Report from the Commission to the European Parliament and the Council - Commission's Report on the follow-up to 2001 Discharges
Date: 2003-10-29
Institutions: European Commission
Subjects: European Development Fund, activity report, budgetary discharge, financial control, general budget (EU), interinstitutional relations (EU), management audit, operation of the Institutions

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 29.10.2003
COM(2003) 651 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND
THE COUNCIL

Commission's report on the follow-up to 2001 Discharges

TABLE OF CONTENTS

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE
COUNCIL ON THE FOLLOW-UP TO 2001 DISCHARGES..................................................1

I.

a)

b)

c)

d)

e)

f)

g)

h)

i)

j)

k)

l)

m)

II.

III.

IV.

V.

a)

b)

c)

d)

e)

f)

g)

h)

i)

j)

European Parliament Resolution on General Budget .............................................4

Accounting, Treasury, Recovery...................................................................................4

Eurostat, Fight against fraud......................................................................................10

Externalisation............................................................................................................15

Budget Underimplementation / SAPARD, Structural Funds ......................................21

Enlargement................................................................................................................26

Agriculture & Food ....................................................................................................28

European Social Fund ................................................................................................32

Environment, public health and consumer policy ......................................................36

Penalty payments ........................................................................................................36

External Policies.........................................................................................................38

Financial Instruments .................................................................................................43

Other remarks .............................................................................................................44

OLAF ..........................................................................................................................47

European Parliament Resolution on EDF ..............................................................49

European Parliament Resolution on ECSC ...........................................................60

European Parliament Resolution on Agencies.......................................................62

Recommendation of the Council on General Budget ............................................69

Commission reform.....................................................................................................69

Own resources ............................................................................................................72

Common Agricultural Policy ......................................................................................73

Structural measures ....................................................................................................75

Internal policies ..........................................................................................................80

External actions ..........................................................................................................81

Pre-accession aids ......................................................................................................86

Administrative expenditure .........................................................................................88

Financial instruments & banking activities................................................................88

Statement of Assurance...............................................................................................90

2

PREAMBLE

1/Scope of the Follow-up Report

Article  276  of  the  EC  Treaty  and  Article  180b  of  the  EAEC  Treaty  determine  the  discharge
procedure. These articles state that the “Commission shall take all appropriate steps to act on the
observations  in  the  decisions  giving  discharge  and  on  other  observations  by  the  European
Parliament  relating  to  the  execution  of  expenditure,  as  well  as  on  comments  accompanying  the
recommendations on discharge adopted by the Council. At the request of the European Parliament
or the Council, the Commission shall report on the measures taken in the light of these observations
and comments and in particular on the instructions given to the departments which are responsible
for  the  implementation  of  the  budget.  These  reports  shall  also  be  forwarded  to  the  Court  of
Auditors".

As  far  as  implementation  of  the  General  Budget  for  the  2001  financial  year  is  concerned,  the
Commission,  acting  on  requests  from  the  Council  and  Parliament,  accordingly  produces  the
present Follow-up Report, which relates to the Council recommendation of 7 March 2003 and the
Resolution voted by the European Parliament on 8  April  2003.Compared  with the previous years
this  Follow-Up  Report  also  relates  to  the  Discharges  given  in  respect  of  implementation  of  the
budget of the sixth, seventh and eighth European Development Funds and the ECSC for the 2001
financial year.

Lastly, the Report also deals with the follow-up to recommendations to the Commission relating to
Discharges  given  to  the  European  Coal  and  Steel  Community  (ECSC)  and  to  the  following
agencies: CEDEFOP, EUROFOUND & EAR

2/Objective of the follow-up report

In  accordance  with  the  Treaties,  the  objective  of  this  Follow-up  Report  is  mainly  to  present  the
action taken by the Commission or action it intends to take in response to the comments contained
in  the  discharge  resolutions  in  respect  of  implementation  of  the  general  budget  of  the  European
Union  for  the  financial  year  2001,  the  budget  of  the  sixth,  seventh  and  eighth  European
Development Funds and the ECSC for the 2001 financial year.

3/Methodology

For the sake of clarity and to avoid a very lengthy document, this is a summarised version of the
requests  expressed  by  the  Budgetary  Authority.  The  requests  can  be  found  in  full  in  the  attached
recommendations issued by the EP and the Council.

To make for quick location of the original requests in the Discharge recommendations, the cross-
references to the original requests are presented in brackets after each summarised request. Each
cross-reference  starts  with  the  name  of  the  rapporteur  responsible  for  a  given  Discharge
recommendation (e.g. Casaca § 52 stands for the request presented under paragraph 52 of the 2001
General  Budget  Discharge  recommendation).  The  same  proceeding  applies  for  the  other
recommendations, i.e.:

Sorensen

- stands for the 2001 EDF Discharge recommendation;

Langenhagen - stands for the 2001 ECSC Discharge recommendation;

Council

- stands for the 2001 Council Discharge recommendation.

3

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

I.

A)

1.

European Parliament Resolution on General Budget

Accounting, Treasury, Recovery

Present  by  the  end  of  2003  a  multiannual  plan  containing  a  timetable  and  a  step-by-step
plan  for  obtaining  a  positive  declaration  of  reliability  in  respect  of  the  whole  budget;
(Casaca - § 5)

Commission's reply:

Following the administrative reform, the Commission is gradually setting up the structure needed
to  give  such  an  assurance.  Concerning  the  accounting  aspect,  a  new  accrual  accounting
framework based on international accounting standards for the public sector is planned for 2005,
in conformity with the Financial Regulation of 25 June 2002 and the implementing rules. Such
international  public  sector  accounting  standards  have  only  recently  been  agreed.  The  Court  of
Auditors has nevertheless consistently indicated that the accounts have over the years faithfully
reflected the Communities' revenue and expenditure, except for 4 minor technical qualifications.

As regards the reform of financial management in the Commission, the standards expected of the
internal  control  systems  are  clearly  established  and  a  major  effort  is  being  made  by  the
Directorates-General to achieve full compliance as far as possible with the baseline requirements
of the 24 Internal Control Standards by the end of 2003 (See Action 5.4.5. of the 2002 Synthesis
of the Annual Activity Reports and declarations of the Directors-General and Heads of Services
of 
9.7.2003).
The Commission has also  taken steps to deal with the risk of irregularity in operations which it
does not manage directly. For instance:

Commission, 

European 

(2003) 

COM 

391 

the 

of 

– 

- regarding shared management, an interdepartmental group is considering possible measures to
involve the Member States more closely;

- as regards shared-cost programmes, a plan of action adopted on 10.1.2003 is now operating to
generate  greater  consistency  between  Directorates-General  in  contract  management.  Several
Directorates-General  have  adopted  corrective  measures  to  reduce  the  risk  of  errors  to  the
minimum;

- regarding co-financed programmes in general, an interdepartmental group is to work from the
end of 2003 on the possibility of introducing flat-rate components in grants and subsidies, with a
uniform control methodology.

Finally,  given  the  Court's  continuing  concern  regarding  such  risks,  the  Commission  will
examine  the  feasibility  of  formalising  benchmarks  for  the measures  taken  in  each  sector  of  its
activities concerned, and of reporting on its attainment of these benchmarks.

2.

Plan  of  the  approach  to  be  adopted  by  the  end  of  2003  by  each  individual  DG,  in  the
context  of  decentralisation,  stating  how  and  when  the  DG  will  obtain  a  declaration  of
reliability; (Casaca - § 5)

4

Commission's  reply:  The  Commission  attaches  the utmost  importance to  the  achievement  of  a
positive  DAS.  But  in  the  system  laid  down  by  the  Treaty  (Article  248  EC),  the  Directorates-
General are not supposed to obtain a declaration of reliability. It is at the Commission level that
such an assurance is to be given. For this purpose, remedial measures to all detected weaknesses
are being carried out, either at the services’ and at the Commission’s level, as it is indicated in
the  action  plan  attached  to  the  2001  and  2002  Synthesis  of  the  Annual  Activity  Reports  and
declarations of the Directors-General and Heads of Services of the European Commission.

Since the entry into force of the Treaty of Nice, the statement of assurance can be supplemented
by  specific  assessments  for  each  major  area  of  Community  activity.  In  future  the  Commission
will encourage the Court of Auditors to identify landmarks so  as to measure  the Commission’s
progress  in  complying  with  obligations  in  terms  of  sound  financial  management.  In  the
meantime  the  Court’s  observations  will  gradually  be  taken  into  account  through  case-by-case
improvements in each Directorate-General’s internal control systems.

3.

Reconciliation of the data in the accounting system to be treated urgently and frequently;
(Casaca - § 6)

Commission's reply:

Financial  data  for  2002  have  been  reconciled  between  the  two  sub-systems  of  SINCOM2.  In
March 2003 a team was established to monitor the consistency of the two systems on an ongoing
basis. This is currently done on the basis of weekly reports comparing the two systems.

4.

Take the high turnover of administrative staff in high ranking and crucial posts, as well as
the  deficit  of  qualified  staff  in  accounting  and  auditing,  as  a  top  priority  in  its  human
resources policy; (Casaca - § 11)

Commission's reply:

In  principle  and  as  a  general  rule,  the  Commission  is  committed  to  a  policy  of  mobility  for  its
high-ranking  officials.  Since  the  current  Commission  came  into  office,  a  number  of  mobility
exercises have taken place amongst the A1 (Directors general or equivalent) and A2 (directors or
equivalent) populations, the most recent took place in November 2002. The Commission believes
that such a policy is in the interest of the institution and contributes to increased motivation and
professionalisation of its senior staff, and is in no way detrimental either to the continuity or to
the quality of the leadership. In its appointments the Commission ensures the best possible match
between the qualifications of an official and the requirements and importance of the post.

The Commission has encountered difficulties in the short-term recruitment of a large number of
internal auditors and managers internally and externally by means of competitions. The current
supply  on  the  employment  market  does  not  satisfy  the  considerable  demand  for  this  type  of
profile. So far a large proportion of requirements have been met by organising several specialised
grade A competitions. A long-term policy based on the planned management of requirements and
competitions,  the  organisation  of  competitions  every  year  and  the  conversion  of  staff  through
appropriate  training  has  enabled  the  Commission  to  develop  a  capacity  for  providing  staff  for
these highly specialised posts.

5.

Provide  an  answer  to  EP  statement  that  closure  of  2001  Accounts  was  carried  out  in
violation of the Financial Regulation; (Casaca - § 13)

5

Commission's  reply:    The  accounts  for  2001  were  prepared  by  the  relevant  departments  in  the
Budget  Directorate  General  and  were  presented,  under  the  responsibility  of  the  accounting
officer  in  office  on  31  December,  to  the  Director-General  of  DG  Budget  and  then  to  the
Commissioner  for  the  Budget,  who  adopted  them  on  behalf  of  the  Commission  on  30 April,  as
empowered to do so by the Members of the Commission.

Article  18  of  the  Commission  Regulation  laying  down  detailed  rules  for  the  implementation  of
certain provisions of the Financial Regulation does not provide for approval to be given by the
Financial Controller.

Given  the  deadlines  for  the  closure  of  the  annual  accounts,  the  accounts  for  2001  were  not
submitted by the accounting officer to the Financial Controller prior to adoption.

6.

Asks for the maximum restraint on earmarking of funds within budgetary lines – especially
in Chapter A-30 (Community subsidies); (Casaca - § 14)

Commission's reply:

The Commission welcomes the wishes of the European Parliament to restrain earmarking. This
is  in  line  with  the  approach  of  the  new  financial  regulation.  Earmarking  in  the  budgetary
remarks of Chapter A-30 is never proposed by the Commission in its PDB. In the past, when the
Budgetary  Authority  decided  to  place  earmarking  in  the  remarks  through  amendment  of  the
Commission's  PDB,  the  Commission  agreed  to  take  into  account  the  earmarking  as  a
manifestation  of  a  political  priorities  of  the  Budgetary  Authority,  as  long  as  it  was  compatible
with its responsibility in executing the budget. In 2004 and later years, the new legal bases for the
Chapter A-30 grants currently being discussed by the legislator will clarify the situation.

The Commission has always advocated the principle of tendering for grants and this principle is
now  explicitly  mentioned  in  the  Financial  Regulation.  The  Commission  has  proposed
appropriate  legislation  ready  for  the  introduction  of  ABB  in  2004  and  for  cases  in  which  a
specific beneficiary has to be designated [COM(2003) 275 final and COM(2003)276 final].

7.

External audit carried out by the end of 2003 on its treasury system and to report the results
thereof to Parliament (Casaca - § 16)

Commission's reply:

On 13 May 2003, the Commission asked its external auditors, the European Court of Auditors,
whether it could undertake an audit of the Commission's treasury system before the end of 2003.
In its reply of 23 May 2003, the Court indicated its willingness to consider such an audit, which
would take account of the audits already undertaken by the Commission's Internal Audit Service.
The Court stated that it would not be able to complete this task before the end of 2003.

8.

Define clearly its understanding of “full accrual accounting”; (Casaca - § 17)

Commission's reply:

Accrual  accounting  is  defined  by  the  IFAC  in  its  International  Public  Sector  Accounting
Standards  (IPSAS)  (and  therefore  understood  by  the  Commission)  as:  “A  basis  of  accounting
under which transactions and other events are recognized when they occur (and not only when
cash or its equivalent is received or paid). Therefore, the transactions and events are recorded in
the accounting  records and recognized in  the financial statements of the periods  to  which they

6

relate. The elements recognized under accrual accounting are assets, liabilities, net assets/equity,
revenue and expenses.”

Under accrual accounting, operations are therefore entered in the account for the year to which
they relate, regardless of the date of payment or receipt.

Article 125 of the new Financial Regulation similarly refers to the accrual accounting principle
as the requirement that “…the financial statements shall show the charges and income for the
financial year, regardless of the date of payment or collection.”

9.

SAP/R3 modules ‘accounts payable’  and ‘accounts receivable’  to  be  brought  into  use  by
the end of 2003; (Casaca - § 18)

Commission's  reply:  The  Commission  already  uses  these modules  but  a new  structure  is  being
analysed  under  the  framework  of  the  accounting  reform.  A  group  established  under  the
accounting  reform  has  examined  how  client  and  suppliers’  accounts  can  be  enhanced  and  the
conclusions from this work are now being finalised which will allow the Commission to ensure
that  both  accounting  and  user  DG  requirements  are  met.  Once  this  group  reports,  it  will  be
possible to take charge of the translation into the operational system. .

10.

Principle of double-entry accounting be respected and Discharge authority be informed of
the transition towards this system at least in quarterly intervals; (Casaca - § 19 and 20)

Commission's reply:

The principle of double-entry accounting is accepted and has been used for the general accounts
for many years. Although the use of double-entry bookkeeping in the budgetary accounts is not
required by Article 137 of the  Financial Regulation, nor under the  International Public Sector
Accounting Standards (IPSAS), the Commission is examining whether it is feasible to introduce
it  within  its  project  for  the modernisation  of  its accounting system.  If  it  proves  feasible,  and  of
demonstrated added value, it will also be introduced in 2005.

The  Commission's  general  accounts  are  already  kept  by  double-entry  bookkeeping,  in
accordance with the requirements of Article 134 of the Financial Regulation.

The  Commission  will  inform  the  Discharge  Authority  quarterly  on  the  issue  of  accounting
modernisation.  Ms  Schreyer  presented  to  the  COCOBU  on  8  July  the  first  “Information  Note
from Commissioner Schreyer to the Commission - Progress Report concerning the modernisation
of the Accounting System of the European Commission.

11.

Experts  from  ECA  to  participate,  in  an  advisory  capacity,  on  the  new  Accounting
Standards Committee; (Casaca - § 22)

Commission's reply:

Two members of the Court's staff attend the meetings of the Accounting Standards Committee as
observers, and give advice in a personal capacity.

12.

Lack of integration in current automated accounting system and failure to ensure either the
required  level  of  secure  access  or  reliability  of  data  input  from  different  parts  of  the
system; failed to ensure either the required level of secure access or reliability of data input
from different parts of the system; (Casaca - § 25)

7

Commission's reply:

The  architecture  of  the  current  SINCOM2  system  requires  that  data  are  reconciled  to  ensure
consistency of the sub-systems. This has been done for 2001 and 2002. Data for 2003 are being
examined  weekly  to  ensure  consistency.  This  activity  will  continue  until  such  time  as  a  new
integrated  accrual  accounting  system  is  put  in  place  under  the  provisions  of  the  ongoing
accounting reform project.

Access  to  SINCOM2  is  granted  on  the  basis  of  the  Internal  Rules  of  the  Commission  and  of
validated requests from the superiors responsible. The access of system administrators has been
severely  restricted  –  no  administrator  to  the  system  has  a  permanent  access  to  the  system  and
access is only granted for a limited period for defined tasks of a technical nature. All actions are
logged  in  the  system.  A  revised  security  policy  has  been  developed  for  SINCOM2  in  line  with
recognised international standards and this has been applied since July 2003.

13.

Cost-benefit  analysis  of  the  two  alternatives  expressed  in  options  2  (‘single  standard
package’)  and  3  (‘new  integrated  system’)for  the  development  of  the  computerised
accounting system; (Casaca - § 26)

Commission's reply:

The Commission has studied both options, and has concluded that option 3, an integrated central
system  receiving accounting information from a number of local  systems,  is  the  only  means  of
introducing accrual-based accounts by the 2005  deadline.  Once  the  new  central  system  is  fully
operational, it will undertake a cost/benefit analysis of each local system before deciding whether
it should be integrated into the central system.

14.

Prior to decision to be made, detailed and comprehensive audit by external experts of the
Commission's plans to improve the accounting framework (detailed characteristics Casaca
- § 23) and the related IT systems (detailed characteristics Casaca - § 28). Results to be
reported and discussed at a hearing before the Committee on Budgetary Control; (Casaca -
§ 29)

Commission's reply:

On 13 May 2003, the Commission asked its external auditors, the European Court of Auditors,
whether  it  could  undertake  an  audit  of  its  project  for  the  modernisation  of  its  accounts.  In  its
reply of 23 May 2003, the Court stated that such an audit by the Court would be premature, given
the degree of the project's implementation. To meet Parliament's concern, the Accounting officer
of the Commission asked external consultants to do a feasibility study of the Communication of
December and of the implementation of the project. This study was completed in early July and
its conclusions presented to the COCOBU by Mrs Schreyer on July 8th. Also see answer to point
10.

15.

Provide complete explanations of accounts and references to their legal basis, including the
various volumes and tables; (Casaca - § 32)

Commission's reply:

The  consolidated  annual  accounts  of  the  European  Communities  for  2001  are  drawn  up  in
accordance  with  Articles  78,  80  and  81  of  the  Financial  Regulation  of  21  December  1977,
applicable  to  the  general  budget  of  the  European  Communities,  amended  last  by  Council

8

Regulation  No  762/2001  of  9  April  2001.  They  are  drawn  up  each  year  by  the  European
Commission and record the budgetary and accounting data of all the European institutions.

The annual accounts of the Communities are presented in four volumes, as follows:

. Volume I - The Commission - Analysis of financial management,

. Volume II:

-Tome I: The Commission - statement of budgetary implementation,

-Tome II: The Commission and EURATOM  Supply Agency financial statements,

. Volume III - The European Parliament, the European Council, the Court of Justice, the Court
of  Auditors,  the  Economic  and  Social  Committee,  the  Committee  of  the  Regions  and  the
Ombudsman financial statements,

.  Volume  IV  –  Consolidated  statements  on  budgetary  execution  and  the  consolidated  financial
statements

16.

Make an assessment of the reliability and accuracy of figures included in volumes I and IV
of financial statements; (Casaca - § 33)

Commission's reply:

The  2001  figures  have  been  audited  by  the  ECA,  which  has  confirmed    their  reliability  in  the
DAS  Chapter  9  of  their  Annual  Report  under  the  heading  “Reliability  of  the  accounts”:  ”III.
Except for the effects of the observations summarised in indents (a) to (d) below and the remark
made in paragraph IV, the Court is of the opinion that the accounts of the financial year closed
on 31 December 2001, as published in the Official Journal, faithfully reflect the Communities’
revenue and expenditure for the year and their financial position at the year-end…”

17.

Use  certified  figures  from  the  financial  statements  as  the  only  source  for  any  official
release of budgetary figures; (Casaca - § 34)

Commission's reply:

The figures released by the accounting services to the Court of Auditors are official as are those
sent to the discharge authorities.

Such legal reporting is based on the source data included in the accounting system.

18.

Establish a pilot programme introducing information on dates of invoices and payments in
the beneficiaries' notifications; (Casaca - § 38)

Commission's reply:

A pilot project relating to DG EMPL programmes will be conducted in 2003. Grant beneficiaries
will  be  informed  of  payments  they  are  to  receive  as  soon  as  the  request  for  payment  has  been
made by the authorising officer. The information beneficiaries are requested to supply in return
should  ensure  actual  payment  times.  This  new  procedure  will  be  evaluated  in  the  light  of  the
interest shown by beneficiaries for this advance information.

9

19.

Present a detailed action plan in July 2003 to include in the budget the use of interest paid
on advance payments and of recoveries (Casaca - § 43), see also Casaca - § 40 and § 42);

Commission's reply:

All  interest  received  by  the  Commission  is  entered  in  the  budgetary  accounts.  In  its  planned
modernisation  of  the  accounting  system,  the  Commission  is  examining  the  best  means  of  also
recording  interest  earned  on  pre-financing  and  on  recoveries,  but  not  yet  received  by  the
Commission.

As for the 20% deduction from recoveries collected under Council Regulation (EEC) 595/91, the
COCOBU was informed by letter (AGRI 10440 dated 13/4/2003) that the amounts corresponding
to the 20% deduction are booked under specific budget headings. The COCOBU had also been
informed about the detailed amounts booked. As for the use of these amounts in the MS it was
explained in the same letter that these amounts are resources of the MS and that the Commission
therefore makes no enquiry into the specific use of these amounts.

As for the interest  earned on SAPARD accounts a letter was  sent to  the  COCOBU  (AGR  7132
dated  7  March  2003)  in  which  the  specific  question  concerning  the  use  of  these  amounts  was
addressed.  The  Commission  stated  in  that  letter  that  both  the  receipt  and  the  use  of  interest  is
reported  by  the  candidate  countries.  Interest  generated  on  SAPARD  accounts  is  subject  to
budgetary  control  and,  in  particular,  the  clearance  of  accounts  process.  The  legislation
applicable to the SAPARD programme (Commission Regulation  (EC)  No 2222/2000)  stipulates
that the interest credited to the SAPARD account should be used exclusively for the programme
(Article 11(3)), and that the clearance of the SAPARD agency account also covers clearance of
the SAPARD EUR account and the interest credited to it (Article 13(3)).

B)

EUROSTAT, FIGHT AGAINST FRAUD

Eurostat

20.

IAS to examine by summer 2003 the legality and regularity of all contracts concluded by
Eurostat since 1999 and to include in the investigation those contracts concluded by other
Commission services on Eurostat's recommendation; (Casaca - § 57)

Commission's reply:

In specific response to Parliament’s request, on 11 June 2003 the Commission tasked its Internal
Audit Service with an examination of the awarding of contracts and grants in Eurostat or on the
recommendation of Eurostat in other Commission services. This examination was carried out on
an  agreed-upon  procedures  basis..  The  results  of  this  examination  were  transmitted  in
confidence, on the basis of Annex III, Article 3.2 of the Framework Agreement, to Parliament on
24 October 2003.

21.

Full implementation of the recommendations from the Audit report on EUROGRAMME,
including that related to Article 24 of the Staff Regulations. (Casaca - § 58)

Commission's  reply:  The  measures  taken  to  follow  up  the  recommendations  made  during
analysis of the Prodcom dossier may be summarised as follows:

10

"Better  methods  for  checking  the  criteria  laid  down  in  Council  Directive  92/50,  and  in

(1)
particular Articles 31 and 32, should be implemented".

The manual on calls for tenders, regularly updated and most recently in 2003, has stepped up the
checks of these criteria.

Eurostat now carries out a tighter check of the financial statements provided by companies.

To boost financial awareness, the training course on the Expenditure Life Cycle was attended by
56 persons in 2001, 36 persons in 2002 and 12 persons in 2003.

"In  obvious  cases  of  misrepresentation  in  information  given  to  the  Commission,

(2)
Article 29(g) may be applicable".

Eurostat managers considered that the information at its disposal was not such as to justify the
application  of  Article  29(g)  of  Directive  92/50.  Eurostat  managers  interpreted  the  further
information  provided  by  Eurogramme  at  Eurostat's  request  as  showing  that  the  information
originally supplied was incoherent rather than false.

OLAF  examined  the  case  at  the  end  of  1999  and  concluded,  on  the  basis  of  the  information
available at the time, that there was then no justification for stopping payment or the award of
contracts to Eurogramme.

OLAF  decided  on  2  December  2000  to  open  an  external  investigation,  and  on  5  July  2002  to
forward information to the Luxembourg judicial authorities.

OLAF's  final  investigation  report  was  recently  sent  to  the  Secretariat-General  of  the
Commission, which immediately forwarded it to DG ESTAT. OLAF will inform the Commission
of action taken by the judicial authorities.

(3)
"DG ESTAT should include in the project management procedures a clear statement that
no assistance should be given to contractors in recruitment of staff, even if it would be in concern
of the success of the project".

"Clear instructions and rules on management of externalised projects, including project

(7)
files, should be implemented, and training in project management should be intensified".

Clearer  and  more  concise  rules  have  been  drawn  up  for  the  management  of  projects  and,  in
particular,  the  management  of  outsourced  activities.  Project  managers  receive  training  on  a
regular basis.

These include instructions to project managers not to help contractors recruit staff.

Meanwhile, there has been more general training on project management. Around 100 persons
attended these training courses in 2001 and 2002.

"Considering the settlement proposal from the Head of Unit, the final payment should be

(4)
executed, in spite of the breach of contract".

The  final  payment  to  Eurogramme  (€192 250,  compared  with  €250 000  in  the  initial  contract)
reflects a management decision which takes account of the work actually done.

11

"Contractual obligations, such as deadlines and quality of deliverables, should be better

(5)
followed up and respected".

The  financial  reporting  for  contracts  has  been  improved.  The  rules  on  the  management  of
projects and outsourced activities will reinforce and formalise the follow-up measures.

(6)

"Clear instructions in cases of breach of contract should be implemented". &

"Clear  instructions  for  procedures  related  to  renewals  of  contracts  should  be

(12)
implemented".

Eurostat has amended its internal manuals on calls for tenders, commitments and grants in line
with  the  new  Financial  Regulation,  the  implementing  rules  and  the  recommendations  of  the
Internal Audit Service.

These manuals entered into force on 1 January 2003.

"Article 24(1) of the Staff Regulations should be taken into account when replying to the

(8)
contractor’s note of 14 September 2000".

Article  24  of  the  Staff  Regulations  had  been  invoked  by  the  Eurostat  Project  Officer  for
Prodcom,  Mrs  Schmidt-Brown,  in  connection  with  a  libel  action  against  the  contractor
Eurogramme that she had brought before the High Court in London. Mrs Schmidt-Brown asked
in particular for financial assistance from the Commission, in relation to the costs incurred for
the  libel  action  in  London.  However,  Mrs  Schmidt-Brown  has  subsequently  informed  the
Commission that the case in London had  come to a settlement  and that, as a consequence, the
case before the High Court had been closed.

This settlement means that Mrs Schmidt-Brown's request as originally formulated did not retain
its relevance.

Against this background, the Commission has subsequently (in May 2003) made clear in writing
to  Mrs  Schmidt-Brown  that  her  professional  conduct  has  always  been  of  high  quality.  The
Commision has also recognised that her case may not have been dealt with  in  a way that fully
accords with the high standards that the Commission is seeking to set for itself.

The Commission has therefore supported Mrs Schmidt-Brown.

(9)

"All management of confidential data should be internalised.",

(10)

"Internalisation of the PRODCOM project should be considered." and

(11)

"All databases and applications should comply with Commission standards".

A  new  manager  was  appointed  for  the  Prodcom  project  in  September  2001.  One  of  his
responsibilities was to internalise the activities which used to be entrusted to  outside  firms  (the
last company to win this contract was Eurogramme).

These activities consisted of:

-  Processing  data  from  the  Member  States  by  using  a  system  developed  and  maintained  by
Eurogramme;

- Analysing the data;

12

- Preparing the data for distribution.

Internalisation is achieved by developing internally a computer system to receive and process the
data  from  the  Member  States  which  are  then  processed  by  another  Eurostat  database  for  the
purposes of production, analysis and distribution.

The  data  for  2001  have  already  been  processed  under  the  new  system  which  complies  with
Commission standards.

22.

Revise  all  contracts  with  and  payments  to  EUROGRAMME,  suspend  the  granting  of
contracts  to  that  firm  and  assure  the  compliance  of  the  stockholding  transfer  to  a  new
company with the Financial Regulation (Casaca - § 59)

Commission's reply:

Given  the  uncertainty  about  the  exact  nature  of  the  transaction  between  Eurogramme  and
Calethon  and  the  lack  of  complete  information  on  the  financial  and  operational  capacity  of
Calethon, Eurostat decided to suspend all payments under current contracts to Eurogramme and
to  Calethon  on  a  precautionary  basis.  However,  the  Commission  remains  liable  for  payments
relating to work effectively carried out.

An exhaustive analysis of the amounts contractually due compared to the work carried out until
now was undertaken before proceeding to  any payment. The  same  decision  is  being  applied  by
other Commission departments concerned.

In addition, following the undertaking given by the Commission to the COCOBU on 28 February
2003, the Commission has served notice to the company of termination of contracts with work in
progress  related  to  statistical  activity,  pursuant  to  Art.7.1  of  the  General  Conditions  of  the
contracts.

The two bank accounts held by EUROGRAMME listed in the "Third Party File" were flagged in
the Early Warning System on 31/03/2003, following a formal request transmitted by OLAF.

Consequently, as from this date (31/03), any Authorising Officer scheduling a payment for one
or the other of these bank accounts is informed "on-line" of this situation and can/has to contact
a designated OLAF official.

Furthermore,  the  IAS  has  undertaken  an  examination  covering  the  award  procedures  of  a
sample  of  commercial  contracts  and  grants.  It  is  based  on  commitments  authorised  in  the
financial years 1999 to 2002, awarded by Eurostat or on its recommendation.

Fight against fraud

23.

Review the information procedure between OLAF and Commission and necessary steps in
order  to  remedy  the  fact  that  Commission  ignores  OLAF  complaints  to  national  judicial
authorities (Casaca - § 60)

Commission's reply:

13

The  evaluation  of  OLAF  carried  out  under  Article  15  of  the  relevant  regulation  had  already
identified the need to improve exchanges of information on internal and external investigations
with due respect for all the rules applying to the Office's activities.

Steps are being taken to improve the working relationship between OLAF and the Commission.
Operational  instructions  issued  by  OLAF  to  its  investigators  concerned  with  informing  the
Commission of internal investigations within the Commission came into force on 23 June 2003.
These  instructions  will  first  operate  for  a  trial  period  of  six  months  at  which  point  it  will  be
decided on the basis of the experience gathered whether their use will be  extended  to  the  other
institutions, agencies and bodies.

Furthermore,  a  draft  memorandum  of  understanding  between  the  Commission  and  OLAF
concerning a code of conduct to ensure the timely exchange of information between OLAF and
the Commission with respect to OLAF internal investigations in the  Commission was approved
by  the  Commission  on  25  July  2003.  The  draft  document  has  been  transmitted  by  the
Commission  to  the  European  Parliament  and  by  the  Director  General  of  the  European  Anti-
Fraud Office to the OLAF Supervisory Committee for their observations.

The  President  of  the  Commission  gave  an  undertaking  on  25  September  to  the  Conference  of
Presidents  to  propose  a  plan  of  action  with  recommendations  for  improvements  with  a  view  to
consolidating  the  reform  and  guaranteeing  full  autonomy  of  OLAF  within  a  clear  political
frame.

It  is  OLAF  which  has  contacts with the  national  judicial  authorities.  OLAF  has  a  unit  staffed
with magistrates from the Member States, one of whose tasks is to ensure an improved judicial
follow up of cases transmitted by it to the national judicial authorities.

It  is  for  OLAF  to  provide  the  Commission  with  the  information  needed  for  measures  to  be
adopted when OLAF refers a case to the national judicial authorities. Article 10.3 of the relevant
regulations allows OLAF to inform the institution concerned during internal investigations.

24.

Ensure that Member States have proper accounting, audit and control systems, set up anti-
fraud units with OLAF and improve co-operation with ECA. (Casaca - § 67)

Commission's  reply:  The  Commission  already  verifies  on  a  regular  basis  that  Member  States
have adequate control and audit systems. The manner in which the Member States organise their
administrations  is  a  matter  of  national  competence  although  the  Commission  favours  clearly
identified  horizontal  anti-fraud  structures.  OLAF  cooperates  regularly  with  all  the  services
responsible for the fight against fraud against the Community budget in the Member States. In
addition, OLAF and the Court of Auditors have a memorandum of understanding on the mutual
exchange of information.

Between November 2002 and January 2003, OLAF carried out a joint audit with the Directorates
General responsible for the Structural Funds on the implementation by the Member States of the
provisions  of  Regulation  (EC)  No  1681/94  of  the  Commission  concerning  the  systems  and
procedures for the notification and follow up of irregularities as well as the application of Article
8  of  Regulation  (EC)  No  438/2001.  The  conclusions  of  this  audit  will  be  transmitted  to  the
Member States, the Council, the European Parliament and the European Court of Auditors.

14

C)

EXTERNALISATION

PERSONNEL POLICY

25.

Establish  a  code  of  conduct  for  its  personnel  that  ensures  transparency  and  separation
between private and public interests. (Casaca - § 44)

Commission's reply:

An administrative guide has been drawn up and published on the Commission’s intranet giving
guidance  to  officials  as  regards  their  obligations  in  general  and  the  need  for  them  to  ensure
separation between their private and public interests.

According  to  the  internal  control  standards  the  Commission  has  adopted  (specifically  control
standard No.1 concerning 'ethics and integrity'), DGs and services have made several documents
available to staff (among others Staff regulations, Code of good administrative behaviour).

The application of these rules is supervised by the management and by the IAC.

These  issues  will  be  repeated  in  a  notice  to  staff  to  increase  awareness,  ongoing  attention  and
sensitivity.

26.

Closely monitor the granting of leave on personal grounds and to review its past decisions.
(Casaca - § 45)

Commission's reply:

The  Commission,  in  the  context  of  the  reform  process,  has  decided  to  encourage  external
mobility to enable officials to acquire new skills and knowledge which are of benefit both to the
officials  themselves  and  to  the  institution.  However,  the  Commission  also  considers  that  in  the
interest  of  transparency,  the  provisions  governing  permission  to  engage  in  an  outside  activity
should be incorporated in a single measure indicating in  detail  which  factors  have  to  be  taken
into account when taking a decision on such permission.

The Commission therefore intends to adopt new rules on the authorisation of external activities
by end 2003 - early 2004. These revised rules will make a clearer link between the authorisation
of external activities and the authorisation of leave on personal grounds.

These rules will apply also to leave already granted when the time comes for annual renewal.

27.

Amend  its  proposals  to  review  the  staff  regulation  about  the  cost  of  the  pension
weightings. (Casaca - § 47)

Commission's reply:

On  19  May  2003  the  Council  adopted  a  “Presidency  Proposal  for  the  Revision  of  the  Staff
Regulations”  including  the  following  political  agreement  with  regard  to  the  correction
coefficients for pensions:

“Weightings (correction coefficients) will not be applied to pension rights accumulated after the
entry into effect of the new Staff Regulations. Acquired rights of existing officials who retire to
their state of origin will be respected by applying country-based coefficients (which cannot be less

15

than  100  percent,  including  for  current  pensioners)  to  the  part  of  the  pension  resulting  from
pension rights accumulated until the entry into effect of the new Staff Regulations.”

The  Commission  supports  the  compromise  reached  in  Council  and  will  integrate  it  into  its
modified proposals to be submitted to Council in the autumn of this year.

OUTSOURCING POLICY

28.

Make a rigorous analysis of the need and added value of the administrative functions it will
perform prior to the decision to create any executive agency. (Casaca - § 51)

Commission's reply:

The  preparation  of  any  decision  to  create  an  executive  agency  is  the  responsibility  of  the  DG
concerned; the dossier comprises a "cost-benefit" analysis which could cover the action referred
to  in  point  28.  Article  3  of  Regulation  58/2003  laying  down  the  statute  of  executive  agencies
contains  precise  provisions  on  the  cost-benefit  analysis.  Before  the  Commission  can  take  a
decision  on  the  creation  of  an  executive  agency  it  has  to  submit  the  draft  text  to  a  regulatory
committee. The committee has all the elements of a cost-benefit analysis. DG Budget is consulted
during  the  interdepartmental  consultations  initiated  by  the  other  DGs  and  Services.  As  it  is
responsible  for  the  committee  procedure  for  the  executive  agencies  and  has  drawn  up  the
framework regulation on the statute of these agencies (No 58/2003), DG Budget also contributes
its know-how and assistance to the sound preparation of dossiers.

The  Commission  is  considering  the  establishment  of  an  executive  agency  to  replace  the
Technical  Assistance  Offices  which  have  still  been  retained  on  a  transitional  basis.  The  final
decision on setting up this agency will not be taken until the conclusions of a feasibility study and
a  cost/benefit  study  commissioned  from  an  outside  consultancy  have  been  taken  into
consideration.

29.

Launch a careful review of policy of outsourcing of activities, with particular reference to
the principle of budgetary annuality. (Casaca - § 52)

Commission's reply:

Since  1999,  the  Commission  has  undertaken  a  reorganization  of  its  externalisation  policy,  re-
focusing on its core tasks and activities and reassuming effective control of executive and support
activities by means of more closely controlled structures endowed with the necessary skilled staff.

New externalisation instruments have been designed to implement this policy and take over tasks
performed  by  TAOs.  The  new  regulation  on  executive  agencies,  adopted  by  the  Council  last
December,  is  a  decisive  part  of  this  package.  However,  adopting  legal  instruments  and
implementing  them  has  taken  and  will  still  take  some  time.  In  the  meantime,  the  Commission
decided  to  adopt  measures  to  rectify  the  situation  regarding  the  tasks  entrusted  to  some  of  the
TAOs.

Externalisation  of  the  management  of  community  programmes  can  take  a  number  of  forms,
according to the sectors or activities to which it is applied. Certain limits and constraints must be
observed  when  tasks  are  externalised.  In  particular,  externalisation  cannot  relieve  the
Commission  of  the  responsibilities  conferred  on  it  by  the  Treaties,  by  virtue  of  either
implementing  powers  delegated  to  it  by  the  Council  (Article  202)  or  its  responsibility  for

16

implementing  the  budget  (Article  274).  Its  public-authority  tasks,  in  particular,  cannot  be
devolved to private bodies.

The  externalisation  body  must  be  designed  in  such  a  way  as  to  preserve  the  continuity  of  the
chain of responsibility between the Commission and the bodies to which it delegates powers and
to give the Commission effective control of the tasks it devolves to outside agencies.

The  decision  to  externalise  tasks  must  always  be  made  on  grounds  of  good  management,
accompanied where appropriate by a simplification and clarification of management procedures,
and because it is more cost-effective than direct centralised management.

The tasks entrusted  to  external  private-sector  entities  or  bodies  other  than  those,  which  have  a
public-service mission, are technical expertise tasks and administrative, preparatory or ancillary
tasks  involving  neither  the  exercise  of  public  authority  nor  the  use  of  discretionary  powers  of
judgement.

These principles are enshrined in the new financial regulation, which specifies in Article 54, that
the Commission cannot entrust to third parties its executive powers involving a large measure of
discretion 
implying  political  powers.  The  same  article  also  defines  “indirect  central
management”  and  allows  for  externalisation.  Furthermore,  Article  57  also  recalls  the  main
constraints on outsourcing tasks to the private sector.

Three forms of externalisation of the management of programmes have been implemented.

Executive  tasks  which  are  the  responsibility  of  the  public  authorities,  or  for  which  there  is  no
truly competitive market, can be dealt with by:

devolution,  i.e.  delegating  executive  responsibilities  to  Community  public  bodies

(i)
(executive agencies) conceived as part of an expanded Community administrative architecture;

(ii)
decentralising,  i.e.  delegating  executive  responsibilities  to  national  bodies,  with  a  public
service mission backed by the State, to act as partners in implementing some Community policies.

Some  tasks  requiring  technical  expertise  and  various  preparatory  or  auxiliary  administrative
tasks, not inherently belonging to the domain of the public authorities nor requiring the exercise
of discretionary powers, could be handled by:

(iii)
outsourcing  through  contracts  given  to  the  private  sector.  The  relationship  between  the
Commission and the service provider is defined in a private law contract, usually in the form of a
service contract following a tendering procedure. The services concern specific tasks during the
life cycle of operations when implementing a Community programme. The Commission remains
responsible  for  ensuring  the  tasks  have  been  duly  performed  according  to  the  stated  terms  of
reference.

30.

Quantify  as  soon  as  possible  the  externalisation  of  administrative  tasks,  broken  down  by
Commission  department;  according  to  the  number  of  tenders  and  tendering  procedures,
number  of  contracts  and  list  of  leading  recipients  of  the  contracts  by  financial  value.
(Casaca - § 53)

Commission's reply:

In 2000, the Commission underwent a thorough assessment of existing and planned TAOs and
reassessed their tasks in the light of the criteria setting the scope and limits of various forms of

17

externalisation.  The  information  available  for  quantifying  the  externalisation  of  administrative
tasks relates to the technical assistance offices (TAOs) listed in the annex to letter of amendment
N° 1 of 4 September 2000 to the preliminary draft budget (PDB) for 2001.

This  Letter  of  Amendment  listed  124  contracts  with  TAOs  that  the  Commission  was  using  or
planned to use. The related aggregate annual expenditure was estimated at some €133.6 million.

TAOs could be kept  on  if the tasks subcontracted  are  strictly  limited  to  technical  expertise  and
administrative,  preparatory  or  ancillary  tasks  involving  neither  the  exercise  of  public  authority
nor the use of discretionary powers of judgment.

The letter of amendment provides for the retention of 24 TAOs. The list is regularly updated by
the  Commission  and  then  sent  to  the  committees  responsible  in  the  European  Parliament.  It
contains precise information on the number of TAOs closed down, the remaining TAOs and the
dates on which their contracts end.

For TAOs failing to meet the minimum criteria for the delegation of responsibilities in acceptable
conditions, the Commission proposed alternative solutions. For most of the TAOs, the identified
long-term solution proved to be the setting-up of executive agencies. Pending the adoption of the
regulation  on  executive  agencies,  which  only  came  at  end-2002,  the  Commission  devised  an
orderly transitional scheme to allow a speedy phasing out of TAOs, as requested by the budgetary
authority. This implied a progressive re-incorporation of tasks in the Commission’s departments,
while preserving programme continuity and minimising the risk of contractual conflicts.

In  practice,  the  Commission  has  been  implementing  the  following  transitional  solutions  on  a
case-by-case basis:

- either temporarily returning the tasks to the relevant Commission department, at headquarters
or in delegations in third countries, who should be  able to  recruit  intra muros outside contract
personnel charging the cost to the budgetary BA headings for the programmes concerned;

- or extending existing contracts and providing - if necessary - more restrictive terms for tasks to
be performed.

In 2002, payments amounted to €28.1 million, showing a drastic reduction compared to what was
announced  in  2000.  This  trend  is  still  more  impressive  in  commitments  (with  some  16  million
committed in 2002).

The figures, updated to 3 July 2003, are as follows: the total number of TAOs has fallen to 12.
This means that 114 TAOs have been closed down and others will disappear once the conditions
are  met  for  setting  up  an  executive  agency  in  accordance  with  Council  Regulation  (EC)  No
58/2003 of 19 December 2002 laying down the statute for executive agencies to be entrusted with
certain tasks in the management of Community programmes.1

The  rules  for  subcontracting  tasks  of  technical  and  administrative  assistance  in  the
implementation of Community programmes have been tightened up,2 in particular Article 57 of
the new Financial Regulation3 under which:

1

2

Published in OJ L 11, 16.1.2003, p.1.
-  Communication  from  Ms  Schreyer  and  Mr  Kinnock  on  orientations  for  the  externalisation  policy,
SEC(1999) 2051/7 of 14 December 1999;

18

                                                
1.  The  Commission  may  not  entrust  measures  of  implementation  of  funds  deriving  from  the
budget, including payment and recovery, to external private-sector entities or bodies, other than
those which have a public-service mission under Article 54(2)(c).

2. The tasks which may be entrusted by contract to external private-sector entities or bodies other
than those which have a public-service mission are technical expertise tasks and administrative,
preparatory  or  ancillary  tasks  involving  neither  the  exercise  of  public  authority  nor  the  use  of
discretionary powers of judgment.

To ensure that these provisions are respected, the Commission consults the Directorate-General
for the Budget before subcontracting technical assistance services.

31.

Make an overall study of activities currently deployed by various Community bodies that
may  overlap  or  serve  the  same  goals  in  order  to  propose  appropriate  solutions  including
possible mergers of agencies. (Casaca - § 54)

Commission's reply:

The  possible  overlap  or  duplication  between  the  work  of  the  ETF  and  CEDEFOP  has  been
assessed both in the external evaluation of Cedefop carried out in 2001 as well as in the external
evaluation  of  the  ETF  (COM(2003)287  final).  The  external  evaluations  have  confirmed  that
there is no overlap between the two Agencies which have a separate geographical coverage and
quite different missions and tasks: Cedefop contributes to the Community’s vocational training
policy through transnational cooperation within the EU, while the ETF supports the Commission
in  the  design  and  implementation  of  VET  reform  activities  in  third  countries  as  part  of  the
Community’s external policies’ framework.

The Commission in recent years has ensured that tools are in place for the Agencies to achieve
maximum  synergy  and  complementarity  (e.g.  a  framework  for  cooperation  decided  in  2001,  a
joint  annex  to  each  Agency’s  annual  work  programme,  establishment  of  an  ETF/CEDEFOP
working group, etc).

It should also be pointed out that the structure of the Management Boards for CEDEFOP and
the ETF are of quite different nature: whereas CEDEFOP has a tripartite board as an Agency
working for the vocational training policy, the ETF has a board made up exclusively by Member
States. Representatives on the Board of CEDEFOP should have experience and skills relating to
the vocational training policy area, while the ones on the Board of the ETF should also have an
external  relations  and  third  country  aid  programme  experience.  The  profile  of  the  members  of
each  Board  required  for  the  efficient  functioning  of  the  Board  and  fulfilling  its  tasks  should
therefore be quite different.

There  is  a  list  of  Community  bodies  currently  operating,  out  of  which  four  would  be  the  more
obvious candidates for examination for possible overlapping, that is the European Centre for the
Development  of  Vocational  Training  (CEDEFOP)  in  Thessaloniki  and  the  European  Training

- Commission communication on externalisation of the management of Community programmes, COM(2000) 788
of 13 December 2000;
- Communication from Ms Schreyer on the outsourcing of technical and administrative assistance for the purpose
of programme implementation, which contains a guide and a model contract, SEC(2001) 1728/7 approved by the
Commission on 13 November 2001.
Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of
the European Communities, published in OJ L 248, 16.9.2002, p.1.

3

19

                                                                                                                                                                 
Foundation (ETF) in Turin, as well as the European Foundation for the Improvement of Living
and Working Conditions in Dublin and the European Agency for Safety and Health at work in
Bilbao.

As  regards  the  European  Foundation  for  the  Improvement  of  Living  and  Working  Conditions
and the European Agency for Safety and Health at work, the two Agencies have already signed a
Memorandum  of  Understanding  on  7  February  2001  and  from  2003  the  two  agencies  have
extended  (June  2003)  their  areas  of  collaboration  and  agreed  on  an  action  plan  with  concrete
actions and activities for cooperation, in a spirit of maximising the synergies and removing the
possibilities of duplication of activities.

32.

Set targets and a timetable to reduce the level of administrative expenditure as part of total
expenditure in agencies. (Casaca - § 55)

Commission's reply: Decentralised Community bodies have specific missions according  to their
respective founding regulations, which are adopted by the legislative body of the EU, that is the
Council and in several cases, the Council in codecision with the European Parliament.

The  Agencies  carry  out  these  missions  as  independent  legal  personalities,  adopting  their  work
programme  strictly  based  on  the  tasks  foreseen  in  their  founding  regulations.  In  order  to
implement their work programmes, the Management Boards of the Agencies adopt their annual
budgets, taking into account the Community subsidies adopted by the budgetary authority of the
EU for the funding of decentralised bodies.

In  a  series  of  cases  the  legislator  has  foreseen  that  these  Agencies  are  to  carry  out  labour-
intensive tasks, and no or few tasks involving the implementation of operational appropriations.
Whenever the tasks given to the Agency mainly involve manpower, and therefore the respective
salaries  and  office  space,  these  costs  fall  under  Titles  1  and  2  'staff  and  administrative
expenditure'  of  the  Agencies'  budgets.  It  would  be  misleading  to  compare  administrative
expenditures  to  the  so-called  'operating  expenditure'  (title  3  of  the  Agencies'  budget),  and
conclude that Agencies, which have a higher percentage of 'Administrative expenditure' are less
efficient and productive then those with a higher percentage of 'Operating expenditure', as such
a comparison can only indicate that the nature of the work differs.

As indicated, it is neither in the Agencies' nor the Commission's competence to chose the tasks to
be carried out by the Agencies, but the will of the legislator  is  being transposed  via the annual
work programme and the corresponding budget.

33.

Existing  agencies  could  be  entrusted  with  more  operational  tasks.  Make  appropriate
proposals by 30 June 2003 before creating any further executive agencies (Casaca - § 56)

Commission's reply:

In adopting the framework regulation on executive agencies, the legislature has already created
an instrument to provide the necessary assistance for programme management. The proposal to
create  an  instrument  of  this  type  answered  the  need  to  clarify  the  sort  of  body  which  was  to
implement  or  support  Community  policies  (the  decentralised  agencies  mentioned  in  the  White
Paper on European governance, executive agencies or offices).

This  reasoning  led  to  a  general  preference  for  using  an  executive  agency  under  the
Commission's  control  rather  than  a  decentralised  agency  for  programme  management.  One
consideration  was  the  fact  that  the  decentralised  agencies  are  placed  under  the  authority  of

20

management boards on  which the  Commission is  in  a minority;  this  fact  would  complicate  the
idea  of  liability,  in  particular  financial  liability,  for  which  the  Commission  would  still  be
responsible if work was outsourced. In addition, decentralised agencies are not normally located
in places where the  Commission  has an office, while executive  agencies are  based  in  the  same
place as the Commission and its departments.

As  regards  the  executive  agency  planned  for  DG  EAC,  the  feasibility  study  states  that  the
cost/benefit  study  (provided  for  by  the  framework  regulation  of  December  2002)  should  take
account of the existence of two decentralised agencies in the field of education and culture when
examining the assistance required by the DG.

As indicated in response to point 32, activities carried out by decentralised Community bodies are
set out in their founding regulations. Any modification and/or addition of tasks would require an
amendment  to  the  legal  act  setting  up  the  Agency.  However,  this  would  not  seem  to  be  the
appropriate  way  forward,  as  the  reason  for  the  planned  creation  of  Executive  Agencies  is  to
respond to different needs for financial management:

Council  Regulation  58/2003  lays  down  the  statute  for  executive  agencies,  which  are  to  be
entrusted with certain tasks in the management of Community programmes.

Council  Regulation  58/2003  provides  that  Executive  Agencies,  to  which  the  Commission  may
entrust part of the management of Community programmes, is to implement these appropriations
under  the  responsibility  of  the  Commission.  The  nature  of  executive  agencies  therefore  differs
fundamentally from traditional agencies, which implement their budgets under the responsibility
of the Agency's Directors.

Article 5(1) of Council Regulation 58/2003 also provides for the location of executive agencies,
stating  that  "An  executive  agency  shall  be  located  at  the  place  where  the  Commission  and  its
departments  are  located,  in  accordance  with  the  Protocol  on  the  location  of  the  seats  of  the
institutions  and  of  certain  bodies  and  departments  of  the  European  Communities  and  of
Europol."  This  principle  diverges  from  the  location  throughout  the  European  Union  of
centralised community bodies.

These points highlight the conceptual differences between decentralised Community bodies and
executive Agencies, which make it difficult to see existing decentralised Community bodies taking
over the tasks of future executive Agencies.

However,  the  Commission  may  decide  to  set  up  an  executive  Agency  only  after  a  prior  cost-
benefit analysis (see Article 3 of Council Regulation 58/2003).

D)

Budget UNDERIMPLEMENTATION / SAPARD, STRUCTURAL FUNDS

SAPARD

34.

Take into consideration the situation of candidate countries in areas such as access to credit
and the lack of a property market (Casaca - § 78)

Commission's reply:

The assertion that in Bulgaria access to credit is non-existent does not take recent developments
into  account.  In  that  country  the  State  Fund  Agriculture  and  the  executive  directors  of  14
commercial banks signed, on 14 March 2002, a Memorandum of Understanding on joint action

21

in implementing the SAPARD Programme. Through them, the banks undertook to extend some
€150  million  as  co-financing  credits  to  SAPARD  funded  projects.  It  is,  however,  correct  that
some potential beneficiaries may face particular problems in access to credit. In order to seek to
mitigate  these  problems  the  Commission,  with  the  aid  of  PHARE  funds,  supports  a  project  to
improve access to credits of SMEs in candidate countries. The Commission is further examining
the possibility of ensuring that this “facility” is taken up more widely.

On the issue of pre-financing of projects, one of the principles upon which SAPARD is based is
that beneficiaries obtain aid from the Community only after they have incurred costs. This is for
reasons of sound financial management. The Community does not, however, require the project
to  be  completed  before  such  aid  may  be  granted  although  many  of  the  beneficiary  countries
(including Bulgaria) have chosen to  require project  completion before any aid  is granted.  This
has an inevitable burden on beneficiaries in terms of their cash flow, but does have advantages
including  that  of  less  burdensome  management  and  administrative  costs  for  the  national
authorities as required by Parliament in § 80.

On the issue of the property market, especially on aspects related to private ownership, potential
beneficiaries  who  do  not  have  clear  title  or  property  use  claims,  face  problems  especially  for
certain  investments  in  particular  but  not  only  those  involving  buildings.  The  Community  has
already  given  considerable  support  through  PHARE  to  all  countries  to  help  develop  property
markets. It is however inevitable that this help cannot solve all problems of ownership in  cases
such  as  when  all  of  the  inheritors  cannot  be  located  or  where  for  whatever  reason  they  are
unable to agree on future use of the land.

35.

As regards the derogation to the rule n+2 provide monitoring in the implementation of the
new  ruling  and  early  warning  to  Parliament  in  case  of  appropriations  cancellations;
(Casaca - § 79)

Commission's reply:

The Commission monitors closely implementation of the new rule. In autumn 2002 it launched
an exercise of reporting the amounts committed by each SAPARD Agency to final beneficiaries,
based  on  information  from  the  Candidate  Country.  This,  together  with  information  received
during the Monitoring Committees, in the annual reports and in the payment application, enable
the Commission to provide early warning to the Candidate Countries. Moreover, the information
obtained  was  provided  by  Commissioner  Fischler  to  the  Budgetary  Control  Committee  on
10/3/2003, and he subsequently, on 2/4/2003, wrote to all beneficiary countries warning them of
the risks of cancellation (and set out options that might overcome them).

It is planned that from time to time Parliament will be updated on the risk of cancellation. The
last update was provided on 11 June 2003 by a letter from Commissioner Fischler to Ms Theato
and Mr Casaca.

36.

Prioritise the structural adaptation of agriculture in candidate countries by giving adequate
financial help to farmers while ensuring that adequate controls are in place and that control
structures and administrative costs are in proportion to money allocated; (Casaca - § 80)

Commission's reply:

The Commission too would have preferred that the impact of European assistance to structural
reform of agriculture in the candidate countries was already greater. It is not, however, evident
that what has been achieved causes serious prejudice to the enlargement process or to the image

22

of  enlargement  in  the  EU.  On  the  contrary,  what  has  been  achieved  via  SAPARD  is  to  build
systems so that, irrespective of the levels of expenditure recorded, all countries already now have
systems  capable  of  managing  aid  to  foster  structural  adaptation  of  their  agriculture.  Those
systems  include  desk  and  on-the-spot  checks  before  contracting  and  payment  phases,  and  are
finally supplemented by an ex-post follow-up of the investment, in conformity with criteria set out
in  the  Multi-Annual  Financing  Agreement  (MAFA).  All  beneficiary  countries  receive
considerable financial help from the Community, the level of which is determined in the budget
procedure, to help, inter alia, farmers faced with the challenges of integration. The Commission
considers that all such help is subject to adequate control systems that have to be in place prior to
any  funds  being  released,  and  that  these  control  structures  and  administrative  costs  are  in
proportion to money allocated, taking into account the levels of risk involved.

37.

Provide  at  the  earliest  opportunity  guidance  notes  for  SAPARD  in  the  languages  of  the
candidate countries (Casaca - § 81)

Commission's reply:

SAPARD is implemented on a fully decentralised basis. The  Commission points out that on all
occasions it is the candidate country concerned that is responsible for preparing documentation
in its language. The Commission is not aware that this has caused any problems, nor is it aware
of any unfulfilled requests for guidance notes.

STRUCTURAL FUNDS

38.

Make  proposals  for  the  next  Structural  Funds  reform  to  prevent  long  delays  in
implementation without harming political priorities while respecting principles set out by
the Parliament (few clear priorities, administrative simplification, improved distribution of
funds and smooth changeover to new programming periods). (Casaca - § 63, 65 and 72)

Commission's reply:

The Commission regrets the delay in negotiating the programming documents at the start of the
2000-2006 programming period and the resulting consequences for the start of implementation.
This is the reason why the Commission will be presenting its legislative proposals for the period
after 2006 as early as possible in 2004 so that all the legislation will be introduced before the start
of the next programming period (1 January 2007). The Commission is considering a new system
of  implementation  based  on  a  more  decentralised,  more  simple  and  more  effective  system  of
programming,  management  and  control.  It  is  also  planning  a  substantial  simplification  of  the
number of stages in the programming.

To  ensure  a  smoother  transition  to  the  future  programming  period,  the  Structural  Funds  and
Cohesion Fund regulations, the implementing  rules, and the multiannual financial framework
for the period after 2006 must be adopted early enough to  ensure that the preparations  for the
adoption of measures, allocation of funds, adoption of guidelines, presentation of proposals, etc.,
are virtually completed by the end of 2006.

39.

Divide  in  the  next  programming  period  the  programming  periods  for  objective
programmes and Community initiatives. (Casaca - § 63)

Commission's  reply:  The  Commission  takes  note  of  the  suggestion  to  divide  the  programme
periods for structural operations by objectives and Community initiatives. The system of a single

23

programming  period  for  all  the  Structural  Funds  is  linked  to  the  mechanism  of  the  financial
perspective which is fixed for a period of several years.

40.

Improve payment forecasts together with Member States. (Casaca - § 64)

Commission's reply: It is true that so far Member States’ forecasts have been very inaccurate and
have tended to overestimate expenditure. They  have also  been very volatile, i.e., often the same
Member State produces relatively good estimates one year and very bad estimates the next year or
vice versa.

Although so far the forecasts have been of limited value for budgeting, the Commission believes
that forecasting retains its potential to become a very useful budgeting tool in order to simplify
the preparation and execution of the Structural Funds budget. Accordingly, it has already taken
several measures aimed at improving the forecasts.

The  Commission  has  begun  informing  the  budgetary  authority  regularly  about  the  forecasting
exercise. On 12 November 2002, it sent a first working document on the provisional results for
2002 to the BA. Further analysis, including a final analysis of the 2002 exercise, were sent to the
budgetary  authority  with  the  working  paper  (Commission,  DG  BUDG)  “Analysis  of  the
budgetary implementation of the Structural Funds in 2002. More recently, the Commission sent
to the budgetary authority a qualified analysis of Member States’ forecasts for 2003 and 2004.

Forecast requests are now also forwarded for information to the management authorities of the
different programmes rather than only transmitted to the Permanent Representations as used to
be  the  case.  It  is  hoped  that  this  will  make  the  Member  States’  forecasting  task  easier  to
accomplish effectively.

Finally, in November 2002 the Commission sent a questionnaire to the Member States on their
experiences  with  the  2002  forecasting  exercise.  The  feedback  received  was  helpful  to  further
improve  the  procedure.  This  was  already  reflected  in  the  reminder  letter  sent  in  2003  to  the
Member  States,  with  streamlined  instructions  for  the  collection  and  transmission  of  the  2003
forecasts.

The  Commission  corrects  the  forecasts  received  from  Member  States  in  the  light  of  its  own
information. For 2004 the amounts in the budget are smaller than those returned by the Member
States in their forecasts.

Despite the fact that Member States’ forecasts have systematically overestimated significantly the
need  for  funds,  they  remain  an  information  source  to  be  considered  by  the  Commission  as  it
comes  from  sources  closer  to  the  execution  of  the  programmes  on  the  ground.  This  is  a
consequence of shared management.

41.

Implement  simplified  measures  proposed  in  October  2002  in  order  to  increase  rate  of
implementation of payment appropriations. (Casaca - § 66)

Commission's  reply:  The  Commission  has  already  implemented  most  of  a  package  of
simplification  measures  adopted  in  2003  (communication  of  25  April  2003  (COM(2003)1255).
The package includes both amendments to legislation (Regulations 1685/2000 and 438/2001) and
changes in practices that do not require changes to legislation.

An example of measures in the package that will help increase the rate of implementation is the
more  flexible  procedure  for  calculating  the  co--financing  rates  for  interim  payments.  The

24

Commission has  also introduced  an  early  warning  system  for  Member  States  at  risk  under  the
M+18 (reimbursement of advances) and N+2 (decommitment) rules.

42.

Introduce a single audit model. (Casaca - § 68)

Commission's reply: Concrete steps will be taken to promote convergence of audit methodologies
and processes  between Directorates-General and  Services  operating  under  shared  management
arrangements.  Specific  attention  will  be  paid  to  the  development  of  common  standards,  taking
into  account  well-established  best  practices,  complementary  control  and  audit  processes,  at
Community and  national  levels,  and  assurance  protocols  with member  States.  The  single  audit
approach  involves  greater  cooperation  between  the  Commission  and  the  Member  States  in
auditing the Structural Funds. The Commission and the Member States thereby coordinate their
audit plans to avoid overlap and use one another’s audit information, and the Commission takes
into  account  to  a  greater  extent  on  the  work  done  by  national  audit  bodies.  The  single  audit
concept  is  already  being  implemented  by  all  Structural  Funds  departments  under  the  audit
coordination protocols. A further development now under discussion with the Member States is a
“contract  of  confidence”  which  the  Commission  would  enter  into  with  Member  States  for
particular programmes or all programmes in the country concerned, whereby the Member State
would  guarantee  a  satisfactory  level  of  audit  of  management  and  control  systems  for  the
Structural Funds allowing the Commission to reduce its own audits.

This  audit  strategy  was  given  a  favourable  reception  by  the  national  delegations  and  the
representative  of  the  Court  of  Auditors.  It  takes  into  account  and  integrates  with  the
methodological approach for all the Structural  Funds set  out  and updated in  early 2003 in the
Funds' manual for the audit of the management and control system.

43.

Consider  for  the  2005  budgetary  procedure  alternative  methods  bringing  payment
appropriations into line with Member States’ absorption capacity. (Casaca - § 69)

Commission's reply: It is difficult to base payments appropriation only on "absorption capacity"
as the EP also request to keep a link between payments and commitments. The later are defined
as target expenditure.

So  far,  implementation  of  the  Structural  Funds  programmes  has  indeed  trailed  below
expectations in some countries. The payments appropriations for 2000-2006 programmes were in
line with the absorption capacity in 2002 and likely 2003 where the problems are concentrated on
the closure of 1994-1999 programmes. In the PDB 2004, the approach adopted was to determine
the level of the payment appropriations requested on the basis of implementation in 2002 and not
on the basis of the forecasts received from the Member States.

For 2004 the Commission estimated the level of payments on the basis of experience acquired up
to  end-2002.  This  approach  produced  a  level  of  payments  below  that  resulting  from  Member
States' forecasts. The Commission will therefore continue  to  refine its forecasts  on the  basis of
the analysis of past experience.

44.

Provide  more  guidance  to  Member  States  on  the  reporting  of  irregularities  and  inform
Parliament of it. (Casaca - § 71)

Commission's reply: The Commission Structural Fund departments and OLAF have carried out
an  enquiry  into  the  reporting  and  follow-up  of  irregularities  in  the  Structural  Funds  in  all  15
Member States. The enquiry was carried out in late 2002 and early 2003. A report on the results
of the enquiry will be published in the autumn of 2003. Parliament will be informed. A general

25

result has already been the clarification of  Member  States’  obligations  and  better  coordination
between them and OLAF.

45.

Profound changes to be made in the next Structural Funds programme in keeping with the
proposals in the Commission White Paper on EU Governance; (Casaca - § 72)

Commission's  reply:  This  White  Paper  applies  to  all  Community  policies;  therefore,  the
principles and objectives set out in it will be reflected in the Commission's proposals for the next
Structural Fund programme period.

46.

In the context of the European convention, set up audit structures proportionate to money
allocated. (Casaca - § 73)

Commission's reply: Audit structures should be sized according to the budget being managed and
the  risk  profile,  which  may  depend  on  other  factors  such  as  indirect  management  or  the
complexity  of  the  legislation.  The  audit  structures  required  in  the  Member  States  under
Structural Funds regulations already take account of the volume of funds being managed. Under
shared management the Member States are principally responsible for  the control and audit of
the  Structural  Funds.  Within  the  Commission,  the  Structural  Funds  services  have  generally
reinforced their audit capacity to be able to verify the adequacy of national systems.

E)

47.

Enlargement

PHARE and ISPA: improve the implementation rate. (Casaca - § 82/83)

Commission's reply: As far as ISPA is concerned, the implementation rate of 58% was relatively
high for an instrument that has only been available since 2000. Projects that have been prepared
during  the  last  two  years  for  ISPA,  are  now  reaching  the  implementation  stage;  therefore  the
Commission is confident that the implementation rate for the forthcoming years will improve (in
2002, the rate increased to 78%). The Commission is closely monitoring project preparation and
provides – also with a view to future accession- continuous support through Technical Assistance
funds for improving the preparation of projects and for strengthening the administrative capacity
in  the  ISPA  beneficiary  countries  for  implementation.  The  activities  covered  include  technical
preparation  of  projects,  environmental  impact  assessments,  feasibility  studies,  training  on
procurement, on public-private-partnerships, financial management and control.

The  Court  of  Auditor's  Annual  Report  2001  complimented  the  Commission  on  its  "high"
implementation for PHARE (81.6 %)..

48.

TACIS:  Indicate  proportion  of  local  companies  selected  for  projects  and  design  call  for
tenders so that they get a fair chance of winning. (Casaca - § 84)

Commission's reply: TACIS is a programme of technical assistance whose objective is to promote
the  transition  of  the  beneficiary  countries  towards  well-functioning  market  economies  and  to
reinforce democracy and the rule of law.

The  assistance  is,  in  general,  delivered  in  the  form  of  grants  financing  technical  assistance
contracts.

When  a  project  is  launched  a  contractor  is  selected  to  deliver  services  to  the  beneficiary
organisation.

26

The  selected  contractor  is  generally  an  organisation  from  the  Member  States,  mainly  from  the
private sector but also from the public sector or a non-profit organisation.

The  contractor  is  normally  the  final  recipient  of  the  EU  funds  while  the  final  beneficiary,
receiving the assistance, is normally a government institution in the TACIS country.

The  services  delivered  by  the  contractor  aim  to  transfer  know-how  in  eligible  areas  of
cooperation which are:

- support for institutional, legal and administrative reform

- support to the private sector and assistance for economic development

- support in addressing the social consequences of transition

- development of infrastructure networks

- promotion of environmental protection and management of natural resources

- development of the rural economy

- support for nuclear safety

The forwarding of technical assistance implies the selection of contractors with a specific know-
how  that  has  been  identified  as  not  being  available  in  the  targeted  beneficiary  countries.  This
explains why selection of local companies in TACIS project is very exceptional.

However, the Commission would like to stress that the enforcement of the principle of equality of
potential eligible contractors (including from  beneficiary countries)  has  always been applied in
TACIS procurement rules.

No  statistics  are  held  on  the  origin  of  the  contractors,  as  the  phenomenon  of  association  of
contractors and the constitution within consortia would not make these sufficiently relevant.

49.

Ensure that candidate countries have proper accounting, audit and control systems, set up
anti-fraud units with OLAF and improve co-operation with ECA. (Casaca - § 85)

Commission's reply:

The pre-accession instruments and the certification of management systems which they required
have given the candidate countries considerable practice in managing EU funds and applying its
legislation.  Before  accession  the  Commission  is  checking  that  the  management  and  control
systems  being  put  in  place  in  the  candidate  countries  come  up  to  the  standards  laid  down  in
Regulations  438  and  448/2001  (Structural  Funds)  and  1386/2002  (Cohesion  Fund).  The
Commission  has  developed  and  implemented  a  monitoring  and  counselling  strategy  to  ensure
that these countries fulfil the requirements of the acquis in relation to accounting, control and
internal  audit  (chapters  28  and  29)  before  the  date  of  accession.  A  comprehensive  monitoring
report on  the  progress achieved is due  for 1 November  2003. It should be noted,  however,  that
although  the  monitoring  actions  have  given  a  clear  and  rather  unproblematic  picture  of  the
situation in the various accession countries, a real performance audit can only be meaningfully
carried out once these countries have joined the Union.

27

As far as fraud prevention is concerned, the Commission is ensuring that each of the countries
has a clearly identified administrative service responsible for the protection of the Communities’
financial  interests  and  fighting  fraud  against  the  Community  budget,  which  is  also  capable  of
cooperating directly with OLAF. In Poland, this service has been reinforced by the presence of
an agent from OLAF in 2001 and 2002. The Commission committed €15 million of the PHARE
budget  in  2002  in  a  special  programme  dedicated  to  supporting  anti-fraud  structures  in  the
PHARE countries thereby making them more effective.

F)

AGRICULTURE & FOOD

Management and control systems

50.

Harmonise and simplify IACS requirements across the EU (Casaca - § 88)

Commission's reply:

The  Commission  seeks  to  harmonise  and  simplify  administration,  control  and  sanctions  when
necessary and possible. The IACS Regulation 2419/2001 was recast  with this  objective  in mind
and is regarded as having provided significant benefits both for national administrations and for
farmers alike.

Articles 6 (area aid applications) and 10 (livestock applications) of Commission Regulation (EC)
No. 2419/2001 specify the information required in the applications to enable eligibility for aid to
be established. However, it is left to Member States to decide on the exact composition of these
forms (subject to the regulatory requirements). Furthermore, Article 11 of the same Regulation
allows for the applications to be transmitted electronically, as well as in paper form. Therefore,
there is no “common” form used by Member States, and the Commission sees no advantage in
introducing one at the moment.

51.

Common standards for measuring eligible areas (Casaca - § 87)

Commission's reply:

On the basis of art. 22 of Regulation 2419/2001, guidelines were issued in May 2003 in respect of
on-the-spot controls. A document of the Joint Research Centre (JRC) on specific tolerances for
different  types  of  measuring  equipment  has  also  been  distributed.  Together  these  documents
should  ensure  that  common  standards  are  applied  throughout  the  Community.  Moreover,  the
Commission  is  currently  in  the  process  of  proposing  amendments  to  the  Regulation  in  this
respect.

52.

Ensure before the end of 2003 that Greece fully implements the IACS system (Casaca - §
89)

Commission's reply:

The Commission is fully aware of the delays in Greece in implementing IACS. The Greek paying
agency has been subject to regular and close supervision, both in terms of institutional structure
and  actual  scheme  implementation,  since  the  deadline  for  achieving  IACS  expired  in  January
1997. For these reasons the Director-General for  Agriculture formally reserved his  position on
the matter in the AAR 2002.

28

To complement the already on-going audit  work, and  to  take full account of the unsatisfactory
situation  in  Greece,  DG  Agriculture  instigated,  in  late  2002  /  early  2003,  an  enhanced  action
plan  to  supervise  and  monitor  progress.  According  to  this  plan,  Greece’s  new  paying  agency,
OPEKEPE, provides regular progress updates and, already in the first half of 2003, on-the-spot
audit missions have been undertaken in the context of the Commission’s clearance of accounts
procedure in the arable crops, animal premiums, olive oil, textiles and dry grapes sectors.

Any  resulting  financial  corrections  are  based  not  only  on  deficiencies  established  in  respect  of
IACS, but must also correspond to a reasonable estimate of the real risk of undue charge on the
Community budget. On this basis, the Commission has until now decided annual corrections at a
rate  of  5%  or  more  for  arable  crops,  at  least  5%  for  sheep  and  goat  premiums  and  10%  for
bovine  premiums.  Furthermore,  a  clearance  of  accounts  procedure  is  currently  ongoing  in
respect  of  bovine  premiums  claimed  in  2000  with  the  possibility  of  a  very  high  financial
correction.  In  addition  the  Commission  services  are  contemplating  a  very  important  financial
correction for certain other aid schemes.

In 2002  the Commission also brought a case against Greece before the Court of  Justice  under
Article 226 of the Treaty because of its failure to introduce a management and control system.

Finally, it should be noted, that the responsibility for implementing the IACS in Greece lies with
the Greek authorities. The Commission cannot “ensure”, as asked by the EP, the implementation
of  IACS.  The  Commission  can  only  take  legal  action  against  a  Member  States  not  complying
with the acquis and ensure that any financial risk to the Community budget is covered within the
clearance of account procedure.

53.

Operational Bovine Identification System by the end of 2003 in all Member States (Casaca
- § 90)

Commission's reply:

The bovine identification system as laid down in Council Regulation (EC) No 820/97 followed by
Regulation (EC) No 1760/2000 of the European Parliament and of the Council of 17 July 2000
establishing  inter  alia  a  system  for  the  identification  and  registration  of  bovine  animals
comprises  the  following  elements:  eartags,  passports,  holding  registers  and  computerised
database.  According  to  Article  5  of  those  Regulations  the  bovine  identification  system  should
have  been  operational  in  all  Member  States  since  31  December  1999,  by  which  date  the
computerised database set up by the competent authority should have been fully operational.

Having  regard  to  Article  6(3)of  the  Regulations,  the  Commission  has,  on  request  from  the
Member States concerned, recognised the fully operational character of the databases for bovine
animals  for  the  following  Member  States:  Austria,  Belgium,  Denmark,  Finland,  Luxembourg,
Netherlands, Sweden, France, Germany and Northern Ireland (United Kingdom). As far as the
remaining  Member  States  (Portugal,  United  Kingdom  as  regards  Great  Britain,  Italy,  Ireland,
Spain and Greece) are concerned, the situation is being analysed within the Commission services
with  a  view  to  the  requested  recognition.  This  analysis  takes  into  account  the  reports  from  the
series of missions on traceability and labelling of beef and minced beef carried out by the Food
and Veterinary Office in all Member States. This has included an evaluation of the operation of
bovine identification databases in the Member States. This series of missions was finished by the
end  of  2002.  Reports  of  individual  missions  are  available  on  the  SANCO-FVO  website,  and
provide  information  on  outstanding  issues  regarding  the  implementation  of  these  systems.  The
Commission is currently examining the lessons to be learned from this series of missions, and is

29

preparing  an  overview  report  of  the  situation,  which  will  be  made  available  both  to  the
Parliament and on the above website in 2003.

54.

Level of controls: propose as soon as possible clearly defined and objectively controllable
indicators (Casaca - § 92).

Commission's reply:

The  development  of  verifiable  indicators  of  Good  Farming  Practices  has  been  difficult.
Nevertheless, updated guidelines, worked out  with the  Member  States,  were issued  in 2002 and
the system is now up and running. One of the purposes of Agenda 2000 was to allow the CAP to
adapt better to local circumstances  or  priorities.  Thus,  the  criteria  for  Good  Farming  Practice,
and controllable indicators, are set at national or regional level. Considering the huge variety of
situations  between  and  within  Member  States,  the  Commission  does  not  wish  to  propose
harmonised, Community wide criteria or indicators as it would not allow local conditions to be
taken into account.

The  Commission  attaches  high  importance  to  the  environmental  impact  of  farming  in  the  EU.
The CAP reform - a long-term perspective for sustainable agriculture - foresees, as regards direct
aids, a cross compliance with environmental rules. In the preparation of the implementing rules,
the  Commission  takes  into  account  the  necessity,  underlined  by  the  Parliament,  of  defining
objective control obligations.

55.

Produce a report by November 2003 on higher IT-security among paying agencies (Casaca
- § 86)

Commission's reply:

The Commission is preparing a report on higher IT-security among paying agencies which will
be made available to the EP.

Sugar CMO

56.

Make a careful internal analysis of the reasons for the failure of the CMO reform (Casaca -
§ 94).

Commission's reply:

In May 2001, the Council decided, in accordance with the opinion of the European Parliament,
that the sugar CMO would be maintained up  to  the  2005/06 marketing  year.  On  23  September
2003 the Commission transmitted a communication to the Council and the European Parliament.
The  Communication  fulfils  the  Commission’s  commitment  to  report  to  the  Council  in  2003  on
the EU sugar regime and its prospects, as laid down in Article 50(2) of Council Regulation (EC)
No 1260/2001. It outlines three  options for the future of the sugar sector. The  Communication
"Accomplishing  a  sustainable  agricultural  model  for  Europe  through  the  reformed  CAP  -  the
tobacco, olive oil, cotton and sugar sectors", can be found on the Internet at:

http://europa.eu.int/comm/agriculture/capreform/com554/index_en.htm

The  complexity  of  the  sector  and  the  various  challenges  it  faces,  both  domestically  and
internationally,  as  well  as  the  potential  impact  of  various  options,  are  documented  in  the
accompanying Extended Impact Assessment (EIA) of the sugar sector. The EIA has been made

30

with  the  help  of  an  Interservice  Steering  Group  (ISG)  where  14  Directorates-General  were
represented and a broad consultation of stakeholders was organised. The EIA of the sugar sector
can be found on the Internet at:

http://europa.eu.int/comm/agriculture/publi/reports/sugar/index_en.htm

57.

Withhold as soon as possible export refunds for sugar exports to countries enjoying duty
free access to the European market (Casaca - § 98);

Commission's reply:

This  issue  was  part  of  one  of  the  reservations  (risk  of  “carousel”  business)  that  the  Director-
General for DG Agriculture made to his annual declaration. The reservation was followed up by
the  implementation  of  an  action  plan  to  address  the  identified  weaknesses.  One  part  of  the
measures  taken  has  concerned  export/import  of  sugar  to/from  the  countries  of  the  Western
Balkans. Hence, for export licences delivered as from 8 March 2003, the Commission ceased the
granting of refunds for sugar exported to five countries of the Western Balkan (Albania, Bosnia
&  Herzegovina,  Croatia,  the  Former  Yugoslav  Republic  of  Macedonia,  and  Serbia  &
Montenegro, including Kosovo). See Commission Reg. No 430/2003, 431/2003 and 432/2003.

Another of the measures taken concerns the provisional suspension for 3 month, as from 8 May
2003,  of  the  preferential  import  arrangements  for  duty  free  sugar  imports  from  Serbia-
Montenegro, .following OLAF’s report on serious shortcomings in the customs controls (for the
certification and control of the preferential origin of sugar) in this country (see Regulation (EC)
No  764/2003  –  OJ  L  109,  1.5.2003).  The  provisional  suspension  measure  was  extended  for  a
further  6  months  until  8  February  2004  (see  Regulation  (EC)  No  1343/2003  –  OJ  L  189,
27.7.2003.

Export refunds

58.

Evaluate  all  export  refunds  schemes  and  their  impact  on  world  hunger  as  well  as
corresponding increase in food aid (Casaca - § 99).

Commission's reply:

The Commission is examining how to ensure the requested evaluation. It will be integrated into
the Commission’s working program for evaluations. A comprehensive evaluation project takes a
considerable time (project definition, call for tender, selection procedure, project implementation,
report examination).

Fisheries

59.

Significantly increase both on-the-spot checks and record-based audits (Casaca - § 100).

Commission's reply:

"Joint  enterprise"  projects  will  be  systematically  checked  during  control  missions.  Following
Parliament’s request, "joint enterprise" projects have already been checked during 2003 in three
Member States.

All the files relating to payment requests directly managed by the Commission for joint enterprise
projects will also be exhaustively checked to ensure compliance with the rules applicable.

31

Others

60. Make public a list of subsidies to export refunds and surplus disposal measures under CAP
mechanisms (Casaca - § 102).

Commission's reply:

On the basis of  Regulations (EC) No  1663/95  and  (EC)  No  2390/1999  amended  by  Regulation
(EC) No  419/2002  the  Commission  receives  from  Member  States  accounting  information.  This
information  is,  pursuant  to  Article  2(1)  of  Regulation  (EC)  No  2390/1999,  to  be  used  only  to
carry  out  its  functions  in  the  context  of  the  clearance  of  accounts  as  well  as  to  monitor
developments and to provide forecasts in the agricultural sector.

Article  2(3)  of  the  same  Regulation  imposes  on  the  Commission  the  obligation  to  keep  the
accounting information confidential and secure.

The Commission can only provide aggregated statistics which do not allow the identification of
individual  beneficiaries.  The  Committee  on  Budgetary  Control  has  recently  received  such
information regarding export refunds.

Take  action  against  companies  involved  in  large  scale  adulteration  of  food  product,

61.
especially milk products (Casaca - § 103/104).

Commission's reply:

Adulterated butter case:

Any penalties which might be imposed in the adulterated butter case are a matter for the national
judicial  authorities  concerned.  OLAF  assisted  the  judicial  authorities  in  Italy  and  France  and
was associated with the administrative inquiry in Germany. At this stage the enquiries (criminal)
are  continuing  in  Italy  and  France.  In  addition,  the  competent  Belgian  authority  filed  cases
against two Belgian companies with the courts at the beginning of October 2003 in which they
requested  to  intervene  as  "partie  civile"  (i.e.  to  bring  a  civil  action  for  damages  as  part  of  the
criminal proceedings).

G)

62.

European Social Fund

Inform  Parliament  as  soon  as  results  are  available  of  investigations  results  and  actions
taken under Regulation (EEC) 4523/88. (Casaca - § 105)

Commission's reply:

The Commission regularly applies the procedures referred to in Article 24 of Council Regulation
(EEC) No 4253/88, as amended, when following up its audits and controls and those carried out
by the Court of Auditors or when national control finding have not been followed up. However,
the procedures for obtaining a net reduction in Community assistance requires a certain amount
of time before the irregularity can be formally confirmed and the grounds established for taking
a decision to make a net financial correction; in several cases the Member State agrees to carry
out  the  financial  correction  without  requiring  a  formal  decision  to  reduce  the  assistance.  The

32

Commission will forward the list of decisions taken in 2002 and 2003. The financial closure of
the programmes for 1994/1999 provides also an opportunity for clearing those cases  which are
still open (either by deducting expenditure from the applications for payments of balances or by
means of a net reduction).

63.

Clarify how ESF objectives could be reached while avoiding inefficient procedures, fraud
and mismanagement. (Casaca - § 107)

flexibility  and  proportionality 

Commission's reply: Achieving ESF objectives while avoiding inefficient procedures, fraud and
mismanagement was one of the aims of the simplification exercise the Commission has launched
in  2002.  This  exercise  is  based  on  the  guiding  principles  of  simplification,  clarification,
coordination, 
the
Communication on the simplification, clarification, coordination and flexible management of the
structural policies 2000-064. However, Regulation 1260/99 will not be modified. The Commission
believes  that  the  simplification  package  will  contribute  to  a  better  management  of  the  Funds,
reducing  the  risk  of  inefficiencies  and  mismanagement.  Since  the  structural  funds  rely  on  a
shared  management  system,  based  on  the  principle  of  decentralisation,  Member  States
themselves  must  make  an  effort  to  streamline  their  internal  procedures  and  simplify  the
programming at national and/or regional level.

the  Commission  adopted 

for  which 

(See also the reply to § 141).

64.

Close as soon as possible the Madrid ESF funding case of mismanagement and clarify the
situation. (Casaca - § 108)

Commission's reply:

In  the  IMEFE/Madrid  City  Hall  case,  Commission  departments  sent  the  Member  State,  on
30.07.03, official notification of their intention of suspending payment of the entire amount still
outstanding in the programme in question.

The member State was also informed that Commission departments intended to carry out a series
of  audits  to  determine  definitively  the  level  of  error  or  irregularity  in  measures  managed  by
IMEFE over the period 1994/99. Prior to this and in order not to interfere with measures covered
by  the  ongoing  judicial  investigation,  OLAF  must  get  in  touch  with  its  contacts  in  Spain  and
provide a list of the measures involved so that they can be eliminated from the audit.

65.

In  the  light  of  ECA’s  special  reports  3/2002  and  4/2003,  reflect  on  the  reform  of  aid
irrespective of specialist sectors. (Casaca - § 109)

Commission's  reply:  The  Commission  is  currently  reflecting  on  the  reform  of  its  budgetary
support  instruments  in  the  framework  of  its  proposal  for  the  new  financial  perspective.  It  has
taken  into  consideration  the  experience  of  Integra  and  has  applied  the  Court's  considerations
when  designing  the  Integra  successor,  EQUAL  (ESF  community  initiative  2000-2006).  The
lessons drawn during the running of Integra were applied to EQUAL.

As concerns evaluation, dissemination and capitalisation of results, the Commission has already
undertaken a number of initiatives in the area of innovative actions: evaluation of preparatory
measures  projects  2000  and  of  2001  projects  (underway),  overall  thematic  evaluation  of  local

4      C(2003) 1255 of 25.04.2003.

33

                                                
development  (underway),  external  evaluation  of  the  projects  in  the  field  of  Social  Dialogue
(underway). The dissemination of information is being improved through a variety of materials:
a  Local  Development  Forum,  held  on  15-16  May  2003  jointly  with  the  Parliament  and  the
Council Presidency, the publication of a project directory, a Vademecum on the development of
local employment strategies which will be prepared to provide local actors with a practical tool.

A study on performance indicators on local employment will propose common quantitative and
qualitative indicators to improve exploitation of results.

66.

Seek a solution with relevant Member States to remedy for the failure to use the instrument
of ‘social risk capital’. (Casaca - § 110)

Commission's reply:

The  intermediary  bodies,  which  are  responsible  for  the  management  of  the  small  grants,  must
fulfil  certain  requirements  listed  in  article  27  of  Regulation  1260/99.  These  requirements  limit
the  number  of  intermediary  bodies  which  can  manage  small  grants.  Furthermore,  the
decentralisation  of  responsibilities  adds  extra  levels  to  the  decision-making  hierarchy.  This
makes it more difficult to ensure compliance  with  audit  and  control  obligations  and  delays  the
start-up of projects.

Taking into account the decentralisation of Structural Funds management and delivery, and the
variety  of  administrative  structures  in  the  Member  States,  a  one-size-fits-all  approach  for  the
implementation of the small grants provision would be neither operational nor desirable.

The Commission believes that the delays and administrative complexities in some Member States
in implementing the small grants provisions under the ESF should be dealt with individually by
the  Member  States  and/or  Managing  Authorities  concerned.  The  Commission  has  pleaded  for
more  simplification  in  this  domain,  but  –  in  line  with  the  principle  of  subsidiarity  –  the
Commission has no authority over national or administrative mechanisms. It cannot replace the
Member States in their organisational or administrative choices.

67.

Pay more attention to promoting women’s participation in the knowledge society. (Casaca
- § 112)

Commission's  reply:  The  new  regulatory  framework  and  the  European  Employment  Strategy
have  helped  raise  the  profile  of  gender  equality  in  the  new  Structural  Funds'  programming
period. The new CSFs/SPDs are developing a more comprehensive equality strategy than in the
past, based on the dual approach of gender mainstreaming and specific actions.

The percentage of funding devoted to policy field E "Women's access to and participation in the
labour market", varies across Member States, but only three Member States devote more than the
EU average to this policy field.

As  the  Commission  Communication  (2002)  748  "Gender  mainstreaming  in  the  Structural
Funds" puts it: "Within the ESF, policy field E receives only 6% of the total support, which is
the  smallest  part  of  assistance  compared  to  the  other  fields".  Moreover,  "some  Member  States
with a large gender gap spend significantly less than other Member States where the employment
gap  is  much  smaller".  However,  it  is  also  worth  saying  that  "a  Member  States'  relatively  low
level of funding in this area may not necessary reflect a low concern for gender issues but might
indicate that activities to promote gender equality are funded under the other policy field".

34

Gender mainstreaming in the Structural Funds, and in the European Social Fund in particular,
involves  integrating  a  gender  perspective  into  every  stage  of  the  process,  the  planning  of
measures and interventions, their implementation, their monitoring and evaluation.

The abovementioned Communication represents the Commission's answers to this, formulating
recommendations to both improve the situation and address current obstacles.

In  particular,  the  Communication  indicates  investment  in  human  and  social  capital  in  the
knowledge  society  as  one  of  the  priority  fields,  recommending  that  future  interventions  should
focus on preventing the exclusion of women from this areas, promoting high quality training and
employment for women in the ICT and R&D sectors.

Other:

-1- The Commission Staff Working Paper "Building the Knowledge Society: Social and Human
Capital  Interactions"  (SEC(2003)652)  developed  with  the  support  of  the  ESDIS  High  Level
Group, contains a specific section on gender. This section highlights the ICT-related gender gaps
(in ICT education, ICT professions and ICT use) and identifies some key aspects to be addressed
in this respect. Those aspects have been taken up by the Greek Presidency, which tabled a draft
Resolution  on  Social  and  Human  Capital  extensively  addressing  the  aspect  of  gender  in  the
knowledge society.

-2- The European Commission  supported  the organisation  of  the  Conference  "Gender  and  the
Information  Society",  organised  by  the  Greek  Presidency  on  5th  and  6th  May  2003
(http://www.equalitycongresses.gr/index-eng.html).  The  conclusions  of  the  conference  fed  into
an Informal Meeting of the Ministries for Gender equality, who underlined the importance of the
subject. The Presidency conclusions of this meeting highlighted different aspects to be taken into
consideration by the Member States.

The issue is being taken up by the Italian Presidency, which will propose a resolution on 'Women
and ICT' to the Competitiveness Council.

68.

Increase preventive checks on ESF measures. (Casaca - § 141)

Commission's reply: The Commission's audit programme for 2003 comprises 50 ESF audits:

- 35 systems audits for the period 2000-2006,

- 15 closure audits for the period 1994-1999.

At  the  end  of  2003  the  coverage  rate  for  ESF  programmes  from  the  programming  period
2000/2006 will come to:

- 33% for Objective 1 (but 83% for ESF-led objective 1), - 57% for Objective 3,

- 81% for EQUAL.

The  Commission's  Structural  Funds  audit  strategy  for  the  period  2000/2006  tends  towards  a
single  audit  approach  and  is  based  on  more  effective  cooperation  with  the  national  control
authorities to obtain a reasonable assurance of a very high number of management and control
systems in the fifteen Member States. This is based on the regulatory framework for 2000/2006
which  increases  the  responsibility  of  the  Member  States  in  the  first  instance  for  the  financial

35

control  of  assistance,  prosecuting  irregularities  and  making  the  financial  corrections  required
(Articles 38 and 39 of Council Regulation (EC) No 1260/1999).

H)

69.

ENVIRONMENT, PUBLIC HEALTH AND CONSUMER POLICY

Systematise  use  of  strategic  environment  assessments  in  order  to  improve  the  impact  of
environment programmes (Casaca - § 114)

Commission's reply:

Directive 2001/42/EC on the assessment of the  effects of certain  plans  and programmes  on the
environment  must  be  transposed  into  national  legislation  by  21  July  2004.  Thereafter,  a
systematic  assessment  will  be  required  of  the  likely  significant  environmental  effects  of  a  wide
range of plans and programmes which authorities in Member States are required to prepare or
adopt. Environment programmes will be covered by the Directive insofar as they meet the criteria
which it contains. Other plans and programmes which meet those criteria will also be covered.

The impact of environmental (and other) proposals made at Community level will be assessed in
the Commission's preliminary impact assessment and extended impact assessment procedures.

I)

70.

PENALTY PAYMENTS

Inform  regularly  Parliament  of  decisions  taken  under  the  infringement  procedure  and
explain reasons for extending the deadlines. (Casaca - § 116)

Commission's reply:

The Commission’s responsibility for monitoring the application of Community law is set out in
Article  211  of  the  EC  Treaty.  The  monitoring  task  is  entrusted  exclusively  to  the  European
Commission in its exclusive role as “guardian of the Treaty”.

Article 226 provides that the Commission may take action against a Member State for failing to
fulfil an obligation under the Treaty. Over the years the Commission has significantly developed
the pre-litigation phase, commonly known as the “infringement procedure”. Measures have been
issued by the Commission to organise administrative details of the procedure such as time limits.
The Commission's internal procedures and working methods were devised to ensure compliance
with the principles of  collective responsibility, comprehensive examination and  equal  treatment
throughout the case-handling process.

Each  year,  the  Commission  draws  up  a  report  on  the  monitoring  of  the  implementation  of
Community law, in response to requests made by the European  Parliament  (Resolution of 9 of
February 1983) and the Member States. This report is published in the Official Journal and on
the European Communities’ “Europa” server at the following address:

http://europa.eu.int/comm/secretariat_general/sgb/infringements/19report_2001_en.htm

The report concerning 2002 is being prepared.

Under  Articles.  211  and  226  of  the  EC  Treaty  it  is  the  Commission’s  task  as  “guardian  of  the
Treaty” to start infringement procedures. Parliament is informed about all the procedures via the
annual report on monitoring of Community law referred to above.

36

71.

Inform  Parliament  of  new  deadlines  for  Member  States  to  comply  with  EU  legislation;
(Casaca - § 116)

Commission's reply:

The  Commission  has  been  sending  an  annual  report  to  Parliament  for  the  past  20  years.  It
regularly updates the part of the Europa site on the monitoring of the application of Community
law.  The  Commission  exercises  its  power  of  discretion  recognised  by  the  Treaties  and  by  the
Court  of Justice  when  it  extends  the  deadlines  granted  to  the  Member  States  under  the  ex-226
procedure,  giving  priority  to  voluntary  compliance.  Whenever  the  legal  base  changes  during
examination  of  a  case,  the  ex-226  procedure  must  go  back  to  the  first  stage.  If  regularised
infringement cases were kept open, this could prove counterproductive.

See also reply to paragraph 70.

72.

Propose  legislation  differentiating  types  of  infractions  and  set  specific  timeframes  for
dealing with infringements according to their complexity and seriousness. (Casaca - § 118)

Commission's reply:

When implementing the White Paper on "Governance - better monitoring of the application of
Community  law"  of  11.12.2002  (COM(2002)725),  the  Commission  explored  a  number  of
approaches, along the lines of Parliament's suggestion, which it intended to follow in the months
to  come  to  beef  up  its  measures  to  bring  the  disputed  procedures  into  line,  either  by  means  of
prevention or by accelerating the process where necessary.

(See also reply to paragraph 75).

73.

Propose a system of fines incorporating together a lump sum and a daily fine. (Casaca - §
119)

Commission's  reply:  This  question,  which  was  raised  in  connection  with  the  "UK  beef"
infringement  (where  the  Commission  decided  to  drop  a  case  under  Art.  228  after  the  Member
State concerned had complied with the previous judgement only after the oral hearing had taken
place  and  shortly  before  the  Advocate  General  was  due  to  deliver  his  opinion),  is  now  being
examined  with  a  view  to  rendering  the  Article  228  procedure  more  efficient  in  the  light  of  the
experience  gained.  The  Commission  will  not  fail  to  pass  on  the  results  of  its  deliberations  to
Parliament and the Court of Auditors.

74.

Explain  immediately  why  a  distinctive  procedure  is  applied  in  the  structural  funds  area
(automatic suspension of payment in case of investigation). (Casaca - § 120)

Commission's reply:

in  order 

the  Community  budget 

 The Commission is regularly informed of infringements which are likely to have consequences
them  appropriately.
for 
In  the  Structural  Funds  a  special  system  is  provided  for  by  the  Structural  Funds  regulation.
Interim  payments  from  the  Structural  Funds  are  conditional  on  the  absence  of  a  Commission
decision to embark on an infringement procedure (Article 32(3)(f) of Regulation 1260/99), i.e. a
decision  under  Article  226  of  the  Treaty  to  send  a  letter  of  formal  notice.  Article  32  of  the
Structural  Funds  regulation  allows  the  Commission  to  suspend  payments  in  such  cases.  A
suspension  of  payments  is  legally  different  from  the  imposition  of  a  lump  sum  or  a  penalty

to  deal  with 

to  be  able 

37

payment, since the former concerns an advantage not granted as opposed to a financial penalty.
As the Structural Funds account for the second biggest part of the budget, this mechanism can
be extremely effective. Payments are not normally suspended before an investigation is launched,
but in accordance with Art. 32(3)f) of Regulation 1260/99 only once an infringement procedure
has started.

75.

Strengthen legislation enforcement capacity by harmonising procedures and reduce delays
before infringements of EU legislation are punished. (Casaca - § 121)

Commission's reply:

The Commission informed the EP in this context of its intention to better monitor the application
of Community law by its Communication of 11.12.2002 (COM(2002) 725). This Communication
lays out detailed actions for achieving this objective.

. Measures preventing infringements such as:

- improving cooperation between the Commission and the Member States

- monitoring and facilitating the proper transposal of directives

- improving the transparency and the knowledge of Community law

- increasing cooperation before the expiry of the transposition deadline

- improving the notification of transposition measures

- providing more information on Community law

.  Measures  improving  the  monitoring  and  application  of  Community  law  and  taking  action
against infringements:

- prioritising infringements according to their seriousness

-  closer  cooperation  between  the  Member  States  and  the  Commission  in  investigating

infringements (Article 10 EC Treaty)

. Measures preventing repetition of infringements, including:

- better information of citizens’ rights for reparation in case  of  infringements  as recognised by

the jurisprudence of the Court.

See also paragraph 118 (White Paper).

J)

76.

External Policies

Make  significant  improvements  in  implementation  of  the  35%  benchmark  for  social
infrastructure in the education and health areas (Casaca - § 124).

Commission's reply:)

38

In 2002, 31.4%  of  overall  aid  was  allocated  to  the  sector  “Social  Infrastructure  and  Services”.
This percentage increases to 34.5% when including the sector  “Multisector aid  for basic social
services”,  and  will  indeed  exceed  the  benchmark  when  the  relevant  elements  of  our  structural
adjustment programmes with conditionalities linked to the social sector are included.

77.

Continue to inform and consult EP from July 2003 on (at every stage) on progress on the
Millenium  Development  Goals  process  (reducing  poverty  through  targeting  of  education
and health); (Casaca - § 126)

Commission's reply:-

This information is provided in the Commission’s Annual Report on the EC Development Policy
and  the  Implementation  of  External  Assistance  in  2002  (COM(2003)527  final).  Following  the
Council  conclusion  and  the  recommendations  of  the  European  Parliament  the  new  Annual
Report keeps a focus on results achieved by the countries and by the projects. Special attention
has been paid to achieving the Millennium Development Goals. In cooperation with the Member
States  and  the  OECD/DAC,  the  Commission  has  selected  ten  key  indicators,  and  intends  to
monitor the progress towards achieving them in the case of each partner country.

78.

Implement immediately thorough and effective training programmes (specially in the area
of audits) for the deconcentrated delegations; (Casaca - § 127)

Commission's reply:

The  Commission  has  taken  a  number  of  measures  to  ensure  that  its  staff  in  Delegations  have
sufficient  expertise  in  this  area  and  hence  a  smooth  transfer  of  responsibility  from  HQ  to
delegations  and  a  regular  feedback  to  headquarters.  The  Commission's  approach  has  been  to
ensure  that  HQ  would  be  equipped  to  provide  support  and  backstopping  to  the  delegations.  A
comprehensive  training  programme  for  staff  in  HQ  and  Delegations  was  launched  early  2003.
Furthermore,  a  number  of  measures  have  been  taken  such  as  drawing  up  standard  terms  of
reference for the audit contracts (for further information please see the Commission's reply to §
31 of the EDF 2001 Discharge).

79.

Transfers from line  B7-6000 (Community  contributions for developing countries through
NGO) to line B7-6002  (decentralised  co-operation) to be  made from  more suitable  lines;
(Casaca - § 128)

Commission's reply:

In  the  PDB  2001,  the  Commission  proposed  the  merger  of  budget  lines  B7-6000  and  B7-643
(now  B7-6002).  This  proposal  was  not  adopted  by  the  budgetary  authority,  which  nevertheless
decided  to  place  the  Decentralised  Cooperation  line  (new  nomenclature  B7-6002)  in  the  same
chapter as  B7-6000. Since the budgetary  request  made  by  the  Commission  in  PDB  for  the  B7-
6000 line included the needs of B7-6002, it was decided to propose the transfer of the additional
funds needed for this line from B7-6000.

80.

Streamline procedures in administration of line B7-6000; (Casaca - § 129)

Commission's reply:

Tendering  and  selection  procedures  have  considerably  improved  over  the  last  two  years.
Selections are now made within 6 to 7 months as required by the legal base B7-6000.

39

The three calls for proposals issued in late 2002 were closed on 13 March, 19 March and 2 April
2003 respectively. 1 409 proposals were received as a result. The procedure for evaluating these
1 409  proposals  should  be  completed  by  the  end  of  the  third  quarter.  The  applicants  will  be
informed of the financing decisions at the start of the fourth quarter.

The  Commission  would  point  out  that  99.5%  of  the  commitment  appropriations  were  used  in
2002.

81.

Full co-operation in connection with working group’s activities on the budgetary assistance
to  the  Palestinian  Authority  expected;  and  compensation  from  any  state/organisation
destroying Community-owned property; (Casaca - § 131)

Commission's reply:

Pursuant  to  the  decisions  adopted  during  the  many  meetings  between  Parliament  and  the
Commission, the  Commission  regularly  provides  Parliament  with  information  on  the  funds  for
the  Palestinian  territories  (every  two  months  on  average).  These  funds  have  been  audited
regularly in accordance with the provisions and procedures laid down.

The Commission will give any contribution required to the work of the working group composed
of Members from AFET, COBU and COCOBU. The Commission was present at the first meeting
of the working group in Strasbourg on May 14 and will be present at the following meetings.

82.

Reform  the  accounting  and  payment  system  in  its  external  offices,  agencies  and
delegations (in view of the complaints expressed by the European Reconstruction Office in
Kosovo); (Casaca - § 132)

Commission's reply:

As far as the Delegations are concerned, in the course of 2002 the Commission introduced CRIS,
the new information system  for  budgetised  external  assistance  programmes.  In  the  near  future
CRIS will also be extended to the EAR.

83.

As  regards  MEDA,  to  step  up  efforts  to  ensure  greater  efficiency  in  the  use  of
appropriations & reduction in 'dormant' commitments (cost of the past); (Casaca - § 133)

Commission's reply:

The level of dormant commitments had already slightly diminished in 2001, and the 2002 result
for  MEDA  dormant  commitments  will  bring  further  evidence  of  real  improvement  in  absolute
terms  (for  example,  in  Turkey  the  absorption  of  the  "reste  à  contracter"  exceeded  new
commitments by 50%.).

84.

Ensure  that  actions  are  properly  monitored  and  that  actions/projects  are  audited  and
evaluated concerning SAF in the Mediterranean countries; (Casaca - § 134)

Commission's reply:

The  Commission  is  taking  the  necessary  measures.  In  particular,  audits  are  foreseen  for  all
actions agreed since the beginning of 2001, and harmonised guidelines for budget support have
been issued.

40

85.

Define  which  actions  should  be  given  priority  for  funding,  in  agreement  with  the
beneficiary countries, avoiding large numbers of micro-projects; (Casaca - § 135)

Commission's reply:

The  Commission’s  development  communication  identifies  6  key  sectors  for  poverty  reduction.
This policy gives the Commission the possibility, in dialogue with the recipient country, to agree
on the sectors that are most appropriate for the country in question, aiming to achieve maximum
impact without diluting its efforts in too many different sectors or approaches.

86.

Submit report before EP’s first reading of the 2004 budget on progress in the beneficiary
countries regarding institutional reforms; (Casaca - § 136)

Commission's reply:

Information on progress regarding institution building is provided in the Annual Report on the
EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527
final).

87.

Establish (Casaca - § 137):

- the added value of Structural Adjustment Facility in the Mediterranean countries (SAF);

Commission's reply:

The  SAF  is  being  implemented  in  the  framework  of  an  exercise  for  transparent  monitoring  of
operations.  First  of  all  it  fits  into  a  system  of  interdepartmental  cooperation,  which  itself  is
subject  to  centralised  management  (not  delegated  to  beneficiaries)  for  monitoring  operations,
checking compliance with conditionalities and granting any waivers. A methodological guide to
programming  and  implementation  of  budgetary  aid  spells  out  the  role  of  the  departments
involved at the various stages of preparing, implementing and following up operations.

It also means intensifying methodological exchanges on cross-cutting issues such as evaluation
and appraisal of management and control systems in  the  beneficiary  countries.  In  this  respect,
since  end-2001  a  specific  thematic  network,  the  Budgetary  Aid  Thematic  Network  (BATN),
systematises  these  exchanges  between  the  departments  concerned.  The  BATN  also  circulates
information on thinking within the Commission and at international level.

- a harmonised approach for all beneficiary countries;

Commission's reply:

Harmonised guidelines for budget support have been issued (March 2002).

- improved transparency in the decision making process;

Commission's reply:
The  SAF  is  being  implemented  in  the  framework  of  an  exercise  for  transparent  monitoring  of
operations.  First  of  all  it  fits  into  a  system  of  interdepartmental  cooperation,  which  itself  is
subject  to  centralised  management  (not  delegated  to  beneficiaries)  for  monitoring  operations,
checking compliance with conditionalities and granting any waivers. A methodological guide to
programming  and  implementation  of  budgetary  aid  spells  out  the  role  of  the  departments
involved at the various stages of preparing, implementing and following up operations.

41

It also means intensifying methodological exchanges on cross-cutting issues such as evaluation
and appraisal of management and control systems in  the  beneficiary  countries.  In  this  respect,
since  end-2001  a  specific  thematic  network,  the  Budgetary  Aid  Thematic  Network  (BATN),
systematises  these  exchanges  between  the  departments  concerned.  The  BATN  also  circulates
information on thinking within the Commission and at international level.

-  improved  quality  of  monitoring  of  financial  management  in  beneficiary  countries  and

expert evaluation of the assistance.

Commission's reply:

A greater focus on evaluation is already part of the general reform. Evaluations of selected MFA
programmes  are  planned  to  take  place  from  2003  onwards,  and  all  SAFs  approved  since  2000
include financial provision for a final independent evaluation.

88.

Improved  justifications  for  budget  transfers  in  heading  4  of  the  financial  perspective  in
respect with the priorities and budget guidelines by EP (Casaca - § 138)

Commission's reply:

As  concerns  the  quality  of  justifications  of  the  transfers,  services  are  aware  of  the  need  to
improve them and efforts are being made in order to improve their presentation.

The Commission endeavours to provide with each transfer request the information relevant to the
budget  authority  and  on  which  it  can  base  an  informed  decision.  Whenever  asked  for,  the
Commission  is  ready  to  undertake  every  effort  to  provide  the  respective  rapporteurs  and
committees with the additional information they may wish to obtain before taking their decision.

89.

To allow EU delegations sufficient time to give opinions on proposals made by NGOs and
shorten interval between NGOs’ submission and signing of contracts; (Casaca - § 139)

Commission's reply:

The delegations are consulted on the NGOs' proposals in the light of the time limits allowed by
the legal base for B7-6000, which states that "The decision as to whether an operation is to be
supported shall normally be taken within six months of the date of receipt of the application. If
appraisal shows an application to be incomplete, the six-month period shall run from the date of
receipt of the information required".

In 2002,

the departments administered three calls made in 2001:

1-

2-

3-

Call for development education projects closed on 19 March 2002

Call for "projects" in the developing countries closed on 15 April 2002

Calls for block grants closed on 29 April 2002

The selection committee met on:

1-

30 September 2002

42

2-

3-

9 October 2002

27 November 2002.

It  will  be  seen  that  selection  took  6  to  7  months.  This  is  far  better  than  for  the  first  call  for
projects in 2000 and for previous financial years.

Because of the new procedures (call for proposals), the department has to inform the  NGOs of
the decision which the selection committee is to take in less than 7 months.

The  Commission  would  point  out  that  99.5%  of  the  commitment  appropriations  were  used  in
2002.

K)

90.

Financial Instruments

Ask for a complete and detailed overview of the cost incurred by the European Investment
Bank for the treasury management of the Guarantee Fund for external actions and submit
an  evaluation  on  possible  savings  if  it  were  to  carry  out  the  treasury  management  of  the
Guarantee Fund itself. (Casaca - § 146)

Commission's reply:

The legislation currently in force does not provide for a negotiation on a “cost plus” basis, nor is
the  EIB  obliged  to  provide  corresponding  cost  information  to  the  Commission.  Therefore,  the
Commission has negotiated a new degressive fee structure with the EIB for the management of
the Guarantee Fund for External Actions, on a commercial basis.

The Commission considers it inappropriate to speculate on the costs of managing the Guarantee
Fund in a way other than set out by the Council Regulation relating to the matter.

91.

See  to  it  that  the  European  Investment  Fund  (EIF)  submit  convincing  proposals  by
31.05.2003  at  the  latest  on  how  the  performance  of  the  ETF  Start-up  facility  could  be
improved; (Casaca - § 147)

Commission's reply:

In response to European Parliament’s request, the EIF has submitted the following information:
"In  view  of  the  current  state  of  the  early  stage  venture  capital  market  in  Europe,  it  is  hard  to
identify particular changes to ETFSU that would allow it to function significantly better. It is a
market-based instrument, deriving its additionality from the fact that it operates on  both a pro-
and counter-cyclical  basis  and  leverages  significant  amounts  of  private  funding,  thus  ensuring
that  investments  are  made  on  a  commercial  basis.  If  private  funding  is  hard  to  obtain  (as  is
currently  the  case),  there  will  inevitably  be  an  impact  on  the  performance  of  ETFSU  (as  has
happened).  A  significant  improvement  in  this  performance  cannot  therefore  be  expected  until
market  conditions  are  more  favourable  and  investors  become  more  willing  to  co-invest  in  seed
and early stage funds. It is hoped  that  this  will  be  the  case  starting  in  2004,  although  this  will
clearly depend to a large extent on overall economic developments."

92.

Along with EIF, speed up reporting on the programmes managed by the EIF. (Casaca - §
148)

43

Commission's  reply:  The  Commission  services  will  continue  the  practice  of  keeping  the
Rapporteur regularly informed prior to the completion of the formal Commission procedure. In
addition,  the  Rapporteur  will  receive  quarterly  reports  on  the  progress  in  implementing  the
financial instruments under MAP. The Commission wishes however to point out that, given the
number  of  actors  involved  in  the  implementation  of  the  financial  instruments,  data  collection
and,  in  particular,  verification  place  unavoidable  time  constraints  on  the  production  of  the
official reports.

L)

93.

Other remarks

Produce clearer guidelines in order to ensure coherence between the annual activity reports
on  directors-general  annual  declarations  and  reports  produced  by  the  directors-general
(Casaca - § 150).

Commission's reply:

As  the  Synthesis  report  of  the  2002  AAR  points  out  (COM(2003)391  of  9.7.2003),  the
Commission  has  drawn  lessons  from  the  experience  in  2001  and  considered  recommendations
made by the Court of Auditors and the Internal Auditor. Building on the experience gained from
the first exercise, the 2002 exercise shows methodological improvements in several respects:

- Different parts of the Annual Reports have been improved and new sections added, e.g. for the
purposes  of  presenting  the  follow-up  to  the  previous  recommendations  of  the  Internal  Audit
Service and the European Court of Auditors and to the action plans of the 2001 Annual Reports
and Synthesis.

- A major effort was made  to clarify the  scope of the declarations  and reservations (concept  of
materiality, i.e. definition of the threshold of importance beyond which a deficiency needs to be
considered for a reservation) in a communication adopted in January5.

- A peer review of potential reservations was organised at the level of Directors General prior to
the  submission  of  the  Annual  Reports  and  declarations.  The  peer  review  achieved  a  better
understanding of the guidelines and increased the level of consistency in the use of reservations,
principally  because  a  review  of  issues  common  to  all  services  or  some  groups  of  services  (e.g.
structural funds, research) was carried out.

94.

Transfer  any  administrative  appropriations  that  will  probably  not  be  used  by  year  end  to
lines of operational expenditure (Casaca - § 151)

Commission's reply:

The Commission  already  transfers unused appropriations  from BA  lines  to  B  operational  lines
when  administrative  appropriations  are  available  and  operational  appropriations  need  to  be
increased.  A  transfer  across  different  headings  would  be  more  difficult,  especially  as  possible
availability of unused appropriations is often known only very late.

95.

Equal opportunity:

5 COM(2003)59 of 21.01.2003

44

                                                
-  Promote  the  incorporation  of  equal  opportunities  in  all  areas  of  Community  policy,

(Casaca - § 152)

Commission's reply:

The EU action on gender equality is based on a dual approach including gender mainstreaming
and specific actions. Articles 2 and 3 of the Treaty provide the legal basis.

The  Community  Framework  Strategy  on  Gender  Equality  (2001-2005)  spells  out  the  Treaty
obligations with regard to gender mainstreaming in detail and contains concrete self-obligations
of the Commission departments regarding the actions and objectives in the time until 2005. The
Framework Strategy has 5 priority objectives.

1. Equality in economic life

2. Equal participation and representation

3. Equality in social life

4. Changing gender roles and stereotypes

5. Equality in civil life

In the proposal for the new European Employment Strategy, the dual approach is confirmed by
the introduction of a fourth pillar on gender equality , combined with gender mainstreaming in
the other pillars (employability, adaptability and promotion of entrepreneurship).

 Gender  is  also  mainstreamed  in  the  social  inclusion  process.  In  the  "Objectives  in  the  fight
against poverty and social exclusion – 2003" it is stated that: "Member States will underline the
importance of mainstreaming equality between women and men in all actions aimed at achieving
those objectives by taking into account the gender perspective in the identification of challenges,
the design, implementation and assessment of policies and measures, the selection of indicators
and targets and the involvement of stakeholders".

For the European Structural Funds, the following initiatives are to be taken into account:

. EQUAL initiative

.  Communication  "Implementation  of  gender  mainstreaming  in  the  Structural  Funds
programming documents 2000-2006" (COM 2002 748 final)

-  Science  and  research:  Communication  on  women  and  science,  with  for  the  first  time  a  fixed
minimum of 40% women participation in scholarships, committees and other groups.

- Education and vocational training: Socrates and Leonardo programmes contain specific gender
equality projects and mainstreaming; launch of the "second chance schools"

45

- Violence against women, trafficking and sexual exploitation: initiatives in the framework of the
justice  and  home  affairs  activities  of  the  Community,  and  information  and  awareness  raising
campaign

-  Support  for  assisting  spouses  in  agriculture  and  specific  funding  possibilities  for  women  in
rural areas

- Support for women entrepreneurs.

At  the  Spring  Council  in  Brussels  on  20  and  21  March  2003  the  Heads  of  Government
reconfirmed  their  commitment  to  gender  equality  and  gender  mainstreaming  and  in  order  to
monitor  progress  they  requested  a  gender  report  to  the  European  Spring  Council  on
developments  towards  gender  equality  and  orientations  for  gender  mainstreaming  of  policy
areas. The first report will be presented to the 2004 Spring Council.

- Provide relevant training for staff at every level, (Casaca - § 152)

Commission's reply:

The training unit of DG ADMIN develops specific training  courses on  equal opportunities and
non-discrimination  (e.g.  training  in  equal  opportunities  policy  for  HR  managers  and
practitioners; equal opportunities practices for selection and competition selection boards).

As  well  as  these  specific  courses,  the  issues  of  equal  opportunities  and  non-discrimination  are
also covered in standard courses such as Starting and Learning Together, Management Training
Programme, Personal Development for C Category Staff.

Trainers  are  also  required  to  screen  their  training  material  to  ensure  conformance  with  equal
opportunities and non-discrimination policies, such as the use of gender-neutral language in text
and general content, avoidance of stereotyping in examples, etc.)

-  Insure  that  at  least  one  person  is  trained  and  responsible  for  gender  mainstreaming;

(Casaca - § 152)

Commission's reply:

Training  courses  were  arranged  in  2000  for  "Gender  Mainstreaming  Officials"  and  others
involved in the gender mainstreaming of the Commission's policies.

-  Provide  for  the  2004  budget  a  clear  breakdown  of  financial  management,  detailing  the
overall  amounts  earmarked  for  promotion  of  equal  gender  opportunities  under  all
budget headings; (Casaca - § 153)

Commission's reply:

1.  Programmes  for  women  are  currently  financed  under  Heading  3  by  the  Programme
"Community framework strategy on gender equality" 2001-2005 (lines B3-4012 and B3-4012A)
adopted  by  Council  Decision  2001/51/EC  of  20  December  2000,  with  a  financial  reference
amount of €50 million.

2. Gender budgeting:

46

In  the  budget  field  we  can  state  that  "gender  mainstreaming",  that  is  the  integration  of  the
gender dimension in all policies in order to establish gender equality, has become an increasingly
important  political  topic  in  recent  years  both  at  EU  level  and  throughout  the  Member  States.
Great  efforts  will  still  be  required  to  consolidate  the  idea.  The  Commission  must  first  be  clear
what  "gender  mainstreaming"  actually  means  as  far  as  the  budget  is  concerned.  Every
international  organisation  and  the  European  Union  too  should  know  how  public  expenditure
affects  and  influences  women,  men  and  gender  relations.  "Gender  budgeting"  does  not  mean
creating  separate  budgets  for  women.  It  is  about  identifying  and  analysing  the  distribution  of
available public funds and resources from the angle of gender equality. What are the effects on
men compared with women? Are inequalities reduced or increased?

The  practical  application  of  gender  budgeting  with  quantifiable  criteria  raises  a  number  of
questions.  How,  for  instance  can  the  gender  equality  impact  of  a  given  EU  policy  and  of  the
resources  deployed  under  this  policy  be  measured?  How  do  we  define  the  benefits  for  women
which we  wish to identify  statistically by gender  budgeting? By the number of  projects and  the
project resources that benefit women? Or by reference to grants for projects with added value for
women?

In the first stage the right statistics and reliable data play the decisive role. Therein perhaps lies
the explanation of why the Commission's efforts on gender budgeting have not yet got very far.
To compile the necessary information the Commission needs gender-specific statistics. In many
areas  entirely  new  types  of  statistics  and  sources  of  information  would  be  required  in  order  to
secure  the  necessary  information.  And  it  must  be  borne  in  mind  that  producing  tailor-made
statistics and specific information sources is a lengthy, extremely complex and expensive process
which is not easy to put in motion politically and materially in times of limited resources. For the
European Commission the situation is made all the more difficult by the fact that in many policy
areas it depends on information from the Member States. They continue in many cases to supply
only aggregated data which cannot be used for gender-specific analysis. Past attempts to secure
statistical and financial information  about  the  gender-specific  use  of  EU  funds  in  the  Member
States  have  frequently  failed,  because  the  necessary  information  is  either  not  available,  not
complete  or  not  comparable.  Even  within  the  Commission  the  necessary  expertise  needs  to  be
built up or expanded. We still have a great deal to do on the matter of gender budgeting under
the budget policy.

M)

96.

OLAF

Inform  immediately  about  external  investigation  in  the  same  way  as  about  internal
investigations,  inform  OLAF  about  the  judicial  and/or  disciplinary  follow-up  measures
initiated once the investigation file has been received. (Casaca - § 142)

Commission's reply:

Improving  information  flows  between  OLAF  and  the  Commission  in  connection  with  external
investigations will also be examined under the plan of action announced by President Prodi on
25 September last.

OLAF is planning to provide an equivalent level of information on external investigations as is
currently  the  case  for  internal  investigations,  while  respecting  the  need  to  protect  the
confidentiality of investigations and the provisions of EC Regulation 1073/1999.

47

As  regards  the  follow-up  of  final  reports  on  investigations,  it  should  be  borne  in  mind  that  in
accordance  with  the  Regulations  the  Commission  systematically  informs  OLAF  of  the  action
taken.  As  regards  judicial  follow-up,  as  previously  stated  in  response  to  point  22,  OLAF  is  the
interlocutor  with  the  judicial  authorities.  As  provided  by  Regulation  1073/99,  the  Commission
regularly  informs  OLAF  on  a  case-by-case  basis  of  the  disciplinary  follow-up  initiated  by  the
Commission.

97.

Prepare  a  legislative  proposal,  which  would  enable  the  administration  to  exclude  a  third
party convicted of fraud from public tender; (Casaca - § 143)

Commission's reply:

Article 93 of the new Financial Regulation excludes candidates or tenderers from participation
in  a  procurement  procedure  if,  amongst  other  cases  (six  listed  in  Article  93(1)(e)  and  two  in
Article  94),  they  have  been  convicted  of  "fraud,  corruption,  involvement  in  a  criminal
organisation  or  any  other  illegal  activity  detrimental  to  the  Communities'  financial  interests".
The  Early  Warning  System  (EWS)  will  first  be  used  to  store  information  on  the  candidates  or
tenderers  excluded.  The  extension  of  the  contracts  and  contractors  database  to  excluded
candidates or tenderers will be operational from 2004.

The Council adopted a common position on 20 March 2003 on the  Commission proposal for a
new Directive on the coordination of procedures for the award of public works contracts, public
supply  contracts  and  public  service  contracts.  Article  45  of  the  proposal  provides  for  the
exclusion from participating in public contracts of those candidates or tenderers who have been
convicted by a definitive judgement, of which the contracting authority is aware of, e.g. of fraud
within  the  meaning  of  Article  1  of  the  Convention  relating  to  the  protection  of  the  financial
interests of the European Communities established by the Council Act of 26 July 1995.

The  development  of  a  system  of  information  for  the  exclusion  of  candidates  or  tenderers  from
public  contracts  does  not  fall  within  the  ambit  of  the  proposed  directive.  The  directive  only
provides  for  the  Member  States  to  designate  the  authorities  and  bodies  competent  to  issue  the
documents,  certificates  or  declarations  necessary  for  the  candidates  or  tenderers  to  show
evidence that they are not convicted of a crime or do not fall under other grounds of exclusion
enumerated in the directive. Cooperation is however foreseen if need be. Contracting authorities
will rely primarily on the documents provided by the tenderers but a contracting authority has the
right  to  seek  assistance  from  competent  authorities  in  the  other  Member  States  if  they  have
doubts  concerning  the  personal  situation  of  the  candidates  or  tenderers.  In  the  light  of  the
application of Article 45 the Commission will assess the need for the development of a system of
exchange of information.

98.

Transmit  by  end  of  April  2003  to  the  European  Parliament  and  the  Council  a  progress
report  on  the  Office's  activities,  accompanied  by  the  Supervisory  Committee's  opinion,
together, where appropriate, with proposals to modify or extend the Office's tasks. Include
in  this  report  legislative  proposals  aiming  at  an  improvement  of  OLAF's  investigation
powers  and  procedures,  notably  a  better  protection  of  the  right  of  defence  of  persons
investigated  and  an  enhancement  of  the  role  of  the  OLAF  Supervisory  Committee.
(Casaca - § 144/145)

Commission's reply:

The report in question (COM(2003)154) was approved by the Commission on 2 April 2003 and
submitted  as  required  by  Regulation  1073/1999  to  the  OLAF  Supervisory  Committee  for  its

48

opinion. It has also been sent to the chairman and the rapporteur for the fight against fraud of
Parliament's  Budgetary  Control  Committee.  The  OLAF  Supervisory  Committee  submitted  its
opinion  on  the  report  to  the  Commission  on  3  July  2003.  The  report  in  question  was  formally
transmitted  to  the  European  Parliament  on  31  July  2003.  The  issues  raised  in  Parliament’s
resolution are covered in the report.

Under the plan of action announced by President Prodi, the Commission will take into account
the  opinion  of  the  OLAF  Supervisory  Committee  and  the  report  which  Parliament  wishes  to
adopt and  which the Committee on Budgetary Control is currently working on, in  order  to  put
forward  proposals  for  legislation  to  enhance  the  independence  of  OLAF,  improve  existing
procedures,  ensure  greater  protection  for  the  rights  of  defendants  and  persons  under
investigation, and consolidate the role of the OLAF Supervisory Committee.

II.

European Parliament Resolution on EDF

Ownership:

1.

Outline in the next annual report on the EC development policy the scope for interpretation
of  the  concept  of  ownership  in  beneficiary  countries  and  whether  it  has  a  negative
influence on EU priorities for development policy (Sørensen - § 1).

Commission's reply :

In line with its commitment to a partnership approach based on local ownership, the Commission
uses countries’ own national development strategies (Poverty Reduction Strategies in low-income
countries)  as  the  starting  point.  The  EC’s  Country  Strategy  Papers  set  out  the  Community’s
response to this, taking account of other donors’ plans.

2.

Provide  information  in  the  next  annual  report  on  the  EC  development  policy  on  the
involvement  of  representative  parliamentary  institutions,  civil  society  organisations  and
minorities  in  the  drawing  up  of  the  countries'  development  policies  and  endeavour  to
ensure that real and effective consultation is taking place (Sørensen - §2)

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and
the Implementation of External Assistance in 2002 (COM(2003)527 final).

Budget support:

3.

Keep  Parliament's  competent  committee  regularly  informed  of  the  results  achieved  by
budget support operations as regards social development (Sørensen - §5);

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and
the Implementation of External Assistance in 2002 (COM(2003)527 final).

4.

Inform Parliament in the next annual report on the EC development policy on conditions
and circumstances to be fulfilled in order to have the assurance that budget support is an
adequate instrument (Sørensen - §7).

49

Commission's reply :

Information  on  the  use  of  Sector  Wide  Approaches  and  Budget  Support  are  outlined  in
EuropeAid  Cooperation  Office’s  ‘Guide  to  the  programming  and  implementation  of  budget
support for third countries’ of March 2002, the ‘Guidelines for European Commission Support
to  Sector  Programmes’  of  February  2003,  and  in  the  Annual  Report  on  the  EC  Development
Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final).

Public finance management:

5.

6.

7.

Monitor  closely  the  quality  of  public  finance  management  in  beneficiary  countries
(Sørensen - §11);

Keep the use of budget support at a minimum until it has got evidence that public finance
management  in  beneficiary  countries  is  able  to  reduce  the  inherent  risk  of  the  budget
support (Sørensen - §12);

Publish in the next annual report on the EC development policy guidelines against which
progress  in  the  management  of  public  finance  in  each  of  the  countries  concerned  can  be
assessed as well as performance indicators for measuring progress towards these guidelines
(Sørensen - §13);

Commission's reply :

To  improve the monitoring of  the  quality of  public finance and to  guarantee  the  quality  of  the
mechanism for the management and control of public finance in the ACP countries concerned,
the Commission is introducing a procedure based on the following aspects:

a) Analysis

In collaboration with other donors, primarily the World Bank, the Commission tends to link its
contribution  to  general  reviews  to  evaluate  public  finances.  To  refine  and  supplement  the
analyses resulting from these reviews, the Commission is making increasing use of audits based
on "compliance tests" which evaluate expenditure and assess whether it complies with the rules
and procedures in force. [Deliberations now under way on these tests will consider making their
use  general  and  systematic  through  the  establishment  of  standard  terms  of  reference.  In  the
medium term, the Commission's objective, like that of the World Bank and the IMF, is to use an
all-round  framework  for  the  analysis  of  public  finances  which  is  common  to  all  donors.  A
framework  of  this  type,  which  will  use  existing  instruments  of  analysis  in  a  coherent  and
coordinated  fashion,  is  now  being  introduced  under  the  Public  Expenditure  and  Financial
Accountability  (PEFA)  programme.]  Work  is  also  underway  within  the  DAC/OECD  working
group.

b) Regular monitoring

From September 2003 the Delegations in the ACP countries will report every six months on the
monitoring  of  the  management  of  public  finances  using  a  standard  form  developed  by
Headquarters.  These  reports,  based  on  the  results  of  analyses  by  donors  and/or  national
authorities,  will  review  key  aspects  of  the  management  of  public  finances  programming,
implementation  of  expenditure,  internal  and  external  controls,  management  of  revenue,  the
cash-flow, debts,  etc.  This  monitoring  will  also  identify  ongoing  action  plans  relating to  public
finances and follow their implementation.

50

c) Performance indicators

The  Commission,  in  collaboration  with  the  World  Bank  under  the  PEFA  programme,  is  now
considering the introduction of performance indicators for the management of public finances.
The objective is to tighten up the relevant conditions in the financing proposals by going further
than the traditional indicators already used (in particular the rate  of implementation)  and thus
turning  budget  support  into  a  more  effective  instrument  for  influencing  the  reform  of  the
management of public finances.

implementation  and  measuring  progress 

Moreover, the Commission, working with beneficiary government and other donors, puts a high
emphasis on development of national action plans through a policy dialogue and on supporting
its 
in  Public  Finance  Management  (PFM)
improvements  over  time.  Such  realistic,  well-sequenced  action  plans,  including  pertinent
performance indicators to measure improvements in the quality of PFM, are to become integral
part  of  Poverty  Reduction  Strategy  Papers  (PRSP)  and  their  implementation  and  evaluation  of
progress are also part of annual PRSP cycle.

Documented  evidence  in  improvements  in  PFM  measured  by  progress  on  agreed  reforms  and
performance  indicators  will  be  an  incentive  for  sustaining  budgetary  support,  whereas  lack  of
progress will be a clear sign for reducing or even stopping budgetary support.

It should be stressed that the approach described above is a long-term. To boost the effectiveness
of  its  monitoring,  the  Commission  is  working  in  close  collaboration  with  the  other  donors
involved in the budgetary aid. This coordination allows for synergy and avoids duplication.

8.

Stress  the  importance  given  by  the  discharge  authority  to  sound  management  of  budget
execution in the negotiations with authorities in the beneficiary countries (Sørensen - §14);

Commission's reply :

The Commission, working with beneficiary government and other donors, puts a high emphasis
on  development  of  national  action  plans  through  a  policy  dialogue  and  on  supporting  its
implementation  and measuring  progress  in  Public  Finance  Management  (PFM)  improvements
over  time.  Such  realistic,  well-sequenced  action  plans,  including  pertinent  performance
indicators  to  measure  improvements  in  the  quality  of  PFM,  are  to  become  integral  part  of
Poverty Reduction Strategy Papers (PRSP) and their implementation and evaluation of progress
are also part of annual PRSP cycle.

Documented  evidence  in  improvements  in  PFM  measured  by  progress  on  agreed  reforms  and
performance  indicators  will  be  an  incentive  for  sustaining  budgetary  support,  whereas  lack  of
progress will be a clear sign for reducing or even stopping budgetary support.

Sector programmes and multi-donor approach:

9.

Address  the  problems  related  to  control  and  monitoring  of  programmes  provided  in
conjunction with other donors (Sørensen - §15)

Commission's reply :

The Financial Regulation requires the Commission to keep track of all its financial expenditure.
This  obligation  cannot  be  delegated.  It  applies  to  operations  financed  through  multilateral
organisations or Member States. It translates into an article in the EC-UN and EC-Worlds Bank

51

Framework agreements, respectively (the clause on verification). The latter reserves the right for
the Commission to verify underlying documents “on the spot”, by “walking-through” of the audit
systems of  the partner/executioner  for the  EC funds.  Guidelines  for  co-operating  with  Member
States  executing  agencies,  including  on  the  verification/audit,  will  be  developed  by  the
Commission during 2003.

10.

11.

12.

13.

14.

Establish measurable indicators for progress drawn up in relation to objectives and a solid
and reliable baseline (Sørensen - §16);

Obtain  sufficient  guarantee  that  the  planned  programme  falls  inside  EU  development
objectives (Sørensen - §16);

Ensure  that  the  financial  reporting  system  used  by  the  multilateral  organisation
corresponds to the standards of the European Court of Auditors and that accounts will be
forwarded on time (Sørensen - §16);

Ensure appropriate reporting, accounting and auditing mechanisms (Sørensen - §17);

Control and follow up on the accounts provided by the multilateral organisation, monitor
relevant  audit  reports  and  inform  the  European  Court  of  Auditors  and  the  discharge
authority on the results (Sørensen - §18);

Commission's reply :

On  13  February  2003  the  Management  of  Aidco  adopted  new  “Guidelines  on  European
Commission Support to Sector Programmes” following the Commission’s decision to move to a
broader  use  of  this  approach.  These  guidelines  have  been  prepared  by  Aidco  with  the  active
participation of DG Dev, and were approved by DG Relex.

The  main  objectives  of  these  Guidelines  are  i)  to  define  the  major  principles  governing  EC
support  to  Sector  Programs;  ii)  to  provide  operational  guidance  to  EC  staff  in  supporting  the
development of Sector Programs in partners countries and in the design and implementation of
the EC financial contribution.

In the operational guidelines explicit reference is made to the issue of indicators.  They include
namely,  as  an  annex,  the  Guidelines  for  the  Use  of  Indicators  in  Country  Performance
Assessment (December 2002) the Commission has produced in collaboration with Member States
and  other  donors.  These  are  part  of  an  ongoing  process  of  work  being  conducted  with  other
donors  and  partner  governments  in  the  context  of  the  DAC  initiative  on  harmonisation.  They
provide  guidance  on  the  choice  of  indicators,  on  issues  regarding  the  reliability  and  quality  of
data, on the setting of targets for different indicators and on the interpretation of the evolution of
indicators. In addition, there is a growing database of sector specific material to accompany these
guidelines.  It  is  considered  essential  that  they  are  consulted  in  the  process  of  assessing
performance measurement or monitoring systems for Sector Programmes.

On the other hand the Sector Programme itself has of course as a key feature a set of indicators
for monitoring of results within the sector. During preparation of EC support to a sector policy
these  indicators  the  partner  government  proposes,  have  to  be  assessed  and  the  EC  works  with
government  to  introduce  improvements  over  time.  It  is  stated  that  indicators  should  be  firstly
consistent with those developed for the PRSP (or its equivalent), secondly focused on the outcome
level as well as on inputs and activities and thirdly differentiated by gender.

52

During  the  preparation  of  such  a  support  programme  to  sector  policy  the  crucial  issue  is  the
clarity  and  realism  of  the  policy  as  well  as  the  underlying  principles  on  which  it  is  based.
Therefore the partner country’s sector policy should be properly assessed, considering amongst
others the question whether the objectives and underlying principles of the strategy are consistent
with  the  development  objectives  of  the  Commission.  These  objectives  are  established  in  the
Treaty,  confirmed  in  the  Cotonou  Agreement  and  the  relevant  Country  Strategy  Paper  and
implemented  through  the  National  Indicative  Programme  and  the  final  Financing  decision  on
the  support  programme  for  a  sector  policy.  The  coherence  between  the  basic  documents  and
downstream the actual EC measure is guaranteed by three gate-watcher procedures such as the
Quality  Support  Group  of  Aidco,  the  Interservice  Consultation  and  the  opinion  of  the  EDF
Committee.

As far as auditing is concerned article 53.7 of the Financial Regulation states:

"Where  the  Commission  implements  the  budget  by  joint  management,  certain  implementation
tasks  shall  be  entrusted  to  international  organisations  as  specified  in  the  implementing  rules.
These organisations shall, in their accounting, audit, control, and procurement procedures, apply
standards which offer guarantees equivalent to internationally accepted standards".

The  application  of  the  Trust  Funds  and  Co-financing  framework  Agreement  signed  with  the
World Bank follow this scenario.

15.

Provide  information  in  the  next  annual  report  on  the  EC  development  policy  on  audit
reports received from multilateral donors, (conclusions and recommendations, what action
the Commission has taken on them) (Sørensen - §19);

Commission's reply :

The implementation of a project co-financed by an international  organisation is  undertaken as
per general agreement between the European Commission and International organisations (see
replies to 9 and 10). Contrary to other types of contracts, no external audits are required in the
case of international organisations to which the provisions of the verification clause included in
the EC-UN and EC-World Bank Framework agreements apply.

16.

Report  in  the  next  annual  report  on  the  EC  development  policy  on  cooperation  and
coordination with international donors (Sørensen - §19);

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and
the  Implementation  of  External  Assistance  in  2002  (COM(2003)527  final).  The  chapter  “Co-
ordination, Complementarity and Coherence” shows the progress in the field of EC cooperation
with other donors: E.g. a new framework has been signed with the World Bank, and the revision
of the EC-UN Framework Agreement for EC funding of UN projects was completed. In addition,
each regional chapter contains a specific section focussing on the implementation of the “Three
Cs”.

17.

Access to all documentation (including national internal audit reports) by ECA (Sørensen -
§20)

Commission's reply :

53

Concerning  the  Court  of  Auditors  access  to  documentation  and  visits  on  the  spot,  the
Commission  applies  the  rules  of  Article  70  of  the  Financial  Regulation  for  the  8th  EDF  and
Article 115 of the Financial Regulation for the 9th EDF.

ACP States' Supreme Audit Institutions' participation in the audit of the EDF:

18.

19.

Analyse  the  set  up,  independence  and  efficiency  of  the  Supreme  Audit  Institutions  in
beneficiary countries (Sørensen - §23);

Inform  in  the  next  annual  report  on  the  EC  development  policy  on  how  it  is  going  to
involve Supreme Audit Institutions in the audit process and to establish a programme and
timetable for this process (Sørensen - §24);

Commission's reply :

The Commission recognises that the national control and audit structures must be more closely
involved  in  the  analysis  and  evaluation  of  the  use  of  public  funds  from  budgetary  and  non-
budgetary  resources.  It  has  already  begun  to  include  them  in  the  joint  reviews  (donors/
government)  of  public  finances  and  its  own  evaluations  and  audits.  It  also  promotes  their  role
indirectly  by  stipulating  in  the  financing  agreements  that  the  public  accounts  and  legislation
should be submitted to them.

Institutional  support  for  these  structures  is  a  new  field  for  the  Commission,  which  is  both
complex (the allocation of material and human resources to these structures is inadequate) and
politically  sensitive  (the  terms  of  reference  for  these  structures  may  be  curbed  by  the  political
authority  whose  interest  in  strengthening  them  varies  widely).  The  Commission  employs  a
progressive approach in experimenting with  a number of  institutional support  projects  (e.g. for
the  ISCs  in  Senegal,  Chad  and  Madagascar  which  may  be  beefed  up);  any  conclusions  will
subsequently be used for drawing up a general structured support plan.

Complementarity:

20.

Inform Parliament  by 1 June 2003 on  disbursements  to  management  committees  and  put
forward proposals as to how this area may be rationalised (Sørensen - §28);

Commission's reply :

This  information  has  been  provided  in  a  letter  sent  by  Mr  Bonacci  to  Ms  Theato  on  20  June
2003.

EuropeAid Cooperation Office's annual activity report:

21.

Clarification on the difficulty to reconcile the statement of assurance of DG and the need to
strengthen the external audit function;( Sørensen - §29)

Commission's reply :

A  new  approach  on  external  audits  has  been  introduced  already  in  2003  (External  Audit
Programme 2003). Its implementation and effectiveness will be carefully assessed so that further
improvements can  be made for 2004. However,  this  is  just  one of  a  number of measures being
introduced  to  strengthen  internal  controls.  The  declaration  of  assurance  relies  on  the  best
judgement of the Director- General, based on various instruments and tools. While there was an

54

identified  need  to  reinforce  the  audit  approach,  -  to  adapt  it  to  a  changing  environment  and
accrue  its  effectiveness  as  one  component  of  the  overall  control  system  –  the  Director-General
considered that the information in his possession was sufficient to enable him to have reasonable
assurance regarding the implementation of projects and programmes in 2002.

22.

23.

To present a breakdown of the concept of “reasonable assurance”;(Sørensen - § 31)

Improvement in the methodology and guidance to allow the declaration to represent a more
faithful indication of state of play; (Sørensen - § 33)

Commission's reply :

On  21  January  2003,  the  Commission  adopted  a  communication  (COM(2003)  28  final)  on  the
review  of  the  implementation  of  activity-based  management  in  the  Commission,  including
clarification of the methodology for the establishment of  Annual Activity Report.  In  particular,
the guidelines attached thereto clarify, on the one hand, the purpose and scope of the declaration
and, on the other hand, the use of reservations. It is specified that only material deficiencies can
be object of reservations (quantitative as well as qualitative materiality indicators are given) and
that the reservation shall contain specification or their cause, assessment of the potential impact,
details of planned or taken corrective measures.

24.

The Court of Auditors should analyse the 46 audits carried out and to forward the results to
the discharge authority (Sørensen - §34);

Reform of the management of the external assistance:

25.

Inform  Parliament  by  1  June  2003  of  the  results  of  the  evaluation  of  the  actual
organisational structure of the management of the external assistance (Sørensen - §37);

Commission's reply :

The Information Note on Aid Effectiveness as discussed at the May GAERC meeting has been
forwarded to the Parliament on the 2nd of June.

Reliability of the accounts:

26.

Disclose  the  extent  of  implementation  of  macro-financial  aid  and  provide  transparent,
exact and full information on this aid type (Sørensen - §42);

Commission's reply :

The Commission takes note of the EP worries related to the improvement of the information on
implementation  of  macro-economic  support  and  will  take  them  in  consideration  in  the
forthcoming chart of accounts of the 9th EDF. The chart of accounts of the 9th EDF provides for
a code to identify all budget support operations.

The revenue and  expenditure  accounts already present  this information for resources from  the
8th EDF used under the Cotonou programming.

Legality and regularity of the underlying transactions:

55

27.

Ensure before next discharge tangible improvements on internal control systems (Sørensen
- §45);

Commission's reply :

Concerning  audits,  AIDCO  has  undertaken  a  complete  overhaul  of  the  system  already  during
2002. The new approach is being introduced already in 2003. It is of course just one of a number
of measures being introduced to strengthen internal controls – some of them, such as a clearer
definition  of  responsibilities  between  services,  form  part  of  the  Commission-wide  reform
programme.  The  audits  will  complement  the  reinforcement  of  the  Delegations  in  relation  to
financial  management  and  the  authorisation  of  payments,  and  the  regular  certification  of
accounts.

Since this is a new exercise, it will be carefully assessed with a view to introducing improvements
for 2004.

28.

Transmit  as  soon  as  available  to  its  competent  committee  all  documents  necessary  on
progress  in  improvements  and/or  problems  encountered  during  the  process  (Sørensen  -
§46);

Commission's reply :

Concerning  the  prompt  transmission  of  documents,  the  key  documents  relating  to  financial
management of the EDF in 2001 have all been provided to Parliament as soon as they became
available.

29.

Supply  at  the  beginning  of  next  year’s  discharge  procedure  a  list  of  all  documents  and
correspondence relating to the subjects under investigation (Sørensen - §48);

Commission's reply :

The Commission will provide full documentation, particularly in the Annual Report on 2002.

Deconcentration and audits:

30.

Provide  information  before  1  July  2003  on  audits  policy  in  the  framework  of
deconcentration as regards:

- inherent risks in development aid programmes,

- the overall control environment;

- control mechanisms to be applied to and by, intermediaries, other donors and beneficiary

countries;

- Headquarters control on delegation's controls (Sørensen - §50).

Commission's reply :

An information note covering the information requested has been sent to Parliament.

56

31.

Take  account  of  the  need  for  specialised  staff  in  the  areas  of  social  development,  health
and education (Sørensen - §51);

Commission's reply :

The Commission has taken a number of measures to ensure that its staff in HQ and Delegations
have  sufficient  expertise  in  the  areas  of  social  and  human  development.  This  includes  a
significant  reinforcement  of  the  staffing  of  headquarters  as  well  as  in  deconcentrated
delegations. This allows us ensure a smooth transfer of implementation responsibility from HQ
to  delegations  and  a  regular  feedback  to  headquarters  in  charge  of  policy  formulation,
programming and monitoring exercises and technical backup. In a first phase and in view of the
budgetary  constraints,  the  Commission’s  approach  has  been  to  ensure  that  HQ  would  be
equipped  to  provide  timely  policy  advice,  programming  and  sectoral  and  thematic  support  and
backstopping to the delegations. A number of measures have been taken from revised policy and
programming  documents  to  the  development  of  tools  such  as  common  sectoral  and  thematic
indicators  for  monitoring  progress.  Stronger  partnerships  with  Member  States  and  with
international  organisations  have  been  developed  in  key  areas.  Other  measures  include  a
reorganisation  of  EuropeAid  Cooperation  Office  (early  2003)  creating  a  unit  in  each
geographical  directorate  dedicated  to  the  provision  of  advice  and  support  in  the  social  sectors.
Furthermore,  a  thematic  network  for  social  sectors  has  been  established  in  Europe  Aid
Cooperation  Office  charged  with  the  elaboration  of  operational  manuals  and  guidelines
including in particular health and education. Finally, a comprehensive training programme for
staff  in  HQ  and  Delegations  focusing  on  sector-wide-approaches  including  in  the  sectors  of
health and education was launched early 2003.

32.

Make  sure  that  financial  audits  are  supervised,  co-ordinated  and  monitored  by  the
Headquarters (Sørensen - §53);

Commission's reply :

The Commission has taken steps to improve the quality of the decentralised audits, in particular:

(cid:1)  by drawing up a guide to the methods to be used at headquarters and in the delegations

(cid:1)  through a series of training courses for headquarters and the delegations

(cid:1)  by drawing up standard terms of reference for the audit contracts.

The Commission fully shares the Court of Auditors' opinion that a computer system is needed to
provide an overview  of  the  audit  activities  carried  out  and/or  supervised  by  the  delegations.  To
this end the Commission has set up the CRIS-Audit system, of which a pilot version will be field
tested and should be fully operational soon thereafter.

Human Rights:

33.

Inform before 1 June 2003 on the nature and scope of the problem and on measures which
have been or which will be taken in the short term to resolve the identified weakness and in
the  longer  term  to  give  declared  horizontal  objectives6  the  necessary  organisational
structure (Sørensen - §55);

6 human rights, equality between men and women, environment and conflict prevention

57

                                                
34.

35.

Inform before 1 June 2003 on the criteria for suspending aid due to violation of the Human
Rights and how many times this has happened (Sørensen - §56);

Better  define  criteria  and  benchmarks  by  which  the  outcome  of  activities  can  be  better
assessed (Sørensen - §57);

Commission's reply:

A  letter  was  sent  to  Parliament  on  2  June,  covering  all  Human  Rights  information  requested
under paragraphs 55 – 57 of the Sorensen report.

Budgeting the EDF:

36.

Forward  by  mid-2003  the  Commission’s  communication  on  the  implications  of
budgetising the EDF (Sørensen - §61);

Commission's reply :

The Communication was adopted in October 2003 and forwarded to the Parliament.

37.

Capability  to  recover  amounts  unduly  paid  to  national  authorities  or  final  beneficiaries;
(Sørensen - §62)

Commission's reply :

The  OLAS  accounting  system  identifies  the  payment  and  clearance  of  advances.  It  is  by
analysing  uncleared  advances  that  the  Commission  can  issue  a  recovery  order  for  amounts
which are not justified or which the departments responsible consider ineligible.

Other issues:

38.

Ensure  as  soon  as  possible  compliance  with  the  interest  rate  ceiling  set  in  the  Lomé
Convention  for  EIB  loans  and  to  explain  the  reasons  for  any  exceeding  of  this  ceiling
(Sørensen - §63);

Commission's reply :

The  Commission  considers  that  it  has  provided  all  the  information  needed  to  explain  the
apparent  anomalies  mentioned  by  the  Court  of  Auditors  in  its  annual  report  for  2001.  The
Commission has applied Article 234 of the Lomé Convention.

39.

Edit more rigorously the next edition of an annual report on the EU’s development policy;
(Sørensen - §64)

Commission's reply :

Following the  Council  conclusion  and  the  recommendations  of  the  European  Parliament, new
chapters have been introduced in the Annual Report and in particular more material included on
development  policy.  The  more  analytical  approach  adopted  is  reflected  in  a  now  uniform
structure  for  all  the  geographical  chapters,  which  should  make  it  easier  to  draw  comparisons
between different regions. With regard to the implementation of EC development policy, special
attention is paid throughout the report to analysing what kind of progress has been achieved in

58

reaching the priorities of EC development policy as defined in the Development Policy Statement
of  November  2000.  Moreover,  qualitative  assessments,  e.g.  concerning  project  results,  identify
weaknesses and put forward proposal to correct them.

40.

The  35%  for  social  infrastructure  must  be  allocated  “mainly”  to  education  and  health  in
coming years; (Sørensen - § 65);

Commission's reply :

The breakdown of 2002 commitments by sector was sent to Parliament by Mr Nielson on 18 June
2003.

41.

As for Commission’s work on the methodology on reporting progress towards the MDGs,
inform and consult Parliament without delay  at every stage of the process;  (Sørensen - §
67);

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and
the Implementation of External Assistance in 2002 (COM(2003)527 final).

42.

Implement  training  programmes  (for  delegations),  especially  in  the  area  of  audits;
(Sørensen - § 68);

Commission's reply :

The  Commission  has  taken  a  number  of  measures  to  ensure  that  its  staff  in  Delegations  have
sufficient  expertise  in  this  area  and  hence  a  smooth  transfer  of  responsibility  from  HQ  to
delegations  and  a  regular  feedback  to  headquarters.  The  Commission's  approach  has  been  to
ensure  that  HQ  would  be  equipped  to  provide  support  and  backstopping  to  the  delegations.  A
comprehensive  training  programme  for  staff  in  HQ  and  Delegations  was  launched  early  2003.
Furthermore,  a  number  of  measures  have  been  taken  such  as  drawing  up  standard  terms  of
reference for the audit contracts (for further information please see the Commission's reply to §
31 of the EDF 2001 Discharge).

43.

Donor harmonisation for sound financial management; (Sørensen - §69)

Commission's reply :

A task force was established in 2001 by the Development Assistance Committee in the OECD to
work on the harmonisation of donor practices, and the Commission has participated actively in
its work. The conclusions of this Task Force, including best practices on auditing, were endorsed
by all bilateral and multilateral donors in February 2003.

44.

Monitor the quality of actions carried out under budget support; (Sørensen - §70)

Commission's reply :

Budget  support  is  generally  linked  to  the  implementation  of  growth  and  poverty  reduction
strategies adopted by the beneficiary countries. It is in following up the implementation of these
strategies that the Commission is gradually developing its monitoring of the quality of the actions
supported  and  the  results  obtained  at  national  level  (support  for  national  monitoring  systems;

59

agreements  between  partners  -  in  particular  the  Member  States  -  on  joint  monitoring;  and
introduction of result indicators.)

III.

European Parliament Resolution on ECSC

1.

Publication by the end of 2003 of overview of work undertaken by the ECSC since it was
established in all official languages (Langenhagen - § 2);

Commission's reply :

The Commission has begun the procedures required to carry out such a study and will call in an
outside consultant for this purpose. The Commission will keep the budgetary authority properly
informed about the progress of this project.

2.

Publication by the end of 2003 of overall assessment of research originally funded by the
ECSC (Langenhagen - § 3)

Commission's reply :

Before  the  ECSC  Treaty  expired,  the  Commission  organised  the  “International  Conference  on
Technology  for  Coal  Mining  Preparation  and  Utilisation:  Results  of  the  ECSC  Coal  Research
Programme” in Luxembourg and published the contributions made.

The Commission  also  published a  book  on  the  “50  Years  of  ECSC  Coal Research”  which  was
widely distributed. This publication, issued in German, French, English and Spanish, presented
and analysed the following technical achievements:

- mining techniques and infrastructure (exploration, mine planning, shaft construction, heading,
underground  working,  transportation,  underground  communication  and  data  transfer,  and
environmental protection in mining);

- coal use (processing, coking technology, combustion and gasification, and flue gas cleaning);

- and cross-sectional results (outgassing, ventilation, climate control, rock control, coal chemistry
and physics, and information technology).

This publication also examined the spin-off effects outside the European coal industry.

3.

Prudent  financial  management  of  the  ECSC  must  apply  to  the  ‘ECSC  in  liquidation »
(Langenhagen - § 4)

Commission's reply :

The  Commission  will  continue,  as  in  the  past,  to  follow  the  principles  of  prudent  financial
management,  which  are  also  set  out  in  Council  Decisions  2003/75/EC  and  2003/76/EC.  The
financial activities are audited annually by external auditors as well as the Court of Auditors.

4.

Information  and  update  of  « Expiry  of  the  ECSC  Treaty:  Impact  on  the  Administrative
Costs  at  the  Commission'  (submitted  to  the  Committee  on  Budgetary  Control  by
Commissioner Schreyer on 8 March 2001) (Langenhagen - § 5);

60

Commission's reply :

The  Commission  presented  in  March  2001  information  on  staff  working  on  ECSC  related-
activities  and  prospective  evolution  from  2003  to  2007.  The  Commission  undertakes  to  check
whether this information is still valid or should be updated and to inform the budgetary authority
on the result  of  this investigation. Final  figures on the  2003  implementation  are  a  prerequisite
for this update.

5.

Information on a regular basis of the outcome of Annual Policy Strategy of redeployment
of staff currently involved in administering the activities of the ECSC and/or of the ‘ECSC
in liquidation’(Langenhagen - § 5);

Commission's reply :

All  staff  that  had  been  employed  in  the  administration  of  the  ECSC,  have  been  re-deployed  to
other services, the exercise having been finalised with the 2003 allocation of resources.

6.

Reports  on  a  regular  basis  on  progress  on  implementation  of  the  decisions  in  applicant
countries (Langenhagen - § 7)

Commission's reply :

On  research  the  Commission  will  keep  the  budgetary  authority  properly  informed  of  the
participation of the new Member States in the Coal and Steel Research Fund in the light of the
results of the first calls for proposals.

7.

Review all outstanding commitments before the end of 2003 (Langenhagen - § 8)

Commission's reply :

The  Commission  undertakes  to  review  all  outstanding  commitments  related  to  ECSC  coal  and
steel  research  on  a  semestrial  basis.  As  every  year  the  Commission  reviews  in  2003  the
outstanding commitments.

In so far as readaptation aid and supplementary social aid for the coal industry are concerned,
the relevant rules provide that the Member States have four and five years respectively from the
year  of  the  aid  decision  in  which  to  request  the  payment  of  the  aid  awarded.  Any  aid  not  paid
within the relevant period is subsequently cancelled (by dates that are also specified in the rules).
The  Commission  ensures  that  the  various  deadlines  are  respected.  Cancellations  are  also
executed  if  the  examination  of  a  final  payment  request  or  other  information  supplied  by  the
Member State reveals that part or all of the aid awarded can not be paid.

8.

Cancel any amounts in respect of which it is unlikely that there will be any movement in
the future (Langenhagen - § 8)

Commission's reply :

The Commission cancels regularly budgetary commitments for which it is unlikely that there will
be  any  movements  in  the  future.  As  such,  any  aid  not  paid  within  the  relevant  period  is
subsequently  cancelled.  The  Commission  ensures  that  the  various  deadlines  are  respected.
Cancellations  are  also  executed  if  the  examination  of  a  final  payment  request  or  other

61

information supplied by the Member State reveals that part or all of the aid awarded can not be
paid.

9.

Explanation  why  it  has  not  yet  improved  the  accounts  relating  to  loans  to  officials
(Langenhagen - § 9)

Commission's reply :

The Commission will analyse the problem in order to find the best accounting procedure.

10.

Presentation of the missing reports on loans for officials (Langenhagen - § 9)

Commission's reply :

The European Commission recognises not having produced separate annual reports from 1996
to 2002 on loans for officials. A report covering the period 1996-2002 was however issued on 26
March 2003 and transmitted to the European Parliament and Council.

On  24  March  the  Commission  adopted  the  Building  Loans  report  for  the  period  1996-2002.  A
copy was transmitted by e-mail to the secretariat of the COCOBU of the European Parliament on
1 April 2004.

11.

Publication  of  performance  measurement  system  in  future  ECSC  and  “ECSC  in
liquidation”  financial  reports  with  a  view  to  securing  comparative  data  on  yield
(Langenhagen - § 10);

Commission's reply :

These  data  will  be  published  in  the  Annual  Financial  Reports  for  ECSC  i.L.  The  report  for
31.12.2002 is currently being prepared.

12.

Ensure  maximum  transparency  when  disclosing  data  affecting  the  value  of  the  ECSC's
assets (Langenhagen - §11);

Commission's reply :

Council Decision 2003/76/EC of 1 February 2003 states that these financial statements are to be
annexed to the financial statements drawn up by the Commission annually under Article 275 of
the EC  Treaty  and  the  Financial  Regulation  applicable  to  the  general  budget  of  the  European
Communities.

IV.

1.

European Parliament Resolution on Agencies

Carry  out  an  assessment  of  the  impact  of  the  transfer  of  competence  in  respect  of  the
accession  countries  from  the  ETF  to  CEDEFOP  and,  if  necessary,  submit  proposals
relating to the transfer of human and financial resources (Blak - §10 CEDEFOP)

Commission's reply:

The  Commission  would  like  to  underline  that  it  has  addressed  the  impact  of  the  transfer  of
competencies  in  respect  of  the  accession  countries  from  the  ETF  to  Cedefop  in  its  recent

62

Communication COM (2003) 287 final of May 22 2003 on the European Training Foundation
(see section 4.3.3. Cooperation between  the  ETF  and Cedefop). In the  period leading up to the
likely  accession  of  ten  countries,  the  Commission  recommends  that  the  two  Agencies  together
establish immediately an exit-entry strategy for each candidate country likely to join in 2004, as
these  would cease  to  be  partner  countries  for  the  Foundation,  but  instead  upon  accession  they
would become members of Cedefop. This strategy should be established in Autumn 2003 and be
fully implemented in 2003/2004.

The Commission considers that a transfer of data and  information concerning the countries to
accede on 1 May 2004 between the ETF and CEDEFOP will take place as part of the above exit-
entry strategy. A transfer of human resources is not envisaged. Obviously, financial resources to
meet  enlargement  have  been  allocated  to  Cedefop.  As  far  as  resources  for  the  ETF  are
concerned,  two  points  should  be  noted.  Human  resources  have  been  reduced  in  the  period  of
2000-2003  from  124  to  99  posts  in  order  to  take  into  account  the  impact  of  enlargement.
Financial  resources  in  the  ETF  will  remain  stable  in  2003  and  2004  reflecting  the  increased
activities of the ETF in the remaining three candidate countries, notably for Turkey.

2.

Make an overall study of activities currently deployed by various community  bodies that
may  overlap  in  order  to  propose  appropriate  solutions  (Blak  -  §30  CEDEFOP,  §29
EUROFOUND, §40 EAR).

Commission's reply :

The  possible  overlap  or  duplication  between  the  work  of  the  ETF  and  CEDEFOP  has  been
assessed both in the external evaluation of Cedefop carried out in 2001 as well as in the external
evaluation  of  the  ETF  (see  above  COM(2003)287  final).  The  external  evaluations  have
confirmed what the Commission has always underlined, that there is no overlap between the two
Agencies  which  have  a  separate  geographical  coverage  and  quite  different  missions  and  tasks.
Concerning  the  latter,  Cedefop  contributes  to  the  Community’s  vocational  training  policy
through transnational cooperation within the EU, while the ETF supports the Commission in the
design  and  implementation  of  VET  reform  activities  in  third  countries  as  part  of  the
Community’s external policies’ framework.

The Commission in recent years has ensured that tools are in place for the Agencies to achieve
maximum  synergy  and  complementarity  (e.g.  a  framework  for  cooperation  decided  in  2001,  a
joint  annex  to  each  Agency’s  annual  work  programme,  establishment  of  an  ETF/CEDEFOP
working group, etc).

There is a close constant collaboration between DG Empl and Eurofound. Eurofound discusses
its draft work programme prior to each year with DG Empl and the work of Eurofound is taken
into account when preparing DG Empl's own programme. Equally, there are quarterly meetings
between the relevant DG Empl Operational Unit and Eurofound staff on the implementation of
each others respective work programme. Eurofound also has a similar agreement with OSHA in
Bilbao (cf Pt 6 below.)

3.

Make  proposals  aiming  at  better  value  for  money  through  a  cost/benefit  analysis,  and
avoiding any unnecessary proliferation of agencies; for bodies entrusted with similar tasks,
setting up Common Boards. (Blak - §27 CEDEFOP, §26 EUROFOUND, §37 EAR)

Commission's reply :

63

The  two  recent  external  evaluations  of  CEDEFOP  and  the  European  Training  Foundation
highlight the added value of the work of these two agencies. These evaluations did not find any
overlap in the work done by the Centre and the Foundation, which have different missions and
geographical areas; this fact is reflected by differences in the composition of their Management
Boards.

The Commission has always insisted that there be no overlap or duplication in  the work of the
two  agencies  and  has  ensured  that  they  have  tools  offering  maximum  synergy  and
complementarity.  Before  the  definitive  accession  timetable  was  set,  the  first  phase  of  this
cooperation began in 1997 and was designed to guarantee that the Foundation use CEDEFOP
as a source of information on matters such as best practices in Member States. A second phase
began  in  2001,  when  the  Commission  and  the  two  Management  Boards,  with  a  view  to  the
accession  process,  adopted  a  framework  for  cooperation  between  the  two  agencies.  This
framework  determines  the  scope,  the  principles,  the  priorities  and  the  arrangements  for
cooperation between them in order to prepare for accession, and at the same time spelling out for
the acceding countries the role of each  agency. The  cooperation framework  is  also designed to
avoid  any  possible  duplication  and  guarantee  maximum  synergy  and  complementarity  between
the agencies.

The  Commission  has  called  on  the  two  agencies  to  put  in  place  a  number  of  instruments  to
facilitate  better  cooperation,  namely  the  cooperation  framework,  the  common  annex  to  each
annual work  programme,  joint  six-monthly  reports  for  Parliament  and  the  working  party.  The
Commission much appreciates the view expressed by the evaluator of the Turin Foundation that
these  instruments  strengthen  cooperation  and  have  really  made  it  possible  to  provide  a  clearer
cooperation base.

Also at the Commission's behest, the two agencies have together put in place an exit - entrance
strategy for each candidate country which will be joining in 2004, given that upon accession the
countries  concerned  will  cease  to  be  partners  of  the  foundation  and  will  become  members  of
CEDEFOP.  This  strategy  must  include  a  precise  timetable  and  be  based  on  the  following
principles/axes:

(cid:1)  the Fondation will make available to CEDEFOP its information, its know-how and its sources
of information on the candidate countries which will be joining in 2004 (e.g. the databases on the
vocational  education  and  training  organisations  in  the  candidate  countries,  the  lists  of
organisations of social partners, etc.);

(cid:1)  each  agency  should  capitalise  on  the  investment  of  the  other.  This  applies  to  the  national
monitoring centres that the Foundation has set up in the candidate countries, which already have
valuable experience as structures in transnational cooperation. They are along-term investment
by  the  Community  and  should,  even  before  the  probable  accession  in  2004,  be  prepared  and
adapted  by  the  Foundation  so  as  to  facilitate  their  integration  as  national  contact  points  into
CEDEFOP's  ReferNet  network  upon  accession,  For  the  other  candidate  countries  the
Foundation should rely on its experience, acquired after the possible integration of the first wave
of  countries  in  ReferNet.  They  should  prepare  the  monitoring  centres  of  these  countries  in  an
appropriate  manner  and  familiarise  them  with  the  functions  and  activities  of  ReferNet  to  give
them every possible chance of being selected by CEDEFOP upon accession;

(cid:1)  enhanced  thematic  cooperation.  Although  CEDEFOP  and  the  Foundation  do  not  have  the
same  internal  organisation  (thematic  for  one,  geographic  for  the  other),  it  would  be  useful,  in
particular for the Foundation, if it could benefit from CEDEFOP's expertise in its own work, not
only in the candidate countries but in all the partner countries. The thematic networks should be

64

extended to incorporate the candidate countries wherever possible, where their expertise should
be made available. This applies, for instance to CEDEFOP's Training of Trainers Network.

The functioning of the Agencies related to DG Empl has been found satisfactory by internal and
external control bodies (e.g., European Court of Auditors). All Agencies have in place a system of
external  evaluation  of  their  work  programmes  and  the  results  of  such  evaluations  are  publicly
available.

With regard to monitoring and evaluation, the Agencies undertakes monitoring on a daily basis,
and has set up an evaluation unit within the Agencies. The results of the Agency’s evaluations
are fed into new programmes and projects undertaken by the Agency whenever relevant.

4.

By  31  July  2003,  to  reconsider  the  composition  and  working  methods  of  administrative
boards, and to put forward appropriate proposals and to examine whether provision could
be made for joint administrative boards for bodies with similar responsibilities. (Blak - §28
CEDEFOP, §27 EUROFOUND, §38 EAR)

Commission's reply:

The Commission has already adopted the amended basic regulation for the agencies (J.O. L 245,
29/09/2003.)

A  modification  of  the  CEDEFOP's  basic  regulation  concerning  the  articles  relating  to  the
composition  and  functioning  of  its  Board  is  in  progress,  in  close  cooperation  with  DG  EMPL,
which is carrying  out a  similar  exercise for the other two  Agencies  who  have  tripartite  boards,
namely Bilbao and Dublin.

This revision  proposes  strengthening  the  functions  of  the  Bureau  of  the  Centre's  Management
Board, as part of the enlargement of the Board following the accession of new Member States.

It is not possible to set up a common Board for CEDEFOP and ETF for the following reasons:
(cid:1) 
CEDEFOP  has  a  tripartite  board  as  an  Agency  working  in  the  social  area  (vocational
training  policy)  while  the  ETF  has  a  board  composed  by  Member  States  exclusively  since  the
Agency works in the external relations’ policy area;

(cid:1) 
representatives in the Board of CEDEFOP should have experience and skills relating to
the vocational training policy area while the ones nominated in the Board of the ETF should also
have an external relations and third country aid programme experience. The profile therefore of
the members of each Board required for the efficient functioning of the Board and fulfilling of
its tasks should be quite different.

The  Commission  considers  that  the  composition  of  the  administrative  boards  of  agencies  is  a
crosscutting  issue,  which  should  be  addressed  in  the  follow-up  to  its  Communication  ''The
operating framework for the European Regulatory Agencies" (COM (2002) 718 final). In view of
enlargement,  the  Communication  argues  in  favour  of  an  administrative  board  of  reduced  size,
with a composition reflecting the balance between executive at Community level and the expertise
of the Member State executives (notwithstanding representative of the interested parties). At the
moment,  this  document  is  under  consideration  by  the  European  Parliament  and  the  Council.
Possible action in this field should be undertaken in the light of upcoming discussions with these
Institutions.

65

As for the functioning of the administrative boards of Eurofound and Cedefop, DGs Empl and
EAC are preparing legislative proposals to be presented to the Council. At present, the directors
of Eurofound and OSHA are invited to participate in each others' administrative board meetings
as observers.

Taking  into  account  that  the  tasks  of  the  Governing  Board  of  the  European  Agency  for
Reconstruction,  as  defined  by  Article  4  of  Council  Regulation  (EC)  No  2667/2000  are  of  such
specific  nature  in  following  up  administrative  and  operational  matters  in  relation  to  the
implementation  of  CARDS  assistance  in  Serbia  and  Montenegro  (including  Kosovo)  and
FYROM,  the  Commission  considers  that  there  is  no  clear  advantage  to  explore  for  joint
administrative boards with other Agencies.

5.

Submit by 31 July 2003 an amendment to the constituent acts of the agencies to ensure that
the directors of Community bodies may in future be appointed only with  the  approval of
Parliament; (Blak - §29 CEDEFOP, §28 EUROFOUND, and § 39 EAR)

Commission's reply :

As  the  present  Director  of  the  European  Agency  for  Reconstruction  has  been  appointed  for  a
period  which  reaches  the  date  of  expiry  of  the  legal  basis  of  Council  Regulation  (EC)  No
2667/2000,  and  whereas  a  proposal  on  the  future  status  of  the  Agency  beyond  this  should  be
taken, according to Article 14 of Agency regulation, on the basis of a proposal to be submitted by
the Commission at the latest by 30 June 2004, the request made by Parliament is not opportune
at this stage.

In its Communication ''The operating framework for the European Regulatory Agencies" (COM
(2002)  718  final),  the  Commission  proposed  making  formal  appointment  of  candidates  for  the
post of Directors dependent on a hearing before the European Parliament. At the moment, this
document is under consideration by the European Parliament and the Council. Possible action in
this field should be undertaken in the light of the upcoming discussions with these Institutions.

6.

Include  in  its  action  programme  the  proposals  to  ensuring  that  overlapping  between  the
activities  of  Commission’s  services  and  those  of  the  agencies  is  avoided.  (Blak  -  §31
EUROFOUND, §30 EUROFOUND, §41 EAR)

Commission's reply :

No overlap currently exists between DG EAC and CEDEFOP. Both the medium-term priorities
of  the  Centre  and  its  annual  work  programme  provide  detailed  information  on  the  type  of
contribution  the  Centre  provides  to  the  Community's  vocational  training  policy  and  more
generally to its partners.

The  work  programme  of  EUROFOUND  is  adopted  by  its  Administrative  Board  in  agreement
with  the  Commission.  More  specifically  concerning  the  relations  between  EUROFOUND  and
OSHA,  the  Agencies  concluded  in  2001  a  Memorandum  of  Understanding  and,  in  2003,  a
Collaboration Agreement identifying areas of common interest and foreseeing actions to ensure
a maximum of synergy was signed.

7.

Ensure that the agency has the required manpower and technical support in order to operate
the  imposed  computer/accounting  system  (SI2)  on  the  Foundation.  (Blak  -  §  3
EUROFOUND)

66

Commission's reply :

The  Commission's  technical  services  are  involved  in  ongoing  activities  relating  to  development
and improvement of the SI2 accounting System.

As SI2 is an application which complies with their financial regulations and reflects the specific
Community context, the Agencies chose it themselves. The Commission (DG BUDG) provides the
Agencies  and  the  Committees  with  the  source  code  of  the  SI2  application.  Management  of  the
application  and  changes  to  it  are  coordinated  and  financed  by  the  CSS  (inter-Agency  and
Committee  collaboration).  The  Commission  (DG  BUDG)  has  accommodated  the  Common
Support Service since June 2000.

8.

Initiate  an  administrative  investigation  for  mismanagement  and,  where  appropriate,  to
launch disciplinary proceedings. (Blak - § 8 EAR)

Commission's reply :

An investigation has taken place and a report has been submitted to the SG, DG ADMIN and DG
BUDG.

9.

When  employing  experts,  to  ensure  compliance  with  the  relevant  rules  of  the  Financial
Regulation. (Blak - §9 EAR)

Commission's reply :

An agency's compliance with the relevant rules of its Financial Regulation is the concern of the
sponsoring DG. DG Budget, which is responsible for examining these regulations when they are
adopted, will not fail to provide assistance for their interpretation and development.

The  procedure  followed  for  employing  the  experts  respected  strictly  the  provisions  of  the
“Manuel of instructions on contracts for works, supplies and services concluded for the purposes
of  Community  co-operation  with  third  countries”,  adopted  by  the  Commission  on  10/11/1999
(SEC(1999)1801/2).

10.

Fully inform the Parliament on the possible disciplinary measures. (Blak - §16 EAR)

Commission's reply :

The  investigation  report  is  now  available  and  it  is  being  assessed  by  all  services  concerned.
Should  a  disciplinary  measure  need  to  be  taken,  the  Parliament  would  receive  adequate
information.

11.

Propose phasing out future EU funds to the energy sector in Kosovo if the present situation
continues (Blak - §18 EAR).

Commission's reply :

The Commission has already started a progressive phase out of the Energy sector in Kosovo as
demonstrated  by  the  decreasing  assistance  amounts  earmarked  in  the  Multi-annual  indicative
programme for this province. In 2002, €55 million were allocated to this sector, followed by €14
million in 2003 and an indicative allocation of no more than €10 for 2004. These funds will be
targeted to increase the sustainability of the energy sector and consolidate the EC investment to

67

date.  The  European  Agency  for  Reconstruction  will  be  directly  responsible  for  implementing
these  funds  and  be  paying  utmost  attention  to  ensuring  that  the  disbursements  in  the  energy
sector are properly accounted for.

12.

Consider whether the  fact that  the  Agency  occupies  various  sites  is  the  most  appropriate
solution (Blak - §20 EAR)

Commission's reply :

The  Council  regulation  2667/2000  of  5  December  2000  on  the  European  Agency  for
Reconstruction  provided  that  the  Agency’s  general  services  shall  be  located  at  its  site  in
Thessaloniki. Consequently the Governing Board of the Agency established operational centres
in Pristina, Belgrade, Podgorica and Skjope. The spread of the Agency between various locations
is related to the nature of the work undertaken by the Agency which requires close coordination
with  the  local  authorities  and  beneficiaries  of  the  assistance  in  the  field,  as  well  as  to  the
extensions of its mandate since its creation.

In its Communication “The operating framework for the European Regulatory Agencies” (COM
(2002)  718  final),  the  Commission  proposes  that  the  seat  of  each  regulatory  agency  should  be
specified in the instrument of establishment. This stems from the premises that the choice of each
agency’s location should take into account objective factors (access to specific infrastructures /
expert knowledge in a given area etc.) that are specific to the tasks to be performed by the agency
and  its  field  of  expertise.  This  should  help  in  defining  the  best  geographical  location  for  each
regulatory agency's seat.

68

V. COUNCIL RECOMMENDATION

* * *

A)

1.

2.

Commission reform

Sustain  efforts  in  the  process  of  administrative  reform,  especially  reform  of  financial
management systems (Council § 1).

React promptly, by taking  the necessary  corrective action to address ECA’s observations
(Council § 2).

Commission's reply:

The Commission is continuing its efforts to implement the reform process it has begun. Detailed
information is available in the last updating on implementing the White Paper (Progress), which
was published  in  January 2003 (COM/2003/0040 final/2);  the  Synthesis  of  the  Annual Activity
Reports  and  Declarations  of  Directors-General  for  2002  gives  an  overview  of  achievements
during the year (COM(2003)391 final).

The main projects in progress include:

1. Development of a new accounting framework : on 17 December 2002 the Commission adopted
a  Communication  on  Modernisation  of  the  Accounting  System  of  the  European  Communities
(COM(2002)755).  It  includes  a  specific  plan  of  action.  The  Commission's  first  priority  when
modernising its accounting system is to respect the 2005 deadline.

2.  Implementation  of  Internal  control standards:  major  efforts  have  already  allowed  important
achievements and all DGs should be able to achieve as  much as  possible, full compliance with
the baseline requirements of the 24 Internal Control Standards by end 2003.

3. Annual activity reports and Annual declarations: guidelines were issued for the 2002 Annual
activity  reports  and  Annual  declaration  and  allowed  to  clarify  the  scope  and  the  materiality  of
reservation and to improve consistency. For 2003, further improvements will be added, based on
the  experience  gained  in  2001  and  2002  (support  reservations  by  concrete  evidence,  explain
reservation  impact  on  assurance).  Moreover,  the  Synthesis  for  2001  and  2002  include  action
plans which are currently implemented.

As recognised in the 2002 Synthesis report of Annual activity reports and Annual declarations,
the  impact  of  the  reform  on  the  Commission's  functioning  is  in  progress  and  will  further
consolidate in the next exercises. A great effort is being deployed to make available the resources
needed  to  thoroughly  implement  the  reform,  in  particular  through  the  Annual  Policy  strategy
exercise.

More details can be found in Annex.

As regards follow-up to the Court of Auditors' recommendations, the Commission lists in its plan
of  action  those  which  it  can  act  on  and  the  corrective  measures  envisaged.  On  this  point  the
closer  attention  the  Court  pays  to  the  follow-up  to  its  earlier  observations  makes  it  possible  to
measure the efforts made by the Commission and its achievements.

69

3.

Set a timetable for measures to improve financial management included in the action plan
for 2001 and report back on the implementation of this action plan (Council § 2)

Commission's reply :

The Commission does  all it can to achieve  financial  management  of the highest  level,  reacting
inter alia to the recommendations made by its internal and external auditors and by the discharge
authority.  Both  the  annual  activity  reports  from  the  Directors-General  and  the  Commission's
summary report are accompanied by action plans to remedy the shortcomings identified and give
an  account  of  the  measures  taken  to  follow  up  the  recommendations.  The  Synthesis  of  the
Annual  Activity  Reports  2002  of  the  Commission’s  DGs  and  services  (COM(2003)391  of
9.7.2003)  contains  the  state  of  implementation  of  the  actions  laid  down  in  the  2001  Synthesis
(Part  5.2.  of  the  2002  Synthesis  and  corresponding  table).  It  reports  both  on  completed  and
ongoing actions. Some of the latter have been reviewed and/or complemented and are presented,
accompanied  by  indication  of  responsible  services  and  a  timetable,  in  Part  5.3.  of  the  2002
Synthesis and in the corresponding table.

4.

Show  greater  rigour  in  its  estimates  and  tailor  its  budgeting  to  real  needs,  with  Member
States' assistance (Council § 4).

Commission's reply :

 The Commission recognises that the budgets for the Structural Funds in the initial years of the
current  programming  period  were  over-optimistic  relative  to  the  capacity  of  Member  States  to
implement the programmes. This was due in part to over-optimism from the national authorities
directly responsible for  implementing the  programmes  on  the  ground, as  their  upwardly  biased
payment forecasts reveal. The difficulties encountered with the transition to the new rules of the
period 2000-2006 were obviously under-estimated.

The Commission will take account of past experience in its future budget proposals with a view to
tailor proposed budgets to real needs, as it has recently done in its PDB 2004.

5.

Continue  to  be  active  in  the  administrative  cooperation  between  Member  States,
particularly in protecting the Community's financial interests (Council § 9).

Commission's reply :

In the Structural Funds sector, the Commission and the Member States co-ordinate  their audit
plans to avoid overlap and use one another’s audit information, and the Commission relies to a
greater  extent  on  the  work  done  by  national  audit  bodies.  The  single  audit  concept  is  already
being implemented to a large extent under audit coordination protocols. A further development
now  under  discussion  with  the  Member  States  is  a  “contract  of  confidence”  into  which  the
Commission  would  enter  with  Member States  for  particular  programmes  or  all  programmes  in
the country concerned, whereby the Member State would guarantee a satisfactory level of audit
of management and control systems for the Structural Funds.

Moreover, Articles 17 to 19 of Council Regulation (EC) No 515/97 of 13 March 1997 on mutual
assistance between the administrative authorities of the Member States and cooperation between
the  latter  and  the  Commission  to  ensure  the  correct  application  of  the  law  on  customs  and
agricultural  matters  (OJ  L  82,  22.03.1997,  p.  1–16)  set  out  the  Commission's  role  towards  the
Member States for combating fraud in the customs and agricultural sectors.

70

In  general,  the  Commission's  approach  in  this  area  is  based  on  partnership  with  the  Member
States and on complementarity with national measures. The Commission's role consists of:

- providing Member States with the tools they need to combat fraud in optimum conditions and
share the experience gained in these fields, in particular through computerised communication
systems (Anti Fraud Information System - AFIS) or data bases (Customs Information System –
CIS);

-  supplementing  the  measures  undertaken  by  the  Member  States,  which  bear  the  main
responsibility  for  tracking  down  irregularities  and  conducting  inquiries,  by  coordinating  cases
with a Community dimension, adding its contribution to cases reported by the Member States and
providing the operational and technical assistance required;

- organising Community investigations in third countries under mutual administrative assistance
agreements and protocols concluded between the Community and certain third countries (around
40 agreements in force).

In practice, the Member States are obliged to report to the Commission:

-  any  information  they  have  on  suspected  goods  and  methods  or  practices  used  to  breach
legislation in these fields;

-  any  information  on  shortcomings  or  gaps  that  become  apparent  from  the  application  of  that
legislation.

The Commission communicates to the Member States any information that would help them to
enforce the legislation in question.

Where  a  Member  State  becomes  aware  of  an  operation  which  constitutes,  or  appears  to
constitute,  a  breach  of  Community  legislation  that  is  of  relevance  at  Community  level
(ramifications  in  other  Member  States  or  similar  operations  likely  to  have  been  carried  out  in
other  Member  States),  it  sends  the  Commission  any  information  it  needs  (documents,  copies,
extracts of documents) to coordinate the steps taken by the Member States.

The Commission then conveys this information to the other Member States [possibly in the form
of  an  MA  (Mutual  Assistance)  report]  via  the  secure  communication  network  AFIS.  In  some
cases, it may be suggested that the Member States take precautionary measures or guarantee the
amounts involved.

However, the procedure set out in Regulation (EC) No 515/97 for helping to detect irregularities
does  not  affect  the  recovery  procedure  or  the  arrangements  for  mutual  assistance  for  the
purposes of recovery.

71

B)

6.

Own resources

* * *

End the repeated sizeable surpluses produced by budget implementation in recent financial
years , by taking the necessary steps to make budgeting more reliable. (Council § 1).

Commission's reply:

The main reason for the low implementation of payments in 2001 was the under-implementation
in  the  Structural  Funds).  This  was  essentially  due  to  a  mismatch  between  the  forecasts  of
payment  claims  (€  28.2  billion)  the  Member  States  sent  to  the  Commission  (and  on  which  the
budget was based)  and the payments actually claimed by the Member States (€ 20.5 billion). In
turn, the low level of payment claims by the Member States stemmed in large part from delays in
the adoption and launching of the new 2000-2006 programmes.

The  Commission  is  very  conscious  about  the  problem,  and  has  launched  several  actions  to
improve  budgetary  forecasting  and 
the  management  of  a  possible  budgetary  under-
implementation.

Firstly, for the Structural Funds, the Commission has been working with the Member States in
order  to  improve  their  own  payment  forecasts.  It  has  simplified  the  systems  used  to  transmit
Member  States'  forecasts  and  now  ensures  a  wider  circulation  of  the  forecast  request  it  sends
annually, which includes all the managing authorities of the programmes in the Member States.
It  also  updates  the  forecasting  information  regularly,  and  informs  rapidly  the  budgetary
authority  of  the  outcome  of  the  annual  forecasting  exercise.  This  includes  an  analysis  of  the
accuracy  of  the  forecasts.  Moreover,  the  Commission  has  also  developed  internal  forecasting
tools which it uses to prepare the budgets. In result, as the 2003 execution already shows for the
new 2000-2006 programmes which account for the major part of the Structural Funds  budget,
the match between budgets and execution has improved very considerably.

Secondly,  the  Commission  has  developed  its  annual  budget  implementation  plan  (including
monitoring  and  a  mid-year  revision  procedure)  as  an  early  warning  instrument  regarding
possible under-implementation problems. For the Structural Actions, this is largely based on the
internal  forecasting  tool  mentioned  above.  This  has  already  produced  palpable  results.  The
Commission  is  currently  considering  to  propose  a  rectifying  budget  for  2003  to  adjust  the
available  appropriations  for  the  Structural  Funds  -for  what  regards  the  completion  of  the  pre-
2000  programmes,  given  that,  as  indicated  above,  the  execution  of  the  new  2000-2006
programmes is now satisfactory - with the actual implementation forecast, as revised in October
2003.

7.

Obtain  further  progress,  particularly  with  regard  to  management  and  supervision  of
customs warehouses, to recovery of uncollected debts and interest payable and to separate
accounting for customs debts (B accounts). (Council § 2).

Commission's reply:

The  Commission  underlines  the  fact  that  Member  States  are  primarily  responsible  for  the
management and the surveillance of customs procedures, for the recovery of customs debts and
the making available to the EU budget and for keeping the Own Resources accounts. As in the
past,  the  Commission  will  continue  to  include  topics,  selected  on  the  basis  of  risk-analysis
techniques,  which  relate  to  customs  arrangements,  recovery  and  accounting  procedures,  in  its

72

annual  control  plan.  It  welcomes  the  continuing  cooperation  from  the  Member  States  in  the
implementation of this control plan and the subsequent follow-up activities.

Delegates of the Customs Code Committee have been reminded of the Court's findings and been
asked to take the appropriate actions.

8.

Define  clearly  its  role  in  coordinating  administrative  cooperation  with  Member  States.
(Council § 3).

Commission's reply:

A regulation is being prepared on mutual administrative assistance and exchange of information
which  will  cover  cross-border  VAT  fraud;  it  is  intended  to  provide  the  Commission,  and  more
particularly  OLAF,  with  a  specific  legal  basis  for  its  role  of  coordinator  of  mutual  assistance
activities with the aim of making its role more effective.

C)

9.

Common Agricultural Policy

Make estimates of budgetary requirements more reliable in close cooperation with Member
States. (Council § 1).

Commission's reply:

The Commission estimates the initial agricultural budgetary requirements almost one and a half
year before the start of the budget year through its Preliminary Draft Budget (PDB) for the year
in question. Since the budgetary procedure requires such a long lead-time of preparation, these
estimates  are  subject  to  uncertainty  due  to  the  structural  and  the  fluctuating  nature  of  the
parameters, which influence agricultural expenditure. One month before the start of the budget
year, the Commission presents to the Budget Authority its Amending Letter (AL) to the already
presented PDB. The AL serves to update the budget requirements outlined in the PDB.

The estimates of budgetary requirements are based on hypotheses with regard to developments in
agricultural markets (levels of production and demand, price developments etc.) but they are also
influenced  by  the  implementation  rate  of  direct  aid  schemes,  by  the  pace  of  execution  of  rural
development  programmes  which  rely  particularly  on  information  and  implementation  forecasts
supplied by the Member States as well as by other factors such as changes in €/$ exchange parity
rates.

Therefore, receiving timely, complete and regularly updated information on all these elements is
primordial to the reduction of the uncertainty linked to the estimates of budgetary requirements
needed for the financing of the CAP. The various EU regulations, through which CAP measures
are  implemented,  require  the  provision  of  this  information  to  the  Commission.  Member  States
collaborate  and  supply  the  required  information,  albeit  sometimes  late  or  incomplete,  thus,
directly affecting the accuracy of the estimates of budgetary requirements.

The  Commission  tries,  without  further  burdening  existing  procedures,  to  reinforce  this
collaboration  within  the  framework  of  the  various  management  committees  and  the  EAGGF-
Guarantee  committee.  It  should  be  noted  that  the  EAGGF-Guarantee’s  budget  implementation
rate averaged approximately 97.2% of initial credit appropriations for the last 3 budget years, a
rate  which  is  deemed  satisfactory,  given  the  fluctuating  nature  of  the  parameters  affecting  the
establishment of the estimates of budgetary requirements.

73

10.

Work actively with Member States in refining their control systems, especially for schemes
where aid is geared to quantity produced, in particular for cotton and olive oil. Commission
to  improve  the  presentation  of  inspection  results  under  the  integrated  administration  and
control scheme (IACS), to distinguish between random and risk-based checks. (Council §
2).

Commission's reply:

Through  its  audits  of  agricultural  expenditure,  conducted  in  the  context  of  its  clearance  of
accounts  procedure,  the  Commission  pursues  a  very  active  role  in  improving  Member  States
control systems.

The  production  aid  schemes  are  followed  up  closely  by  the  Commission  services.  As  concerns
olive oil, important new control requirements are applicable as from marketing year 2001/2002
and the development of  the  olive  cultivation  Geographic  Information  System  (GIS)  is  ongoing.
As  concerns  cotton,  a  new  CMO  regulation  has  been  introduced  as  from  marketing  year
2001/2002.  Moreover,  the  Commission  presented  on  23  September  a  reform  proposal  for  both
schemes.  The  Communication  "Accomplishing  a  sustainable  agricultural  model  for  Europe
through the reformed CAP - the tobacco, olive oil, cotton  and  sugar sectors", can be found on
the internet at:

http://europa.eu.int/comm/agriculture/capreform/com554/index_en.htm

All  IACS-related  aid  applications  are  subject  to  a  100%  administrative  control,  which  includes
full computerised cross-checks. Regarding the selection of farmers subject to on-the-spot checks,
a minimum level of random selections became a  regulatory  requirement  only as of 2002,  but a
distinction between random and risk based checks was in fact incorporated into IACS statistics as
early  as  2000  for  the  financially  most  important  sector  of  arable  crops.  More  generally,
presentation  of  statistics  for  both  arable  crops  and  animal  premiums  has  been  progressively
enhanced since 2000.

11.

Lay down a set of common guidelines for administration of rural development measures.
(Council § 2).

Commission's reply:

In accordance with Article 53(2) of Regulation (EC)  No  445/2002 and the previous Regulation
(EC) No 1750/99, the Commission adopted guidelines in 2000, which  were  updated in 2002 on
common  indicators  for  monitoring  the  planning  of  rural  development  and  expenditure  in  this
field for the period 2000-2006.

12.

Press  Member  States  to  ensure  that  paying  agencies  comply  with  approval  criteria,
particularly as regards information technology security. (Council § 3).

Commission's reply:

Since  the  Council's  Discharge  Resolution  2001,  studies  of  Certifying  Body  and  co-ordinating
body  reports  show  an  increased  level  of  information  security  implemented  in  the  Paying
Agencies.

The  following  actions  have  also  been  taken  to  press  Member  States  to  ensure  that  the  Paying
Agencies comply with approval criteria, particularly as regards information technology security:

74

A change to the legislation concerning the rules for the clearance of the accounts of the EAGGF
Guarantee  Section,  and  for  computer  security  in  particular,  is  envisaged  during  the  coming
months.  The  proposal  aims  to  bring  up  to  date,  and  tighten  the  requirements  for  information
technology security.

Furthermore,  a  letter  has  been  sent  to  the  co-ordinating  bodies  in  each  of  the  Member  States
asking them:

-  to  report  to  the  Commission  before  15.09.2003  on  the  status  of  the  implementation  of  the
recommendations arising from previous Commission IT security audits; and

- to remind the Certifying Body in each Member State to include in their annual report a section
on IT security in the Paying Agencies, based on the above legislation.

D)

13.

Structural measures

Equip  itself  as  quickly  as  possible  with  appropriate  instruments  to  improve  budget
forecasts. (Council § 1).

Commission's reply: The Commission has already taken a number of steps aimed at improving
the quality of Member States’ forecasts. It has conducted a survey amongst Member States on the
procedure  and  improved  it  in  the  light  of  the  replies  received.  It  now  sends  the  requests  for
information to Member States and informs the programmes’ management authorities at the same
time.  It  streamlined  the  systems  used  to  collect  and  analyse  the  data.  It  produces  annually  a
widely  disseminated  report  on  the  quality  of  the  forecasts.  The  Commission  will  keep  on  co-
operating with Member States to improve the quality of the forecasts.

Despite the fact that Member States’ forecast have systematically overestimated significantly the
need  for  funds,  they  remain  the  best  information  on  payment  needs  that  the  Commission  gets
from sources closer to the execution of the programmes on the ground. This is the consequence
of the shared management and there is no radical alternative to that bottom up approach. Thus
the  Commission  keeps  on  devoting  significant  efforts  to  improve  the  forecasts  in  co-operation
with  the  Member  States.  In  view  of  poor  forecasts  in  the  past,  the  Commission  has  repeatedly
written  to  the  States  to  remind  them  of  the  importance  of  having  good-quality  forecasts  of  the
implementation of each programme within the time limits laid down.

Although  some  States  are  consistently  wayward  in  their  payment  forecasts,  others  might
overestimate  requirements  one  year  and,  by  way  of  compensation,  underestimate  them  by  the
same  amount  the  following  year.  In  2002  for  example  the  payment  appropriations  for  the
Cohesion  Fund  had  to  be  replenished  and  not  all  requests  could  be  met  after  two  years  of
considerable over-implementation.

So far, due to their over-estimation bias, the forecasts have been of limited value for budgeting
but the potential value of the forecasts justifies continued efforts towards their improvement. The
Commission  corrects  the  forecasts  received  from  Member  States  in  the  light  of  its  own
information. For 2004 the amounts in the Budget are smaller than those returned by the Member
States in their forecasts.

The  Commission  does  not  have  any  data  on  the  Member  States'  "absorption  capacity".  The
technical means necessary for  estimating this capacity  would  first have  to  be developed.  We do
not  consider  that  the  criterion  of  the  Member  States'  "absorption  capacity"  gives  any  added
value  to  the  estimate  of  payment  appropriations  required,  apart  from  providing  a  very  rough
assessment of the probability of the Member States' forecasts.

75

The Commission has consistently proposed appropriations below Member States’ forecasts, based
on best  available  knowledge  at  the  time  of  budgeting. So  far,  implementation  of  the  Structural
Funds  programmes  has  indeed  trailed  below  expectations.  The  Commission  will  take  this  into
consideration in its future proposals and has already done so in the PDB 2004.

14.

Cooperate  with  Member  States  in  identifying  best  practice  in  order  to  improve  budget
forecasts. (Council § 1).

Commission's reply:

See reply to paragraph 13.

15.

Continue its efforts to reduce the commitments outstanding. (Council § 2).

Commission's  reply:  The  pre-2000  outstanding  commitments  relate  either  to  1994-1999
programmes or to pre-1994 programmes. In 2002, the Commission endeavoured to reduce both
significantly.

The  Commission  has  presented  a  Communication  on  the  budgetary  implementation  of  the
Structural Funds indicating the normal trend expected for outstanding commitments. The actual
situation and our current forecasts are a fair reflection of this forecast.

Only the forecast for the reduction in outstanding commitments for programmes from the period
94-99 may diverge by a few months, consigning some of them to 2004. However, the Commission
has  adopted  action  plans  and  partial  clearance  measures  for  the  programmes,  payments  or
decommitments  to  reduce  the  "unusable"  outstanding  commitments  as  far  as  possible  and  use
the maximum of payment appropriations provided for this purpose.

The outstanding commitments for the Structural Funds at the end of 2002 amounted to €60 373
million, which represents 2 years of commitment appropriations, of which around ¼ concerned
pre-2000 programmes. The Commission considers that this level of outstanding commitments is
not  alarming  as  they  concern  multiannual  programmes  involving  substantial  investment  for
which the regulation allows only two years to pay for the project after the year of commitment.

That is why the Commission wished to give priority to tackling the bad, i.e. the oldest outstanding
commitments. Outstanding commitments for programmes from before 1994 were greatly reduced
from €532 million at the beginning of 2002 to €128 million at the end of 2002.

Despite considerable efforts devoted to the clearance of the outstanding commitments associated
with the 1994-99 period, they only decreased marginally in 2002 (from € 16 607 million to €15
437 million). This was because very few final payment claims were received from Member States
in 2002. The Commission is currently analysing the files received and processing the payments or
asking  for  additional  information  in  the  case  of  incompletely  documented  claims.  Due  to  this
concentration of final claims at the deadline, more payments will be delayed to 2004 than initially
foreseen.

For the 2000-2006 programmes, the low level of payments in 2001, and to a less extent in 2002,
have indeed led to outstanding commitments slightly higher than initially anticipated. However,
under  the  rules  of  the  period  2000-2006  the  commitments  are  made  annually  almost
automatically while the payments follow essentially the execution of the programmes. In fact, this
means  that  the  outstanding  commitments  are  expected  to  increase  until  2006,  and  to  decrease
until the end of the payment period as repeatedly indicated by the Commission (most recently in

76

its Communication to the Council and EP of the Evolution of budget execution of the Structural
Funds, in particular outstanding commitments (COM(2002) 528 final)).

As regards the Employment Policy in particular:

- Pre-1994 periods

At  31.12.2001  outstanding  commitments  came  to  €121  million  and  concerned  388  cases.  At
30 June 2003 they had been reduced to €75 million and concerned 222 cases, a drop of 38% in
volume  and  43%  in  number.  The  residual  outstanding  commitments  mainly  consist  of  cases
subject to legal proceedings.

- Period 1994-1999

Most  of  the  outstanding  commitments  should  be  cleared  in  2003  with  the  closure  of  the
programmes on the basis of applications for final payment received in the first quarter of 2003.

- Period 2000-2006

Communication COM(2002)528 of 20.9.2002 sets out the trend in outstanding commitments over
the whole period covered by Regulation No 1260/99: automatic commitments at the beginning of
each year, advance of 7% of the total for the programme in the first year, interim payments under
the N+2 rule.

As regards the Agricultural Policy in particular:

Pre 1994 period: On 31 August 2003, outstanding commitments for the period prior to 1994 came
only to Euro 16,28 million. Most of these cases were blocked by legal procedures.

Period  1994/99:  On  31  August  2003,  outstanding  commitments  relating  to  the  period  1994/99
amounted  to  Euro  2.436  million.  Due  to  the  complexity  of  the  closure  procedure  and  to  the
reception of most payment requests on the last days before the deadline of 31 March 2003, only a
minor  part  of  this  amount  will  probably  be  cleared  in  2003  (around  Euro  420  million).  The
Budget Authority has already been informed of this situation.

Period 2000/2006: On 31 August 2003, existing commitments amounted to Euro 5.854 million.
This  amount  is  subject  to  the  n+2  rule.  Therefore,  there  is  no  risk  of  long  lasting  outstanding
commitments.

16.

Continue to decompartmentalise its management of structural measures and ensure that the
common database for the Structural Funds  functions effectively. Commission to improve
the operation of follow-up procedures. (Council § 2).

Commission's  reply:  As  far  as  DG  REGIO  is  concerned,  the  common  database  is  fully
operational today. Design changes are discussed and agreed by all 4 structural fund DGs, mostly
through the  Meetings  of  the  heads  of  financial units.  As  for  ensuring  that  the  database  (SFC)
functions  effectively,  there  is  a  "traditional"  infrastructure  guaranteeing  that  the  base  is
permanently available to users in the Member States or within the Commission and a help desk
providing primary support and control of access. User training is also available and is organised
at  the  request  of  the  Member  States  or  DGs.  There  are  also  regular  coordination  meetings
between  the  four  DGs  to  ensure  that  the  SFC  application  always  meets  users'  needs.  At  these
meetings the project owners responsible for tailoring the SFC to users' needs, will typically pass
on the requests of both internal users and those in the Member States.

77

As  for  improving  the  follow-up  procedures,  this  is  one  of  the  functional  aspects  linked  to  the
application. The role of the Information Technology Unit is to develop the functions requested by
the users, represented by the project owner or owners. Reports allowing administrators to provide
a better follow-up and giving a full updated picture are regularly drawn up (as for example the
N+2 and M+18 early warning reports).

17.

Continue its efforts to simplify the management of structural measures programmes under
existing legislation. (Council § 2).

Commission's  reply:  In  adopting  the  communication  "on  the  simplification,  clarification,
coordination  and  flexible  management  of  the  structural  policies  2000-2006"  (C(2003)1255)  on
25 April 2003, the Commission completed the simplification exercise for the management of the
Structural  Funds  with  the  rules  as  they  now  stand.  It  has  already  started  its  deliberations  on
simplification  of  the  future  method  for  implementing  the  Structural  Funds  for  the  post-2006
programming period.

While  the  efforts  towards  simplification  should  continue,  it  should  be  noted  that  these  efforts
must be conducted in partnership between Commission and Member States, and that the existing
legislation necessarily limits the scope for simplification under the present programming period.

As regards the Agricultural Policy, the closure of the remaining 16 dossiers concerning a total of
Euro 16,28 million can only be done step by step because of ongoing legal procedures.

18.

As  regards  the  periods  prior  to  1994,  take  promptly  the  measures  to  close  the
last-remaining  dossiers  as  soon  as  possible,  if  necessary  by  means  of  automatic
decommitment. (Council § 3).

Commission's reply: The last measures will be completed this year. In accordance with the rules,
only measures still before the courts will remain open pending the appropriate court rulings. The
rules do not allow automatic decommitment in these cases.

The  RAL  for  programmes  from  before  1994  was  greatly  reduced,  from  532  million  €  at  the
beginning of 2002 to 128 million € at the end of 2002.

For pre-1989 projects and those for the period 1989-1993, DG EMPL is continuing its clearance
effort  to  close  cases  which  have  not  yet  been  closed.  However,  a  large  number  of  cases  are
covered  by  Article  7  of  Decision  83/673/EEC  (suspected  irregularities)  which  slows  down  the
closure procedure.

19.

As regards the period 94-99, continue efforts to secure consistent application of Regulation
(EC)  No  2064/97  and  to  ensure  that  the  activities  of  the  Commission  departments
the  various  structural  measures  are  more  efficiently
responsible  for  monitoring 
coordinated. (Council § 3).

Commission's  reply:  The  Commission  carried  out  audits  of  Member  States’  preparations  for
closure or 1994-99  in  accordance with  Regulation 2064/97 in  2001  and  2002  and  after  closing
these programmes is undertaking sample audits of projects in order to test  the  reliability  of the
control  systems  established  under  Regulation  2064/97.  Financial  corrections  will  be  made  if
errors are found. Close co-ordination between the Commission services on financial and control
issues is assured through regular meetings of the financial directorates.

78

In  2002  DG  EMPL  completed  its  audit  programme  on  the  implementation  of  Regulation  No
2064/97  which  had  the  objective  of  evaluating  the  level  of  assurance  to  be  achieved  on  the
closure of the measures. The closure cases are now being analysed at DG EMPL, in particular
the declarations of validity (Article 8) which are being analysed in the light of the obligations laid
down by Regulation No 2064/97. DG EMPL's audit programme for 2003 provides for 15 closure
audits from the second half of 2003 onwards (implementation will depend on the rate of closure
of cases submitted late by the Member States); these audits will continue in 2004.

20.

As regards the current period, support Member States in completing the introduction of the
systems, ensuring that they operate efficiently and monitoring the proper application of the
regulations. (Council § 3).

Commission's reply:

The  Structural  Fund  departments  have  audited,  or  are  auditing  the  management  and  control
systems for the new period in the Member States. An extensive report on the audit was for ERDF
sent to Parliament in May 2003.

DG  AGRI  is  currently  undertaking  the  necessary  audits.  The  Commission  is  continuously
monitoring the effectiveness of these systems.

DG EMPL has drawn up an audit programme for systems introduced for the ESF's 2000/2006
programming period  which  will  enable  it  by  end  2003  to  reach  a  coverage  rate  of  83%  for  the
objective 1 measures it administers, 81% for EQUAL and 57% for objective 3. The management
and control systems of the objective are also normally covered by the audit of regional structures
implementing objective 3  or EQUAL. It will be able to add  to these  results when implementing
the ESF audit strategy in 2004 (see points 42 and 68).

DG  EMPL  made  a  considerable  effort  in  2002/2003,  in  close  cooperation  with  the  other
departments  involved  in  the  Structural  Funds,  to  provide  the  Member  States  with  any
clarifications  they  needed  on  the  rules  and  thus  help  them  comply  with  the  programming  for
2000/2006.

21.

Resolve  the  problems  in  the  management  system  for  the  Community  Fishing  Fleet
Register. (Council § 4).

Commission's reply: The Front (Fleet Register On the NeT) application allows Member States to
send in their fishing fleet data, ensure that it is followed up and look for information in the Fleet
Register.

Stricter  controls  were  introduced  for  the  validation  of  new  data  to  guarantee  better  quality.
Improvements were also made so that the declarations to be corrected by the Member States were
more visible and the messages for users were more understandable.

As for the quality control of the historical data of vessels in use, a dozen quality criteria were laid
down. A follow-up report on irregularities is generated every week and sent to the Member States.

22.

Extend  its  enquiries  into  possible  deficiencies  in  the  management  and  control  system.
(Council § 4).

Commission's reply: See reply to the previous paragraph.

79

The  ESF  audit  strategy  described  in  points  42  and  68  allows  our  control  resources  to  be  more
concentrated  on  risk  systems than in  the  past  by  expanding  on  the  Commission's  audits  where
necessary. The Commission also invokes Article 39(2) when it considers that a Member State has
not complied with its control obligations (Article 38(1)) or has not made the corrections required
(Article 39(1) of Regulation No 1260/1999).

E)

23.

Internal policies

Take  further  efforts  in  the  presentation  of  the  section  of  the  revenue  and  expenditure
account. (Council § 1).

Commission's reply:

The  Commission  is  pursuing  its  efforts  to  improve  the  reporting  on  budgetary  and  financial
management, in order to give a clear and complete picture of the budget implementation. As to
carry-overs,  they  are  managed  in  accordance  with  the  strict  rules  of  the  Financial  Regulation,
and most of them relate to third party receipts.

24.

Harmonise and clarify the rules for implementing the TEN-T programme, in particular the
rules on eligibility costs, and to strengthen its management, control and evaluation system.
(Council § 2).

Commission's reply:

The  Commission  continues  to  harmonise  and  clarify  the  rules  for  implementing  the  TEN-T
Programme  and  to  strengthen  controls  in  cooperation  with  Member  States  in  accordance  with
their joint responsibilities in this area under the TENs Regulation.

In particular the following measures are on-going:

- The TEN users Handbook (for applicants)  will  be produced in 2003 to  address  interpretation
issues

- The version 2003  of the Manual of Procedures  TREN contains  a  specific  part  for  the  TEN’s
Programmes

- Integration of TENs into the central Informatic tool (PMS) will be completed before the end of
2003

-  The  new  standard  text  of  the  Commission  Decision  from  2002  onwards  includes  a  more
developed  technical  annex  1  with  more  details  concerning:  technical  activities  covered  by
funding; estimated cost breakdown of activities, fixed rather than indicative timetables.

-  The  revision  of  the  Commission  Decision  text  from  2003  strengthens  the  role  and
responsibilities of the Member States in the implementation and the follow-up of the financial aid
and particularly their competences in the fields  of  financial  control,  appraisal, monitoring  and
evaluation of projects in compliance with the TEN Regulation.

-  In  addition  to  the  on-the-spot  checks  already  performed  by  technical  and  financial  officers
prior to the final payment, a number of ex-post TEN-T audits have taken place or  are planned
for 2003, some of them together with the Court of Auditors. Moreover, a framework contract to

80

be  concluded  by  the  end  of  2003  with  an  external  audit  company  will  allow  to  increase
considerably the number of ex-post audits undertaken by the Commission.

In  the  context  of  eligibility  of  costs  related  to  references  in  the  TEN-Regulation  to  studies,
technical support measures, works etc., it is envisaged to establish a guide, based on practices in
Member  States,  which  will  outline  and  clarify  the  nature  of  activities  qualifying  under  these
various definitions.

25.

Take steps to simplify  the  financial complexity of RTD indirect actions  and  to  introduce
more effective sanctions mechanisms. (Council § 2).

Commission's reply:

As a result of the recommendation concerning simplification and the introduction of sanctions,
DG RTD and the other research DGs have drawn up an action plan in response to action 1 of the
summary report on the annual activity reports for 2001. This plan was formally adopted by the
Commission on 10 January 2003. It is followed up every quarter by all the DGs concerned.

In  this  connection,  the  Commission  would  also  point  to  the  efforts  conducted  jointly  with  the
Council and Parliament during the legislative procedure for the 6th framework programme and
the rules of participation relating to it.

As for simplification, the main factors involve cutting back on the detailed rules and introducing
greater  flexibility  in  the  management  of  research  projects.  This  measure  is  accompanied  by
reinforcing  joint  responsibility  for  members  of  consortia  and tougher  sanctions  in  the  event  of
irregularities.

26.

Strengthen auditing by the Directorate-Generals concerned. (Council § 3).

Commission's reply:

The research DGs will continue their efforts of recent years and this aspect forms an explicit part
of the action plan relating to action 1 of the summary report on the annual activity reports for
2001.  Under  the  plan,  the  DGs  will  also  take  further  steps  in  this  direction  by  stepping  up  the
control  of  documents  as  the  resources  available  for  on-site  audits  are  relatively  limited
considering the number of contracts in force.

As  regards  the  6th  framework  programme,  mention  should  be  made  of  the  decision  by  the
legislator that the declarations of costs should always be accompanied by audit certificates issued
by independent auditors. This will supplement the strategy of strengthening controls and audits
when implementing the research programmes.

As for the recommendation to increase the number of audits at beneficiaries, the research DGs
explicitly entered this in the action plan relating to action 1 of the summary report on the annual
activity reports for 2001. It is therefore being followed up every quarter by all the DG concerned
to confirm the desired increase in number and frequency.

F)

27.

External actions

Continue its efforts to increase the utilisation rate and to distribute payments more evenly
throughout the year. (Council § 1).

81

Commission's reply:

Between  1999  and  2002  payments  on  budget  lines  implemented  by  AIDCO  have  increased  by
32% (1999: 2.513 bio Euro, 2000: 2.978 bio, 2001: 3.175 bio and 2002: 3.327 bio). This trend will
be confirmed in 2003. The Commission will make every effort so as to distribute payments more
evenly over the year.

28.

Continue its efforts to reduce the level of outstanding commitments (OCs). (Council § 1).

Commission's reply:

Analysis  of  EuropeAid's  RAL  is  the  subject  of  intensive  and  constant  review  at  country  level,
regional level and in aggregate.

In  2003  a  specific  exercise  was  launched,  whereby  a  more  in  depth  analysis  of  the  under-
performing  portfolio  of  budget  commitments  (old  and  low  disbursement  ratios,  dormant  not
started,  high  levels  not  contracted  amounts,  etc)  was  carried,  aimed  at  identifying  under-
performing  projects  for  management  decisions,  e.g.  corrective  actions  for  speeding  up
implementation  and/or  abandon  of  certain  activities  and  partial  decommitment,  or  even
anticipated closure of projects commitment.

Additionally  to  these  specific  portfolio  review  activities,  two  structural  factors  should  in  the
future greatly contribute to prevent the building up of new significant stocks of old and dormant
commitments requiring exceptional clearance action :

- the full operation of CRIS as from 1st January, as the single unified information system for the
external  assistance  portfolio  managed  by  EuropeAid,  and  sole  interface  with  the  accounting
system;

-  the  entry  into  force  of  the  new  Financial  Regulation:  the  n+1  rule  for  contracting  actions
launched directly by the Commission by way of calls for proposals, and  the n+3 rule stipulated in
article 166 §2 for all contracts implementing Financing Agreements will no doubt contribute to
speeding  up  contracting  and  prevent  the  building  up  of  the  part  of  the  RAL  consisting  of
uncontracted amounts.

The Humanitarian Aid Office has paid a  great deal  of attention  to  the overall reduction of the
level of outstanding commitments. An action plan on the reduction of the RAL (Reste à liquider)
and the reduction of payment delays was established in April 2002.

As  a  result,  the  amount  of  outstanding  commitments  was  reduced  at  31  December  2002  to  an
overall amount of 0,7 times the annual budget for humanitarian aid, which is 5 times lower then
the average stock of outstanding commitments in the area of external aid.

Some of the RAL is legitimate, as commitments are made in anticipation of payments to be made
in  future.  It  is  therefore  important  to  make  a  distinction  in  the  year  of  origin  of  RAL.  The
Commission uses the terms 'old' and 'sleeping' to describe the money that genuinely makes up a
payment  backlog.  "Old  commitments"  are  commitments  made  more  then  five  years  ago  and
"sleeping  commitments"  are  commitments  on  which  no  action  has  been  taken  for  the  last  two
years.  The  amount  of  'old  &  sleeping'  RAL  has  been  reduced  to  below  6%  of  the  annual
humanitarian aid budget.

82

29.

Improve presentation of financial management, in particular with regard to the justification
of transfers and to the implementation tables for external actions. (Council § 1).

Commission's reply:

As  concerns  the  quality  of  justifications  of  the  transfers,  services  are  aware  of  the  need  to
improve them and efforts are being made in order to improve their presentation.

The Commission endeavours to provide with each transfer request the information relevant to the
budget  authority  and  on  which  it  can  base  an  informed  decision.  Whenever  asked  for,  the
Commission  is  ready  to  undertake  every  effort  to  provide  the  respective  rapporteurs  and
committees with the complementary information they may wish to obtain prior to their decision
making.

30.

Complete the introduction of a satisfactory system for systematically auditing Community
transactions at the level of intermediaries and final beneficiaries, and to use complete and
reliable management information. (Council § 2).

Commission's reply:

The Commission's activities funded under humanitarian aid and implemented by external parties
are  subject  to  financial  audits.  Overall,  the  aim  is  to  have  a  two-year  audit  cycle  involving  an
examination  of  the  partners’  systems  and  their  use  of  these  funds.  The  audit  processes  and
methodologies are continuously under review and, in 2002, significant revisions were made to the
procedures.

Fourteen audits were completed during the year, including six field audits, reporting on projects
actually under way.

To increase its activity in this area, the Commission contracted a firm of professional auditors to
scrutinise  humanitarian  aid  projects,  beginning  in  the  second  half  of  2002.  This  led  to  a
significant increase in the number of ongoing audits (50) by the end of the year, and the number
of finalised audits will therefore increase substantially in 2003 and in future years.

As for the EuropeAid Cooperation Office, in connection with the further definition of an overall
control and audit strategy, the approach relating to ‘certification audits’ will be further developed
as  well.  ‘Certification  audits’  provide  assurance  that  expenditure,  at  the  level  of  implementing
organisations, is legal and regular. They are complementary to the external audits launched by
the Commission.

Major improvements as regards the quality of certification audits have already been made with
the revision in 2003 of the Practical Guide  to EC  External Aid contract  procedures. Moreover,
instructions on quality review of certification audits and on their use within a risk based selection
of audits supervised by Commission staff will be established in order to create a comprehensive
control model. The model would efficiently and effectively combine easy and workable controls
built  into  the  projects  with  risk  oriented  controls  carried  out  by  Commission  staff.  The
Commission  also  intends  to  issue  by  the  end  of  the  year  improved  standardised  Term  of
Reference for ‘certification audits’ and has started a training programme in the area of external
audit that will improve the knowledge of the officials in Delegation in dealing with audits.

The  Commission  is  equally  taking  measures  to  ensure  adequate  follow-up  of  the  audit
recommendations.  With  the  devolution  process  to  the  Delegations,  this  is  considered  as  an

83

important  component  of  the  monitoring  of  project  implementation.  The  introduction  of  a
computerised  system  for  registering  information  on  the  audit  work  on  external  programmes
(CRIS Audit) should, in time, further improve the monitoring of audits and eventually the ability
of Management to take action on the results of the audits, particularly as regards audit activities
in  delegations.  The  benefits  of  this  application,  which  is  now  being  field-tested,  will  only  be
visible in 2004.

31.

Take  additional  steps  to  strengthen  the  internal  control  procedures  of  organisations
responsible  for  handling  Community  funds,  to  define  more  specifically  the  minimum
standards  required of them,  and to ensure that the overall monitoring  of  control  systems,
particularly in the areas of food aid and humanitarian aid, is effective. (Council § 2).

Commission's reply:

Regarding the Commission's humanitarian aid, the  Commission's Partner vetting, instructions,
communication,  dialogues,  evaluation,  monitoring,  controls  and  audits  are  extensive  and
relatively exhaustive.

In the light of the reform, new financial regulations and implementing rules, a new Framework
Partnership Agreement is being drafted.

NGOs  are  subject  to  an  assessment  of  their  financial  internal  control  systems  each  time  their
headquarter  operations  are  audited,  which  for  most  means  at  least  once  every  two  years.  The
assessment  identifies  if  certain  minimum  financial  controls  are  in  place.  This  results  in
recommendations for improvement. The  actions taken by the  NGO for the  previous assessment
will be taken into account in the next assessment, hence there should be a cycle of  continuous
improvement generated.

Regarding  food  aid,  a  number  of  measures  have  been  taken  by  the  Commission  to  check  the
correct application of procedures:

-  EuropeAid  allocations:  verification  that  tendering  procedures  are  respected,  with  formal
agreement on the award of contracts and external audit of this organisation,

- NGO financial allocations: obligation for the NGOs to carry out an annual audit as well as a
final audit upon closure of the project and to send the report to the Commission (Article 16(4) of
the  General  Conditions).  These  audits  also  include  checks  on  whether  the  expenditure  is
incurred in conformity with the rules for awarding contracts,

-  Direct  allocations  to  governments:  mid-term  reviews,  final  reviews  and  audits  are  organised
regularly, for both direct and indirect aid.

32.

Verification  clause  agreement  between  the  Commission  and  the  United  Nations  to  be
clarified in order to ensure proper cooperation between the two institutions. (Council § 2).

Commission's reply:

The  renewed  EC-UN  Financial  and  Administrative  Framework  Agreement  signed  on  29  April
2003, integrates the EC-UN Verification clause agreement of 1994, and its clarifying agreement
on the Implementing rules to the Verification clause agreement, agreed by an exchange of letters
in 2001.

84

33.

Improve  the  procurement  system  of  the  Tacis  programme,  in  order  to  ensure  maximum
transparency and fair competition in tendering. (Council § 3).

Commission's reply:

TACIS is a programme of technical assistance whose objective is to promote the transition of the
beneficiary  countries  towards  well-functioning  market  economies  and  to  reinforce  democracy
and the rule of law.

The  assistance  is,  in  general,  delivered  in  the  form  of  grants  financing  technical  assistance
contracts.

When  a  project  is  launched  a  contractor  is  selected  to  deliver  services  to  the  beneficiary
organisation.

The  selected  contractor  is  generally  an  organisation  from  the  Member  States,  mainly  from  the
private sector but also from the public sector or a non-profit organisation.

The  contractor  is  normally  the  final  recipient  of  the  EU  funds  while  the  final  beneficiary,
receiving the assistance, is normally a government institution in the TACIS country.

The  services  delivered  by  the  contractor  aim  to  transfer  know-how  in  eligible  areas  of
cooperation which are:

- support for institutional, legal and administrative reform

- support to the private sector and assistance for economic development

- support in addressing the social consequences of transition

- development of infrastructure networks

- promotion of environmental protection and management of natural resources

- development of the rural economy

- support for nuclear safety

It  should  be  emphasized  that  the  forwarding  of  technical  assistance  implies  the  selection  of
contractors  with  a  specific  know-how  that  has  been  identified  as  not  being  available  in  the
targeted beneficiary countries. This explains why selection of local companies in TACIS project
is very exceptional.

However, the Commission would like to stress that the enforcement of the principle of equality of
potential eligible contractors (including from  beneficiary countries)  has  always been applied in
TACIS procurement rules.

No  statistics  are  held  on  the  origin  of  the  contractors,  as  the  phenomenon  of  association  of
contractors and the constitution within consortia would not make these sufficiently relevant.

34.

Allow sufficient time to delegations to prepare opinions on proposals made by NGOs and
to  shorten  the  time  between  NGOs'  submission  of  proposals  and  the  signing  of  the
contracts. (Council § 3).

85

Commission's reply:

The  legal  base  for  B7-6000  states  that  "The  decision  as  to  whether  an  operation  is  to  be
supported shall normally be taken within six months of the date of receipt of the application. If
appraisal shows an application to be incomplete, the six-month period shall run from the date of
receipt of the information required".

In 2002,

the departments administered three calls made in 2001:

1-

2-

3-

Call for development education projects closed on 19 March 2002

Call for "projects" in the developing countries closed on 15 April 2002

Calls for block grants closed on 29 April 2002

The selection committee met on:

1-

2-

3-

30 September 2002

9 October 2002

27 November 2002.

It  will  be  seen  that  selection  took  6  to  7  months.  This  is  far  better  than  for  the  first  call  for
projects in 2000 and for previous financial years.

Because of the new procedures (call for proposals), the department has to inform the  NGOs of
the decision which the selection committee is to take in less than 7 months.

G)

35.

Pre-accession aids

Remedy  the  under-utilisation  of  payment  appropriations  in  the  new  pre-accession
instruments area. (Council § 1).

Commission's reply:

As  far  as  it  concerns  ISPA,  the  implementation  rate  of  58%  is  already  relatively  high  for  an
instrument that is only available since 2000. Projects that have been prepared during the last two
years  for  ISPA,  are  now  reaching  the  implementation  stage,  therefore  the  Commission  is
confident that the implementation rate for the forthcoming years will improve (in 2002, the rate
increased already  to  78  %).  The  Commission  is  closely  monitoring  the  project  preparation  and
provides – also with view of future accession- continuously support through Technical Assistance
funds for improving the preparation of projects and for strengthening the administrative capacity
in  the  ISPA  beneficiary  countries  for  the  implementation.  The  activities  cover  among  others
technical preparation of projects, environmental impact assessments, feasibility studies, training
on procurement, on public-private-partnerships, financial management and control.

36.

Support  candidate  countries  to  develop  an  appropriate  system  of  financial  control,
especially  through  the  training  of  existing  staff,  and  rectify  the  shortcomings  in  the

86

procedures  preceding  conferral  of  decentralised  management  to  delegations  in  these
countries. (Council § 2).

Commission's reply:

Ensuring full compliance with  commitments made in the negotiations on financial control is a
central concern for the Commission.

- In the area of External Audit there are nine Twinning Actions involving audit institutions in
the current Member States.

-  PHARE  both  through  SIGMA  and  through  Twinning  massively  supports  Public  Internal
Financial Control; progress is closely monitored and is published on the Commission web-site.

- In the field of Protection of the Financial Interests of the Community PHARE support is being
used to assist the candidates countries build up anti-fraud co-ordination structures. Furthermore
PHARE  support  in  the  past,  present  and  future  in  the  fields  of  Justice  and  Home  Affairs,
Customs  and  Borders,  has  a  direct  bearing  on  increasing  overall  capacity  in  the  fight  against
fraud.

-  For  PHARE  (&  ISPA)  the  transition  to  fully  decentralised  management  to  the  national
administrations  (not  to  Commission  Delegations),  is  underway  according  to  rigorous  guidance
documents  provided  by  the  Commission.  However,  as  this  is  a  different  context  to  Sapard  the
Commission did not start from zero as we already had decentralised management for both these
instruments for several years.

-  However,  as  one  might  expect,  the  rate  of  progress  varies  substantially  in  the  different
countries. The challenge must not be underestimated in countries that must also prepare for the
structural funds with scarce human resources in the financial management and control field.

- Cyprus and Malta are expected to be granted full waiver of ex-ante control this year. The other
eight  countries  should  be  making  applications  for  their  implementation  agencies  in  the  final
quarter if this year and early next year.

- The obligation to complete the transition to fully decentralised management for PHARE by the
date of accession is stipulated in a clause in the Accession Treaty.

- Progress for ISPA is being made at very least at an equal pace and DG Enlargement continues
to  closely  co-ordinate  with  DG  Regional  Policy  both  in  terms  of  methodology  and  process
through joint guidance documents, joint seminars and joint audit missions.

-  In  compliance  with  the  observations  of  the  Court  on  SAPARD  in  the  2001  Annual  Report,
adequate Delegation capacity will be maintained in each new Member State for up to  one year
after  accession.  This  will  help  ensure  a  high  degree  of  follow-up  and  monitoring  of  the
functioning of the systems under EDIS.

- The Commission will also give a high priority to Financial Control in the Monitoring Reports
next November and in the Assessment Report on the implementation of commitments necessary
for programming the structural funds.

This will pay particular attention to the progress made in financial management and control in
the context of the Action Plans with a view to accelerating corrective action where required.

87

The Commission  has  organised  two  seminars for  existing staff,  one  on  the  management  of  the
SAPARD programme on 17-18/06/02 and the other on certification of the accounts on 7-8/11/02.

The  Commission  also  endeavour  to  train  and  assist  staff  from  the  SAPARD  paying  agencies
during their many visits.

The shortcomings in the procedures preceding the conferral of aid management to the countries
covered by the SAPARD programme have been followed up during monitoring and certification
of the accounts in 2002.

H)

37.

Administrative expenditure

Continue improving the system of compatibility, especially concerning application  of the
rules  on  the  depreciation  of  buildings,  the  question  of  ensuring  the  reliability  of  the
accounting inventory vis-à-vis the physical  inventory,  and the  recording  of  advances  and
payments in the balance sheet accounts as soon as payments are made. (Council § 2).

Commission's reply:

The improvement of the accounting for fixed assets is one the areas being dealt with as part of
the  modernisation  of  the  accounting  system  project.  The  objectives  are  indeed  to  improve  the
reliability  of  the  amounts  presented  under  the  heading  of  fixed  assets.  Under  the  accrual
accounting  principle  which  will  be  adopted  by  the  Commission  from  2005  onwards  advances
must be recorded as such in the balance sheet and done so at the time of the accounting event, in
this case the payment.

38.

Comply with the relevant tendering provisions. (Council § 2).

Commission's reply:

The  Commission  is  at  present  analysing  the  best  possible  option  in  order  to  reconcile  the
requirements  of the new  Financial Regulation with the  specificities  of  the  service  required  e.g.
highly  specialised  legal  advice,  language  skills,  ability  to  respond  quickly,  sensitivity  of
information, conflict of interest.

39.

European Schools encouraged to continue the  efforts to achieve greater uniformity in the
presentation of their accounts as well as the improvements in the recording of fixed-assets
accounts and the property which is supposed to be entered on the inventory. (Council § 4).

Commission's reply:

Progress has been made in harmonising the presentation of the accounts. The recommendation
to include asset values in the balance sheet has in general been followed. The Commission and
the  Office  of  the  Secretary  General  of  the  Board  of  Governors  will  keep  these  matters  under
review to ensure that the new procedures are fully implemented and refined.

I)

40.

Financial instruments & banking activities

Supply  the  information  that  led  to  the  setting  of  the  EIB's  annual  handling  fee  for  the
treasury management. (Council § 1).

88

Commission's reply: The Commission has negotiated a new digressive fee structure with the EIB
for the management of the Guarantee fund for external actions, on a commercial basis.

There is no obligation on the Commission to negotiate this fee structure on a “cost plus” basis,
nor is the EIB obliged to provide such cost information to the Commission.

41.

Ensure  a  fair  geographical  distribution  of  the  measures  between  Member  States  and
compliance with Community State-aid rules when decisions in favour of beneficiary SMEs
are taken. (Council § 2).

Commission's  reply:  In  accordance  with  the  Fiduciary  and  Management  Agreements  between
the  EIF  and  the  Commission,  the  EIF  shall  endeavour  to  achieve  a  global  geographic
distribution of the amounts available under the three MAP financial instruments (ETF Start-up
Facility, SME Guarantee Facility and Seed Capital Action), taking into account, in no specific
order of priority, the following 4 criteria:

–  the  aim  to  achieve  a  balanced  global  country  coverage  for  the  three  financial  instruments

taken together;

–  the aim to allow each Member State to benefit from at least one financial instrument;
–  the minimum size necessary for a specific operation to be viable;
–  the characteristics of the different markets.

It should however be noted that the MAP financial instruments are market-based and demand-
driven, and that this has a significant impact on the take-up of a given instrument in the eligible
countries.

It should in any case be noted that the EIF has made a particular effort to promote the financial

Germany
24%

France
25%

Finland
4%

Denmark
7%

Belgium
2%

United Kingdom
9%

Sweden
10%

Ireland
9%

Italy
7%

Spain
3%

instruments in those countries where demand has been low.

SME Guarantee Facility: In accordance with the principle of subsidiarity, the Community’s State
aid rules place on  Member States the responsibility to ensure  that  the  aid  awards  to  individual
beneficiaries  under  various  public  aid  schemes  comply  with  the  eligibility  conditions  and  aid

89

limits  laid  down  in  those  rules  and  in  the  Commission’s  decisions  approving  the  aid  schemes.
Therefore, the Commission requests that a declaration to this effect be annexed to the guarantee
agreement signed between the EIF and the intermediary.

In  the  case  that  the  SME  Guarantee  Facility  operates  through  private  intermediaries,  the
Commission has established with the EIF guidelines to ensure that State aid rules are respected.

ETF Start-up Facility: It should be noted that the EIF invests on a commercial basis, pari passu
with other private and public investors, up to a maximum participation of 25%. There is therefore
not an issue concerning compliance with State aid rules under this instrument.

42.

Extend the use  of verifiable  indicators  to  all  other  measures  financed  by  the  Community
budget, where appropriate. (Council § 2).

Commission's  reply:  The  Commission  agrees  on  the  usefulness  of  verifiable  indicators  in  the
context of systematic appreciation of the outcome of the measures financed from the Community
budget.  This  is  reflected  by  the  Commission’s  efforts  in  recent  years  to  generalise  the  use  of
systematic  evaluation  and  to  introduce  Activity  Based  Budgeting.  In  this  context,  the
Implementing Rules to the Financial Regulation specifies that for all proposals for programmes
or  activities  occasioning  expenditure  for  the  budget,  ex  ante  evaluation  must  be  carried  out
covering, inter alia, the results expected and the indicators needed to measure them. Moreover,
the  Financial  Regulation  specifies  that  specific,  measurable,  achievable,  relevant  and  timed
objectives  shall  be  set  for  all  sectors  of  activity  covered  by  the  budget  and  that  achievement  of
those  objectives  shall  be  monitored  by  performance  indicators  for  each  activity.  These
undertakings will increasingly provide information on the performance of Community measures.

J)

43.

Statement of Assurance

Ensure  that  by  2005,  the  Community  has  a  reliable  quality  accounting  system  consistent
with the best practices applied in the public sector and to ensure that the computer systems
are secure. Inform the Council regarding the implementation of this reform. (Council § 3).

Commission's reply:

The  commission  will  inform  the  Discharge  Authority  quarterly  on  this  issue.  Mrs  Schreyer
presented to the COCOBU on 8 July the first “Information Note from Commissioner Schreyer to
the Commission - Progress Report concerning the modernisation of the Accounting System of the
European Commission.”

44.

Remedy  without  delay  undue  farm  payments  to  final  beneficiaries,  interim  payments  in
respect  of  structural  action,  and  the  cost  declarations  submitted  by  contractors  in  the
context of the Fifth Framework Programme for Research and Development. (Council § 4).

Commission's reply:

As regards farm payments, the Commission deals with control deficiencies, and particularly the
risk  of  undue  IACS-related  aid  payments  to  farmers,  through  its  clearance  of  accounts
procedure.  In  the  event  that  its  enquiries  reveal  a  risk  to  the  Community  budget,  financial
corrections are applied. However, the Commission’s audits also lead to many recommendations
to  ensure  the  efficiency  and  effectiveness  of  Member  States’  administrative  and  control

90

procedures.  Conversely,  feedback  received  from  Member  States  leads  to  improved  Regulations
and guidelines.

For  interim  payments  in  respect  of  structural  actions,  the  Commission  Structural  Fund
departments suspend payments to programmes if they consider that EU funds are at serious risk
because of inadequate financial management and control systems.

For cost declarations submitted by contractors in the context of the Fifth Framework Programme
for  Research  and  Development,  the  Commission  has  implemented  a  specific  action  plan  on
action 1 of the synthesis of annual activity reports 2001. This includes continued intensification
of on-the-spot audits. The audits can lead to adjustments of payments made. These adjustments,
whose  effectiveness  is  enhanced  by  the  measures  taken  on  the  Reform  of  the  Commission,  are
monitored regularly in the DGs concerned.

Moreover measures have been taken in order to ensure timely recovery of the undue funds paid
on  the  basis  of  the  cost  declarations  submitted  by  contractors  in  the  context  of  the  Fifth
Framework Programme for Research and Development:

- Further strengthening of its systematic controls of the cost declarations
- Establishing a central follow-up database to monitor the progress of the recoveries
- Increase of the number of external audits undertaken.

45.

Continue  to  improve  auditing  systems  (in  particular  those  operated  by  third  parties
involved), standard or internal supervisions and recovery of funds. (Council § 5).

Commission's reply:

Shared management:

The Commission adopted a communication clarifying the role of Directors-General in the shared
management within the legal framework currently in force and the scope of their responsibilities
(C(2003)1830/2  of  17.06.2003).  In  parallel,  specific  requirements  have  been  given  to  the
Directorates-General and Services on how they should deal with this issue in the context of the
2002  Annual  Activity  Reports.  Additionally,  the  2002  Synthesis  of  the  Annual  Activity  Reports
(COM  (2003)  391  of  9  July  2003)  includes  a  specific  ongoing  action  plan,  which  covers  the
following aspects:

*
First,  a  legal  analysis  of  shared  management  responsibilities  between  the  Commission
and the current and future Member States will be carried out. On this basis, the Commission will
make  by  March  2004  appropriate  recommendations  to  clarify  the  respective  responsibilities  of
Member States and of the Commission in the case of shared management.

In addition, concrete steps will be taken to promote convergence  of audit  methodologies
*
and  processes  between  DGs  and  services  operating  under  shared  management  arrangements.
Specific  attention  will  be  paid  to  the  development  of  common  standards  at  Community  and
national  levels,  and  assurance  protocols  with  Member  States.  To  this  effect,  a  communication
will be prepared by March 2004.

*
Finally,  following  the  communication  C(2003)1830/2  of  17.06.2003  and  being  a  multi-
annual task, an interservice group has been  launched  to analyse possible  measures such as an
assurance  declaration  by  Member  States,  the  provision  of  ex-ante  disclosure  statements  by
Member  States,  the  aggregation  of  agencies  for  the  certification  process,  controls  over  the

91

certification process in Member States and the development of minimum standards for analysing
risks related to new or amended secondary legislation.

Internal control standards:

The  Commission’s  internal  control  systems  are  still  evolving.  The  internal  control  standards
provide the basis for these systems and DGs and services have reported in their Annual Reports
progress  made  in  complying  with  these  standards.  Overall,  it  is  evident  that  there  is  a  greater
understanding of these issues and in particular of the fact that internal control is not limited to
just financial matters, which have also been addressed through an intensive readiness assessment
process due to the New Financial Regulation. General progress in implementing  the  standards
continues  to  be  made.  The  self-assessment  process,  coupled  with  increased  awareness  of
management  responsibility  and  the  progress  reported  in  implementing  the  standards  represent
major steps forward. As the Commission’s internal control structures mature and awareness and
understanding grows further, the governance process is likely to advance through more focused
reporting on these matters in the Annual Report.

Internal audits:

The Internal Audit Service and the Internal Audit Capabilities have significantly developed their
infrastructure since they were set up (training, methodologies, tools, staffing, etc.)

This effort will be pursued.

46.

Resolve the methodological and scheduling problems, so as to improve the reliability and
consistency  of  the  annual  activity  reports  and  directors-general  annual  declarations.
(Council § 6).

Commission's reply:

As  the  Synthesis  report  of  the  2002  AAR  points  out  (COM(2003)391  of  9.7.2003),  the
Commission  has  drawn  lessons  from  the  experience  in  2001  and  considered  recommendations
made by the Court of Auditors and the Internal Auditor. Building on the experience gained from
the first exercise, the 2002 exercise shows methodological improvements in several respects:

- Different parts of the Annual Reports have been improved and new sections added, e.g. for the
purposes  of  presenting  the  follow-up  to  the  previous  recommendations  of  the  Internal  Audit
Service and the European Court of Auditors and to the action plans of the 2001 Annual Reports
and Synthesis.

- A major effort was made  to clarify the  scope of the declarations  and reservations (concept  of
materiality, i.e. definition of the threshold of importance beyond which a deficiency needs to be
considered for a reservation) in a communication adopted in January7.

- A peer review of potential reservations was organised at the level of Directors General prior to
the  submission  of  the  Annual  Reports  and  declarations.  The  peer  review  achieved  a  better
understanding of the guidelines and increased the level of consistency in the use of reservations,
principally  because  a  review  of  issues  common  to  all  services  or  some  groups  of  services  (e.g.
structural funds, research) was carried out.

7 COM(2003)59 of 21.01.2003

92

                                                
ANNEX - SPECIAL REPORTS 2001

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

(cid:1)  Conclusions  on  Special  Report  No  1/2002  of  the  Court  of  Auditors  concerning  macro-
financial assistance (MFA) to third countries and structural adjustment facilities (SAF) in
the Mediterranean countries

Further harmonise the different available instruments for financial assistance with macro-
economic purposes and to improve transparency and economic monitoring. Commission to
ensure proper coordination in the use of the different available instruments.

Commission's reply: Although similar, these two instruments have different objectives and legal
bases. The harmonisation exercise called for can thus cover only common factors relating to the
implementation of these instruments, in particular:

- coordination with the Bretton Woods institutions,

- the macro-economic reference framework agreed with the beneficiary countries,

- the conditions or structural performance indicators.

Greater harmonisation along these lines is planned, in particular by:

- increasing interdepartmental coordination when planning and implementing measures,

- carrying out a detailed final evaluation of the most significant operations,

- developing the analysis of financial circuits and procedures relating to aid management in the
beneficiary countries.

Streamline the principles, conditions and implementation modalities for all EU instruments
of a macro-economic nature. Commission to take practical steps to improve the efficiency
of the current decision-making process for EU macro-financial assistance.

Commission's reply:

In  the  case  of  Macro-Financial  Assistance  (MFA),  the  principles  and  conditions  for
implementing  the  operations  were  rationalised  in  line  with  the  Council's  conclusions  of
8 October 20028. As for the practical procedures for implementing assistance, any simplification
involves  some  standardisation  of  this  instrument  by  means  of  a  framework  Council  regulation
permitting  a  significant  streamlining  of  the  decision-making  procedure  (in  particular  through
use of qualified majority voting) and more flexible use of this assistance. As the Council has so
far  proved  reluctant  to  consider  such  a  prospect,  the  question  could  be  re-examined  in  future,
perhaps under the future Constitutional Treaty.

Evaluate the effectiveness of conditionality and assess the contribution of macro-financial
assistance  to  the  implementation  of  the  economic  and  stabilisation  programmes  in  the

8 See 2453rd meeting of the Council of the European Union (ECONOMIC AND FINANCIAL AFFAIRS), held in Luxembourg on 8

October 2002, PV CONS 50 ECOFIN 317, doc. Number: 12771/02.

93

                                                
beneficiary  countries,  and  to  report  on  them  in  the  annual  report  to  the  Council  and
Parliament on the implementation of macro-financial assistance. Commission to envisage a
similar assessment for the structural adjustment facilities in the Mediterranean countries or
any other instruments of a similar nature.

Commission's reply: In the case of MFA, an evaluation plan will be gradually put in place by the
managing  departments  with  the  support  of  a  specialised  administrative  unit  set  up  in
September 2002. The first group of final evaluations could be launched by the end of the year for
Serbia-Montenegro and Armenia.

They will concentrate on the following key issues:

- Macro-economic impact on the beneficiary country

- Value added by Community assistance

- Sustainability of the improvement in the beneficiary country's external position resulting from
the assistance.

monitor  the  design  of  the  actions  under  both  MFA  and  SAF  ,  and  include  clear  and
measurable conditionality consistent with adjustment and reform programmes agreed with
the IMF or, where appropriate, the World Bank;

Commission's reply: MFA is conditional on the establishment and satisfactory implementation of
a  programme  agreed  between  the  International  Monetary  Fund  (IMF)  and  the  beneficiary
country.  The  Commission  also  cooperates  closely  with  the  IMF  and,  where  appropriate,  the
World  Bank  to  ensure  overall  consistency  and  appropriate  linkage  between  MFA  and  the
facilities offered by those institutions.

This  consistency  is  achieved  as  part  of  a  transparent  monitoring  of  operations  which  involves
first  of  all  a  system  of  interdepartmental  cooperation  placed  within  the  context  of  centralised
management  (not  delegated  to  beneficiaries)  for  monitoring  operations,  verifying  compliance
with the conditions laid down and granting any waivers.

Finally,  the  annual  implementation  report  pays  particular  attention  to  the  monitoring  of
operations, especially the beneficiaries' compliance with the structural conditions.

define  the  added  value  of  the  complementary  EU  contribution  and  of  the  additional
conditionality;

Commission's  reply:  MFA  complements  the  financing  made  available  by  the  international
financial  institutions  (IFIs)  concerned  and,  as  a  result,  its  macro-economic  objectives  are
consistent with those agreed between those institutions and the beneficiary country. However, the
economic policy conditions imposed and, in particular, those relating to structural reforms in key
areas (such as privatisation, financial sector reform and the opening-up of trade) also stem from
the economic cooperation framework existing between the European Union and the beneficiary
country, as defined in a cooperation or association agreement.

monitor the financial management capacities of the beneficiary countries;

Commission's  reply:  In  order  to  assess  any  risks,  a  more  in-depth  analysis  of  the  systems  for
managing and monitoring assistance in beneficiary countries will in future be conducted by the

94

Commission departments where this is necessary either  as  a  result  of  the  inadequate  nature  of
information provided or following a significant change in the situation.

In the case of MFA, an operational assessment will be carried out on the basis of an analysis of
the documents and, where necessary, the opinion of an outside expert following an on-the-spot
visit.

strengthen the support and assessment of the reform policy in the beneficiary countries by
developing  guidelines  for  financial  assistance  instruments  of  macroeconomic  nature,  in
particular for untied budget support,  with regard to the  phases up  to  and  after  agreement
with  the  beneficiary  countries  on  the  assistance,  its  objectives,  conditionality  and
performance indicators.

Commission's reply:

Because of the exceptional nature of MFA, these guidelines are laid down by Council decisions
on  a  case-by-case  basis  and  implemented  by  means  of  specific  memoranda  of  understanding
signed with the beneficiaries.

Report  on  the  follow-up  of  these  conclusions  and  to  establish  the  aforementioned
guidelines  for  financial  assistance  instruments  of  a  macro-economic  nature,  in  particular
for untied budget support, by mid-2003.

Commission's reply: A departmental working paper has been drawn up and has been sent to the
Council and the Court of Auditors on 3/9/2003.

(cid:1)  Special  Report  No  3/2002  of  the  Court  of  Auditors  concerning  the  Community  Initiative

Employment – Integra

Transfer good practice to mainstream the results into the relevant policies.

Commission's reply: The Commission has taken into consideration the experience of Integra and
has  applied  the  Court's  considerations  when  designing  the  Integra  successor,  EQUAL  (ESF
community initiative 2000-2006). The lessons drawn during the running of Integra were applied
to EQUAL.

(cid:1)  Conclusions  on  Special  Report  No  4/2002  of  the  Court  of  Auditors  on  local  actions  for

employment

Take national practices into account when disseminating the results of the activities of the
Fund.

Commission's reply:

As indicated in its  Communication  on local development  of November 2001, in its policies and
actions  in  the  field  of  local  development  the  Commission  intends,  on  the  one  hand,  to  take
national practices into account when disseminating the results of the activities of the Fund and
on the other hand, to fully respect the national administrative and constitutional arrangements of
the Member States, in line with the principles of proportionality and subsidiarity.

95

Take  into  account  the  principles  of  proportionality  and  subsidiarity,  in  its  policies  and
actions  in  the  field  of  local  development,  respecting  the  national  administrative  and
constitutional arrangements of the Member States.

Commission's reply: As indicated in its Communication on local development of November 2001,
in its policies and actions in the field of local development the Commission intends, on the one
hand, to take national practices into account when disseminating the results of the activities of
the Fund and on the other hand, to fully respect the national administrative and constitutional
arrangements  of  the  Member  States,  in  line  with  the  principles  of  proportionality  and
subsidiarity.

(cid:1)  Conclusions  on  Special  Report  No  5/2002  of  the  Court  of  Auditors  on  extensification
premium  and  payment  schemes  in  the  common  organisation  of  the  market  for  beef  and
veal

Inform on the findings of the report on the overall assessment of the CMO extensification
payment  scheme  for  beef  and  veal  planned  for  2004/2005,  and  to  consider  measures  to
address the points mentioned by the Court of Auditors in Special Report No 5/2002,

Commission's reply:

The Commission confirms its intention to inform the Council on the findings of the examination
which will be carried out about the extensification scheme following the overall assessment of the
CMO for beef and veal planned for 2004/2005. On this occasion, the Commission will examine to
what extent measures are needed to address the points mentioned by the Court of Auditors in the
Special report, in particular as regards the relation between the extensification scheme and the
rural development measures.

(cid:1)  Conclusions  on  Special  Report  No  6/2002  of  the  Court  of  Auditors  on  the  audit  of  the

Commission's management of the EU oilseeds support scheme

Examine the extent to which Community aid payments may be recovered in cases where
the aid has been paid in contravention of the rules.

Commission's reply:

The  Commission’s  clearance  of  accounts  procedure  provides  the  means  to  ensure  that  undue
payments are recovered and credited to the Community budget.

As undertaken in its reply on the specific case raised by the Court of Auditors, the Commission
service responsible for the audit of direct aids opened a clearance of accounts enquiry following
the Court’s remarks and concluded that there had been no contravention of governing rules.

(cid:1)  Conclusions on Special Report No 7/2002 of the Court of Auditors on the sound financial

management of the common organisation of markets in the banana sector

carry  out,  in  the  course  of  the  overall  evaluation  of  the  common  organisation  of  the
markets  in  the  banana  sector  scheduled  for  2004,  a  detailed  examination  of  all  the
components of aid for the banana sector;

Commission's reply:

96

In  the  first  half  of  2003  the  evaluation  of  the  CMO  on  bananas  has  been  launched:  a  prior
information notice on a tender for an ex-post evaluation contract was published on 18/02/2003
(OJ S 34). An evaluation steering group composed of 7 Commission DG and OLAF was set up in
February and agreed the evaluation questions and the terms of reference by the end of June. The
terms  of  reference  include  a  detailed  examination  of  all  the  components  of  aid  currently
implemented for the banana sector. The expected timetable is as follows:

-  October  2003-April  2004:  publication  of  the  call  for  tenders,  selection  of  the  offers  and
signature of the evaluation contract,

- December 2004: final report.

Meanwhile the Commission will draft its report to be submitted to the European Parliament and
the Council at the latest by 31 December 2004.

in consultation with the Member States, draw up instructions on the control procedures to
be  applied  by  Member  States  regarding  the  new  single  tariff  system  applicable  to  the
import arrangements, and control and monitor their implementation.

Commission's reply:

According to Article 16 of Regulation (EC) n° 404/93, the single tariff system will enter into force
at the latest by 1 January 2006.

The Commission has  taken several initiatives  in  order to  improve  the  control  system  of  the  net
mass of bananas imported into the EU and in particular:

In the framework of Article 18.3 of Regulation No 1150/2000, on-the-spot-controls were carried
out on the correct implementation of the relevant Community legislation in the main importing
Member  States;  the  internal  control  provisions  of  all  other  Member  States  were  checked;  the
recovery procedure for all own resources due is in process. The problem was discussed with the
Member States in meetings of the Advisory Committee on Own Resources on 4 December 2002
and 2 July 2003.

Following the  results of  these  controls, an  interservice working group  was set up charged with
the examination of possible measures for improving the current situation. Such measures might
include  the  amendment  of  the  Customs  Code  implementing  provisions  and  the  introduction  of
special  provisions  within  the  rules  regarding  the  arrangements  for  importing  bananas  into  the
Community.

97

 Annex to 1st Council's recommendation

OUTLINE OF THE FOLLOW-UP TO THE RECOMMENDATIONS IN THE ANNUAL
REPORT OF THE COURT OF AUDITORS FOR 2001 RELATING TO REFORM OF THE
COMMISSION

1. Development of a new accounting framework (Annual Report 2001, para 9.25.)

On  17  December  2002  the  Commission  adopted  a  Communication  on  Modernisation  of  the
Accounting System of the European Communities (COM(2002)755). It includes a specific plan of
action. It has undertaken to regularly inform  the  discharge  authority  and  the Court of  Auditors of
progress  in  setting  up  the  new  accounting  framework  and  the  related  DP  system.  The  new
accounting framework will solve a number of problems highlighted by the Court of Auditors.

2. Timetable for producing annual activity reports (Annual Report 2001, para 9.54.).

The  Commission  has  brought  the  timetable  for  annual  activity  reports  and  declarations  by
Directors-General forward to make it easier for the Court of Auditors to examine them. Presentation
of  the  reports  and  declarations  for  2003  will  be  brought  further  forward  still  to  comply  with  the
deadline set by Article 60(7) of the Financial Regulation, i.e. 15 June.

3. Nature of reservations recorded in annual activity reports and declarations (Annual Report

2001, paras 9.71 to 9.91 and 9.97d)

The Commission has made a number of methodological improvements over the pilot  exercise  for
2001:

new sections are devoted to follow-up to earlier recommendations by the Court of Auditors

-
and the Internal Audit Service;

the follow-up to plans of action in response to annual activity reports and the summary is set

-
forth;

the  significance  of 

-
21.01.2003);

the  declarations  and  reservations 

is  adjusted  (COM(2003)28,

-
before  annual activity reports  are produced, potential reservations have been put down  for
collective  review  by  Directors-General  to  standardise  the  interpretation  of  reporting  guidelines,
improve  the  consistency  of  the  approach  to  reservations  and  examine  together  such  questions  as
concern several Directorates-General.

Other improvements and clarifications inspired by experience with 2002 will be incorporated in the
guidelines for producing annual activity reports for 2003.

4. Recruitment of qualified staff (Annual Report 2001, para 9.65)

DG ADMIN has defined recruitment profiles relating to departmental needs and has asked EPSO to
organise  a  recruitment  competition  by  the  end  of  2003.  Pending  the  adoption  of  the  planned
amendments  of  the  Staff  Regulations,  it  may  be  necessary  to  recruit  more  temporary  staff  on
permanent posts.

The shortage of certain qualified staff will be made up as follows:

98

-
from 2004, each Directorate-General or Service will be required in its annual management
plan  to  give  priority  to  fulfilling  the  needs  of  units  handling  internal  controls  and  audit  and
subsequently each Commissioner should examine whether the existing acquis would allow for any
measures not to be undertaken (if necessary, human resources will be redeployed to cover priority
measures);

-
by  September  2003  each  Directorate-General  must  identify  training  needs  in  relation  to
financial  control,  internal  control  and  audit  activities  and  notify  DG  ADMIN  of  them.  Once
ADMIN has looked at the situation, the Commission will produce a communication setting out the
measures taken with proposals for measures to raise levels of professional qualification.

5. Internal control standards (Annual Report 2001, para 9.66)

The summary of activity reports and declarations by Directors-General for 2002 calls for a plan of
action to ensure that minimum standards really are in place by 31.12.2003. Departments are asked
to take stock of the progress they have made by September 2003. Specific support can be given to
help them meet the deadline.

6. Recovery of funds wrongly paid (Annual Report 2001, para 9.67)

On  top  of  the  measures  already  taken,  the  summary  of  activity  reports  and  declarations  by
Directors-General for 2002 puts the following on the agenda:

every authorising officer by delegation, using appropriate performance indicators, must give

-
an account of sums recovered in his annual management plan;

DG BUDGET will develop computerised information systems to monitor attempts to catch

-
up delays in recoveries and provide authorising officers by delegation with statistics;

DG  BUDGET  will  consolidate  all  information  concerning  the  actions  taken  by  the

-
Commission services

the  Internal  Audit  Service  will  provide  an  independent  and  additional  assurance  on  the

-
follow-up to these recommendations.

Furthermore, following the adoption of the Communication "Improving the recovery of Community
entitlements arising from direct and shared management of Community expenditure" of 3.12.20029,
a  task  force  has  been  set  up  between  OLAF  and  DG  AGRI  so  as  to  weed  out  the  backlog  of
entitlements  related  to  the  cases  of  irregularities  reported  by  the  Member  States  in  the  EAGGF
Guarantee sector. This task force has made significant progress in determining the amounts actually
recoverable. These amounts will be recovered in accordance with the rules governing the clearance
of accounts procedure.

7.  Review  of  the  organisation  of  the  Audit  Progress  Committee  (Annual  Report  2001,  para

9.56)

The  membership  and  role  of  the  Audit  Progress  Committee  have  not  been  changed  in  2003.  In
2004, a second member from outside the Commission will be appointed. The frequency of meetings
and  contacts  with  the  Court  of  Auditors  will  be  rising.  The  rules  relating  to  conflicts  of  interest

9

COM(2002) 671.

99

                                                
applicable  will  be  extended  to  all  members,  and  the  secretariat  will  be  reorganised  within  the
Secretariat-General.

8. Legality and regularity of underlying operations (Annual Report 2001, paras 9.36 to 9.47)

Regarding  shared  management,  an  interdepartmental  group  is  considering  possible  measures  to
involve the Member States more closely.

As  regards  shared-cost  programmes,  a  plan  of  action  adopted  on  10.1.2003  is  now  operating  to
generate  greater  consistency  between  Directorates-General  in  contract  management.  Several
Directorates-General have adopted corrective measures to reduce the risk of errors to the minimum.

Regarding co-financed programmes in general, an interdepartmental group is to work from the end
of  2003  on  the  possibility  of  introducing  flat-rate  components  in  grants  and  subsidies,  with  a
uniform control methodology.

9. Audits by Internal Audit Service

The Internal Audit Service is planning to present a general review of the quality of internal control
systems in its annual report for 2003.

10. Statement of assurance by the Commission (Annual Report 2001, paras 9.71 and 9.100).

The  significance  of  reservations  and  the  declarations  is  being  adjusted  with  the  adoption  of
guidelines to flesh out the concept of materiality and the organisation of a collective prior review of
all potential reservations to ensure the requisite consistency.

11. Support for operational departments by central departments (Annual Report 2001, para

9.97a))

In September 2002 the Commission instructed the ABM steering  group to coordinate all strategic
and  policy  questions  relating  to  the  Reform  which  cover  ABM  and  aspects  relating  to  human
resources,  the  budget  and  audit.  The  role  of  Directors-General  has  also  been  reinforced,  and  two
coordination groups have been set up (resources directors group and interdepartmental coordination
group).

Also  in  September  2002,  Directors-General  were  reminded  in  the  2001  summary  of  the  need  to
implement the plan of action stemming from the Court's of Auditors' Annual Report's observations.
Nearly all departments have reported progress on the 2002 activity reports. A specific measure to
improve the monitoring of plans of action is in the 2002 summary.

100