Report on the financial statements of the European Agency for Reconstruction for the financial year 2002, together with the Agency's replies
Date: 2003-10-16
Institutions: European Court of Auditors
Subjects: European Agency for Reconstruction, financial control, financial year, report

30.12.2003

EN

Official Journal of the European Union

C 319/1

I

(Information)

COURT OF AUDITORS

on the financial statements of the European Agency for Reconstruction for the financial
year 2002, together with the Agency’s replies

REPORT

(2003/C 319/01)

CONTENTS

Paragraph

Page

THE COURT’S OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legality and regularity of the underlying transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-5

6-16

6

7-9

10-14

15-16

Tables 1 to 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Agency’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

2

2

2

2

3

4

7

C 319/2

EN

Official Journal of the European Union

30.12.2003

THE COURT’S OPINION

OBSERVATIONS

1.
This report is addressed to the European Parliament and to
the Council in accordance with Article 185(2) of Council Regula-
tion (EC, Euratom) No 1605/2002 (1).

2.
The Court of Auditors has examined the financial state-
ments of the European Agency for Reconstruction (‘the Agency’)
for the financial year ended 31 December 2002. In accordance
with Article 8 of Council Regulation (EC) No 2667/2000, the
budget was implemented under the responsibility of the Director.
This responsibility includes the drawing-up and presentation of
the financial statements (2) in accordance with the internal finan-
cial provisions adopted on the basis of Article 9 of the same
Regulation. The Court of Auditors is required pursuant to
Article 248 of the Treaty establishing the European Community
to examine these accounts.

3.
The Court performed its audit in accordance with its audit-
ing policies and standards. These have been adapted from gener-
ally accepted international auditing standards to reflect the spe-
cific characteristics of the Community context. The Court carried
out such tests of the accounting records and applied such other
audit procedures as it deemed necessary in the circumstances.
Through this audit the Court obtained a reasonable basis for the
opinion expressed below.

Introduction

6.
The European Agency for Reconstruction was set up by
Council Regulation (EC) No 2454/1999 of 15 November 1999 (3).
It manages the Union’s aid programmes in Kosovo and Serbia and
Montenegro and in the former Yugoslav Republic of Macedonia.
The seat of the Agency is in Thessaloniki and it has operational
centres at Pristina, Belgrade, Podgorica and Skopje. The objectives
of the programmes managed by the Agency are to foster institution-
building and good governance, to promote the development of a
market economy and essential infrastructure and to consolidate
civil society.

Implementation of the budget

7.
The implementation of the appropriations for the financial
year 2002 and of the appropriations carried over from the previ-
ous financial year is shown in Table 1.

8.
At the end of 2002, the Agency found that it had made
payments amounting to 2,7 million euro which were not covered
by budgetary commitments. The payments related to the carrying-
out of projects that the Commission had transferred to the Agency
in the course of the year.

The budget forecasts for Title II (administrative expendi-
9.
ture) should be given careful attention, so as to ensure that the
carryovers and appropriations which lapse do not account for too
great a part of the total budget (50 % in the financial year 2002).

4.
This examination has enabled the Court to obtain reason-
able assurance that the annual accounts for the financial year
ended 31 December 2002 are reliable and that the underlying
transactions, taken as a whole, are legal and regular.

Financial statements

5.
Without prejudice to the opinion expressed, the Court
would like nonetheless to draw the attention of the discharge
authority to the situations described in paragraphs 13 to 15.

(1) OJ L 248, 16.9.2002, p. 1.
(2) As laid down in Article 8 of Council Regulation (EC) No 2667/2000,
the accounts for all the Agency’s revenue and expenditure for the
financial year 2002 were drawn up on 29 September 2003 and sent
to the Court of Auditors. The accounts were received by the Court on
29 September 2003. A summarised version of the financial state-
ments is presented in the tables attached to this report.

10.
The revenue and expenditure account and balance sheet
published by the Agency in its activity report for the financial year
2002 are presented in summary form in Tables 2 and 3. It should
be noted that, in 2002, the Agency’s internal control system was
strengthened by the introduction of the SI2 budget accounting
system.

11.
In 2002, despite the Court’s previous observations (4), the
Agency was still using a spreadsheet for its general accounts. The
introduction of a reliable general accounting tool in all the centres
should be a matter of priority.

(3) OJ L 299, 20.11.1999.
(4) See paragraph 12 of the report for the financial year 2001, OJ L 326,

27.12.2002, p. 3.

30.12.2003

EN

Official Journal of the European Union

C 319/3

The Agency makes funds available to specialised bodies
12.
for the financing of loan programmes in specific fields (develop-
ment of SMEs, agri-industry undertakings, etc.). Either these funds
remain the property of the Agency, in which case they are placed
in bank accounts opened in its name, or, where the Agency intends
to transfer the funds to the authorities concerned following imple-
mentation of the programme, they are paid as subsidies and
recorded as Agency expenditure.

13.
In one case where an account had been opened in the
Agency’s name, the accounting officer had not been advised of
the existence of the account, the balance of which was 205 000
euro at the end of the financial year. Since the Agency was set up,
funds totalling 13,3 million euro have been assigned to this type
of project; as at 31 December 2002 the cumulative balance of the
bank accounts concerned (including the balance of 205 000 euro
not reported to the accounting officer) was 3,7 million euro and
is included under the item ‘Bank accounts’ on the balance sheet.

14.
In one case concerning funds to be paid to a public-sector
bank as a subsidy for the development of SMEs in Serbia (5 mil-

lion euro), the provisions of the contract specify that the funds
disbursed remain the property of the Agency. The Court consid-
ers that the Agency must seek a suitable means of providing infor-
mation on these funds in its balance sheet or the annexes
thereto (1).

Legality and regularity of the underlying transactions

15.
As of the end of the 2002 year, the director had issued no
fewer than 67 delegations for the implementation of the bud-
get (2). Even allowing for the dispersal of the Agency centres, the
number of delegations seems likely to weaken the internal control
system. For example, several cases were found where commit-
ments and payments had been signed by employees who had not
been duly authorised to do this.

Each centre has a petty cash fund or imprest account,
16.
sometimes involving large sums of money (3). The rules and pro-
cedures that apply to these funds should be the subject of a deci-
sion by the director in accordance with the provisions of the
financial regulation.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 15 and 16 October 2003.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

(1) Since the Agency was set up, the total amount identified as funds
committed for subsidies of this sort is 17,1 million euro, 12,5 million
of which was actually disbursed and recorded as expenditure.
(2) The delegations concerned 45 employees, almost half of the category

A staff.
(3) 50 000 euro.

Source of revenue

Community
subsidies

Other
subsidies

Other
revenue

European Agency for Reconstruction — Implementation of the budget for the financial year 2002

Table 1

Expenditure

Final budget appropriations

Appropriations carried over from the previous financial year

(million EUR)

Revenue
received

Allocation of
expenditure

entered

committed

paid

carried
over

lapsed

balance for
commit-
ment

commit-
ments
carried over

paid

lapsed

outstanding
commitments

Revenue

Revenue
entered
in the final
budget
for the
financial
year

458,8

437,4

Title I
Staff

30,0

7,1

1,0

6,5

Title II
Administration

Title III
Operating activities

20,3

18,0

17,8

12,8

8,2

6,2

462,8

300,1

82,8

Total

495,9

444,9

Total

495,9

326,3

106,8

Commitment
appropriations
carried over
from 2001

170,3

Total 2001 and 2002

666,2

131,5

457,8

55,7

75,8

162,5

295,3

NB: Any discrepancies in totals are due to the effects of rounding.
Source: Agency data. The tables summarise the data supplied by the Agency in its own financial statements.

0,2

2,0

217,3

219,5

2,3

4,6

0,1

7,1

1,1

8,2

0,0

0,0

0,3

1,2

162,5

162,5

209,3

210,8

0,3

1,1

158,8

160,2

37,6

0,0

0,0

200,1

210,8

160,2

0,1

0,1

5,5

5,6

0,0

5,6

0,0

0,0

45,0

45,0

0,0

45,0

C
3
1
9
/
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

3
0
1
2
2
0
0
3

.

30.12.2003

EN

Official Journal of the European Union

C 319/5

European Agency for Reconstruction — Revenue and expenditure account for the financial years 2002 and 2001

Table 2

2002

2001

(1 000 EUR)

Revenue
Commission subsidies (1)
Financial revenue
Miscellaneous revenue
Counterpart funds
Earmarked revenue

Expenditure
Staff — Title I of the budget
Payments
Appropriations carried over

Administration — Title II of the budget
Payments
Appropriations carried over

Operating activities — Title III of the budget
Payments
Appropriations carried over

Total revenue (a)

462 804
5 978
495
497
500

470 274

17 771
206

6 211
2 037

138 512
293 106

Outturn for the financial year (a – b (2)

Balance carried over from the previous financial year
Payments on the Commission’s behalf (1)
2001 payment appropriations which lapse (Title III)
2001 appropriations carried over which lapse (Titles I and II)
Cancellations of 2001 appropriations carried over
Carryovers of further 2001 appropriations
Exchange-rate differences

Total expenditure (b)

457 844

12 430

- 73 127
- 25 407
0
135
5 463
- 32 423
22

Balance for the financial year

- 112 908

517 633
2 915
135
5 787
0

526 469

13 418
337

5 908
1 217

327 345
176 863

525 088

1 382

- 35 768
- 70 050
31 061
254
0
0
- 5

- 73 127

(1) Includes payments made by the Commission for the Agency to make payments on its behalf.
(2) Calculated according to the principles laid down in Article 15 of Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 (OJ L 130, 31.5.2000, p. 8).
NB: Any discrepancies in totals are due to the effects of rounding.
Source: Agency data.

C 319/6

EN

Official Journal of the European Union

30.12.2003

European Agency for Reconstruction — Balance sheet at 31 December 2002 and 2001

Table 3

Assets

2002

2001

Liabilities

2002

2001

(1 000 EUR)

Fixed assets
Equipment and furniture
Computer equipment
Depreciation

Current assets
Sundry accounts receivable
Advances
Recoverable VAT

Cash accounts
Bank accounts
Cash

2 116
2 067
- 1 706

1 664
1 409
- 992

Fixed capital
Own capital
Balance for the financial year

2 478
- 112 908

2 082
- 73 127

Subtotal

2 478

2 081

Subtotal

- 110 430

- 71 045

58
53
26

247
30
0

Current liabilities
Automatic carryovers of appropriations (Title III)
Automatic carryovers of appropriations
(Titles I and II)
Sundry accounts payable

338 112

176 863

2 244
49

1 554
560

Subtotal

137

277

Subtotal

340 405

178 977

227 307
53

105 553
20

Subtotal

227 360

105 574

Total

229 975

107 932

Total

229 975

107 932

NB: Any discrepancies in totals are due to the effects of rounding.
Source: Agency data.

30.12.2003

EN

Official Journal of the European Union

C 319/7

THE AGENCY’S REPLIES

Budgetary implementation

Legality and regularity of the transactions

8.
These payments were made on the basis of figures stated
in a formal decision of the Commission. A delay which occurred
in committing these funds in the Commission accounts is expected
to be regularised in 2003.

9.
The unspent funds for Title 2 in 2002 are mainly due to
the starting-up of the Agency in the former Yugoslav Republic of
Macedonia and the difficulties of estimating better the costs of
this type of exercise.

Financial accounts set-up

The Agency expects to close the 2003 accounts with an

11.
already installed professional application for the general ledger.

13.
This case was a miscommunication between the accoun-
tant based in headquarters and a deputy accountant in an opera-
tional centre.

15.
The Agency is spread over five locations and manages a
budget divided into three distinct titles. Within assistance pro-
grammes, there are six to eight distinct sectors of activity in each
of the four operational centres. Therefore, in each centre, the
number of staff in Operations with a delegation of signature for
each relevant sector is the minimum. The Agency undertook a
streamlining of its procedures in order to avoid any omission of
delegation of signature in the future.

Further to the mission of the Court, the Agency reduced
16.
the petty cash in Belgrade from EUR 50 000 to EUR 20 000 for
payments in cash. All other payments are made by cheque or
bank transfer. The formalisation of the petty cash will be made as
recommended by the Court.