reports submitted by the Member States pursuant to  Article 17(2)  of  Regulation No 1150/00
(procedure for writing off entitlements).

3.2.

Checks on documents

The  documentary  checks  consist  in  analysing  the  statements  of  the  "A"  account  and  "B"
account  submitted  under  Article  6(4)  of  Regulation  No 1150/2000  and  the  annual  report
referred  to  at  Article  7  of  that  Regulation.  They  also  involve  analysis  of  the  annual  data
provided by the Member States under Article 17(3) - as regards the results of their inspections
and the means employed - and examination and monitoring of amounts written off which the
Member  States  present  under  Article  17(2);  this  final  examination  is  intended  to  ascertain
whether,  by  way  of  exception,  the  Member  States  may  be  released  from  their  obligation  to
make available to the Commission the amounts corresponding to the entitlements established.

The  Commission  also monitors  the measures  taken  by  Member States'  for  the  recovery  of
traditional  own  resources  on  the  basis  of  information  it  receives  from  them  through  the
Ownres software. This information is mostly on cases of fraud and irregularities - involving
duties  exceeding  €10 000  -  reported  under  Article 6(5)  of  Regulation No 1150/00.  All  the
information sent via the Ownres software is also analysed by the Anti-Fraud Office (OLAF).

Given the very large number of cases of fraud and irregularities reported ("fraud reports" and
"mutual assistance reports"), the Commission had established two procedures for processing
data:  the  first,  Sample A,  is  a  statistical  processing  of  the  "fraud  reports"  and  the  other,
Sample B,  a  detailed  examination  of  certain  particularly  difficult  cases  reported  under  the
system of mutual assistance.

As the report drawn up under Article 17(3) of Regulation No 1150/2000 has been based since
1999 solely on amounts exceeding €10 000, the Sample A procedure, based on the same data,
is  superfluous.  The  Commission  now  monitors  recovery  on  the  basis  of  the  Sample  B
procedure, which is intended to follow the recovery of a number of representative cases until
they are finally discharged.

7

Two  reports  of  this  type,  B94  and  B98,  have  been  drawn  up.16  A  third  such  report  was  to
appear  in  2001;  however,  the  original  sample  had  to  be  modified  because  of  four  cases
involving irregularities as regards origin which no longer required examination after the Court
of First Instance adopted its ruling on Turkish televisions.17 A new sample has therefore been
drawn up, but further information has to be compiled. The third report, which will be called
report B2003, should, appear in the course of 2003.

3.3.

On-the-spot inspections

Each year the Commission carries out 22 to 25 - joint or autonomous - inspection visits in the
Member  States  to  ascertain  on  the  spot  the  correctness  and/or  legality  of  the  national
authorities'  systems  and  measures  for  collecting  traditional  own  resources.  Each  visit  is
followed by a report which is discussed within the  Advisory  Committee on  Own  Resources
together with the observations of the Member State concerned and the Commission's analysis.
Any legislative and/or financial consequences arising from these observations are monitored
up to final clearance. The Court of Auditors is systematically informed of the Commission's
inspection programme and the findings of its inspections.

4.

INSPECTIONS BY THE COMMISSION IN 2000-2002

4.1.

Methodology

Since  1999  the  Commission  has  gradually  redirected  its  approach  to  inspections.  The
objective  now  set  for  these  inspections  is  not  so  much  to  check  that  the  underlying
transactions are in order as to check the systems themselves - i.e. all the national procedures
applied by the Member State to ensure proper clearance at both accounting and customs level.
This methodology is intended to check that the procedures and the actions carried out in line
with them comply with Community rules. Insofar as the inspection method is structured with
clearly  defined  stages,  the  inspections  carried  out  by  the  Commission  constitute  a  partial
audit.

The  structured  inspection  approach  used  by  the  Commission  brings  to  light  any  structural
shortcomings which might harm the financial interests of the European Union as well as any
anomalies of a  one-off  kind.  The  aim  of  checking  a  sample  of  underlying  transactions  is  to
confirm,  or  invalidate,  the  conclusions  of  the  system  analysis  and  to  provide  a  justified
evaluation  of  the  capacity  of  the  system  inspected  to  comply  with  Community  rules  on
collecting own resources, or with regard to the anti-fraud aspect. This new approach has been
presented to the Advisory Committee on Own Resources and attracts real consensus from the
Member States as it helps produce a more relevant evaluation of how their customs authorities
actually administer the various customs and accounting procedures.

16

17

Commission  Reports  on  the  recovery  of  traditional  own  resources  in  cases  of  fraud  and  irregularities
("Sample A94", COM(95) 398 final of 6 September 1995, "Sample B94", COM(97) 259 final of 9 June 1997 and
"Sample B98",  COM(1999)  160  final  of  21 April 1999.  The  first  report,  B94,  concerns  six  cases  representing
entitlements totalling around ECU 124 million and the second, B98, concerns nine cases representing entitlements
totalling around ECU 136 million.
Kaufring  AG  judgment  of  10  May  2001  (Joined  cases  T-186/97,  T-187/97,  T-190/97  to  T-192/97,  T-210/97,
T-211/97, T-216/97 to T-218/97, T-279/97, T-280/97, T-293/97 and T-147/99), ECR II - 01337.

8

                                                
4.2.

Procedures for carrying out inspections

The subjects chosen for inspection were selected from a variety of subjects, all of which have
a bearing on traditional own resources. The choice was made objectively by applying a set of
criteria  based  on  an  analysis  of  the  inherent  risks  in  customs  arrangements  or  accounting
procedures  regarded  as  potentially  vulnerable  in  terms  of  the  impact  on  traditional  own
resources.

The  following  parameters  were  taken  into  account:  importance  for  the  budgetary  authority
and  other  institutions  (in  particular  the  European  Parliament,  the  Council  and  the  European
Court of Auditors), the European Court of Auditors' audit findings and recommendations, the
findings  of  the  Commission  inspection  and  the  action  taken  on  its  observations,
sensitivity/importance  for  the  Member  States  and  possible  interest  shown  by  the  media,
presumed impact on own resources, number of cases of fraud or irregularities detected, time
elapsed since last Commission inspection and specific information from other sources.

To enhance the new approach, the Commission has also developed structured questionnaires
specially designed for the subject of inspection and checklists to be used on the spot to ensure
that the inspection is consistent. These tools have indeed helped increase the effectiveness of
inspections to the extent that they enable the inspection work to be organised more effectively
and,  above  all,  allow  a  distinction  to  be  made  between  structural  errors  and  one-off  errors
among  the  anomalies  observed  during  inspections  in  the  Member  States.  These  tools  also
standardise  the  approach  to  inspections,  regardless  of  the  Member  State  inspected,  and
increase their quality.

4.3.

Summary of inspections

The Commission carries out its inspections on the basis of an annual programme drawn up
by  the  Budget  Directorate-General  and  presented  to  the  Advisory  Committee  on  Own
Resources;  the  Member States  are  then  informed  of  the  subjects  of  joint  inspections.  Other
Commission departments may be involved in implementing the programme, depending on the
subject  under  investigation.  The  authorising  department  (DG  BUDG/B/03)  had  eight  staff
responsible for on-the-spot checks in 2000-02. These on-the-spot checks, including follow-up,
account  for  over  35%  of  the  work  of  the  unit  responsible  for  checking  the  collection  of
traditional own resources. Inspections are carried out in close collaboration with the national
authorities concerned and follow the procedure described above, which guarantees openness
and the dissemination of information. After each inspection a report is drawn up which covers
the  summary  of  the  inspection  and  any  anomalies  discovered.  The  Member State  has  three
months in which to submit its comments. Each report is presented to the Advisory Committee
on  Own  Resources.  The  Commission  follows  up  contentious  points  until  the  case  is  finally
settled.

4.4.

Main results of inspections

The Commission carried out a total of 65 inspections under Article 18(2) and (3) during the
period  2000-02  (as  against  70  during  the  period  1997-1999)  -  43  joint  inspections  and  22
autonomous  inspections.  Seven  of  these  inspections  were  carried  out  under  the  Joint  Audit
Arrangement.

9

Of the 304 anomalies noted (as against 246 anomalies during the period 1997-1999), 153 had
a  financial  impact  (50.30%  of  the  anomalies),  92  a  regulatory  impact  (30.30%)  and  59  fell
into  the  category  "other"  (19.40%).  Of  these  304  anomalies,  147  arose  directly  from
application  of  the  accounting  rules  (as  against  185  anomalies  during  the  period  1997-1999)
with 53 relating to management of the B account and 94 to delays in entering amounts in the
A account, delays in making own resources available or the failure to make them available at
all. The Commission has taken appropriate measures to resolve the financial consequences of
the anomalies observed.

4.4.1 Management of customs procedures

– 

– 

– 

The Commission initiated an inspection operation in the field of Community transit.
The  inspections  conducted  under  the  Joint  Audit  Arrangement  in  three  Member
States (DK, NL, A) revealed a number of anomalies for which these Member States
have already taken appropriate measures. These observations do not call the national
systems into question as regards their compliance with Community rules. The audit
work carried out by the internal departments responsible has shown the approach to
be  valid  and  effective  for  both  the  Commission  and  the  Member  States.  The
traditional checks carried out in three Member States (DK, IRL, UK) have revealed
anomalies  with  financial  consequences;  the  procedures  in  one  of  these  Member
States (UK) have been criticised by the Commission;

As  regards  the  checks  concerning  inward  processing,  conducted  in  four  Member
States  (F,  IRL,  FIN,  S),  and  concerning  processing  under  customs  control,
conducted in one Member State (EL), the management of procedures in the Member
States inspected does not call for any specific comments from the Commission. The
inspection of free zones and special territories covered the procedures applicable in
the  free  zone  of  Madeira,  in  the  territories  of  Gers  and  Haute-Savoie  and  on
consignments of goods to the Vatican). This inspection revealed major shortcomings
in the three Member States concerned (FR, I, P);

The inspection of the system of customs clearance for fresh bananas carried out in
five Member States (D, E, IT, NL, P) because of the diversion of traffic observed in
certain  Community  ports18  revealed  major  systemic  errors.  The  standards  for  the
physical checks laid down in the Community rules were not observed by any of the
five Member States inspected. Furthermore, despite the clear harmonised rules on the
declaration  of  the  weight  of  bananas,  serious  systematic  anomalies  were  detected,
with particular regard to the observance of these rules by customs authorities.

In  view  of  the  conclusions  of  these  inspections,  the  Commission  departments
responsible have since been monitoring this subject with particular care and this does
not rule out further inspection visits in 2003. This monitoring has proved even more
necessary  after  Spain,  which  had  brought  its  previous  practice  into  line  with
Community  rules,  informed  the  Advisory  Committee  on  Own  Resources  in  July
2002 of the possible diversion of traffic to other Member States which offered unfair
advantages or facilities to their importers as its own banana imports seemed to have
fallen by more than 80%;

18

Commission  Regulation  (EC)  No  89/97  of  20  January  1997  (creating  Article  290a  of  Commission  Regulation
(EEC) No 2454/93 of 2 July 1993) – OJ L 17, 21.1.1997, p. 28-29.

10

                                                
– 

– 

– 

The  inspections  into  the  system  for  the  customs  clearance  of  cereals19  in  six
Member  States  (B,  D,  E,  F,  NL,  UK)  revealed  systematic  errors;  in  particular,  the
Community rules on specific end-use are not respected by some of the six Member
States inspected;

The inspection of preferential tariff arrangements in one Member State (NL) under
the  Joint  Audit  Arrangement  revealed  structural  shortcomings  (e.g.  weaknesses  as
regards  guarantees  and  delayed  recovery).  However,  overall  this  Member  State's
system  complies  with  Community  rules.  The  audit  conducted  by  the  national
department  responsible  has  also  shown  the  considerable  potential  which  this
approach has for both the Commission and the Member States;

An  inspection  of  medium-sized  customs  offices  has  been  carried  out  in  eleven
Member States (B, D, EL, E, F, IRL, IT, LUX, P, S, UK). Inspections are generally
carried  out  in  large  customs  offices  distinguished,  in  particular,  by  the  volume  of
customs activity and the wide range of procedures handled as well as the  resources
available  to  them.  This  approach  can,  however,  mean  that  less  attention  is  paid  to
customs  offices  in  the  medium  range,  even  though  they  handle  the  full  range  of
customs  procedures  and  destinations.  These  offices  are  key  links  in  the  customs
network  in  most  Member  States,  playing  -  as  such  -  a  vital  role  in  collecting  and
monitoring traditional own resources. The conclusions drawn from the inspection of
medium-sized  customs  offices  are  deemed  satisfactory.  The  inspection  has  revealed
that,  as  a  rule,  the  national  procedures  turn  out  to  be  appropriate,  despite  the
discovery  of  a  number  of  structural  errors  such  as  delays  in  the  internal
communication  chain.  The  Commission  officials  have  also  been  able  to  make  the
necessary  recommendations  for  changing  certain  practices  and  explain 
the
Commission's role, which is to ensure that Community rules are uniformly applied.

4.4.2 Management of accounting procedures

– 

– 

19

Management  of  the  separate  account  -  including  the  write-off  procedure  -  is  a
recurrent  subject  of  inspection  for  the  Commission  in  all  the  Member  States.  The
inspection of this subject during the period 2000-02 - both traditional and under the
Joint Audit Arrangement (NL  and A only)  -  confirmed the poor reliability  of these
supporting  accounts.  Since  1996  the  Commission  and  the  European  Court  of
Auditors have issued reservations on the way  in  which  some  (local) authorities use
them.  Of  the  147  accounting  anomalies  noted  during  the  inspections,  53  were
directly related to the management of the separate account. Systematic errors persist
(entry of guaranteed amounts that were not contested and amounts written off shown
as cancellations) along with individual errors (e.g. late clearance and late entry in the
account  of  entitlements  due).  However, 
inspections  and
recommendations are beginning to bear fruit as some Member States (in particular B
and UK) have already agreed to bring in more reliable management measures;

the  Commission's 

A specific inspection of application of the write-off procedure was carried out in one
Member  State  (EL).  The  aim  was  to  test  how  the  Greek  administration  managed
outstanding  customs  debts  and  the  arrangements  made  to  discover  the  reasons
preventing the administration from carrying out the write-off procedure in full.

Commission Regulation (EC) No 1249/96 of 28.6.1996 – OJ L 161, 29.6.1996, p. 125-130.

11

                                                
Analysis  of  the  system  revealed  that  a  lack  of  transparency  in  particular  in
administrative  structures  for  passing  routine  information  between  customs  offices
and  to  the  courts  produced  a  de  facto  situation  in  Greece  which  prevents  the  full
application of Community regulations relating to the write-off procedure. Moreover,
the situation inflates the balance on the separate account;

As regards the treatment of antidumping duties, most of the fifteen Member States
have  introduced  systems  which  ensure  that  the  antidumping  measures  are  properly
applied.  However,  anomalies  were  found,  in  particular  delays  in  entering  in  the
accounts provisional anti-dumping duties that have become definitive and the failure
to collect definitive antidumping duties;

The inspection of imports to San Marino showed that the Italian accounting system
for  the  customs  clearance  of  goods  sent  to  the  Republic  of  San  Marino  under  the
Interim Agreement on trade and customs union operates satisfactorily as regards the
allocation  of  the  duties  collected  to  either  the  Republic  of  San  Marino  or  the
European Union.

– 

– 

4.4.3

Other procedures

– 

– 

The  Commission  also  inspected  the  management  of  cases  of  fraud  and
irregularities  through  the  OWNRES  system  in  all  the  Member  States.  This
inspection has revealed certain shortcomings, mainly involving one-off cases (delays
in sending fraud reports, failure to send reports and failure to provide updates);

With  the  exception  of  one  Member  State  (UK)  which  came  in  for  criticism,  the
inspection of the treatment of mutual assistance messages in all the Member States
showed  that,  in  general,  the  national  systems  are  appropriate  although  some
structural  flaws  in  the  form  of  delays  in  the  chain  of  internal  communication  and
feedback  to  the  Commission)  were  revealed.  Similarly,  a  number  of  one-off
shortcomings were detected. On the basis of the inspection findings, the Commission
is considering an improvement of the mutual assistance reports.

4.5.

Follow-up to Commission inspection measures

4.5.1

Regulatory aspects

Where flaws or loopholes are detected in national regulations or administrative provisions in
the  course  of  the  inspections,  the  Member States  are  asked  to  take  the  measures  necessary,
including  legislative  and  regulatory  measures,  to  bring  them  into  line  with  Community
requirements.  Such  adjustments,  made  in  both  customs  law  and  the  financial  field,  are  an
important  spin-off  from  the  Commission's  inspections.  The  anomalies  detected  are  also  an
essential  source  of  information  on  the  problems  encountered  by  the  Member States  in
applying customs regulations and their impact in terms of own resources.

Analysis  of  these  anomalies  can  lead  to  the  reform  of  existing  provisions  and  improve  the
clarity of Community legislation:

– 

Some points in the rules are a source of disagreement between the Commission and
the Member States, in particular the procedure allowing the operator to challenge a
customs  debt  and  the  scope  and  entry  in  the  accounts  of  guarantees.  The
Commission's only option to resolve some of the outstanding cases is thus to use the
infringement  procedure  provided  for  in  Article  226  of  the  EC  Treaty.  At

12

– 

– 

31.12.2002,  19  cases  involving  11  Member  States  were  outstanding  and  were  at  a
more  or  less  advanced  stage  of  the  procedure  (formal  notice,  reasoned  opinion,
referral).  The  conclusions  resulting  from  the  Court  of  Justice's  examination  of  the
infringement procedures will clarify the questions in dispute and finally clear up the
differences of interpretation ;

for 

traditional  own 

The  Commission  has  also  taken  steps  to  amend  Regulation  No 1150/2000.  This
proposed amendment, scheduled to take effect in the course of 2003, has a technical
dimension  as  it  incorporates  the  provisions  of  Council  Decision  2000/597/EC,
Euratom  of  29  September  2000  on  the  system  of  own  resources,  in  particular  the
percentage  applied 
resources
the  costs  of  collecting 
(Article 10(1)) and the single rate of interest for late payment (Article 11). Above all,
however, there is a matter of substance; the proposal includes a thorough overhaul of
Article 17(2) relating to the write-off procedure. Inspections by the European Court
of Auditors and the Commission have revealed recurrent anomalies in the keeping of
the separate account which prevent it from reflecting the actual budget situation. The
separate account must therefore be cleared of those amounts which are not certain to
be recovered and which will distort the balance if retained. To remove these amounts
from  the  separate  account,  the  Commission  has  drawn  up  a  revised  version  of  a
proposal  made  in  1997  which  attracted  a  favourable  opinion  from  the  Council.
However, no final decision has been taken as agreement has not yet been reached on
another point of the proposal;20

For  the  first  time  an  administrative  cooperation  clause  concerning  the  recovery  of
duty  has  been  inserted  in  the  draft  "bridging"  legislation  in  connection  with  the
EC/Andorra  Customs  Union.  This  initiative  was  given  political  assent  during  the
meeting  of  the  Working  Party  on  Customs  Union  on  18 October 2002;  formal
adoption  is  expected  for  the  end  of  January  2003.  The  underlying  problem  was
revealed  in  2000  on  examination  of  write-offs  presented  by  Germany  under
Article 17(2) of Regulation No 1150/2000.

Other initiatives which are likely to affect traditional own resources have also been taken:

– 

regards 

transit,  Commission  Regulation 

As 
(EC)  No  2787/2000  of
15 December 200021  amended  the  provisions  for  the  implementation  of  the
Community Customs Code22 from 1 July 2001 by introducing an Article 450a. Under
this Article, the period after which  a  customs debt is  deemed  to  exist is  10  months
from acceptance of the transit declaration (as against 14 months previously). Failure
to  discharge  the  transit  arrangements  on  expiry  of  this  time  limit  thus  results  in  a
customs debt being established;

20

21

22

The 1997 proposal would be withdrawn before the Council agrees to the updated text.
OJ L 330, 27.12.2000.
Commission  Regulation  (EEC)  No  2454/93  of  2  July  1993  laying  down  provisions  for  the  implementation  of
Council Regulation (EEC) No 2913/92 - OJ L 253, 11.10.1993, p. 1.

13

                                                
– 

– 

In its communication of 7 November 2001  (SEC(2001) 2029  final) concerning the
fraud-proofing of legislation and contract management the Commission said it was
determined  to  develop  a  culture  of  prevention  and  strengthen  the  basic  legal
instruments in terms of proofing against fraud or any other illegal activity in order to
protect  the  Community’s  financial  interests.  The  document  listed  a  number  of
measures  and  the  fields  requiring  specific  action  in  line  with  this  principle.  The
amendment  of  Regulation  No 1150/2000  was  identified  as  one  of  the  legislative
projects for 2003 to be covered by the OLAF fraud-proofing consultation procedure;

In  view  of  the  consequences  of  the  judgment  of  the  Court  of  First  Instance  in  the
“Turkish  televisions”  case and the considerable losses  of  traditional  own  resources
for  the  Community  budget,  the  Commission  has  produced  a  draft  Green  Paper  on
the  future  of  rules  of  origin  in  preferential  trade  agreements.  In  particular,  the
Commission has decided, on the basis of a comprehensive analysis of developments
in the economic and legal framework of these arrangements, to define new guidelines
to ensure preferential arrangements work smoothly thanks to better management and
better  control  of  preferential  origin,  which  may  include  revamping  the  relevant
procedures. The objective of the Green Paper is to help the Commission to formulate
these guidelines, taking account of the various interests at stake and the contributions
expected of those involved in the preferential arrangements.

4.5.2

Financial aspects

Over the reference period (2000-2002), additional entitlements (principal amounts) totalling
€140 936 094.49 were paid to the Commission following observations it made in reports on
joint or independent inspections; €2 284 794.00 was paid following inspections by the Court
of Auditors, giving a total de €143 220 888.49.23

Interest for late payment was also charged, pursuant to Article 11 of Regulation No 1150/00,
for delays in making available own resources detected during inspections by the Commission
or by the Court of Auditors. Over the period 2000-02, interest for late payment paid by the
Member States totalled €16 991 189.11; €12 656 552.4224 of this sum is the result of action
by the Commission.

The  figures  are  still  incomplete,  especially  for  2002,  since  the  recovery  of  entitlements
established  as  a  result  of  Commission  inspections  depends  on  national  procedures  for
collecting the accounting information needed to issue recovery orders.

23

24

Including €119 254 808.77 for cases involving military equipment and €38 582 485.48 paid in response to demands
pre-dating the reference period.
Including €566 241.63 paid in response to demands pre-dating the reference period.

14

                                                
Mention  should  also  be  made  of  the  action  taken  to  follow  up  the  inspection  of  the
management of the cumulative recovery system in the rice sector  (CRS)25 which progressed
considerably  during  the  reference  period.  During  the  inspection  in  1999  the  Commission
noticed  that  the  price  of  American  rice  imported  by  the  Belgian  subsidiary  of  a  large
American  group  was  higher  than  that  of  similar  rice  imported  by  its  European  competitors.
OLAF  launched  further  investigations  and  the  findings  confirmed  the  original  conclusions,
i.e.  that  the  prices  declared  were  too  high  for  the  quality  of  the  rice  imported.  When  the
Belgian  authorities  determined  the  repayments  for  the  importer,  they  complied  with  the
conclusions  of  the  OLAF  investigation  report.  The  firm  in  question  challenged  the  Belgian
authorities'  decision  before  the  courts  and  via  a  complaint  which  the  United  States  brought
before the WTO in Geneva. At the same time, the American group established close contacts
with  the  Commission  and  provided  further  information  which  OLAF  used  as  a  basis  for  a
review; the  amount of duty finally payable  was  reduced  by  around  81%  compared  with  the
figure mentioned in the original report.

On examination of the further evidence provided by the importer and after proper application
of  the  CRS  legislation,  the  Belgian  authorities  were  asked  in  November  2001  to  adopt  a
decision  to  repay  an  additional  €8  696  810  (the  equivalent  of  BEF  350  828  447)  to  the
importer. The Belgian administration met this request and the case was closed. This is also the
conclusion which will apply to a number of cases still outstanding concerning the Netherlands
and the United Kingdom.

4.5.3

Organisational aspects

The Commission wishes to maintain or even improve the current quality of its inspections and
has taken a number of initiatives as regards their organisation:

– 

The meetings of the Advisory Committee on Own Resources and the Commission's
comments in its inspection reports give the Commission an opportunity to point out
the  necessary  basis  for  the  proper  application  of  the  customs  and  financial  rules.
During  the  inspections,  the  Commission  officials  can  already  make  a  number  of
recommendations  or  give  advice  -  the  Commission's  role  need  not  be  confined  to
penalising irregularities.

As  a  rule,  most  Member  States  take  appropriate  measures  as  soon  as  possible  to
remedy the shortcomings noted  mainly in the management of  the separate account.
These  measures  aim,  for  example,  to  improve  the  computerised  monitoring  of  the
management of procedures or derive greater benefit from risk analysis;

25

Case mentioned in the third Commission report (COM (2001) 32 final).

15

                                                
– 

– 

– 

Because of  the anomalies observed  in submitting reports of  fraud  and  irregularities
via the current Ownres system, the Commission has also taken the necessary steps to
develop  a  new  application  based  on  the  Internet.  The  Member  States  thus  have  a
more  functional  tool  allowing  them  to  send  the  Commission  -  and  update  -
information  on  fraud  and  irregularities  in  real  time.  The  new  application  does  not
require any special installation apart from access to the Internet and a password given
by the Commission. A presentation and training seminar is scheduled for May 2003.
The  web application could be running by July 2003.  With  the  new  application,  the
Member  States,  as  the  main  managers  of  the  tool,  will  be  entirely  responsible  for
sound data management;

To enhance the new approach to inspections, the Commission, in an effort to ensure
better  treatment  of  the  subjects  of  inspection  planned  each  year,  is  continuing  to
develop  structured  questionnaires  specially  designed  for  the  subject  of  inspection
and  inspection  modules  to  be  used  on  the  spot.  During  the  period  under  review,
inspection  tools  were  specially  designed  for  such  subjects  as  inspection  of  the
separate account, the working methods of medium-sized customs offices and cereal
imports. These tools have indeed helped increase the effectiveness of inspections to
the extent that they enable the inspection work to be organised more effectively and,
above  all,  allow  a  (justified)  distinction  to  be  made  between  structural  and  one-off
errors.  These  tools  also  standardise  the  approach  to  inspections  and  increase  their
quality.  With  this  in  mind,  the  Commission  has  prepared  a  tool  for  the  general
subject of inspection planned for 2003 - electronic customs declarations;

The  Commission  is  also  improving  the  checklists,  a  tool  which  is  designed  for  the
sole use of its officials, giving them before the inspection an indispensable inventory
of all the preparatory stages - and a list of all the aspects to be examined during the
visit. This tool also ensures that the visits will be carefully structured and that there
will be a uniform approach, regardless of the Member State inspected or the team of
inspectors.  The  structure  of  the  inspection  reports  has  also  been  modified  to  take
account of relevant factors arising from use of these checklists.

4.5.4

Production of thematic reports

Some specific subjects of inspection have led to the production of thematic reports based on
the Member States' replies to the questionnaires sent to them before the inspection visit and
on  the  inspection  findings.  These  reports  give  an  overall  view  of  the  Member  States'
theoretical approach to certain arrangements and to the subsequent practical application by the
offices responsible for customs clearance.

16

During the period under review, inspection visits have led to the production of three thematic
reports,  which  are  available  on  request.26  The  first  two  reports,  on  the  treatment  of
antidumping  duties  and  the  treatment  of  mutual  assistance  reports,  resulted  from  an
investigation  conducted  in  all  the  Member  States.  The  anomalies  revealed  were  not
considered  likely  to  undermine  the  operation  of  procedures,  even  though  appropriate
comments  were  made  to  improve  operation.  However,  the  third  report,  on  the  customs
clearance of fresh bananas, which resulted from an investigation conducted in five Member
States,  led  to  the  conclusion  that  none  of  the  systems  of  customs  clearance  in  the  Member
States  inspected  were  able  to  guarantee  the  correct  application  of  Community  rules  in  this
field and proper collection of traditional own resources.

These  three  reports  were  presented  to  the  Member  States  and  discussed  by  the  Advisory
Committee  on  Own  Resources.  They  are  input  material  for  Commission  departments  in
considering any practical  difficulties which  may  arise  from  certain  rules  and  form  the  basis
for recommendations to the Member States to improve the effectiveness of their systems for
the management of customs and accounting procedures or to overhaul them completely. The
customs clearance of cereals and the inspection of medium-sized customs offices will also be
covered by thematic reports to be published in the course of 2003.

4.6.

Financial liability of the Member States

Alongside its development of a more structural approach to inspections, and to ensure sounder
and more effective management of the Community's finances, the Commission has improved
its  approach  to  recovery  by  applying  the  principle  of  financial  liability.  This  principle  has
two components, one internal and the other external.

4.6.1

Internal financial liability

The principle of internal financial liability is concerned less with the monitoring of recovery
than with the accountability of the Member States for their recovery measures. The Member
States are responsible for collecting traditional own resources in the best possible conditions;
under this principle, which is incidentally remunerated (25% of the resources collected), the
Commission  feels  that  the  Member States  must  cover  losses  of  traditional  own  resources
resulting  from  their  own  errors  by  compensating  the  Community  budget  by  virtue  of  their
financial liability.

26

These reports are available at DG BUDGET from the Secretariat of Unit BUDG/B/3 (tel.: 02 295 06 63).

17

                                                
Cases  of  financial  liability  are  identified  in  particular  on  the  basis  of  Articles  220(2)(b)
(administrative errors which could not have been detected by the person liable for payment)
and 221(3) (time-bar resulting from the national authorities' failure to act) of the Community
Customs Code, Articles 869 and 889 of the provisions for the implementation of the Code, the
debtor's legitimate  expectations  in  relation to  the  national  administration  which  provided  an
incorrect  authorisation  and  the  lack  of  diligence  in  the  recovery  of  entitlements  leading  to
non-recovery  (Article 17(2)  of  Regulation  No 1150/2000).  At  the  end  of  2002  the  total
number of cases came to 114, accounting for an aggregate of €50 861 860.00 in principal.

Four  Member  States  (F,  IT,  A,  UK)  have  made  available  €7  471  501.00  as  a  result  of
administrative errors, thus ensuring that the taxpayer does not have to bear the burden of these
errors through payment of the fourth resource. However, the other Member States, although
aware of the principle of financial liability, still rely on the lack of  an explicit legal base on
which  the  Commission's  action  can  be  founded.  To  resolve  the  differences  of  interpretation
between these Member States and the Commission, a test case on financial liability is now the
subject of an infringement procedure under Article 226 of the EC Treaty referred to the Court
of  Justice  on  8  November  2002.  The  Commission  will  apply  the  Court's  decision  mutatis
mutandis  to  all  other  cases  of  financial  liability.  Next  year  the  Commission  intends  to
continue identifying cases in which the Member States are financially liable because of their
errors  and  to  carry  on  negotiating  with  those  Member  States  which  have  not  yet  made
available the amounts for which the Commission considers them liable.

4.6.2

External financial liability

As well as developing the approach that the national authorities are liable for administrative
errors which prevent customs duties from being entered in the accounts, the Commission has
taken steps to  develop an external  dimension to this principle with a  view to increasing  the
liability of partners to international trade agreements which the Union has concluded or will
conclude with non-member countries.27

To  qualify  for  preferential  tariffs  under  these  agreements,  Community  importers  must
produce certificates of origin validated by the authorities responsible in these third countries.
If the documents are not validated, duty will automatically be charged at the full rate when the
goods are imported into the European Union. The problem arises when these certificates are
the result of "administrative errors" on the part of the competent authorities which issue the
certificates  of  origin  even  though  they  knew  or  should  reasonably  have  known  that  the
products in question did not originate in their country.

27

The external dimension of financial liability does not cover autonomous measures such as the generalised system of
preferences. As this is not a negotiated instrument, the Commission cannot impose such a clause "unilaterally".

18

                                                
It  would  then  be  extremely  difficult,  not  to  say  impossible,  to  recover  the  duty  as  the
Community importer could claim to have been acting in good faith and invoke his legitimate
expectations in relation to documents validated by the competent authorities of the European
Union's trade partners. The authorities of the Member States claim in their turn that they have
been misled by information received from competent authorities in third countries. The final
"bill" is then presented to the European Union's taxpayers through the fourth resource (GNP).

Because of the interests at stake, the Commission considers that a clause based on the idea of
the  financial  liability28  of  the  countries  qualifying  for  preferences  (Member  States  of  the
Union  as  well  as  third  countries  as  the  agreements  are  reciprocal)  should  be  systematically
included.  A  clause  of  this  type  must  ensure  that  the  loss  of  traditional  own  resources  is
covered directly by the authorities which, through their actions, are fully responsible for the
resources lost to the budget of the other party to the agreement. This clause already features in
the negotiating directives with the Arab States of the Gulf, Albania  and the countries  of  the
ACP group.

Discussions between the Member States and the Commission are planned in the Council for
early 2003 to fix the legal framework for implementing such an approach.

4.7.

Application of Article 17(2) of Regulation No 1150/2000

The  Commission  examines  the  cases  reported  by  the  Member  States  under  Article  17(2),
where  the  traditional  own  resources  involved  exceed  the  €10 000  threshold  and  recovery  is
uncertain,  to  assess  the  diligence  displayed  by  the  Member  States  in  recovering  these
Community entitlements.

As  regards  the  notification  of  these  cases,  the  Commission,  after  obtaining  the  favourable
opinion of the Advisory Committee on Own Resources, adopted Decision C(2002) 416 final
of  13 March 2002  amending  Decision  97/245/EC,  Euratom29  of  20 March 1997  on  the
procedure for reporting the various items of information to be sent to the Commission under
the Communities' own resources system. This amendment, which mainly  relates to Annex 6
of the Decision of 20 March 1997, is intended as a further improvement to the procedure used
by the Member States to inform the Commission of the follow-up to the measures they have
taken to recover own resources.

28

29

Memorandum to the Commission of 17.7.2001 (C(2001) 1954).
OJ L 97, 12.4.1997, p. 12.

19

                                                
In practice, during the period under review, 426 requests to write off own resources totalling
€148 103 290.2830  (including  317  requests  from  Germany  alone)  were  sent  to  the
Commission  by  Germany,  Spain,  France,  Ireland,  Italy,  Portugal,  Sweden  and  the  United
Kingdom. Given the number of cases reported between 2000 and 2002, the Commission has
developed  a  database  to  improve  the  management  of  the  write-off  procedure.  This
methodology soon led to practical conclusions on financial liability.

As  regards  the  treatment  of  cases,  the  Commission  examined  424  cases  involving
€98 008 529.14  over  the  same  period  (see  table  below).  The  cases  were  examined  by  an
interdepartmental working party which met seven times in 2000-02; the representatives of the
Commission  departments  were  regularly  notified  of  these  cases  -  and  of  any  relevant
information about the examination - before attending the meetings.

Year

2000

2001

2002

Total

Write-off
accepted

Rejected

Further
information

Inadmissible31

Total

123 cases

128 cases

5 cases

73 cases

329 cases

€17 557 144.81

€4 310 313.18

€2 135 024.92

€17 205 094.60

€41 207 577.51

9 cases

1 case

1 case

€951 714.27

€406 361.09

€1 055 542.84

---

11 cases

€2 413 618.20

27 cases

10 cases

17 cases

30 cases

84 cases

€12 069 872.68

€2 491 791.54

€4 546 479.40

€35 279 189.81

€54 387 333.43

159 cases
= 37.50%

139 cases
= 32.80%

23 cases
= 5.40%

103 cases
= 24.30%

424 cases
= 100%

€30 578 731.76
= 31.20%

 €7 208 465,81

 €7 737 047.16

 €52 484 284.41

 €98 008 529.14

= 7.30%

= 7.90%

= 53.60%

= 100%

In  view  of  the  number  of  Member  States  which  have  reported  cases  of  write-offs,  the
Commission  considers  that  there  is  still  a  basic  problem  at  this  level.  It  hopes  that  the  new
Article  17(2)  incorporated  in  the  draft  amendment  of  Regulation  No 1150/2000,  which  is
described  above,  will  make  the  Member  States  more  aware  of  the  concept  of  amounts
irrecoverable in the long term and prompt them to take measures to clear the separate account
to produce a more objective accounting situation.

Germany reported  115  cases to the  Commission  in  1997. At  the  time,  the  Commission  was
unable to process them as they were not presented on the Community model required by the
Commission  Decision  of  March  1997  -  a  form  specially  designed  to  make  it  easier  to  deal
with applications for write-offs. It therefore called on Germany to present these cases again in
line  with  the  provisions  of  the  abovementioned  decision.  In  May  2000  Germany  finally
submitted a more exhaustive list of 282 cases for the period 1994-1998, plus 35 other cases.
The Commission is considering whether to bring an infringement procedure under Article 226
of  the  EC  Treaty  against  Germany  in  view  of  its  refusal  to  provide  the  further  information
necessary to examine certain cases and its refusal to make available the amounts in cases in
which the application to write off the amounts was rejected.

30

31

327  cases  totalling  €42  650  456.00  in  2000,  12  cases  totalling  €2  434  780.85  in  2001  and  87  cases  totalling
€103 018 053.43 in 2002.
Cases covered by the old rules or cases in which the national courts have cancelled the customs debt.

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5.

ASSESSMENT OF THE INSPECTION ARRANGEMENTS

5.1.

General assessment

As in previous years, the anomalies noted in the operation of the inspection arrangements for
traditional  own  resources  during  the  period  2000-02  confirm  the  benefit  which  the
Commission  can  derive  from  the  inspections  it  carries  out.  The  traditional  tools  which  the
Commission employs to follow up its inspection activities include the adjustment by Member
States of national procedures which are not consistent with Community rules, corrections in
the accounts for old cases (before they are time-barred), one-off corrections of the anomalies
found, explanation of Community texts and concerted improvement of Community legislation
in the case of persistent malfunctions.

The  financial  impact  represents  the  visible  impact  of  the  checks  carried  out  on  the  spot;
However, this  is  not  the  only  reason  for  the  checks.  Specific  inspections  by  the  authorising
officer  based  on  all  the  information  gathered  from  the  Member  States  can,  on  analysis,
influence the process for improving the rules so that the financial interests of the  Union  are
taken into account.

In  addition  to  the  range  of  measures  mentioned  above,  there  are  a  number  of  additional
measures  alongside  the  traditional  system  of  checks  which  extend  the  scope  of  inspection.
These measures are described below.

5.2.

Relations with the Court of Auditors

The Commission maintains regular contact with the Court of Auditors to follow up the Court's
activities-  representing  about  20  %  of  the  activities  of  the  unit  for  the  control  of  traditional
own  resources -  through  reciprocal  information  about  the  inspections  they  are  planning  and
copies of every inspection report sent to the Member States and the replies they send. When
preparing its own inspections, the Court is able to draw on the information and experience of
the Budget Directorate-General.

In 1998 the unit in the Commission responsible for traditional own resources created a special
task force to analyse annual and special reports and sector letters from the Court of Auditors
and to provide an administrative and financial follow up to the observations contained in the
Court's reports. The tasks and responsibilities of this task force were reorganised during the
period  under  review  to  provide  even  more  effective  monitoring  with  shorter  deadlines.  The
task  force  also  carefully  ensures  that  the  Member  States  reply  within  the  time  limits  laid
down.

21

In  the  period  under  review,  the  Commission  followed  up  the  Court's  special  reports  on
securities and guarantees and customs value, as well as the annual reports  for  1999,32 2000
and  2001.  It  also  contributed  to  the  replies  to  the  questions  relating  to  traditional  own
resources in the questionnaire33 drawn up by Mr Blak, Member of the European Parliament,
for the 1999 discharge, as well as following up the annual reports on which the discharge was
based. The almost permanent attention given to "New Zealand butter" (Special Report 1/98)
should be mentioned in this connection. The Commission has taken over the coordinating role
of the former "Zepter" Group and replied to all the Court's requests for information about the
monitoring of this case.

Over  the  period  2000-02  the  Commission  also  handled  53  sector  letters;  at  the  end  of  this
period 30 letters were still outstanding,34 pending replies from the Member States or provision
of the own resources concerned or because  the  follow-up had  led  to the  formal  initiation of
infringement proceedings35 under Article 226 of the EC Treaty.

In addition, the Court of Auditors regularly audits Commission departments. It conducted two
audits concerning traditional own resources during the period under review. The Commission
considers  that  any  observations  made  by  the  Court  are  an  important  contribution  for
evaluating its activities and the results.

5.3.

Joint Audit Arrangement

The  Joint  Audit  Arrangement  is  a  generic  term  for  the  cooperation  established  between  the
Commission  and  internal  audit  departments  in  certain  Member  States  to  help  pool  internal
audit  experience,  expertise  and  techniques.  The  process  was  launched  in  1994  and  several
development  phases  have  been  completed  successfully.  Created  under  the  auspices  of  the
Advisory  Committee  on  Own  Resources,  the  Audit  Sub-Group  meets  regularly  to  enable
delegations from all Member States to exchange views.

Within this committee, participating Member States have, on their own initiative and liasing
closely  with  the  Commission,  developed  working  documents  incorporating  audit  plans  and
tools. These working documents form audit modules. The modules consist of structured grids
which can be used to evaluate the key inspections performed in all Member States to ensure
that  own  resources  are  duly  established,  entered  in  the  accounts  and  made  available  to  the
Commission. The module also serves to gauge the capacity of a system as a set of procedures
and to reveal any structural flaws which may need to be rectified.36

32

33

34

35

36

Parliament has  noted  and  welcomed  the  Commission's  efforts  and  initiatives  to  follow  up  the  Court  of  Auditors'
observations – see document EP 294.389 of 10.1.2001.
See document EP 294.293 of 30.11.2000.
These 30 letters break down as follows: 5 for Germany, 4 for Belgium, France, Italy and the United Kingdom, 3 for
Spain, 2 for the Netherlands and Sweden, 1 for Denmark and Austria.
40 letters still have to be closed since 1997.
The following modules are currently available: Free circulation, including the A account; External transit (T1 and
TIR); Warehousing; Generalised System of Preferences; Inward processing; Separate account.

22

                                                
At  present  the  following  countries  take  part  in  the  initiative:,  Belgium,  Denmark,  Spain,
France,  Ireland,  Italy,  the  Netherlands,  Austria,  Portugal,  Finland,  Sweden  and  the
United Kingdom.  On  the  basis  of  the  abovementioned  modules,  the  Commission,  in
collaboration  with  some  volunteer  Member  States,  developed  an  alternative  method  to
improve joint inspections (those carried out under Article 18(2) of Regulation No 1150/2000)
which require  closer  cooperation. Denmark,  the  Netherlands  and  Austria  volunteered  to  use
this  approach.  Seven  inspections  of  this  type  have  already  been  carried  out  with  these
Member States.

Under this approach, the audit work is done by the internal audit department of the Member
State  concerned,  using  as  a  basis  the  module  covering  the  preselected  customs  and/or
accounting  field.  On  completing  its  task,  the  internal  audit  department  draws  up  a  report
which is sent to the national customs authorities and the Commission. The Commission then
examines the findings of the audit and visits the Member State to interview the internal audit
team and inspect the working documents and the methods used.

Following this inspection visit, the Commission can adopt the main points of the report. The
Commission  then  draws  up  its  own  report.  Any  anomalies,  which  must  be  classified  as
"one-off" or "structural", are dealt with by financial adjustments in the usual way. Where the
system analysis suggests that the anomaly is structural in nature, the Commission is informed
of the measures proposed by the Member State to remedy the underlying shortcomings in the
system.

The  Commission  and  the  Member  States  have  found  it  extremely  beneficial  to  carry  out
inspections in line with this approach. For the Commission, it offers sufficient guarantees as
to  the  real  effectiveness  of  Member States'  internal  audit  systems.  It  also  saves  resources
which can be better invested in other sectors, in particular in the candidate countries. For the
Member States, this approach means fewer upheavals in the everyday activity of the customs
offices  and  more  effective  investment  in  their  own  administrations.  The  Commission  also
presented  the  Joint  Audit  Arrangement  and  its  benefits  at  the  5th  meeting  of  the  Contact
Group for Financial Control Organisations in Malta in October 2002.

5.4.

Inclusion of the acceding countries

With 2004 in mind, the Commission endeavoured during the period under review to define a
strategy  for  approaching  the  question  through  prior  information  visits,  followed  by  the
underlying  measures  needed  in  the  administrations  of  the  ten  candidate  countries  to  ensure
that their customs and accounting systems comply with Community requirements concerning
the operational treatment of own resources.

23

Members of the Commission also played an active role in seminars to present the traditional
own resources system to officials in the administrations of the countries which have applied
for accession. These seminars were held in Lithuania (October 2000), Malta (February 2001),
Cyprus  (February  2001),  Poland  (March  2001)  and  Bulgaria  (October  2001).  They  proved
very useful for demonstrating the various aspects which the candidate countries must take into
consideration during their reform activities so that they can prepare for accession in the best
possible conditions. These seminars have been accompanied by various preparatory activities.

The Commission drew up a practical guide listing the measures which the authorities in these
countries  will  have  to  take  to  incorporate  the  body  of  Community  law  in  their  national
legislation. This checklist is a valuable technical aid in helping them prepare for accession in
the specific field of traditional own resources. The checklist enabled the Commission to draw
up a questionnaire which was sent to the 10 candidate countries of the Laeken Group - i.e. all
the  candidate  countries  with  which  the  Commission  was  conducting  negotiations  with  the
exception of Romania and Bulgaria - to make an initial assessment of the progress they have
made in their preparations for calculating and paying own resources. For each administrative
condition  that  has  to  be  met,  the  countries  were  asked  to  state  whether  there  were  already
national  rules  and  the  underlying  infrastructures  to  satisfy  this  condition.  They  were  also
asked to produce mock accounting statements in connection with traditional own resources.

to 

the  replies 

These activities have been  supplemented by  visits to  provide technical  assistance  as  well  as
follow  up 
the  questionnaire.  These  visits  have  removed  possible
misunderstandings  about  the  extremely  technical  aspects  of  the  own  resources  system  and
made it possible to take stock of the progress made so far and the measures to be planned so
that the system can be applied in full from day one of accession. They have also provided the
opportunity  of  presenting  and  jointly  preparing  a  uniform  method  for  the  calculation  of
resources (and expenditure) and assisting negotiations on the budgetary chapter by setting up
a common terminology and methodology.

From  the  (draft)  national  regulations  in  the  candidate  countries  and  the  replies  to  its
questionnaire, the Commission has been able to form a positive opinion about the quality of
the national procedures introduced and the progress achieved with a view to future accession.
Given  the  timetable  and  the  efforts  still  to  be  made,  and  the  obvious  interest  shown  by  the
European  Court  of  Auditors  in  the  preparatory  measures  which  it  is  carrying  out,  the
Commission considers this issue to be an absolute priority. That is why the Commission will
provide  technical  assistance  throughout  2003  targeted  on  those  fields  which  still  require
considerable  adjustment.  Evaluation  of  collection  systems  in  real  time  will  also  be  given
priority.

24

The  inclusion  of  the  candidate  countries  and  the  effort  required  of  the  Commission  -  at
constant  staffing  levels  -  will  automatically  lead  to  a  shift  in  the  implementation  of
inspections in the current fifteen Member States. The number of traditional missions will be
confined, in principle, to a single inspection per Member State; in some Member States, the
inspections  will  be  under  the  Joint  Audit  Arrangement.  Of  course,  this  does  not  rule  out
additional  short-term  visits  to  expand  on  certain  aspects  treated  during  previous  inspection
programmes. The Commission is also considering the possibility of associating the Member
States in the inspection visits.

6.

CONCLUSION

The results recorded  from 2000 to 2002, and the prospects which  emerge, confirm the need
for  the  Commission's  inspections  of  traditional  own  resources.  This  inspection  activity
ensures equality  of treatment between  the Member  States as  regards  both  application  of  the
customs and accounting rules and protection of the European Union's financial interests; i.e. if
the Member States fail to comply with these rules, they all face the same consequences.

At  the  same  time  as  taking  the  necessary  measures  for  the  further  improvement  of  its
traditional inspection visits, the Commission intends to expand its activities in the following
three areas:

– 

– 

– 

Monitoring the acceding countries, so as to obtain a reasonable degree of assurance
that  these  countries’  customs  and  accounting  systems  will  meet  Community
requirements by the time of accession;

Internal  financial  liability  of  the  Member  States  the  principle  under  which  the
Member  States  must  bear  responsibility  for  their  errors.  The  various  infringement
procedures brought before the Court of Justice should allow certain guidelines to be
laid down;

External  financial  liability  suitable  consideration  must  be  given  to  provide  the
ability  to remedy  the  negative  financial  effects  resulting  from  poor  management  of
preferential agreements.

25