Communication from the Commission - Report to the discharge Authority summarising the number and types of internal audits carried out in 2002, the main recommendations made and the action taken on those recommendations (Article 86, 4 of the Council Regulation N° 1605/2002)
Date: 2003-07-09
Institutions: European Commission
Subjects: European Commission, administration of the Institutions, audit, financial management, management audit, report

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 9.7.2003
COM(2003) 422 final

COMMUNICATION FROM THE COMMISSION

Report to the discharge Authority summarising the number and types of internal audits
carried out in 2002, the main recommendations made and the action taken on those
recommendations

(Article 86, 4 of the Council Regulation N° 1605/2002)

TABLE OF CONTENTS

1.

2.

2.1.

3.

3.1.

3.2.

3.3.

3.4.

3.5.

3.6.

3.7.

3.8.

3.9.

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

Overview of the internal audits and follow-up carried out ................................... 3

- Follow-up of previous audits ..................................................................................... 3

Summary of each audit............................................................................................. 3

Process Review on the Annual Activity Reports and Declarations of
Authorising officers by delegation relating to 2001 .............................................. 3

Audit of training in the Commission........................................................................ 4

Audit of Follow-up to the discharge procedure ..................................................... 4

In-depth audit in DG REGIO.................................................................................... 4

Audit on recovery of Overpaid Funds .................................................................... 5

Implementation of the Structural Funds in the Candidate Countries
(Management Letter) ................................................................................................ 5

Follow-up of previous audits.................................................................................... 5

Reform Progress Review ......................................................................................... 6

Building Infrastructure Management ...................................................................... 6

3.10. Procurement of Studies and Services.................................................................... 6

3.11. Governance Review of Programme Management in the External Relations

field .............................................................................................................................. 6

3.12. European Development Funds Counterpart Funds and Budgetary Support... 7

3.13. Berlaymont Refurbishment ...................................................................................... 7

4.

Conclusions................................................................................................................ 7

2

1. 

INTRODUCTION

This  summary  report  is  communicated  to  the  discharge  Authority  in
accordance  with  Article  86,  4  of  Council  Regulation  (EC,  Euratom)  No
1605/2002  of  25  June  2002  on  the  Financial  Regulation  applicable  to  the
general budget of the European Communities.

Its purpose is to present the number and type of internal audit carried out, the
main 
those
recommendations.

recommendations  made  and 

the  action 

taken  on 

2. 

OVERVIEW OF THE INTERNAL AUDITS AND FOLLOW-UP CARRIED OUT

In  2002,  according  to  its  work  programme,  the  Internal  Auditor  has  carried
out the following audits:

-  Process  Review  on  the  Annual  Activity  Reports  and  Declarations  of
Authorising officers by delegation relating to 2001,

- Audit of Training in the Commission,

- Audit of follow-up to the discharge procedure,

- Audit of DG REGIO (In-depth audit),

- Audit of Recoveries of Overpaid Funds,

-  Implementation  of  the  Structural  Funds  in  the  Candidate  Countries
(Management Letter),

2.1. 

- Follow-up of previous audits

- Reform progress Review,

- Building Infrastructure Management,

- Procurement of Studies and Services,

3. 

3.1. 

- Governance Review of Programme Management in the External Relations
Field,

- EDF Counterpart and Budgetary Support,

- Berlaymont Refurbishment.

SUMMARY OF EACH AUDIT

Process  Review  on  the  Annual  Activity  Reports  and  Declarations  of
Authorising officers by delegation relating to 2001

This process audit has been carried out at the same time as the Synthesis of
the Annual Activity Reports on 2001 was prepared and its recommendations
have  been  taken  into  account  in  the  Synthesis.  The  aim  was  to  establish  a
view on the strengths and weaknesses of the reports and declarations and to
draw lessons for the future.

Recommendations

The  recommendations  focus  on  an  increased  attention  of  the  services  to
better  report on  results  and outcome, to  give  a more  detailed  description  of
the internal control systems in place and the necessity to clarify methodology
and the role of the actors involved.

3

Actions taken

The  methodology  and  guidance  have  been  improved  in  particular  with  two
Commission decisions of 21 January (COM(2003)28 and SEC(2003)59).

3.2. 

Audit of training in the Commission

The  training  audit  looked  at  the  organisation  and  provision  of  training  in
Brussels and Luxembourg sites, providing examples of best practices outside
the Commission.

Recommendations

IAS  recommended  improving  the  overall  training  ownership  and  strategy  to
better meet the Institution’s needs and priorities and enhancing control over
out-sourced  training  provision  to  be  achieved  by  developing  centralised
financial records and supplier reporting.

Actions taken

The  Commission  has  adopted  a  post-Reform  training  strategy  that  should
enable  the  priority  needs  defined  through  the  Activity  Based  Management
approach to be taken into account.

3.3. 

Audit of Follow-up to the discharge procedure

The aim of the audit was to recommend improvement in the follow-up to the
Discharge procedure by the Commission.

Recommendations

The audit report recommends setting up an  interinstitutional  strategy  for  the
Discharge  procedure,  a  method  of  measuring  effectiveness  of  controls,  an
understanding  of  reputational  risk  for  the  Union,  a  system  of  reporting  on
action  taken  and  the  improvement  of  the  central  ownership  on  the  process
within the Commission.

Action taken

The  technical  issues  have  been  further  developed  and  the  responsibility  of
the actors concerned in the Commission has been clarified in a Commission
decision of January 2003.

3.4. 

In-depth audit in DG REGIO

The audit’s objective was to better identify the risk and control profile of the
DG within the context of the Commission as a  whole. The  audit focused on
the  three  following  areas:  the  implementation  of  the  financial  control
provisions  for  the  European  Regional  Development  Fund,  the  process  of
interpreting Regulations and the reporting systems.

Recommendations

IAS  recommended  focusing  audits  on  the  preventive  checks,  and  to
introduce  Member  States  disclosure  statements,  while  enhancing  the  co-
operation with the Member States on control issues. It also proposes to build
further  on  the  improved  regulatory  framework  regarding  management  and
control and finally to increase the advisory role of the desk officer.

Action taken

4

DG REGIO has already developed an audit  strategy,  re-organised  the  audit
and  control  units  and  prepared  proposals  to  improve  co-operation  with
Member  States  in  the  perspective  of  the  single  audit  concept  (“contract  of
confidence”).

3.5. 

Audit on recovery of Overpaid Funds

The  aim  of  this  audit  was  to  gain  better  understanding  of  the  particular
mechanisms of interdepartmental processes and support the ongoing reform
process in the area. It concentrated on recovery of unduly paid funds in the
field of direct management and in the European Development Fund.

Recommendations

IAS  recommends  to  develop  an  oversight  and  leadership  role  for  the
recovery  systems,  a  harmonised  approach  for  the  treatment  of  recovery
orders,  central  monitoring  and  guidance  and  improvement  of  the  IT-tools
concerned.

Action taken

The  regulatory  framework  has  been  changed  and  the  Commission  had
already  adopted  some  remedial  management  action  as  part  of  the  Reform
action plan.  This is now being reviewed for completeness.

3.6. 

Implementation  of  the  Structural  Funds  in  the  Candidate  Countries
(Management Letter)

Based on a study on structural aid management launched early in 2002, IAS
issued a management letter to draw the  attention  of managing  departments
to the question of the administrative capacity of the candidate countries and
the requirements in terms of human resources to carry out  the  tasks  before
and after enlargement.

Recommendation and action taken

The DGs concerned had already taken certain initiatives to address identified
problems  and  mitigate  risks,  for  instance  by  the  careful  planning  of  the
programming  process  for  the  new  Member  States,  close  monitoring  of  the
commitments,  EDIS  exercise  and  Structural  Funds  management
simplification.  Additional  assistance  has  been  decided  to  strengthen  the
administrative  capacity  of  the  future  Member  States  (Transition  Facility).
Difficult  trade-offs  remain  however  in  the  allocation  of  resources  within  the
Commission staff availabilities.

3.7. 

Follow-up of previous audits

Summary

IAS internal audit report highlights the necessity to further develop follow-up
procedure and stresses the responsibility of management in the follow-up of
the audit recommendations and corrective actions.

Action taken

The services sent from end January 2003 their action plan in response to the
audits  performed  to  date  by  IAS.  The  Commission  adopted  a  decision  in
January 2003 on the role and responsibility of the actors in control and audit.

5

Within  the  available  resource  limits,  IAS  will  schedule  follow-up  work  in
selected areas.

3.8. 

Reform Progress Review

This  audit  dealt  with  the  way  in  which  DGs  were  progressing  with  reform
actions.

Recommendations

IAS highlighted the need for continuing impulsion from a steering group and
the need for adequate resources.

Action taken

The ABM Steering Group mandate has been extended to integrate the whole
scope of the administrative reform and the use of posts released by the early
retirement scheme has been assigned in priority to reform-related needs.

3.9. 

Building Infrastructure Management

Summary

This  audit  aimed  at  making  the  state  of  play  of  the 
management.

infrastructure

The  Commission’s  proposal  for  recasting  the  Financial  Regulation  would
have  addressed  some  of  the  necessary  remedial  action  but  the  Budgetary
Authority has rejected the proposal to allow access to direct borrowing.

A specific Commission communication due in 2003 will introduce the idea to
examine  the  buildings  and  logistic  consequences  before  deciding  on
departments’ restructuration.

Two new infrastructure offices have been created that will allow to clarify and
rationalise activities and responsibilities.

3.10.  Procurement of Studies and Services

Summary

The  follow-up  to  the  audit  in  question  is  still  in  progress  and  all  DGs  are
currently  communicating  to  the  Secretarial  General  the  actions  they  plan  to
improve and optimise the use of studies and services already delivered and
better co-ordinate the programming to avoid duplication.

3.11.  Governance  Review  of  Programme  Management 

in  the  External

Relations field

Summary

IAS proposed in its report in particular to review the structure of Relex service
and to use the country disclosure statements for the external aid.

Action taken

An interservices working group has  been  set  up and  has  produced  a  report
as  follow-up  to  an  action  of  the  2001  Annual  Activity  Reports  synthesis
addressing  the  same  issue.  The  report  has  been  sent  in  April  to  the  Audit
Progress Committee for further development.

6

3.12.  European  Development  Funds  Counterpart  Funds  and  Budgetary

Support

Summary

On  the  basis  of  the  IAS  report,  a  number  of  concrete  measures  have  been
implemented by DG AIDCO as development of guidelines, filing systems and
monitoring  tools  and  enhanced  co-operation  with  other  donors.  The  IAS
recommendations  will  be  reviewed  together  with  the  in-depth  review  of  DG
AIDCO.

3.13.  Berlaymont Refurbishment

Summary

Based  on  the  IAS  recommendations  presented  in  the  report  on  the
renovation  and  potential  acquisition  of  the  Berlaymont,  a  number  of  actions
have been implemented as the elaboration of detailed scenarios as to costs
for comparable projects and re-enforcement of the management structure for
the remainder of the current project.

The new Office for infrastructure in Brussels is now responsible for the follow-
up  of  the  recommendations.  A  convention  has  been  signed  between  the
Commission  and  the  Belgian  State  setting  a  price  for  the  Berlaymont  that
takes the sound management of the renovation into account, stating a date of
availability and defining the final product.

4. 

CONCLUSIONS

This  report  has  been  elaborated  to  present  to  the  discharge  Authority  a
summary of the number and types of internal audits carried out in 2002, the
mains 
those
recommendations.

recommendations  made  and 

the  action 

taken  on 

7