Report from the Commission to the Council and the European Parliament - Assessment at 31 December 2003 of the Commission's 2001 Action Plan
Date: 2004-04-05
Institutions: European Commission
Subjects: EU policy, action programme, report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 5.4.2004 
COM(2004) 247 final 

REPORT FROM THE COMMISSION  
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 

Assessment at 31 December 2003 of the Commission’s 2001 Action Plan 

EN 

   EN 

 
 
 
  
TABLE OF CONTENTS 

INTRODUCTION...................................................................................................................... 1 

Assessment at 31 December 2003 of the Commission’s Action Plan in response to the 

recommendations made by the Court of Auditors in its annual report for 2001.......... 3 

Own Resources ................................................................................................................. 4 

Common Agricultural Policy.......................................................................................... 10 

Structural Operations ...................................................................................................... 15 

Internal Policies .............................................................................................................. 23 

External Action ............................................................................................................... 30 

Enlargement .................................................................................................................... 36 

Administrative Expenditure............................................................................................ 37 

Financial Instruments...................................................................................................... 39 

Actions resulting from The Das for 2001 ....................................................................... 42 

European Development Fund (EDF) .............................................................................. 50 

European Coal and Steel Community (ECSC) ............................................................... 54 

 
 
 
  
 
INTRODUCTION 

During the last discharge procedure both the Council and the European Parliament asked the 
Commission to take action pursuant to the recommendations made by the Court of Auditors 
and showed their interest in a follow-up of the commitments entered into by the Commission. 

In this context, the Commission established an action Plan for 2001 containing all the answers 
to these recommendations of the Court of Auditors in its annual Report 2001.  

More than one year after its presentation the Commission considers it useful to draw a first 
assessment of the implementation of this 2001 action Plan, and its achievements. 

The Action Plan for 2001 comprised 94 recommendations resulting from the annual Report of 
the Court of Auditors, some of which can comprise several aspects or concrete measures to be 
carried out. 

54  recommendations  out  of  94  are  closed  (57%),  i.e.  will  no  longer  be  the  subject  of  an 
additional action on the part of the Commission and 40 are still being addressed.  

Among the 54 closed recommendations several cases can be distinguished. For approximately 
44% of the cases (24), the Commission considered that either it was not necessary to take new 
measures,  or  it  had  fully  respected  the  regulation  in  force.  For  the  55%  remaining  (30 
recommendations),  the  Commission  considers  that  it  took  measures  responding  to  the 
criticisms and to the suggestions of the Court. 

The  implementation  of  the  latter  actions  covers  the  majority  of  the  sectors  of  the  financial 
perspectives and, except the measures connected with specific cases, can be gathered in two 
categories: 

(i) Modification or adoption of regulatory texts: It is in particular the case for the Research 
policy  with  the  adoption  of  the  6th  Framework  programme  which  comprises  provisions 
answering  directly  recommendations  concerning  the  sanctions  which  can  be  imposed  on 
contractors,  the  definition  of  standard  contracts  and  the  procedure  for  recovery.  It  must  be 
noted however that the Council did not agree to all the Commission proposals (in particular 
concerning the eligible costs), thus preventing it from completing all the initiatives taken to 
respond to the criticisms of the Court of Auditors.  

For  the  common  agricultural  policy,  a  similarly  considerable  number  of  recommendations 
could  be  taken  into  account  under  the  reform  of  the  common  agricultural  policy  decided  in 
June  2003.  Beyond  these  major  regulatory  proposals,  the  Commission  also  revised  other 
regulatory  provisions,  for  example  as  regards  administrative  cooperation  for  the  VAT 
resource.  

(ii)  Adaptation  and  improvement  of  the  internal  systems  of  management,  of  control  and  of 
supervision,  and  launching  audits:  In  several  cases,  the  Commission  re-examined  its 
procedures  or  developed  new  tools  to  respond  to  the  criticisms  which  were  addressed  to  it. 
Thus  for  example  it  took  specific  measures  to  harmonise  the  presentation  of  the  annual 
Reports of the Directors-General, and to improve the operation of certain computer systems 
(database CATS in the agricultural field, database TEN-T for the internal policies). Similarly, 
reorganisation  measures  were  decided,  such  as  those  concerning  the  implementation  of  the 
SAPARD programme or the financing of the ACP Secretariat.  

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in 

the  process  of 

At  the  end  of  this  first  assessment  of  the  implementation  of  the  2001  action  Plan,  42 
these 
recommendations  are  still 
recommendations are not closed does not mean that the Commission has not already started to 
react. Indeed, certain recommendations of the Court of Auditors require a multiannual action 
on  the  part  of  the  Commission.  It  is  the  case  for  example  of  the  modernisation  of  the 
accounting system of the Commission and the closing of programmes involving the Structural 
Funds. This is why the report, that the Commission will present soon, present for each of the 
40 still open recommendations a progress report stressing what has already been carried out 
and the complementary measures still to be implemented. 

implementation.  The  fact 

that 

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Assessment at 31 December 2003 of the Commission’s Action Plan in 
response to the recommendations made by the Court of Auditors in its 
annual report for 2001 

3 

 
 
  
 
Own Resources 

1. 

The  introductory  sections  of  the  Etats  financiers  (Volume  II,  Tome  1  and  Volume 
IV) contain a table of prime importance entitled 'Budget outturn'. This table omits a 
lot of interesting data, whereas other data such as the balance for the financial year, 
are pointlessly duplicated elsewhere. 

The  'revenue'  part  of  the  Financial  Statements  (implementation  of  the  budget, 
Volume II, Part 1) should also be made clearer, as regards structure and content. In 
particular  the  detailed  budgetary  headings  should  be  observed,  the  headings  should 
be indexed, the terminology in the regulations should be used, the figures for forecast 
and actual revenue should be presented in parallel and, more generally, there should 
be harmonisation of the various parts of the revenue and expenditure account and the 
general budget.  

(1.17./1.18) 

Commission's response: 

The Commission is taking the recommended action. 

In Volume I for 2002, the Commission substantially improved the presentation of 
the implementation of revenue and expenditure and the link with the outturn table. 
The  revenue  table  now  includes  data  relating  to  implementation  for  the  year  n-1 
(in a separate table) and implementation rates compared with the budget 

It intends to continue to work towards greater transparency in the sense desired by 
the Court. 

2. 

The  Court  takes  the  view  that  the  actual  data  for  the  VAT  and  GNP  bases  used  to 
calculate  the  balances  and  the  adjustments  of  the  balances  are  now  entered  in  the 
revenue and expenditure account, just like the forecast data concerning these items. 
However, the calculation operations concerning the burdens on the Member States in 
respect of these resources should also be set out. 

The  Court  claims  that  a  special  table  should  be  drawn  up  for  the  UK  correction 
(Chapters 15 and 35) and the essential information given concerning the basic data 
and the calculation operations on which the overall amount of the UK correction and 
its financing are based (paragraphs.1.19/1.20) 

Commission's response: 

The recommended action has been taken.  

From  the  accounting  report  2002  on,  a  detail  of  the  calculated  VAT  and  GNI 
balance is indicated for each Member State and for each financial year for which 
corrections take place. 

Tables  with  the  basic  data  for  the  calculations  of  the  amounts  of  the  UK 
corrections  budgeted  in  the  year  in  question  are  included  in  the  revenue  and 
expenditure accounts as from the accounts relating to the year 2002. 

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3. 

Every  year  the  Commission  prepares  a  working  document  which  explains  in  some 
detail the calculation and financing of the definitive correction concerning year n-4. 
This explanatory document does not form part of the budgetary procedure for fixing 
the  amount  of  the  UK  correction  and  its  financing,  but  is  only  provided  to  the 
Council  for  information  purposes,  after  the  adoption  of  the  Supplementary  and 
Amending  Budget.  In  2001  this  document  was  presented  to  the  Council  on  5 
September, after the adoption of SAB No 3/2002. Considering the relevance of the 
document mentioned before, it would be appropriate to make it available to the two 
arms of the budgetary authority in due time. 

Taking  into  account  the  limitation  to  the  scope  of  the  audit,  the  Court  obtained  a 
reasonable assurance that the VAT and GNP resources were correctly assessed and 
collected.  However,  the  Commission  should  put  forward  proposals  for  the 
simplification  of  the  final  calculation  of  the  financing  of  the  United  Kingdom 
correction. (paragraphs. 1.38/1.39/1.40) 

Commission's response: 

The Commission is taking the recommended action. 

The original idea behind the working document was to give a detailed explanation 
of  the  final  calculation,  using  the  correction  of  one  year  as  an  example. 
Furthermore, in the past it has not always been possible to submit this document in 
advance of the adoption of the relevant amending budget. 

In order to use DG Budget's resources in the most efficient way it has been decided 
not to produce the document as long as the calculation method does not change. 
The next working document will therefore concern the definitive calculation of the 
2001  correction,  which  is  the  first  to  be  calculated  according  to  the  new  Own 
Resources  Decision  (2000/597/EC,  Euratom)  and  its  annexed  “Calculation 
Method”.  The  next  working  document  will  consequently  be  submitted  in  2005, 
when  the  result  of  the  definitive  calculation  of  the  2001  correction  will  be 
budgeted. 

All  basic  data  for  the  definitive  calculation  of  the  rebate  is  presented  in  the 
explanatory memorandum of the relevant preliminary draft amending budget. The 
Commission is examining the possibility of including further details. 

The new Own Resources Decision and its accompanying working document on the 
calculation  of the UK  correction  ('the  calculation  method')  does  give some scope 
for  simplifying  the  budgeting  of  the  result  of  the  final  calculation  of  the  UK 
correction. This in turn could simplify the final calculation of the financing of the 
correction.  The  Commission  intends  to  pursue  this  opportunity  for  the  year  2001 
calculation, to be budgeted in 2005. 

4. 

The Financial Regulation stipulates that the budgetary nomenclature in the context of 
the budgetary procedure must be set out in titles, chapters and articles. The form of 
classification used, which must accommodate the very disparate characteristics of the 
different  types  of  revenue,  is  uneven.  The  Court  takes  the  view  that  the  extreme 
concentration  in  Title  1  (98.3%  in  2001)  should  be  avoided  by  separating  the 
traditional  own  resources  from  the  VAT  and  GNP  resources  and  the  correction  for 
the United Kingdom. The surplus available from the previous financial year (Chapter 

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30) should come under a separate title as it has nothing in common with the balances, 
corrections  and  refunds  concerning  the  VAT  and  GNP  resources  and  the  UK 
correction  included  under  the  same  title.  (Chapters  31,  32,  33  and  35  paragraph 
1.21) 

Commission's response: 

The recommended action has been taken.  

A detailed review of the budgetary nomenclature for revenue took place during the 
year  2003.  A  lot  of  amendments  have  been  proposed  for  title  4,  5  and  6  of  the 
revenue  side.  These  amendments  will  in  principle  be  incorporated  in  the  DAB 
2005. 

5. 

For a number of warehouses examined, the frequency of physical controls carried out 
did  not  reach  the  levels  prescribed  by  national  guidance.  The  Court  takes  the  view 
that Member States could improve the national instructions in respect of the control 
system  for  customs  warehouses  so  that  type,  scope  and  frequency  of  controls  are 
clearly set out. Instructions should also indicate at which level of the customs service 
decisions about the control modalities should be taken. Finally Member States should 
ensure that scheduled controls are carried out. (paragraphs 1.32/1.36) 

Commission's response: 

The Commission is taking the recommended action. 

Under  the  Customs  2002  programme  a  document  was  entitled  'inventory  on 
control areas'. The document provides customs administrations with an exhaustive 
list  of  control  areas  and  sub  areas  as  well  as  common  definitions  of  control 
methods. 

The  Court's  observations  on  warehousing  have  been  followed-up  with  Member 
States  with  a  view  to  identifying  any  non-conformances  with  Community 
regulations and ensuring these are remedied. 

The  Commission  recognises  that  the  picture  in  relation  to  controls  is  uneven. 
Within  the  Customs  2007  programme,  project  groups  of  customs  experts  and 
Commission representatives are working on the use of a common risk management 
model, standard formats for exchange of control information and selection of risk 
categories (paragraphs 1.30/1.31/1.35/1.36). 

6. 

In  2001,  as  in  previous  years,  problems  were  found  with  the  maintenance  of  the  B 
accounts  in  several  Member  States.  In  Germany,  it  is  not  at  present  possible  to 
confirm  the  B  account  balance,  because  the  database  does  not  allow  a  breakdown 
into single entries. The management of the B accounts in Italy is not yet uniform and 
calculation  errors  can  occur  at  local  and  regional  level  without  being  detected  by 
controls. Errors in entries in the B accounts were also found in Belgium and France, 
and  inspection  reports  by  the  Commission  referred  to  B  account  errors  in  Ireland, 
Sweden  and Finland. These  errors, though minor in terms of  the amounts, reflect a 
weakness in the accounting for own resources under the Community transit system. 
(paragraph 1.27) 

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Commission's response: 

The Commission is taking the recommended action. 

The Commission is pursuing modifications to Regulation 1150/2000 to improve the 
structure  of  the  system  and  has  continued  to  pay  close  attention  to  the  subject 
during its own inspections in Member States. Action is ongoing to ensure Member 
States  remedy  any  systematic  structural  deficiencies  found.  Where  appropriate 
recovery orders have been issued.  

7. 

The Court considers that the following measures could be taken in order to increase 
the  effectiveness  of  administrative  cooperation  between  Member  States  and  the 
Commission: 

a) the SCAC and SCAF committees, could, under the guidance of the Commission, 
develop best practice in respect of the development of an anti-fraud strategy; 

b)  exchange  of  information  between  Member  States  could  be  facilitated  by  the 
further development of the VIES to combat fraud, of bi- or multilateral agreements 
as well as by the introduction of corrective actions in cases where Member States do 
not provide timely information; 

c)  special  control  units  to  tackle  specific  VAT  fraud  cases  could  be  set  up  to  give 
Member States better opportunities to fight fraud on the condition that these units are 
integrated in, or work closely with, the CLOs and with the assistance of OLAF; 

d) the scope of the information exchange mentioned in Articles 11 and 12 of Council 
Regulation (EC) No 218/92 should be clarified and made more explicit; information 
exchanges between Member States could be made more efficient by harmonising the 
competences and capabilities of CLOs in Member States (paragraph 1.54) 

Commission's response: 

The recommended action has been taken. 

a) The Commission has, together with the Member States, carried out an in-depth 
examination of VAT fraud in intra-community trade and has identified the various 
measures  that  have  been  taken  at  national  level  and  which  have  given  the  best 
results  in  the  fight  against  "missing  trader  fraud".  These  "best  practices"  are 
based on an enhanced and quicker use of mutual assistance and on an adaptation 
of national control systems in order to disrupt "missing trader fraud".  

b) On 7 October 2003 the Council has adopted Regulation (EC) N° 1798/2003 on 
administrative  cooperation  in  the  field  of  VAT.  This  Regulation  intensifies  the 
international exchange of information outside the VIES system to strengthen the 
fight against VAT fraud.  

In addition, in its Communication to the Council and the European Parliament on 
the review and update of VAT strategy priorities (COM/2003/614), the Commission 
undertook  to  replace  the  existing  VIES  with  a  higher-powered  and  more  flexible 
system.  The  Commission  will  commence  a  feasibility  study  with  the  intention  of 
creating a new VIES within the lifetime of the Fiscalis programme 2003-2007. 

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c)  The  Commission  endorses  this  recommendation.  The  need  for  special  control 
units  to  tackle  specific  VAT  fraud  has  been  addressed  in  several  Commission 
working papers and reports. In the meantime a majority of Member States has set 
up anti-fraud units specialised in VAT fraud 

d)  Articles  11  and  12  of  Council  Regulation  218/92/EEC  have  been  repealed  by 
Article 35 of Council Regulation (EC) N° 1798/2003 on administrative cooperation 
in  the  field  of  VAT.  On  the  one  hand,  the  information  which  the  Member  States 
are  obliged  to  provide  to  the  Commission  for  the  purposes  of  evaluating 
administrative cooperation is now described at greater length and the exact detail 
of the  data to be sent is to be  decided by the  comitology  procedure. On  the  other 
hand,  the  new  Regulation  provides  for  a  clear  legal  base  for  Member  States  to 
forward to the Commission information on specific cases on a voluntary basis. 

In addition, Regulation (EC) N° 1798/2003 provides now for a legal framework to 
devolve administrative cooperation in order to ease the burden on the CLO's. 

Working  closely  with  the  Member  States,  the  Commission  will  continue  in  the 
SCAC and under the Fiscalis programme to work intensively on the issue of VAT 
fraud. It will shortly be submitting a new report to the Council and the European 
Parliament on the use of the administrative cooperation arrangements in the fight 
against VAT fraud.  

As  far  as  OLAF's  operational  competence  in  the  field  of  VAT  is  concerned,  the 
Commission  included  in  both  its  action  plan  for  2001  2003  on  protecting  the 
Communities'  financial  interests  and  the  fight  against  fraud  and  its  work 
programme  2001  a  proposal  for  a  European  Parliament  and  Council  Regulation 
establishing a system for cooperation between the Member States' authorities and 
the  Commission  with  a  view  to  protecting  the  financial  interests  of  the 
Communities against illegal activities, including VAT related activities and money 
laundering.  

The  Commission services  are  preparing  a  separate  proposal  under Article  280 of 
the  EC  Treaty,  laying  down  specific  provisions  which  confer  a  role  on  the 
Commission in coordinating administrative cooperation (paragraph 1.53).  

8. 

The monthly amounts of agricultural duties made available by France averaged 4.7 
million euro from January to April 2001. In May 2001 they increased sharply to 10.3 
million euro and remained thereafter at the higher level. For the whole of 2001 this 
represented  an  increase  over  2000  of  74%,  contrary  to  the  general  trend  of  import 
duties. (paragraph 1.7) 

Commission's response: 

The recommended action has been taken.  

This point was examined during a TOR inspection in 2003 and it was found that 
there were no financial consequences. This was because the total amount of own 
resources  had  been  properly  made  available  although,  prior  to  May  2001,  the 
proportion relating to agricultural duties had been understated. 

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9. 

As  part  of  the  Annual  Report  concerning  the  financial  year  1999,  the  Court 
recommended that a method of comparing tax sources with statistical sources, tested 
by both France and Italy, be extended to other Member States and used as a possible 
means  of  combating  fraud.  In  its  reply  the  Commission  committed  itself  to 
discussing this method with the Member States. 

In its recommendation on the discharge to be given to the Commission in respect of 
the  implementation  of  the  general  budget  for  the  European  Communities  for  the 
financial year 1999, the Council welcomes with interest the Court's recommendation 
and  suggests  that  this  matter  should  be  examined  by  the  Advisory  Committee  on 
Own Resources. Although the Commission has taken adequate steps in carrying out 
this commitment, the Member States have been unable to come to an agreement. The 
Court again recommends that the Commission should continue its efforts in this very 
important area. (paragraphs.1.42/1.43/1.44) 

Commission's response: 

The recommended action has been taken.  

This  item  was  discussed  at  both  meetings  of  the  Advisory  Committee  on  Own 
Resources (ACOR) held in 2001. The conclusion, shared by Italy and France, was 
that,  regrettably,  statistical  information  about  theoretical  VAT  receipts  requires 
such extensive disaggregation to be useful in targeting tax controls that other risk 
indicators are more readily accessible, more reliable and easier to use. In addition, 
Member  States  concluded  that  ACOR  was  not  the  most  suitable  forum  for  any 
further  development.  However,  the  findings  remain  available  for  use  wherever 
Member  States  consider  that  they  may  prove  useful  input  for  their  risk  analysis 
systems.  Furthermore,  the  Commission  systematically  raises  this  matter  on  VAT 
own resources' control missions, in order to ensure that national authorities give 
full  consideration  to  the  implications  of  discrepancies  between  theoretical  and 
actual VAT. 

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Common Agricultural Policy 

10. 

In  the  context  of  the  appraisal  of  the  legality  and  regularity  of  the  underlying 
transactions,  the  Court  has  audited  a  sample  of  156  transactions.  It  compared  its 
results with inspections carried out under IACS. 

The  Court  considers  that  the  reporting  of  IACS  inspection  results  needs  to  be 
improved  and,  in  particular,  to  distinguish  between  the  results  of  risk-based  and 
random checks. (paragraph 2.44) 

Commission's response: 

The recommended action has been taken.  

Three  IACS  experts  groups  were  organised  during  2003  to  discuss,  among  other 
things,  the  matters  raised  by  the  Court.  On  the  16  December  2003  the  EAGGF 
Committee voted several significant amendments to Regulation 2419/2001 that will 
further  enhance  the  reliability  and  transparency  of  annual  statistics  from  2004 
onwards. 

In  addition  to  these  regulatory  changes,  additional  efforts  were  undertaken  to 
ensure more clear and uniform statistical reporting and more prompt collection of 
statistics for claim years 2001 and 2002. 

Any failures to comply will as usual be considered in the context of the clearance 
of  accounts,  as  failure  to  provide  proper  and  correct  statistics  is  viewed  as  an 
indicator of administrative weakness to the Fund that could imply financial risk to 
the Fund. 

As for arable aid schemes, The Member States are required to send a report that 
shall among other things give the result of the checks carried out. For this purpose 
the Commission requires from the Member States to report separately the results of 
cases selected on a risk and random basis with effect from 2000 on the basis of a 
questionnaire  which  the  Commission  services  have  created.  As  for  animal 
premium  schemes,  Member  States  are  not  required  to  report  their  inspection 
results in the way proposed by the Court, however the breakdown between random 
and risk-based checks has indeed been examined regularly, as appropriate in the 
context  of  audits  of  agricultural  expenditure  conducted  by  the  Commission 
services;  the  aim  being  to  ensure  that  the  selection  of  farmers  for  on-the-spot 
checks  is  representative  as  provided  by  Regulation  No  3887/92.  Furthermore, 
IACS  legislation  has  been  strengthened  in  this  respect  by  Article  19(1)  of 
Regulation no 2419/2001, applicable as from 1 January 2002, which provides that 
Member  States  “shall  select  randomly  between  20%  and  25%  of  the  minimum 
number  of  farmers  to  be  subject  to  on-the-spot  checks.”  This  regulatory 
requirement  will  adequately  ensure  the  properly  based  audit  conclusions  implied 
by the Court’s remark (paragraph 2.44.) 

11. 

The  Commission  has  a  database  containing  all  the  information  on  EAGGF-
Guarantee payments that have been made in the 15 Member States in the course of 
the  previous  financial  year.  The  Court  has  established  that  most  of  the  data  have 

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many  shortcomings.  The  Commission  should  take  the  necessary  steps  to  make  the 
CATS database more reliable and useful. (paragraph 2.47) 

Commission's response: 

The recommended action has been taken.  

Strict  quality  controls  (e.g.  on  the  use  of  code  lists)  have  been  built  in  the 
programme  used  by  the  Member  States  for  sending  the  computer  data  to  the 
Commission from the financial year 2002 onwards. Furthermore, specific control 
programmes  are  available  to  the  EAGGF-Guarantee  auditors  for  in-depth 
checking of the computer data related to their audits. 

12. 

Certifying bodies: some of these bodies were appointed late. Some paying agencies 
do  not  meet  the  accreditation  criteria.  The  Commission  should  take  measures 
allowing to improve this situation. (paragraphs 2.53.-2.55) 

Commission's response: 

The recommended action has been taken.  

The  Commission  recommended  in  several  occasion  that  the  certifying  bodies 
should be appointed earlier in the year and will continue to undertake all possible 
and reasonable efforts to ensure that this is done. During the certification experts’ 
meeting held on 18/12/2003 all the delegation were asked to confirm, and actually 
they did, that for 2003 this recommendation had been followed up. It is worthwhile 
to recall that in any case in which the certifying body’s work should be considered 
insufficient, for a reason or another, appropriate action, including disjunction of 
the  paying  agency’s  accounts,  will  be  considered.  It  will  also  closely  monitor  the 
procedure for accrediting new paying agencies. 

13. 

The  Court  reiterates  that  the  Commission  should  take  action  to  ensure  that 
corrections  are  applied  for  system  weaknesses  which  pose  a  financial  risk  for 
EAGGF. (paragraph 2.71) 

Commission's response: 

The recommended action has been taken.  

Previous  financial  corrections  applied  for  supplementary  levy  referred  to  two 
elements:  the  amount  of  levy  uncollected  and  the  calculated  interest  for  late 
payment  of  that  levy.  Recent  Judgements  of  the  European  Court  of  Justice  state 
that the Member States cannot be required to pay over levies which they have not 
yet  collected  (particularly  where  levies  have  been  challenged  in  the  national 
courts) - that, if certain monies remain unpaid or are paid late, this is not in itself a 
violation of the Member States' obligations. 

The Commissions draws attention to the fact that the reason why large amounts of 
levy have been uncollected is essentially due to legal action being brought before 
the national courts by producers who refuse to pay the levy. 

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Furthermore,  it  should  be  recalled  that  the  Commission  has  adopted  a  new 
Regulation  implementing  the  quota  regime  (R.  1392/2001)  which  considerably 
reinforces the sanctions applicable in case of irregularity or fraud, so meeting the 
recommendation made by the Court of Auditors. 

14. 

In its follow-up to its observations in the 1997 annual report, the Court notes that the 
aid  for  durum  wheat  greatly  exceeds  the  amount  needed  to  achieve  the  goal  of 
maintaining  producers'  incomes.  A  reform  of  the  CMO  would  have  allowed 
its  previous 
substantial  budgetary 
recommendations are still relevant. (paragraphs 2.87.-2.89) 

savings.  The  Court 

considers 

that 

Commission's response: 

The recommended action has been taken.  

With  the  reform  of  the  CAP,  decided  by  the  Council  in  June  2003,  the  specific 
durum  aid  will  be  incorporated  in  the  Single  Farm  Payment  (SFP)  form  2005 
onwards  (Council  Regulation  1782/2003).  In  line  with  the  Court  of  Auditors’ 
analysis of the durum wheat sector and the evaluation by independent experts, the 
Council decided to limit the impact of additional payment on the calculation of the 
Single  Farm  Payment  to  291  €/ha  for  2005  and  to  285  €/ha  from  2006  onwards. 
The  aid  scheme  in  non-traditional  areas  will  be  abolished  altogether  from  2006 
onwards. 

In order to increase the production of high quality durum a specific aid of 40 €/ha 
is introduced for the production of some varieties with better quality criteria. This 
aid is valid for traditional areas within the limit of a maximum guaranteed area.  

15. 

There have been shortcomings in the implementation of the CMO's objectives, some 
of  which  have  not  been  achieved,  and  some  of  the  measures  taken  have  had 
unforeseen and undesired results. In its special report, the Court sets out a number of 
recommendations  for  defining  the  CMO's  objectives  better  and  tightening  up  the 
controls.  As  the  Commission  has  committed  itself  to  conducting  its  first  major 
evaluation  around  2004,  it  should  ensure  that  it  keeps  to  this  timetable  and  that,  in 
particular, it includes an evaluation of the synergies developed by the various types 
of support for the banana sector. (paragraphs 2.115. to 2.117) 

Commission's response: 

The Commission is taking the recommended action. 

The level of detail in the definition and quantification of objectives is similar to the 
other  market  organisations  and  will  be  reviewed  in  depth  when  the  market 
organisation is evaluated under Article 32 of Regulation (EEC) No 404/93.  

Evaluation of the market organisation for bananas is being carried out in 2004. A 
tender  for  an  evaluation  study  was  launched  in  2003  with  a  contract  to  be 
established by April 2004. Results are expected for the end of 2004.  

Moreover, a tariff-only system will be introduced on 1 January 2006 at the latest 
(Article 16(1) of Regulation (EEC) No 404/93, as amended by Regulation (EC) No 
216/2001). 

12 

 
 
  
 
More specifically, the Member States' customs procedures on imports have yet to 
be  improved  and  the  Commission  will  continue  to  insist  that  the  Member  States 
find a permanent solution to the problem (paragraphs 2.115. to 2.117.). 

16. 

The  Court  recommends  that  the  Commission  should  reassess  the  support  given  to 
products which may be grown instead of oilseeds. (paragraph 2.123) 

Commission's response: 

The recommended action has been taken.  

With the reform of the CAP, decided by the Council in June 2003, oilseeds as other 
arable  crops  will  be  covered  by  the  Single  Farm  Payment  (SFP)  from  2005 
onwards (Council Regulation 1782/2003). 

17. 

The Court has detected a number of weaknesses in the implementation of the aid, but 
has  above  all  tried  to  gauge  the  actual  influence  which  the  premium  has  had  on 
farming  methods.  The  Court  considers  that  the  impact  is  limited.  It  therefore 
recommends that the efficiency of the aid should be assessed. (paragraph 2.127) 

Commission's response: 

The Commission is taking the recommended action. 

The Commission evaluation plan for the year 2004 schedules the evaluation of the 
CMO  for  beef  and  veal  from  mid  2004  to  end  2006.  The  work  in  2004  will 
essentially  be  the  preparatory  internal  work.  The  extensification  payment 
introduced by Agenda 2000 will be part of this evaluation, although this measure 
will  not  be  maintained.  With  the  reform  of  the  CAP,  decided  by  the  Council  in 
June  2003,  the  extensification  premium  will  be  covered  by  the  Single  Farm 
Payment (SFP) from 2005 onwards (Council Regulation 1782/2003). 

Concerning  weaknesses  in  the  implementation  of  the  extensification  payment 
scheme,  deficiencies  in  several  Member  States  have  been  found  for  which 
financial  corrections  have  been  proposed  in  the  context  of  the  Commission’s 
clearance of accounts procedure. 

18. 

The Commission should reperform and verify a selection of IACS inspections on an 
annual and representative basis. (paragraph 2.44) 

Commission's response: 

The Commission will not be taking the recommended action. 

The Commission considers that IACS allows to limit to a large extent the incidence 
of  errors.  Furthermore,  the  Commission  is  continuously  improving  the  control 
system  by  amending  the  relevant  regulations  and  by  initiating  their  full 
implementation and development in Member States. It is the case for example for 
the  implementation  of  the  bovine  identification  system  or  the  introduction  at  the 
latest by 1 January 2005 of a geographical identification system (paragraph 2.44.). 

13 

 
 
  
 
The reperformance of controls has been a routine part of almost all IACS-related 
missions for many years, and indeed continues to be an essential component of any 
on-the-spot  audit  by  the  Commission  services.  This  is  fully  reported  in  the 
Commission's audit reports. 

14 

 
 
  
 
Structural Operations 

19. 

Despite  the  introduction,  in  cooperation  with  the  Member  States,  of  a  system  for 
forecasting payment requests, the estimates of the necessary payment appropriations 
needed are still not very reliable. Moreover, in cases where the available information 
is  such  as  to  modify  these  estimates  no  account  is  taken  of  it  for  the  purpose  of 
updating  budget  forecasts  (amending  letter,  supplementary  and  amending  budget). 
Under these circumstances, as in the case of commitment appropriations, budgetary 
estimates  of  payment  appropriations  continue  to  be  unrelated  to  the  process  for 
adopting  interventions  and  to  the  progress  of  the  interventions  themselves. 
(paragraph 3.14) 

Commission's response: 

The Commission is taking the recommended action. 

It is no easy task to predict the budget implementation of payment appropriations. 

In  its  annual  publication  "Analysis  of  the  budgetary  implementation  of  the 
Structural  Funds",  the  Commission  has  extensively  analysed  the  forecasting 
performance  of  Member  States,  and  will  continue  to  do  so.  On  aggregate,  the 
sizeable  forecasting  errors  have  been  associated  with  a  tendency  for  very 
substantial over-estimation of payments by Member State.  

The Commission has taken several measures aimed at simplifying Member States' 
forecasting task, using the information collected in a survey it made to the Member 
States.  The  forms  to  be  transmitted  to  the  Commission  have  been  clarified  and 
simplified. The communication channels have been rationalised and there is now a 
single preferential contact point for the forecasts. Annual reminder letters are now 
sent not only to the Permanent Representations of the Member States but also to 
the managing authorities of all the programmes (which should allow a better and 
quicker  dissemination  of  the  information  and  also  reduces  Member  States' 
administrative  burden  with  the  forecasts).  Further  reminder  letters  are  now 
systematically sent to the Member States that have not sent their forecasts in due 
time.  The  Commission  now  sends  the  results  of  the  forecasting  exercise  to  the 
Budgetary Authority identifying each Member State individually. It also publishes 
an exhaustive analysis, by Member State, of historical forecasting performance to 
create  peer  pressure.  Thus,  within  the  limits  allowed  by  the  current  legal 
framework, the Commission has taken big steps aiming at improving the forecasts. 
For  all  these  measures  to  lead  to  better  forecasts,  however,  Member  States  will 
need to improve their own procedures.  

So  far  the  forecasting  ability  of  Member  States  has  not  improved  though.  The 
forecasting  error  for  the  2000-2006  programmes  was  46%  in  2002.  The  error 
increased slightly in 2003. 

Given the poor predictive ability of Member States forecasts, the last Commission 
budgets  have  been  rather  based  on  its  own  estimations.  This  has  allowed  an 
improvement of the execution rate of payment appropriations. In 2002, again for 
the 2000-2006 programmes, the execution rate of the payment appropriations was 

15 

 
 
  
 
91%.  Based  on  preliminary  figures  for  the  2003  execution,  this  has  improved  to 
97% in 2003.  

The Commission hopes that its efforts to improve the forecasting performance of 
Member  States  will  bear  fruit  in  the  medium  term,  allowing  it  to  factor  such 
information in the budgeting exercise. 

For  what  concerns  commitment  appropriations,  the  situation  is  completely 
different. Budgets have been based on the most recent programming available and 
have been executed at rates very close to 100%. 

The low rate of payments in 2000 and 2001 for assistance measures covered by the 
2000-06 period is due mainly to their late start.  

In  the  Communication  from  the  Commission  to  the  Council  and  the  European 
Parliament - Evolution of budget execution of the Structural Funds, in particular 
outstanding  commitments  (COM(2002)  328  final  of  20.9.2002),  the  Commission 
has  already  examined  in  detail  the  differences  between  Member  States'  forecasts 
and the outturn and set out payment prospects for the period leading up to 2010. 

The  Commission  has  discontinued  (in  its  revenue  and  expenditure  account)  the 
'lessons  to  be  learnt'  sections,  which  were  a  feature  of  the  previous  financial  year. 
This  is  despite  the  fact  that  the  structural  shortcomings  observed  in  recent  years 
would  have  required  much  more  detailed  analysis  with  a  view  to  suggesting  at  the 
right  time  improvements  to  be  made  in  the  future  to  the  financial  and  budgetary 
frameworks  (i.e.  the  financial  perspective  and  the  procedures  for  drawing  up 
estimates of appropriations) as well as the programming and management provisions 
contained  in  the  regulations  governing  the  structural  measures.  It  would  also  have 
been  beneficial  for  the  Commission  to  consider  its  own  responsibility  as  regards 
delays 
the  estimates  of 
appropriations  and  the  increase  in  transactions  at  the  end  of  the  financial  year. 
(paragraphs 3.18/3.19) 

the  programming  procedure,  shortcomings 

in 

in 

20. 

Commission's response: 

The Commission is taking the recommended action. 

As  far  as  the  Structural  Funds  are  concerned,  the  Commission  indicates  in  its 
Preliminary  Draft  Budgets  the  methodology  followed  to  construct  the  budget 
appropriations  it  proposes.  The  Commission  also  analyses  extensively  Member 
States'  payments  forecasting  performance  in  its  annual  publication  "Analysis  of 
the  budgetary  implementation  of  the  Structural  Funds",  which  also  analyses  the 
yearly  time  pattern  of  transactions.  The  Commission  will  continue  to  so  in  the 
future. 

As regards the discontinuation of the 'lesson to be learnt' sections, the Commission 
takes  the  view  that  there  is  no  loss  of  information  because  detailed  analyses  are 
always given in the revenue and expenditure accounts.  

21. 

One  of  the  main  objectives  of  the  new  legislative  framework  was  to  speed  up  and 
simplify  programming  procedures.  However,  the  proper  programming  work,  which 
took  place  in  several  successive  stages,  proved  to  be  especially  cumbersome  and 

16 

 
 
  
 
difficult  to  manage.  It  was  typified  by  a  lack  of  clarity  in  the  division  of 
responsibilities between the Commission and the Member States and by the absence 
of a precise pre-established programming framework. Long negotiations between the 
Member States and the Commission proved to be necessary but in spite of that the 
operational  framework  for  the  intervention  was  still  not  completely  defined.  This 
situation is explained in general by persistent uncertainty about the responsibilities of 
the Commission and the Member States and by legislation which is still complex in 
terms  of  the  programming,  management  and  booking  of  expenditure.  The 
establishment of the areas eligible for Objective 2 interventions is a specific example 
of difficulties in getting the programming phase off the ground. The Court therefore 
recommends  that  the  necessary  measures  should  be  taken  so  as  to  prepare  in  due 
course an appropriate framework for future programmes, in particular in the context 
of the future enlargement. (paragraphs 3.30, 3.33 and 3.41) 

Commission's response: 

The Commission is taking the recommended action. 

in  April  2003 

the  Commission 

(“Communication  on 

A  package  of  measures  to  simplify  the  management  of  current  programmes  was 
the 
approved  by 
simplification,  clarification,  coordination  and  flexible  management  of  structural 
policies”  –  C(2003)  1255).  These  measures  were  possible  without  amending  the 
legislation.  They  cover  the  coordination  of  audit  work,  flexibility  in  the 
reimbursement of expenditure by the Commission and in the application of the “n 
+  2”  decommitment  rule,  streamlining  of  the  mid-term  review  process  including 
allocation  of  the  performance  reserve,  and  simplification  of  procedures  for 
amending  programmes, for meetings, indicators and reporting requirements. The 
measures  involving  routine  management  were  put  into  effect  immediately;  the 
remainder  are  being  implemented  in  accordance  with  the  timetable.  In  the 
financial  control  area  specific  measures  included  publication  of  an  updated 
Structural Funds audit manual in December 2003 (for the European Social Fund 
a  supplementary  audit  manual  was  also  issued),  guidance  (included  in  the  audit 
manuals)  on  sample  checks,  and  clarification  of  the  requirements  for  retaining 
documents  as  part  of  the  audit  trail  (Regulation  (EC)  No  2355/2002,  amending 
Regulation  438/2001).  The  Commission  also  discussed  with  Member  States  the 
conclusion  of  “contracts  of  confidence”,  which  will  allow  the  Commission  to 
reduce  its  own  audit  activity  in  the  Member  State.  With  several  Member  States 
negotiations on contracts of confidence have begun. 

The  Commission  expects 
to  help  speed  up 
implementation  of  the  current  programmes.  In  this  connection  it  is  worth  noting 
the increase in payments of Structural Funds for the 2000-06 period in 2003.  

the  simplification  measures 

For the new Member States the Commission in 2003 completed the negotiation of 
the  main  documents  for  their  2004-2006  programmes  (CSFs  and  Objective  1 
SPDs).  This  should  allow  formal  approval  of  programmes  immediately  after 
accession in May 2004 and an early start to implementation. 

In  preparation  for  the  new  Structural  Fund  period  starting  in  2007,  the  second 
progress  report,  following  on  from  the  Second  Report  on  Economic  and  Social 
Cohesion  of  2002,  was  published  in  January  2003  and  a  seminar  with  Member 
States  was  held  in  March.  The  3rd  Report  on  Economic  and  Social  Cohesion, 

17 

 
 
  
 
which  will  set  out  the  broad  lines  of  the  Commission’s  proposals  for  the  future 
period,  will  be  published  in  February  2004,  followed  in  May  by  a  “Cohesion 
Forum”.  The  Commission  intends  to  finalise  its  proposals  for  the  regulations 
governing the new period in 2004 with the aim of having the legislative framework 
in place by the end of 2005. 

22. 

In  addition  to  these  problems  with  programming  procedures,  the  legislation 
governing expenditure proved to be complex, and uncertainty persisted as regards the 
interpretation of a number of basic questions such as the eligibility of certain items of 
expenditure, the rates at which revenue-yielding investments were jointly financed or 
the definition of the final beneficiary. (3.32) 

Commission's response: 

The Commission is taking the recommended action. 

Regulation (EC) No 1685/2000 on the eligibility of expenditure for co-financing by 
the  Structural  Funds  was  amended  by  Regulation  1145/2003  to  clarify  certain 
points  such  as  bank  charges  in  INTERREG  programmes  and  the  status  of 
payments  into  venture  capital  funds  as  expenditure  actually  paid  out.  No  change 
was made to the position of advances of funds to beneficiaries, after the Member 
States had rejected the proposal to consider such advances as eligible expenditure 
in  the  discussion  of  the  simplification  package  (the  adoption  of  Regulation 
1145/2003 was challenged in the Court of Justice on procedural grounds and the 
Commission  will  withdraw  and  reissue  it  in  early  2004).  In  addition  to  the 
guidance  note  on  the  consideration  of  revenue  in  infrastructure  projects,  the 
Commission  in  December  2002  updated  the  Guide  to  cost-benefit  analysis  in 
ERDF,  Cohesion  Fund  and  ISPA  projects.  It  has  held  several  meetings  with 
national  authorities  to  improve  the  methodology  of  cost/benefit  analyses.  The 
Guide sets out the principles to be applied in the financial analyses that serve as a 
basis for determining the co-financing rate, including revenue, residual value and 
discount  rates.  In  April  2003  the  Commission  wrote  to  the  Member  States  to 
remind them of these principles and setting certain parameters for the calculation 
of the co-financing rates. 

23. 

The  dividing  up  of  the  management  of  structural  measures  amongst  various 
Commission departments meant that it was still difficult to arrive at an understanding 
of  the  overall  situation.  Moreover,  the  common  database  for  the  Structural  Funds, 
which  is  intended  to  make  electronic  exchanges  of  information  possible,  was  not 
operational when the programmes  were  being negotiated. At the end of 2001 some 
information in particular concerning the IFOP, was still missing. (paragraph 3.37) 

Commission's response: 

The Commission is taking the recommended action. 

DG FISH entered the initial financial allocations for FIFG in 2000-06 on to the 
common  SFC  database  in  July/August  2002  and  has  since  updated  this 
information.  However,  it  does  not  use  the  system  for  processing  payment  claims. 
The SFC already produces certain types of report and performs analyses such as 
for  “n  +  2”,  but  is  being  improved  and  developed  so  that  it  can  offer  further 
functions.  Links  to  important  documents  are  being  created  and  the  possibility  of 

18 

 
 
  
 
24. 

electronic signature provided. A Structural Funds portal in which the SFC would 
have an important role is also being developed. In 2004 the Commission will define 
the  necessary  links  between  the  SFC  and  the  architecture  of  its  new  general 
accounting system. 

The checks which the Member States are required to perform before the completion 
of each form of intervention from the period 1994-1999 are an essential component 
in the reliability of their systems and the regularity of requests for payments. Despite 
some  improvements  which  are  intended  to  bring  about  uniform  application  of  the 
rules,  the  control  systems  still  do  not  ensure  that  the  checks  on  which  final 
declarations  of  expenditure  rely  are  rigorous  and  reliable  enough.  In  2001  the 
Commission finally closed 53 1994-1996 Objective 2 interventions (16 ERDF and 37 
ESF).  At  the  end  of  2001  there  were  still  53  interventions  open,  representing  575 
million  euro  of  commitments  outstanding  (including  44  ERDF  for  a  total  of  540 
million  euro  and  nine  ESF  for  a  total  of  35  million  euro).  The  closure  procedures 
applied  to  1994-1996  Objective  2  measures  and  Cohesion  Fund  projects  are 
substantially identical to those for the preceding period. In view of the closures that 
will  occur  from  2002  onwards  the  Commission  should  therefore  reinforce  its 
initiatives, including improving the coordination of the work of the departments that 
are responsible for the different structural measures (paragraphs 3.62 and 3.81) 

Commission's response: 

The Commission is taking the recommended action. 

In  2003  the  Commission  closed  the  bulk  of  the  1994-96  Objective  2  programmes 
remaining  open  at  the  end  of  2001.  By  the  end  of  2003  only  eight  such 
programmes remained open for either ERDF or ESF, five for ERDF and three for 
ESF), representing €70 million of commitments (€66 million ERDF, € 4.7 million 
ESF).  For  most  of  the  other  programmes  from  the  1994-99  period  the  Member 
States only sent the documents required for closure just before the deadline of end-
March 2003. By the end of 2003 the Structural Fund departments had completed 
their scrutiny of these documents and the closure process with final payment and 
the decommitment of unclaimed expenditure for programmes representing 41% of 
the  commitments  outstanding  at  the  end  of  2002.  The  procedures  applied  were 
common  to  all  the  four  funds  and  conducted  rigorously  using  checklists.  Any 
unclear  issues  were  resolved  in  consultation  between  the  four  departments.  In 
roughly  two-thirds  of  programmes  clarifications  of  matters  in  the  closure 
declarations concerning the audit work done before the winding up of programmes 
or the reasons for qualifications of the statements were requested. There was close 
coordination between the Structural Fund departments and OLAF to ensure that 
all  reported  cases  of  irregularity  had  been  cleared.  In  addition,  the  departments 
carried  out  a  substantial  number  of  on-the-spot  audits  of  programmes  already 
closed.  Where  these  audits  have  detected  deficiencies  in  the  audit  work  or  the 
closure declarations themselves were qualified to indicate a risk of irregularity in 
the  expenditure  declared  which  cannot  be  resolved,  the  Commission  will  apply 
financial corrections. These may be at flat rates on a basis agreed by all funds. The 
Structural  Fund  departments  will  continue  the  closure  work  and  the  audits  of 
closed  1994-99  programmes  in  2004.  Reference  is  made  to  the  Commission’s 
replies  to  points  5.20-5.21  and  5.54  of  the  Court  of  Auditors’  2002  report  (OJ  C 
286, 28.11.2003, p. 1). 

19 

 
 
  
 
25. 

The  procedures  for  examining  final  payment  requests  still  took  the  form  of 
interdepartmental  consultations,  and  respective  responsibilities  had  not  been 
amended  since  the  previous  period.  The  follow-up  of  such  audit  observations 
continued to rely on various databases that had been set up without any coordination 
as  the  unified  database  announced  by  the  Commission  could  not  be  operational 
before 2002. (paragraph 3.48) 

26. 

Commission's response: 

The Commission is taking the recommended action. 

For  the  closure  of  programmes  from  the  1994-99  period  all  the  Structural  Fund 
departments  have  applied  common  rigorous  procedures.  The  full  entry  into 
production of the audit management tool  SYSAUDIT,  which  among  other  things 
will  monitor  effective  follow-up,  was  delayed.  It  is  being  brought  into  use  in  the 
first part of 2004. In the meantime other Structural Fund departments used other 
systems to follow up audit findings; for instance, DG EMPL is following up all its 
recommendations  on  the  systems  for  2000-06  programmes  with  its  computerised 
audit follow-up system GESAUDIT, which it developed in 2002. 

The regulatory management and control arrangements for the 2000-2006 period have 
been  strengthened.  However,  their  implementation  is  already  marred  by  delay,  the 
structures  are  not  yet  all  operational  and  independent  auditing  of  the  operations 
effected  has  not  begun.  The  Court  detected  in  interim  payments  the  presence  of 
ineligible expenditure of the same types as for previous periods, which suggests that 
some of those involved are not sufficiently conversant with the rules applicable. In 
order  to  satisfy  itself  that  the  management  and  control  systems  meet  the  standards 
imposed by the regulations, the Commission is required to examine the functioning 
of the systems at regular intervals. For that, on-site visits are necessary. However, a 
small  number  of  visits  were  made  in  2001  by  DG  REGIO  and  PECHE,  one  was 
made by DG EMPLOI and DG AGRI made none at all. As a result, the Commission 
did not have adequate assurance in regarding the reliability of these systems. In some 
Member  States  weaknesses,  such  as  the  absence  of  checks  on  paid  invoices  or 
equivalent  documents,  are  present  in  the  procedures  for  verifying  the  reality  and 
eligibility  of  expenditure.  As  a  consequence  expenditure  declarations  are  drawn  up 
without  any  check  on  whether  the  expenditure  was  actually  incurred.  The 
Commission  should  therefore  try  to  complete  its  checks  in  the  Member  States  as 
soon as possible and should ensure that the control standards and rules of eligibility, 
as  well  as  the  sanctions  to  be  imposed  for  non-compliance,  are  circulated  and 
understood at every level. (paragraphs. 3.66, 3.67 and 3.82) 

Commission's response: 

The Commission is taking the recommended action. 

The  Structural  Fund  departments  are  continuing  their  on-the-spot  audits  of  the 
management  and  control  systems  which  Member  States  have  set  up  for  2000-06 
programmes.  The  number  of  such  audits  by  Fund  undertaken  up  to  the  end  of 
2003 was as follows : 

- 

ERDF : 37 

20 

 
 
  
 
- 

- 

- 

ESF : 68 

EAGGF Guidance : 14 

FIFG : 13 of 16 programmes. 

For  2004  DG  REGIO  is  planning  a  further  15  audits  of  systems  for  the  current 
programmes,  while  DG  EMPL  plans  40.  DG  FISH  will  complete  its  audit  of  all 
FIFG  programmes  by  March  2004.  DG  AGRI  will  have  audited  programmes 
representing  41%  of  EAGGF  Guidance  expenditure  by  February  2004.  DG 
REGIO carried out 10 audits of the systems required for Cohesion Fund projects 
under Regulation 1386/2002 in 2003 and has a further five such audits on its audit 
programme for 2004. 

27. 

In  the  case  of  a  sample  of  innovative  and  preparatory  local  employment  projects 
which  were  directly  funded  by  the  Commission,  the  Commission's  financial 
management  procedures  had  not  been  sufficiently  stringent  in  some  cases.  In 
addition,  value  for  money  on  such  projects  was  not  assured  due  to  a  degree  of 
overlap  between  the  different  innovative  measures  and  the  authorisation  of  such 
projects. (paragraph 3.118) 

Commission's response: 

The Commission is taking the recommended action. 

Great efforts were made to rationalise the available Community support for local 
employment  initiatives  directly  financed  by  the  Commission.  This  is  why  new 
projects  have  not  been  financed  under  budget  line  B5-503  since  2003,  to  avoid 
overlap  between  action  under  Article  6  and  preparatory  measures  for  local 
employment financed in 2001 and 2002 from this line.  

The  Commission’s  work  in  this  area  in  2003  has  primarily  focused  on  the 
exchange and dissemination of good practices, the development of methodological 
and  other  tools  to  assist  all  those  involved  and  evaluation  by  subject  and  by 
programme of action supported by the Commission to date. The Commission has 
also  actively  encouraged  the  Member  States  to  develop  the  regional  and  local 
dimension of their employment policies in the framework of the European Strategy 
for Employment. 

With regard to innovative actions co-financed under Article 6 of the ESF, targeted 
calls  for  proposals  have  been  launched  and  a  rigorous  system  of  selection  and 
management of projects has been put in place. Financial management of projects 
has also been improved and controls - including on-the-spot controls - have been 
stepped up within the limits of available resources.  

28. 

The  Court  notes  that,  in  general,  the  Commission's  follow-up  to  the  observations 
made in the 1999 and following Statements of Assurance has been more diligent than 
for  previous  DASs.  Nevertheless,  although  the  Court's  observations  often  reveal 
management and inspection shortcomings which are common to many programmes, 
the  Commission  rarely  extends  its  investigations  beyond  the  necessarily  limited 
samples examined by the Court. Particularly with regard to closed interventions, the 
Commission  should  evaluate  the  impact  of  errors  on  the  entire  intervention 

21 

 
 
  
 
concerned rather than confine itself to recovering undue financing in respect only of 
individual cases which have not been contested. (paragraph 3.104) 

Commission's response: 

The Commission is taking the recommended action. 

When errors detected  by the Court of Auditors clearly point to the  existence of a 
systemic  problem  the  Commission  extends  the  follow-up  action  beyond  the  cases 
where the  error has  been  found. Examples include public procurement in Spain, 
where in 2003 DG REGIO extended its enquiry to other cases and is proposing an 
across-the-board flat-rate correction to compensate for breaches of these rules in 
1994-99 programmes, and an ESF case in France. As a result of an audit carried 
out by the Court in Paris in 1998 on the Chambre des métiers d'Ile de France, for 
a  specific  project,  with  detailed  additional  checks  being  carried  out  later  by  the 
Commission  at  the  French  Ministry  for  Crafts  and  SMEs,  a  net  financial 
correction  of  €  22  million  was  decided  in  2002  for  the  1994  French  Objective  3 
SPD for the whole of the measure in question (Decision C(2002)44 of 21.03.2002). 

22 

 
 
  
 
Internal Policies 

29. 

For the TEN-T programme, the Commission should strengthen the legal and control 
framework  (for  instance  requiring  offer  letters  between  Member  States  and  final 
beneficiaries  and  developing  and  implementing  clearer  rules  with  regard  to  the 
eligibility of costs). The evaluation of proposals should be improved by using more 
intensively  external  experts  and  should  be  properly  documented.  Administrative 
procedures  and  IT-systems  should  be  modified  taking  into  account  the  specific 
requirements  of  the  TEN-T  programme.  Completed  TEN-T  actions  should  be 
regularly audited (paragraph 4.74) 

Commission's response: 

The Commission is taking the recommended action. 

The Commission has introduced in 2003 a new version of the Commission decision 
that  has  strengthened  the  role  of  the  Members  States  (control,  appraisal, 
monitoring,  evaluation...)  and  has  defined  the  responsibilities  of  each  partner 
involved  in  the  using  of  this  financial  contribution.  In  2004  the  Commission 
Decision  will  be  revised  again  to  include  more  precise  conditions  related  to 
obligations  of  the  Member  States.  The  Commission  now  formally  addresses  the 
Decision  to  the  final  beneficiary  as  well  as  to  Member  States  and  defines  more 
clearly their respective roles. 

The  clarity  of  the  definition  of  works  and  studies  has  been  improved.  The 
Commission  has  introduced  the  use  of  a  standardised  cost  statement  in  the  new 
version of the 2003 Commission Decision , as well as within the 2003 review of the 
TEN-T procedures, which has resulted in a TEN-T handbook which will be used at 
the  beginning  of  2004.  More  precise  rules  regarding  publicity  obligations  will  be 
developed using existing Structural Funds practice as a guideline. 

The  Commission  reflects  on  the  use  of  external  experts  in  the  evaluation  of  the 
projects. 

30. 

The  Commission  is  encouraged  to  protect  the  Community's  financial  interests  by 
imposing the sanctions provided for in Council Regulation No 2988/95 . In addition 
to the recovery of the wrongly obtained advantage, these sanctions should be visible 
and  provide  for  proportionate  administrative  measures  and  penalties  in  order  to  be 
both effective and dissuasive. These sanctions could be defined in model contracts or 
introduced by means of a specific sectoral rule. (paragraph 4.51) 

Commission's response: 

The recommended action has been taken.  

The  FP6  contracts  include  penalties  in  the  form  of  "liquidated  damages"  (see 
below), the possibility of audits and controls, by the Court of Auditors and others, 
and specific provisions as regards the recovery of amounts wrongly paid.  

Liquidated damages  

23 

 
 
  
 
Without  prejudice  to  any  other  measures  provided  for  in  this  contract,  the 
contractors  agree  that  the  Community,  with  the  aim  of  protecting  its  financial 
interests, is entitled to claim liquidated damages from a contractor who is found to 
have  overstated  expenditure  and  who  has  consequently  received  an  unjustified 
financial  contribution  from  the  Community.  Liquidated  damages  are  due  in 
addition  to  the  recovery  of  the  unjustified  financial  contribution  from  the 
contractor. 

Any  amount  of  liquidated  damages  shall  be  proportionate  to  the  overstated 
1. 
expenditure and unjustified portion of the Community contribution. The following 
formula shall be used to calculate any possible liquidated damages: 

Liquidated  damages  =  unjustified  financial  contribution  x  (overstated 

expenditure/ total claimed) 

The calculation of any liquidated damages shall only take into consideration 
the  period  relating  to  the  contractor’s  claim  for  the  Community  contribution  for 
that  period.  It  shall  not  be  calculated  in  relation  to  the  entire  Community 
contribution.  

2. 
The Commission shall inform the contractor which it considers liable to pay 
liquidated  damages  in  writing  of  its  claim  by  way  of  a  registered  letter  with 
acknowledgement  of  receipt.  The  contractor  shall  have  a  period  of  30  days  to 
answer the Community's claim. 

3. 
The  procedure  for  repayment  of  unjustified  financial  contribution  and  for 
payment  of  liquidated  damages  will  be  determined  in  accordance  with  the 
provisions of Article II.31. 

4. 
The  Commission  shall  be  entitled  to  compensation  in  respect  of  any 
overstated expenditures which come to light after the contract has been completed, 
in accordance with the provisions of paragraphs 1 to 6. 

5. 
These  provisions  shall  be  without  prejudice  to  any  administrative  or 
financial sanctions that the Commission may impose on any defaulting contractor 
in accordance with the Financial Regulation or to any other civil remedy to which 
the  Community  or  any  other  contractor  may  be  entitled.  Furthermore,  these 
provisions shall not preclude any criminal proceedings which may be initiated by 
the Member States' authorities.  

6. 
Further, as established by the Financial Regulation, any contractor declared 
to  be  in  grave  breach  of  its  contractual  obligations  shall  be  liable  to  financial 
penalties  of  between  2%  and  10%  of  the  value  of  the  Community  financial 
contribution received by that contractor. The rate may be increased to between 4% 
and  20%  in  the  event  of  a  repeated  breach  in  the  five  years  following  the  first 
breach. 

31. 

It is recommended to complement the regular on-the-spot checks, performed by the 
officials in charge of monitoring TEN-T actions, by ex-post financial and technical 
audits. (paragraph 4.33) 

24 

 
 
  
 
 
 
Commission's response: 

The Commission is taking the recommended action. 

In  conformity  with  the  Court’s  recommendation  DG  TREN’s  central  financial 
audit  cell  has  audited  a  sample  of  TEN-T  actions  in  2003.  These  audits  will 
continue in 2004. Thanks to increased human resources in the financial audit cell 
and  a  new  framework  contract  being  concluded  with  an  external  audit  firm,  the 
number of audits will be further increased. 

32. 

Model  contracts  for  indirect  RTD  actions  should  provide  for  participants  bearing 
unlimited  joint  and  several  liability  for  the  use  made  of  the  Community  financial 
contribution  (with  the  exception  of  participants  such  as  public  universities). 
(paragraph 4.50) 

Commission's response: 

The recommended action has been taken. 

The FP6 standard contract includes the principle of joint and several liability for 
contractors  who  are  not  public  entities, 
international  organisations  or 
organisations whose participation is guaranteed by a Member State or associated 
country. This liability applies to all projects except Marie Curie contracts, specific 
action for SMEs and certain specific and duly substantiated support actions. 

Financial collective responsibility  

Should  the  contract  be  terminated  or  the  participation  of  a  contractor  be 
1. 
terminated in accordance  with Article II.16, and any contractor does not honour 
the  reimbursement  of  the  amount  due  by  that  contractor,  the  consortium  will 
reimburse the amount due to the Commission.  

The amount due to the Commission may not exceed the value of the contribution 
due to the consortium in accordance with Article 5. 

2. 
The  amount  to  be  recovered  shall  be  allocated  between  the  remaining 
contractors  other  than  those  referred  to  in  paragraph  3  in  accordance  with  their 
pro rata share in the overall project. 

This  allocation  shall  be  based  on  the  relative  weight  of  all  those  contractors  not 
excluded by paragraph 3, taking into account their share of the provisional costs 
as indicated in Annex I when pre-financing is to be recovered and their share of 
accepted certified costs when payment is to be recovered. 

Any  amount  claimed  from  a  contractor  shall  not  exceed  the  contribution  it  is 
entitled  to  receive  according  to  applicable  reimbursement  rates.  The  amount  a 
contractor  is  entitled  to  receive  is  based  on  its  provisional  costs  as  indicated  in 
Annex  I  when  pre-financing  is  to  be  recovered and is  based  on its certified  costs 
accepted by the Commission when a settled payment is to be recovered.  

3. 
Paragraphs 1 and 2 do not apply where the defaulting contractor is a public 
body,  an  international  organisation  or  a  contractor  whose  participation  to  the 
indirect action is guaranteed by a Member State or an Associated State.  

25 

 
 
  
 
4. 

The consortium is not collectively responsible for: 

any amount owed by a defaulting contractor for any breach discovered after 

a) 
the final implementation date; 

b) 

c) 

liquidated damages due by a contractor in accordance with Article II.30; 

sanctions referred to in Article II.30 imposed on a defaulting contractor. 

33. 

The  efforts  to  recover  overpaid  Community  funds  from  beneficiaries  need  to  be 
intensified,  specifically  with  regard  to  DGs  RTD,  INFSO  and  TREN  (paragraph 
4.76) 

Commission's response: 

The recommended action has been taken.  

Article 73 of the new Financial Regulation introduced the mechanism of offsetting 
which facilitates the recovery of overpayment. Moreover, the reporting procedures 
on the state of play of recovery have been reinforced on Commission level. These 
procedures  have  been  implemented  in  the  various  Directorates-General  in 
accordance with their organisation. 

As far as DG INFSO is concerned, a specific tool facilitating the implementation 
of audit results has been developed.  

At  DG  TREN  the  follow-up  procedure  of  the  recovery  of  the  overpaid  funds  has 
been  strengthened  and  the  audit  follow-up  is  now  a  performance  indicator 
monitored regularly.  

In  February  2003,  DG  RTD  set  up  a  help  desk  on  recovery  orders  in  the  central 
financial unit.  

The main tasks assigned to this help desk are:  

- the animation of a network of liaison officers for recovery orders,  

-  creating  guidelines  on  recovery  orders  and  up  dating  them,  (http://intranet-
rtd/services/f_procedures-ordres-recouvrements_fr.shtml )  

-  providing  a  coaching  service,  which  is  complementary  to  the  training  sessions 
organised by DG Budget,  

-  reporting  on  recovery  orders  but  also  on  potentially  abnormal  RAL  in  order  to 
tackle  possible  delays 
targeted 
exercises).  

in  establishing  recovery  orders  (including 

-  DG  RTD  produces  a  monthly  financial  scoreboard  available  on  the  DG’s 
Intranet  site,  and 
(http://intranet-
rtd/politique/ics12_fr.shtml).  

includes  recovery  orders  pending 

it 

On  the  preventive  approach,  it  can  be  mentioned  that,  in  addition  to  existing 
measures, such as verification of contractors’ legal and financial situation and use 

26 

 
 
  
 
of  financial  guarantees  when  necessary,  FP6  has  introduced  the  following 
measures :  

- the collective responsibility of contractors,  

- audit certificate,  

-  new  scheme  for  pre-financing  (advance  payments  adapted  to  actual  costs 
periodically during the duration of the project). 

34. 

In its Special Report No 2/2002 (Socrates and Youth for Europe) the Court made a 
number  of  recommendations  for  improving  the  management  of  these  programmes 
which should be taken into consideration. These include the replacement of the TAO 
with a Community agency, clearly defining the relationship between the Commission 
and national authorities, improving control and monitoring at all levels and providing 
effective and timely evaluations. (paragraph 4.77) 

Commission's response: 

The Commission is taking the recommended action. 

The  Commission  confirms  that  it  plans  to  replace  the  temporary  TAO  which  has 
been helping it to manage the Socrates II and Youth for Europe programmes by a 
Community agency: it is expected that it will adopt the decision creating the agency 
in  2004  and  that  it  should  become  operational  in  2005.  The  agency  will  be 
responsible  for  managing  certain  centralised  aspects  of  the  programmes  in  the 
field of education and culture. 

The  Commission  confirms  that  the  entry  into  force  of  the  new  Socrates  II  and 
Youth for Europe programmes  has been the impetus for more  use to  be made of 
networks  of  national  agencies  for  managing  decentralised  aspects  of  these 
programmes;  in  particular,  these  improvements  include  clarification  of  the 
respective  responsibilities  of  the  Commission  and  the  Member  States  in  the 
operation of the agencies (resources to be placed at the disposal of agencies, tasks 
to be accomplished by agencies). 

to 

is  striving 

improve  control  and  monitoring  of 

The  Commission 
the 
implementation of programmes in the field of education and culture (particularly 
Socrates II and Youth for Europe). In particular, at the end of 2001, it published 
an  invitation  to  tender  for  assistance  by  audit  firms  to  enable  it  to  increase  its 
control  activities:  the  number  of  agreements  audited  therefore  rose  from  50  in 
2002 to nearly 200 in 2003.  

The  Commission  Work  Programme  provides  for  the  adoption  in  2004  of  interim 
evaluation  reports  for  the  Socrates  II  and  Youth  for  Europe  programmes  (2000-
2006). 

35. 

The  Commission  should  aim  for  a  homogeneous  implementation  of  the  TEN-T 
programme  applying  the  same  provisions  to  all  beneficiaries  in  all  Member  States. 
The  legal  framework  of  the  TEN-T  programme  should  be  strengthened  in  order  to 
improve the protection of the Community' s financial interests. Where contracts are 
not  concluded  with  final  beneficiaries,  offer  letters  could  be  implemented  by 

27 

 
 
  
 
Member  States  based  on  a  framework  set  by  the  Commission.  These  offer  letters, 
requiring  a  written  acceptance  by  the  beneficiary,  should  define  the  terms  and 
conditions of the grant thus enhancing the awareness of beneficiaries to the specific 
requirements to be met when implementing the action. (paragraph 4.31) 

Commission's response: 

The Commission is taking the recommended action. 

Since  2002,  the  Commission  notifies  the  Commission  Decision  directly  to  the 
Member  State  and  to  the  beneficiary.  For  a  homogeneous  implementation  of  the 
programme, the 2003 decisions regroup in only one comprehensive document "the 
role  and  the  responsibilities  of  the  Member  States  and  the  final  beneficiaries" 
(annex I for the technical part and annexe II for the modalities of execution). In 
the context of the strengthening of the role of the Member States, and to avoid a 
risk of "dilution" of responsibilities through different sub-agreements, a separate 
contract ( to which the Member States are not parties,) or offer letters should not 
be considered necessary. 

The notification of the decisions to the Member States and the final beneficiaries 
stipulates  their  respective  obligations  and  rights.  Within  this  contractual  legal 
framework,  the  new  2003  Commission  Decision  also  states  that  any  substantial 
modification,  reduction,  suspension,  cancellation  of  the  Commission  Decision, 
must  be  notified  to  the  final  beneficiaries  and  the  Member  States  prior  to  taking 
place.  A  handbook  has  been  elaborated  which  will  contribute  to  clarify  the  legal 
framework  of  the  TEN-T  programme  and  the  obligations  of  the  Member  States 
and the final beneficiaries. 

36. 

DG TREN should rigorously apply eligibility criteria for proposals (in particular with 
regard to the reception dates); strengthen the evaluation process by widening the use 
of external experts, and properly document all controls operated. (paragraph 4.35) 

Commission's response: 

The Commission is taking the recommended action. 

The  integration  of  the  specific  TEN-T  procedures  in  the  official  Manual  of 
procedures  has  clarified  the  requirements  concerning  the  documentation  of 
evaluation and decision process.  

Since  2003,  the  Commission  operates  with  a  call  for  proposals  with  binding 
deadlines. The Commission reflects on the use of external experts in the evaluation 
of the projects. 

37. 

A migration from the current databases to the central DG TREN IT-system should be 
done as quickly as possible, taking into account the specific requirements of TEN-T. 
In the meantime, solutions should be sought on how to cope with key functions with 
regard to proposal, contract and/or project management which are as yet missing or 
incomplete in the current IT systems (paragraph 4.36) 

28 

 
 
  
 
Commission's response: 

The recommended action has been taken.  

The  integration  of  TEN-T  into  the  central  DG  TREN-T  project  management 
system is achieved. 

38. 

In order to comply with the Commission's Internal Control Standards, DG TREN is 
also  invited  to  apply  the  procedures  approved  by  its  Director-General,  modified 
where  necessary  to  reflect  the  actual  procedures  in  place  for  managing  the  TEN-T 
programme. Operational procedures should then be kept up-to-date (paragraph 4.34) 

Commission's response: 

The recommended action has been taken.  

The  specific  procedures  for  TEN-T  have  been  incorporated  into  the  Manual  of 
Procedures and have been applied in 2003. Regular updates are made. 

39. 

In  order  to  reduce  the  risk  of  non-eligible  expenditure  being  unintentionally  and 
intentionally  declared  by  final  beneficiaries  and  to  allow  for  a  more  accurate  and 
effective financial management of indirect RTD actions by the Commission services, 
it  is  recommended  to  fundamentally  simplify  the  cost  reimbursement  system  in  the 
forthcoming  6th  Framework  Programme  (2002  to  2006).  The  three  main  types  of 
cost systems (AC, FC, and FF) should be replaced by a single system and the ten cost 
categories should be reduced to three (i.e. personnel, co-ordination costs and specific 
costs) with a much wider use of flat rates (paragraph 4.47) 

Commission's response: 

The recommended action has been taken.  

The  action  has  been  completed.  As  the  proposal  from  the  Court  of  Auditors  was 
not approved by the Council and the European Parliament, that recommendation 
was not acted upon. However, many other simplifications have been incorporated 
into  the  FP6  standard  contract,  including  the  elimination  of  cost  categories,  the 
use  of  participants’  accounting  systems,  the  certification  of  costs  by  external 
auditors and simplification and consistency in cost models and their application. 

29 

 
 
  
 
External Action  

40. 

These  trends  (the  cumulative  value  of  outstanding  commitments  dating  back  five 
years or more increased from 933.9 million euro at the end of 1998 to 1589.6 million 
euro  at  the  end  of  2001)  underline  the  need  for  constant  monitoring  of  the  OCs  in 
order  to  contain  them.  It  is  important  that  the  Commission  equip  itself  with  the 
means  to  obtain  reliable  and  complete  accounting  and  management  information  to 
facilitate the management of the measures financed. This information should make it 
possible to carry out in-depth analyses of the development of the OCs and the nature 
of  the  payments  made  (advances  or  others)  in  order  to  compare  the  rate  of 
disbursement  of  the  aid  with  the  progress  of  implementation  on  the  ground. 
(paragraph 5.10) 

Commission's response: 

The Commission is taking the recommended action. 

AIDCO  has  consistently  pursued  during  2002  and  2003  the  systematic  review  of 
old and dormant commitments, adding each year a new budget year to the review 
exercise (the latest being budget year 1997, added in 2003 to the review process). 
The monitoring system of the review results (Excel tables on AIDCO Intranet), put 
in  place  in  2000,  has  been  kept  running  and  the  tables  periodically  updated.  In 
2003  steps  were  taken  in  order  to  fully  integrate  this  monitoring  and  reporting 
system  on  old  and  dormant  commitments  into  the  CRIS  database,  which  is  the 
general  management  tool  for  external  aid.  This  will  inter  alia  also  facilitate 
reporting on old or dormant commitments by delegations. The necessary analysis 
and  programming  was  undertaken  and  the  new  facility  is  now  being  subject  to 
tests, in order to become operational in the first half of 2004. 

With  the  full  operation  of  CRIS  as  from  beginning  2003,  a  single  database 
recording financial and contractual information on projects became available, and 
it  was  thus  possible  to  launch  in  2003  a  more  targeted  internal  review  exercise. 
This  was  specifically  targeted  at  under-performing  commitments  (even  if  not 
formally  neither  dormant  nor  old),  with  low  contracted  amounts  and/or  slow 
disbursement  pace  and/or  low  disbursement  ratio.  The  commitments  identified 
were  reviewed  at  the  highest  level  of  management  and  corrective  action  decided, 
ranging  from  speeding  up  measures,  or  scaling  down  of  activities,  or  closure  of 
programmes.  

As regards analysis on the basis of the nature of payments made, the compliance of 
the  accounting  system  with  new  provisions  in  article  81  of  the  new  FR  in  force 
from  2003  onwards  will  allow  in  the  future  to  incorporate  the  uncleared  pre-
financing criteria as a risk criteria in a automated and systematic way.  

As  regards  monitoring  of  progress  of  implementation  on  the  ground,  CRIS  has 
already  a  module  which  allows  the  regular  monitoring  of  projects.  This  module 
will  in  2004  be  expanded  to  also  cover  sectoral  programs  and  budget  support 
operations. Furthermore the Commission will in 2004 introduce a new module for 
the  management  of  the  project  pipeline  and  financial  planning  and  forecasting. 
The module will allow the registration of key milestones and a comparison between 
forecasts and actual implementation. 

30 

 
 
  
 
41. 

The  Commission  should  deal  with  this  matter  quickly  in  order  to  ensure  that 
systematic  audit  programmes  are  established,  including  by  clearly  stipulating  the 
responsibilities  required  within  the  Commission,  so  that  the  conclusions  of  audit 
reports are acted upon. (paragraph 5.21) 

Commission's response: 

The Commission is taking the recommended action. 

In December 2002, EuropeAid has adopted an audit programme for the financial 
year 2003 on audits carried out under the direct supervision of headquarters and 
delegations.  This  audit  programme  has  been  closely  monitored  during  its 
execution. The second programme relating to the financial year 2004 was adopted 
in December 2003 on the basis of a risk assessment.  

The  follow-up  of  audit  reports  is  clearly  defined  to  be  the  responsibility  of  the 
authorizing officers and authorizing officers by subdelegation. 

Since  the  reform,  DG  RELEX  has  set  up  an  annual  internal  audit  programme 
which  focused,  among  other  things,  on  the  audit  of  the  whole  external  service 
during  the  first  half  of  2002.  In  the  framework  of  the  monitoring  of  the 
administrative  reform  and,  in  particular,  of  internal  control  standard  No  21,  all 
audit reports are catalogued and observations and recommendations are followed 
up in an appropriate manner through action plans. 

42. 

The Court recommends that: 

-  the  Commission  takes  further  steps  to  ensure  that  organisations  responsible  for 
handling  EU  funds  strengthen  their  internal  control  systems,  in  particular  to  ensure 
the  adequacy  of  supporting  documentation  and  their  tendering  procedures.  The 
Commission  should  lay  down  more  specifically  the  minimum  standards  which  are 
required; 

-  the  Commission  takes  the  steps  necessary  to  ensure  that  sufficient  reviews  and 
audits are carried out by it, or on its behalf, to enable it to judge whether the internal 
control  procedures  applied  by  its  implementing  partners  are  adequate,  and  takes 
corrective action if necessary. (paragraph 5.50) 

Commission's response: 

The recommended action has been taken.  

In  the  area  of  humanitarian  aid,  the  organisations  handling  the  EU  funds,  have 
signed  a  Framework  Partnership  Agreement,  that  has  been  arrived  at  after 
consulting  all  relevant  stakeholders.  This  sets  out  the  minimum  standards,  in 
particular  in  respect  of  supporting  documentation  and  tendering,  which  the 
organisations  have  to  comply  with.  In  the  light  of  the  reform  and  in  compliance 
with  the  new  financial  regulations  and  implementing  rules,  a  new  Framework 
Partnership  Agreement  has  been  approved  in  2003  and  is  now  being  applied.  In 
respect of tendering, the new Framework Partnership and in particular its annex 
V, adopted by the college on 28 October 2003 on the basis of article 238.2 of the 
implementing  rules  for  the  Financial  Regulation,  reinforces  the  obligation  of 

31 

 
 
  
 
 
 
humanitarian  organisations  of  establishing  standard  procedures  on  procurement 
and  guidelines  for  drafting  tender  documents.  These  procedures  comply  with  the 
best international practice. The Commission will exercise its powers of control, on 
documents and on the spot, in order to verify the conformity of the humanitarian 
organisation's  procedures  on  procurement  and  its  implementation  (point  1.3.4, 
Annex V of the Framework Partnership Agreement). 

Echo  operates  an  extensive  number  of  reviews  and  controls:  both  at  the  stage  of 
the  appraisal  of  each  operation  by  it's  Technical  Assistants,  the  appraisal  by  the 
operational and financial desks as well by the subdelegated authorising officer and 
the liquidation by the finance unit. ECHO officials have carried out and managed 
a substantial number of audits over the last years. In June 2002 following a major 
call for tenders ECHO contracted an external audit company to undertake audits, 
which substantially increased the audits carried out in 2002 and 2003. Hence, 96 
audits  at  the  headquarters  of  ECHO's  partners  were  completed  in  2003  with 
another  44  audits  in  an  advanced  on-going  state  and  16  field  audits  were 
completed with another 13 on-going. The audits cover checks on internal controls 
and  systems  put  in  place  by  ECHO  partners  and  substantiate  the  documentation 
supporting costs claimed from ECHO. By this means all partners are expected to 
be  audited  every  2  years.  Furthermore,  the  human  resources  devoted  to  auditing 
have tripled. 

43. 

Whereas  the  monitoring  system  can  now  identify  projects'  weaknesses,  additional 
work  needs  to  be  carried  out  to  be  able  to  analyse  their  underlying  causes. 
Furthermore  the  quality,  performance  and  methodology  of  the  monitoring  system 
should be regularly evaluated by the Commission (paragraph 5.77) 

Commission's response: 

The recommended action has been taken. 

1.  The  results  oriented  monitoring  system  (ROM)  gives,  in  real  time,  an 
independent overview over projects’ progress and likely success. Underlying causes 
for  success  or  failure  are  analysed  in  depth  through  evaluations.  The  two  tools 
(evaluation  and  monitoring)  are  distinct,  but  complement  and  reinforce  each 
other. 

2. The Commission has put in place a coordination function whose tasks include 
quality control and development of methodology. As planned, works have started to 
assess the utility of the system (questionnaires to users). 

44. 

The Court recommends that:- the added value of the European Union's interventions 
in  comparison  to  the  World  Bank  and  the  International  Monetary  Fund  should  be 
more clearly established; 

consideration  should  be  given  to  creating  a  more  harmonised  approach  between 
MFA  and  SAF,  so  that  countries  in  similar  situations  are  dealt  with  in  a  similar 
manner; 

-  the  Commission's  decision  making  for  the  various  phases  of  the  management  of 
macro-economic  assistance  should  be  more  transparent,  and  in  particular  the 
Commission should document its justification for waiving conditions; 

32 

 
 
  
 
 
 
- the Commission's monitoring of the quality of financial management in beneficiary 
countries  should  be  considerably  improved  and  involve  all  relevant  Directorates 
General; 

- more priority should be given to carrying out evaluations (paragraph 5.85) 

Commission's response: 

The recommended action has been taken. 

•  A  systematic  effort  is  made  to  ensure  adequate  complementarity  with  BWI 
programmes; in this context regular consultations of BWI by ECFIN and AIDCO 
are organised;  

•  DG  ECFIN  is  implementing  systematic  ex-ante  evaluation  for  each  MFA 
operation  to  assess  the  residual  financial  needs  of  the  beneficiary  countries. 
Complementarity aspects with BWI programmes now become systematically part of 
this ex-ante evaluation analysis.  

• Within the limits resulting from the specificity of the various instruments and the 
different  legal  bases,  the  Commission  agrees  with  the  need  for  developing  more 
harmonised approaches between MFA and SAF. In this regard a manual defining 
harmonised guidelines for budget assistance to third countries is being prepared;  

•  In  the  context  of  an  ad  hoc  inter-service  group,  ways  to  enhance  co-operation 
between DGs directly concerned are being looked into;  

The Commission now ensures, in all cases, that reasons for granting waivers 
• 
are  adequately  documented;  (mission  reports  in  the  beneficiary  country,  analysis 
of  the  conditionalities  included  in  the  MoU,  results  of  the  consultation  of  the 
EFC); 

• 
A  first  draft  of  the  Vademecum  on  MFA  including  a  description  of  the 
financial  circuit  in  DG  ECFIN  and  the  others  services  of  the  Commission  is 
available and will be finalised shortly. 

• 
A  four  year  framework  contract  to  assist  in  the  implementation  of 
operational  assessments  aiming  at  checking  the  soundness  of  financial  circuits 
and controls pertaining to MFA in beneficiary countries was awarded to Deloitte 
in December 2003. Operational missions will start shortly; 

Correction of the weaknesses detected in these operational assessments could 

• 
be included as conditions or monitoring items in the different MoUs; 

The  results  of  the  operational  assessments  will  also  be  communicated  to 

• 
RELEX and AIDCO; 

Provisions  on  fraud  prevention  are  now  included  in  each  proposal  of  the 

• 
Commission for Council decision; 

• 

Each MoU granting MFA now contains an audit and recovery clause; 

33 

 
 
  
 
 
 
• 
The results of these exercises will also be discussed in due course with BWI 
in the context of programmes addressing weaknesses in financial management in 
the recipient countries. 

A  greater  focus  on  evaluation  is  already  a  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 (paragraph 5.85); 

• 
Following a call for tender launched in 2003, an ex-post evaluation will start 
with respect to MFA for Armenia in the first quarter of 2004 with the assistance of 
a specialised firm; 

• 
A call for tender will be launched in 2004 for selecting a consultant who will 
be  required  to  carry  out  ex-post  evaluations  for  other  MFA  programmes  in  the 
context of a three year framework contract; 

The final reports of these evaluations will also be communicated to RELEX 

• 
and AIDCO. 

45. 

Delegations should be allowed sufficient time for giving their opinion on proposals 
made  by  NGOs.  The  Commission  should  also  examine  alternative  procedures  to 
shorten the time between the NGO's submission of proposals and the signing of the 
contracts. (paragraph 5.78) 

Commission's response: 

The Commission is taking the recommended action. 

The  Commission  welcomes  the  Court’s  comments  on  the  actions  taken.  The 
consultation  process  will  involve  delegations,  and  sufficient  time  will  be  allowed 
for them to comment (paragraph 5.78). 

46. 

The  Commission  should  consider  having  a  greater  part  of  the  assessment  work 
carried out by the Delegations on the basis of clear instructions and guidance from 
the central services, subject to subsequent monitoring. (paragraph 5.75) 

Commission's response: 

The Commission is taking the recommended action. 

The  existing  procedures  foresee  an  active  involvement  of  delegations  in  the 
assessment  of  proposals,  and  the  Commission  will  ensure  that  proposals  are 
received in due time for them to be assessed. 

47. 

An information and management system containing data on experts and contractors 
should be developed (paragraph 5.67). (paragraph 5.67) 

Commission's response: 

The Commission is taking the recommended action. 

34 

 
 
  
 
Data on contractors and individual experts are already recorded in a CRIS special 
file  called  "Opérateurs".  AIDCO  intends  to  continue  to  register  contractors  and 
individual experts in this file, because information on companies or individuals is 
often needed even if a contract should not be signed (i.e. companies which apply to 
a  call  for  tender).  In  order  to  comply  with  the  modernization  of  the  Commission 
accounting  system,  the  EuropeAid  local  information  system  (CRIS)  will  use  an 
interface  to  transfer  data  from  "Opérateurs"  to  ICON-DB.  It  is  obvious  that 
EuropeAid  intends  to  adapt  its  local  systems  to  the  requirement  of  the  ABAC 
project. 

35 

 
 
  
 
Enlargement 

48. 

When  the  Commission  monitors  compliance  with  the  conditions  for  decentralised 
management,  it  should  ensure  that  the  shortcomings  identified  by  the  Court  are 
sufficiently covered. The Commission should also review that the items mentioned in 
its own audit reports are rectified (paragraph 6.31) 

Commission's response: 

The recommended action has been taken.  

The  recommended  action  has  been  taken.  After  publication  of  the  2001  annual 
report  of  the  Court  of  Auditors,  the  Commission  emphasised  to  the  applicant 
countries  that  the  Court’s  recommendations  had  to  be  implemented.  Moreover,  a 
programme of systematic compliance audits was launched in September 2003. This 
covers  both  the  recommendations  of  the  Court  and  those  made  previously  by  the 
Commission. 

The Commission responded also to the shortcomings identified by the court with a 
series of actions aimed to facilitate program implementation and to give guidance 
and to assist the staff in the Candidate countries (i.e. modification of COM REG 
2759/99 concerning the scope of the training measure, help in the preparation of 
the Monitoring Committees, invitation to bring forward any suggestion to ease the 
implementation  of  the  Sapard  Programme,  response  to  numerous  requests  from 
parties interested in any aspects of SAPARD, advice on financial management…). 

The competence of the staff assigned to managing the Sapard programme is also 
evaluated  during  both  ex-ante  and  ex-post  audit  missions,  through  interviews, 
training of staff, collection of CVs and job descriptions.  

36 

 
 
  
 
Administrative Expenditure 

49. 

The  way  in  which  the  satellite  bodies'  financial  statements  are  presented  should  be 
harmonised.  The  presentation  should  also  take  account  of  the  special  nature  of  the 
satellite bodies in order to highlight their economic outturn more. (paragraph 7.26) 

Commission's response: 

The Commission is taking the recommended action. 

The Financial Regulation applicable from 1 January 2003 has extended the scope 
of consolidation to include "bodies set up by the Communities and having a legal 
personality  which  actually  receive  grants  charged  to  the  budget"  and  stipulates 
that  they  must  apply  the  same  accounting  rules  as  the  institutions  so  that  their 
accounts can be consolidated with those of the Commission for the 2005 financial 
year at the latest in accordance with the transitory provisions of the regulation. To 
that end, the Commission's accounting officer will adopt the accounting rules and 
methods and the harmonised accounting plan to be followed by all the institutions, 
agencies  and  satellite  bodies.  Harmonisation  of  the  way  in  which  financial 
statements are presented will thus be achieved.  

As  part  of  this  process,  there  has  been  a  two  day  meeting  held  in  Brussels  in 
October  2002  between  the  Commission  and  representatives  of  the  bodies 
explaining  the  modernisation  of  the  accounting  system  project  followed  up  by  a 
second  meeting  in  Lisbon  in  Spring  2003  outlining  the  advantages  of  the 
accounting  reform.  The  most  recent  meeting,  which  provided  an  update  to  these 
bodies  on  the  status  of  the  project,  was  held  in  December  2003.  These  meetings 
allow  the  bodies  to  put  forward  their  needs  and  issues  with  regard  to  the 
requirements of the Financial Regulation. 

Additionally,  these  bodies  have  a  direct  input  to  the  modernisation  project  by 
having two representatives on the Accounting Standards Committee. 

50. 

The  efforts  already  made  to  achieve  greater  uniformity  in  the  presentation  of  the 
Schools' accounts should be continued with a view to making their consolidation less 
difficult. The Schools' accounting plan fails to provide for any fixed-assets accounts 
and the property which is supposed to be entered on the inventory is not recorded in 
the general accounts: the fixed assets are not entered in the individual balance sheets 
of the Schools or of the Office of the Representative of the Board of Governors. In its 
report  concerning  the  2000  financial  year,  shortcomings  in  the  inventory-keeping 
were highlighted ). (paragraph 7.34) 

Commission's response: 

The Commission is taking the recommended action. 

Following the Court's observations, progress has been made in the harmonisation 
of  the  presentation  of  the  schools'  accounts.  Nevertheless,  greater  care  will  be 
taken  in  the  classification  of  assets  in  the  budget  and  ex-budget  accounts  on  the 
balance sheet.  

37 

 
 
  
 
Also  as  a  result  of  the  Court's  observations,  the  Office  asked  the  schools  to  take 
fixed assets into account in their balance sheets. In principle this recommendation 
has been taken up by all the schools. 

At the various meetings of the Boards of Governors, the Commission always asks 
about  the  situation  as  regards  the  inventory  and  encourages  the  schools  to  take 
action. In fact, most of the European Schools are now complying with the Court’s 
wishes, and the Commission will continue to encourage them to do so. 

38 

 
 
  
 
Financial Instruments 

51. 

Since  there  are  no  precise  targets  to  be  achieved,  it  is  particularly  important  that 
reports on the implementation of the facility and on employment and job creation are 
reliable,  that  the  relevant  figures  are  accurate  and  that  the  facility  is  coherent  with 
others managed by the EIF and running parallel to it.  

The information on commitments and draw-downs made by the EIF for investments 
in venture-capital funds is available for the full year 'n' during the first quarter of the 
following  year  ('n+1).  On  the  other  hand,  information  on  employment  from  SMEs 
concerning  year  'n'  is  transmitted  to  the  Commission  through  the  venture-capital 
funds and the EIF in the third quarter. The Commission considers that it is reasonable 
to  keep  the  existing  deadlines,  rather  than  to  oblige  SMEs  to  either  change  their 
financial  reporting  cycle  or  send  a  report  in  two  parts.  The  Court  notes  that  the 
budgetary  authority  is  not  informed  about  the  development  of  the  scheme  before 
budgetary decisions are made in year 'n+1'. (paragraphs 8.14/8.15) 

Commission's response: 

The recommended action has been taken. 

Like the Court, the Commission and EIF attach great importance to the reliability 
of figures provided regarding the implementation of the facility. Figures regarding 
commitments, contract signature, draw downs and repayments are verified by the 
EIF and monitored by the Commission. 

The  Commission  considers  that  the  collection  and  analysis  of  statistical  data 
including employment is best addressed in the context of evaluation. In accordance 
with the Council Decision, an ex post evaluation has been carried out. 

To  further  speed  up  reporting  of  statistical  data,  the  Commission  services  have 
taken the following measures:  

Regarding  ETF  Start-up,  from  2002  onwards,  EIF  will  provide  information  on 
employment as at 30 June of year “n”. This requirement will be percolated down to 
newly approved venture-capital funds in a side-letter. 

Regarding  the  SME  Guarantee  Facility  (loan  guarantees),  information  on  the 
number of employees and expected number of employees in one and two years, will 
be provided by EIF at 31 October of year “n”, based on data as at 30 June of year 
“n”, as reported by intermediaries at the time of inclusion. 

Until  the  new  fiduciary  and  management  agreement  entered  into  force  the  EIF 
provided  information  on  commitments  and  draw  downs  twice  a  year.  Under  the 
new  framework  agreement  the  information  will  be  provided  four  times  a  year 
(paragraphs 8.14/8.15).  

Regarding  reporting  by  the  Commission  to  European  Parliament,  it  should  be 
noted  that  since  the  last  quarter  of  2001  and  during  the  full  commitment  period, 
the Commission services provide quarterly reports to the Rapporteur of European 
Parliament. These reports are provided in addition to the reports to the budgetary 

39 

 
 
  
 
 
authorities  foreseen  in  the  legal  base.  They  contain  key  financial  and  statistical 
(employment and geographical distribution) data. 

The responsible Commission services consider that with these actions, the Court’s 
recommendations have been addressed. 

52. 

The Court is aware of the difficulties inherent in the implementation of the schemes 
audited. The Court recognises that a fair balance has to be struck between potentially 
profitable uses for the funds and requirements owing to the character of these funds 
as public money intended to be used for public interest objectives Nevertheless, the 
Court recalls that difficulties remain in establishing the ETF Start-up and to a lesser 
extent establishing the SME Guarantee facility equitably throughout the Community. 

In  accordance  with  the  above  the  Court  recommends  that  the  Commission  and  the 
EIF should study the way to find remedies for the weakness observed by the Court in 
the speed and the extension of the schemes' implementation. (paragraphs 8.31/8.32) 

Commission's response: 

The recommended action has been taken. 

The  SME  Guarantee  Facility  has  established  itself  as  an  effective  instrument 
reaching  a  sizeable  population  of  SMEs  active  in  a  wide  range  of  different 
activities. 

The differences in the take up of the Facilities were identified by the Commission 
at  an  early  stage  and  largely  taken  into  account  in  defining  the  framework  for 
implementation  of  the  MAP  (Multi  annual  programme  for  enterprise  and 
enterpreneurship).  The  new  MAP  proposes  modifications  and  extensions  of  the 
ETF  Start  up  Facility  and  the  SME  Guarantee  Facility  and  introduces  a  new 
action,  the  Seed  Capital  Action.  All  three  actions  are  to  be  managed  by  the  EIF 
and aim to address recognised market failures in order to improve SMEs' access to 
finance (paragraphs 8.30/8.31). 

Based  on  the  experience  gained  under  the  Growth  and  Employment  Initiative,  it 
was recognised that it would be more appropriate for the EIF to seek a balanced 
global geographical distribution for all the financial instruments managed by the 
EIF in the context of MAP. 

The  contract  with  EIF  was  updated  accordingly  and  geographical  distribution 
guidelines  have  been  included  in  the  restated  fiduciary  and  management 
agreement.  These  guidelines  set  out  that  EIF  will  seek  to  achieve  a  global 
geographic distribution among Member States of the amounts available under the 
financial instruments financed by the Community budget (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; 

40 

 
 
  
 
 
– 

– 

the minimum size necessary for a specific operation to be viable; 

the characteristics of the different markets.  

41 

 
 
  
 
Actions resulting from The Das for 2001 

53. 

For several years the Commission has been developing a new accounting framework 
which  complies  with  the  principles  of  accruals-based  accounting.  Nevertheless,  the 
new  Financial  Regulation  states  that  the  reformed  accounting  system  will  only 
gradually  be  brought  in  and  that  it  will  not  be  fully  operational  until  the  financial 
year 2005. A draft action plan was submitted in June 2001. By the end of May 2002, 
no start had been made on implementing this action plan, which has remained at the 
draft  stage.  The  deadline  for  adopting  the  new  Financial  Regulation  is  not 
justification  for  these  delays  in  implementation.  In  short,  the  provisions  of  the 
Financial Regulation will not be sufficient, in themselves, to make up for the present 
shortcomings in the accounting system and a good many practical measures need to 
be taken (paragraph 9.8) 

Commission's response: 

The Commission is taking the recommended action. 

In  its  Communication  of  17  December  2002  the  Commission  adopted  an  action 
plan for the modernisation of the European Communities’ accounting system. This 
plan  is  designed  as  a  follow-up  to  the  provisions  of  the  Financial  Regulation 
adopted  in  June  2002.  It  states  that  the  reformed  accounting  system  is  to  be 
completely  in  accordance  with  accrual-based  accounting  principles  and  will  be 
applied  gradually  and,  will  only  be  fully  effective  in  the  2005  financial  year.  To 
meet  this  goal  there  are  two  key  areas:  the  adoption  of  a  new  accounting 
framework  and  the  development  of  the  information  systems  required  for  its 
implementation.  

Work  on  the  project  began  in  2003  with  the  allocation  of  specific  resources, 
including staff and external consultants to the task. Two committees have been set 
up under this plan during the first quarter of 2003 (a project oversight board and 
an  advisory  committee  for  accounting  standards).  The  Accounting  Standard 
Committee meets each month and to date 18 standards have been presented to and 
discussed by this committee. 

The  preparation  of  the  Accounting  Manual  is  in  progress  and  planned  to  be 
completed in 2004. 

The Commission will continue to regularly inform the Discharge Authority and the 
European Court of Auditors of the progress made in this exercise as was done in 
2003 when the Commissioner in charge of the Budget presented an update to the 
COCOBU in July. 

54. 

As at 31 December 2001, the total shown in the balance sheet under sundry debtors 
for  the  amounts  held  by  financial  intermediaries  (980  million  euro,  including  73 
million euro of interest) comes from a non-accounting record. The procedure that is 
followed  does  not  enable  the  Commission  to  demonstrate  the  justification  for  the 
sums thus entered in the accounts. Consequently, the declarations by the Directors-
General  of  the  Enlargement  DG  and  the  EuropeAid  Cooperation  Office  include 
reservations concerning the reliability of the estimates in their fields which amount to 
685 million euro. (paragraph 9.25) 

42 

 
 
  
 
Commission's response: 

The Commission is taking the recommended action. 

As  the  Court  has  pointed  out  previously,  non  accounting  records  are  inherent  to 
the Commission's current accounting system and are necessary for drawing up the 
annual accounts. 

From  the  changeover  to  accrual  accounting  onwards,  the  use  of  non-accounting 
records  will  be  minimal  as  the  New  Financial  Regulation  requires  that 
prefinancing payments be identified.  

It is also noted that the financial statements received from the national authorities 
are certified by them, and are accompanied by extracts from the bank accounts. 

In  the  framework  of  the  modernisation  project  for  the  accounting  systems,  an 
accounting  standard  for  prefinancing  payments  has  been  prepared.  The 
improvements to the IT systems will allow for the correct bookkeeping and clearing 
of the prefinancing payments. Prefinancing amounts will be able to be followed up 
in the central accounting system in 2005. 

55. 

A  provision  of  564  million  euro  for  risks  and  liabilities  was  entered  in  the 
consolidated balance sheet as at 31 December 2001 to cover the cost of dismantling 
the JRC's installations, the activities of which have ceased (374 million euro) or are 
still in progress (190 million euro). Apart from the fact that the cost of deploying the 
JRC's own staff (estimated at between 75 and 100 million euro) was not included in 
this provision, the amount of the provision is the result of an internal evaluation by 
the JRC. Until the technical evaluation on which it is based has been the subject of an 
independent examination involving consultation of the parties involved, its probative 
value will remain limited. (paragraph 9.31) 

Commission's response: 

The recommended action has been taken.  

The  external  evaluation  announced 
the 
recommendations  of  the  experts  introduced  in  a  project  of  communication  to  the 
Parliament  and  the  Council  on  the  Decommissioning  and  Waste  Management 
Program (launched in Inter-Services Consultation the 19 December 2003). 

taken  place  and 

in  2001  has 

The value of the provision recommended for 2002 was 1,114.392 Mio€ and takes 
into account the staff expenditure necessary for this activity.  

56. 

Commitments against differentiated appropriations still outstanding at 31 December 
2001 totalled 86 760 million euro. Of these, commitments still outstanding for more 
than two years accounted for 28 840 million euro, of which 9.790 million euro had 
not been the subject of any payment during the last two years. Of the latter amount, 
the  Court  considers  that  some  1  318.2  million  euro  (13%)  no  longer  represent  an 
obligation to make payments (paragraph 9.32) 

43 

 
 
  
 
57. 

Commission's response: 

The Commission is taking the recommended action. 

During the period mentioned by the Court, the Commission paid some 147 million 
against  these  outstanding  commitments;  a  further  745  million  in  commitments 
were  examined,  but  the  Commission  departments  considered  that  they  should 
remain  open  for  various  reasons:  contract  still  valid,  awaiting  final  report,  legal 
dispute ongoing, etc. At the end of April 2002, the Commission had reviewed one 
quarter  of  all  the  commitments  to  be  examined.  The  rate  of  examination  was 
accelerated by the end of 2002. The Action Plan aims at examining all potentially 
abnormal RAL by the end of 2003 and the results will be reported to the Budgetary 
Authority in May 2004. 

The  total  of  the  consolidated  balance  sheet  for  the  financial  year  2001  shows  an 
increase  of  76%  compared  with  the  total  for  the  previous  financial  year.  This 
increase  is  mainly  due  to  a  change  in  the  accounting  policy  applied  by  the 
Commission in respect of pension rights. This change in method comes in the wake 
of an observation by the Court, asking for the annual liability representing the rights 
acquired  during  the  financial  year  to  be  deducted  from  the  economic  result. 
However, the Commission does not record this expenditure, as it has entered the total 
amount  of  the  potential  debt  for  pensions  in  the  financial  statements  for  a  single 
financial year and, in compensation, has entered revenue for the same amount, thus 
neutralising the impact on the economic result. In so doing, it is not complying with 
the  Court's  request.  At  the  time,  moreover,  the  Commission  considered  that  a 
thorough accounting analysis was required. The Court is consequently of the opinion 
that  it  would  be  useful  for  the  Commission  to  continue  its  analysis  of  the  way  in 
which  the  pensions  scheme  is  treated  in  the  accounts,  bearing  in  mind  the 
Community context (paragraph 9.17) 

Commission's response: 

The Commission is taking the recommended action. 

For  several  years  now,  the  Commission  has  been  supplying  detailed  information 
on  pension  rights  in  the  annex  to  the  annual  accounts  (in  the  off  balance  sheet 
commitments).  A  major  step  forward  was  made  in  the  2001  accounts,  when  the 
provisions  for  pension  rights  were  entered  for  the  first  time  as  liabilities  in  the 
accounts. 

A new accounting standard for pensions is currently being prepared as part of the 
modernisation  of  the  accounting  systems  project.  This  will  be  discussed  by  the 
Accounting  Standards  Committee.  The  Commission  feels  that  it  would  be  more 
appropriate  to  deal  with  this  issue  in  the  accounts  when  the  standard  has  been 
adopted to avoid making numerous changes in the meantime. 

For the calculation of pension rights, the Commission employs an expert to carry 
out  a  full  actuarial  study  every  five  years.  Besides  this  five-yearly  analysis,  the 
figures are adjusted every year, using the method suggested by the expert, on the 
basis of changes in interest rates. 

44 

 
 
  
 
Following  independent  expert  advice  received  the  Commission  is  awaiting  the 
results of the latest valuation (early 2004) to verify if the simplified approach used 
in calculating the changes in the provision is appropriate. 

The first draft of the new accounting standard for pensions has been presented to 
the Accounting Standards Committee. 

58. 

The interest yielded by the advances and payments on account is not always notified 
to  the  Commission  by  the  financial  intermediaries.  Where  it  is  notified,  it  is  not 
always recorded as budgetary revenue. At 31 December 2001, interest on the funds 
held  by  the  financial  intermediaries  known  at  central  level  (see  paragraph  9.25) 
amounted  to  73  million  euro,  of  which  only  28  million  euro  were  recorded  as 
budgetary revenue. When the sums received in this way are allocated to measures or 
programmes,  they  are  not  automatically  recorded  as  budgetary  expenditure.  it 
follows  from  this  that  the  accounts  do  not  reflect  the  whole  of  the  Community 
contribution (paragraph 9.27) 

Commission's response: 

The Commission is taking the recommended action. 

The  Commission  will  ensure  that  such  interest  is  entered  in  the  accounts  on  a 
regular basis and will regularise the past situation. 

The  new  Financial  Regulation  requires  that  estimates  of  amounts  receivable  be 
drawn up when prefinancing payments are made and that interest yielded by funds 
which remain the property of the European Communities be entered in the budget 
as miscellaneous revenue. 

Furthermore,  the  implementing  rules  for  the  Financial  Regulation,  applicable 
since 1 January 2003, specify exactly the scope of the pre-financing amounts that 
remain the property of the Communities. 

Additionally  an  accounting  standard  concerning  prefinancing  has  been  prepared 
and discussed by the Accounting Standards Committee. 

59. 

The declarations of the Directors-General and the Commission's summary report are 
spontaneous  expressions  of  opinion  which  the  external  auditor  (the  Court)  cannot 
disregard in the context of its Statement of Assurance. However, the dates set by the 
Commission for submitting these declarations are incompatible with the timetable for 
the  Annual  Report  laid  down  by  the  Financial  Regulation.  The  reports  of  the 
Directors-General are the basis for the Summary report which the Commission sends 
to the European Parliament, the Council and the Court (see paragraphs 9.9-9.100) at 
the  end  of  July,  despite  the  fact  that,  according  to  Article  88(1)  of  the  Financial 
Regulation, the Court is required to send the observations likely to be included in its 
Annual Report to the Commission by 15 July at the latest  

This  timetable  therefore  does  not  enable  the  Court  to  make  a  detailed  examination 
under  proper  conditions  of  the  declarations  and  reports  submitted  both  by  the 
authorising officers and by the Commission itself. The deadline set by the Charter for 
authorising  officers  by  delegation  for  the  submission  of  annual  reports  (15  March) 
would  be  much  more  suitable.  The  alterations  to  the  timetable  provided  for  by  the 

45 

 
 
  
 
 
new  Financial  Regulation  make  it  even  more  necessary  for  the  Commission  to 
review the deadlines for the submission of the declarations and annual reports by its 
departments (paragraph 9.54.paragraph 9.55) 

Commission's response: 

The recommended action has been taken.  

On  21  January  2003,  the  Commission  adopted  the  ABM  communication 
(COM(2003)  28),  which  also  covers  the  preparation  of  the  Annual  Report  and 
provides  the  services  with  new  guidelines  on  the  declaration  of  the  authorising 
officer by delegation(AOD) and, the concept of reservation, the hand-over between 
Directors-General and the question of the cross-delegations. 

However,  some  elements  have  evolved  following  notably  the  New  Financial 
regulation  (NFR)  and  the  2002  Synthesis  (COM  (2003)  391).  Due  to  this,  the 
"Circular  on  the  annual  activity  reports  for  year  2003"  (SEC  (2003)  1469)  pays 
special  attention  to  the  CALENDAR  which  has  been  adjusted  to  meet  the  new 
constraints set in the NFR.  

Following art 60.7 of the NFR , the Commission shall no later than 15 June each 
year  send  to  the  budgetary  authority  a  summary  of  the  annual  reports  for  the 
previous  year  prepared  by  the  AODs.  To  be  able  to  prepare  the  mentioned 
summary  ,  the  individual  annual  activity  reports  approved  by  the  AODs  will  be 
communicated to the Secretariat General and the responsible Commissioner, with 
copy to DG ADMIN, DG BUDG and the Internal Audit Service, by not later than 
Wednesday 31 March 2004.  

60. 

The deadline for Action 96 of the White Paper on more effective management of the 
recovery  of  unduly  paid  funds  (see  paragraph  9.26)  was  set  for  July  2000.  In 
December  2000  the  Commission  adopted  a  communication  laying  down  the 
principles  for  a  reform  of  its  procedures  and  an  action  plan  for  this  purpose 
consisting of operational decentralisation and greater support for its Legal Service. In 
the wake of administrative difficulties, the deadline was deferred until 30 June 2002 
(paragraph 9.67) 

Commission's response: 

The Commission is taking the recommended action. 

With a view to a more effective management of the recoveries, the Commission has 
adopted  tow  communications  aiming  to  implement  action  96  of  the  White  Paper 
The first communication has been adopted on 3 December 2000 and redefines the 
roles of the actors (authorising officer, accounting officer, legal service and Olaf) 
and  the  second  communication,  adopted  on  3  December  2002  (COM(2002)  671 
final)  has  taken  stock  of  the  improvements  put  in  place  in  the  field  of  the 
regulatory framework, the organisational structure and the IT System. 

Regulatory Framework: 

- Guidelines on the application of the principle of proportionality to the waiving of 
debts recovery of 21 November 2001 ; 

46 

 
 
  
 
-  Financial  Regulation  applicable  to  the  general  budget  of  the  European 
Communities of 25 June 2002 ; 

- Commission Regulation of 23 December 2002 laying down detailed rules for the 
implementation of the Financial Regulation applicable to the general budget of the 
European Communities ; 

-  Internal  Procedure  provisions  of  17  December  2002  for  the  recovery  of 
entitlements arising from direct management and the recovery of fines, lump sums 
and penalty payments under the Treaties . 

The  new  framework  has  introduced  two  important  tools  for  the  recovery  :  a 
systematic offsetting of debts and claims and a broad application of Article 256 of 
the EC Treaty ("titre exécutoire"). 

Organisational improvements: 

- DG Budget has reinforced the number of staff directly allocated to recovery and 
created  a  separate  unit  within  directorate  C  (Unit  C5).  The  necessary 
organisational framework has been put in place for the systematic claiming of late-
payment interest. With  regard  to  offsetting, a new sector dealing exclusively with 
the technical process has been set up within unit C3. 

-  OLAF  has  created  a  new  unit  (A5)  dealing  with  the  financial  and  recovery 
aspects of its audits. 

- The Legal Service has set up a new sector dealing with enforcement proceedings 
at a central level. 

IT Systems: 

- Some major improvements of the existing informatics tools, notably with regard 
to more reliable reports on outstanding recovery orders, have been realised. 

- As from the budget year 2003, the necessary modifications to the IT System for 
the  decentralisation  of  debit  note  processing  have  been  implemented.  Debit  notes 
are now printed, signed and sent to debtors by the authorising officers according to 
the Financial Regulation. 

-  A  new  computerized  system  of  dunning  is  to  be  implemented  as  part  of  the 
modernisation of the accountancy of the Commission. 

61. 

ECIP  (European  Community  Investment  Partners)  is  a  financial  instrument  created 
during the 1980s to support joint ventures founded by companies established within 
the  Community  and  companies  in  developing  countries  (ACP,  Latin  America  and 
Asia). The Court considers that the Commission's accounts do not give a true picture 
of this instrument's situation for the following reasons (paragraph 9.20) 

Commission's response: 

The Commission is taking the recommended action. 

47 

 
 
  
 
The  Commission  has  made  progress  in  the  field  of  accounting  and  reporting, 
although some problems are still to be ironed out. 

Between 1988 and 1999, the Commission granted within the framework of ECIP, 
1365 interest-free advances under conditions for an amount of 139,3 M€. During 
the same period, the Commission contributed to the investment funds of financial 
institutions. The regulation ECIP stipulated that, except in exceptional situations, 
these financial institutions had to use these funds to intervene directly and in their 
own name in the capital of companies of the ALA/MED/SA area. These amounted 
to more than 150 operations and almost €33 M. In both cases, these amounts were 
carried on the balance sheet of the Commission. 

However,  for  these  two  cases,  the  Commission  has  continued  a  detailed 
examination  of  the  contracts  in  order  to  establish  if  these  actions  have  to  be 
maintained  under  these  headings  of  the  balance  sheet  or  have  they,  on  the 
contrary, to be shown under the prefinancing heading of the accounts, to foresee 
in compliance with the modernisation of the accounting system and the scheduled 
calendar. 

With  regard  to  the  general  situation  of  the  interest-free  advances  (under 
condition),  the  files  of  665  actions  having  benefited  from  a  total  of  €71.5M  of 
advances, were examined by a steering committee. Following this examination, it 
was  decided  that:  (1)  €49.6M  of  advances  for  624,  actions  the  conditions  for  a 
regularisation in payment were met. The remainder should be refunded. In 2004, 
the Commission departments will give priority to the administrative and financial 
closure  of  these  624  files.  The  remaining  files  (almost  700)  will  be  examined  as 
from 2005. 

The  programme  cannot  be  definitively  wound  up  until  the  last  joint  venture  has 
been completed. 

62. 

In  2000  the  Commission  opened  three  bank  accounts  with  the  Central  Bank  of 
Jordan.  These  accounts  were  intended  to  meet  the  needs  of  three  MEDA 
programmes. The funds paid into these accounts were regarded as expenditure by the 
authorising  department  concerned  at  the  Commission.  On  31  December  2001,  the 
deposits  on  these  accounts  totalled  639  927  euro.  Apart  from  the  fact  that  these 
amounts  had  been  classed,  in  advance,  as  the  equivalent  of  budgetary  expenditure, 
they were not shown under disposable assets on the Commission's balance sheet as 
the accounting officer was not aware the accounts had been opened. Such practices 
are  contrary  to  the  most  elementary  principles  of  internal  control  and  the 
Commission  should  forbid  them  from  being  used  by  its  authorising  officers  by 
subdelegation (paragraph 9.29) 

48 

 
 
  
 
Commission's response: 

The recommended action has been taken.  

With regard to the three bank accounts mentioned by the CoA, they were closed in 
2002  and  the  "Third  Party"  references  blocked  in  SINCOM2.  A  circular  note 
dated 15 January 2002 was sent to all Directorate-generals reminding them of the 
rules for the opening of bank accounts. The replies from banks to the letters sent at 
the  end  of  each  year  asking  for  information  on  Commission  bank  accounts  are 
compared carefully with the Commission records in order to detect any anomalies.  

49 

 
 
  
 
 
European Development Fund (EDF) 

63. 

The Court has repeatedly called on the Commission to present the EDF accounts in a 
form that is more consistent with accounting principles. The Commission included a 
consolidated balance sheet for the sixth, seventh and eighth EDFs in the EDF balance 
sheet for 2001. However, the presentation of the consolidated balance sheet and the 
balance  sheets  of  the  various  EDFs  was  not  sufficiently  harmonised  and  the 
information value of the accounts was still inadequate (see paragraphs 19 to 21). The 
Court considers that further improvements should be made in the presentation of the 
EDF  accounts.  Moreover,  the  accounts  should  be  published  in  the  Official  Journal, 
which  would  comply  better  with  Community  practice  as  regards  financial 
information (paragraph 5) 

Commission's response: 

The Commission is taking the recommended action. 

Significant  efforts  were  made  to  make  improvements  in  the  presentation  of  the 
consolidated  Balance  Sheet  for  2002.  It  considers  that  the  presentation  is  now 
clearer  and  as  such,  provides  more  useful  information.  Nevertheless  the 
Commission recognises that further improvements can, and should be made.  

In  particular,  the  Commission  intends  to  consult  the  Court  of  Auditors  on  the 
presentation of future sets of accounts, in accordance with the provisions of Article 
103  of  the  Financial  Regulation  of  the  9th  EDF.  Any  feedback  received  in  the 
course of this exercise will be incorporated into the published accounts, where it is 
feasible to do so. 

In  accordance  with  the  provisions  of  the  same  Article  (103)  of  the  9th  EDF 
Financial Regulation, the EDF accounts will in future be published in the Official 
Journal,  thus  complying  with  the  Court  of  Auditors  recommendation.  Such 
publication  will  take  place  before  30  November  2004  in  respect  of  the  2003 
Financial Statements. 

64. 

In  support  of  the  EDF  financial  statements  for  the  financial  year  2001,  the 
Commission also provided an analysis of their financial management. This document 
is  more  detailed  than  the  one  for  the  financial  year  2000  whose  inadequacies  the 
Court had pointed out in its previous Annual Report. However, there is still room for 
improvement, in particular with regard to the explanation of the slow implementation 
of the EDFs. The Commission should therefore show and comment on the cumulated 
implementation  rates  of  the  various  EDFs.  It  should  also  analyse  thoroughly  the 
causes  of  under-implementation 
them  briefly  whilst 
announcing  the  improvements  that  it  expects  to  achieve  via  decentralisation 
(paragraph 6) 

instead  of  mentioning 

Commission's response: 

The Commission is taking the recommended action. 

The Commission prepared a separate Report on the financial management of the 
EDF  in  respect  of  the  Financial  Year  2002.  This  Report  was  appended  to  the 

50 

 
 
  
 
Financial Statements and communicated to the Council, Parliament and the Court 
of Auditors. 

The 2002 Report contains some analysis on the factors affecting the accumulated 
implementation rate of the different EDFs, the Court's comments were noted and 
this  ‘implementation’  analysis  has  been  and  continues  to  be  improved  in 
subsequent  reporting  periods.  This  process  has  been  substantially  aided  by  the 
establishment of annual regional seminars covering all ACP delegations in which 
each partner country’s implementation and financial performance is analysed. 

65. 

In  order  to  avoid  the  implementation  delays  that  affected  the  previous  EDFs,  the 
Commission  has  started  adapting  certain  accompanying  texts  that  would  be 
necessary for the implementation of the agreement when it enters into force. One of 
these  regards  the  rules  for  contracts.  It  has  still  not  presented  the  proposal  for  a 
Financial Regulation and could therefore put the legislative authority in the difficult 
position of having to adopt this text as soon as possible before the entry into force of 
the Cotonou agreement. Generally, the Commission should look into the possibility 
of setting up a legislative support framework so as to avoid transition problems when 
it introduces new EDFs. 

The Court recognises that development aid policy involves constraints that are likely 
to  make  implementation  slow.  It  therefore  asks  the  Commission  to  show  more 
realism in establishing its forecasts so as not to give rise to unjustified expectations. 
At the same time, it asks the Commission to give more emphasis to reforms aimed at 
limiting this slowness, so that the eighth and the ninth EDFs do not suffer from the 
same excessive implementation delays found for the previous EDFs. (paragraphs 16 
and 17) 

Commission's response: 

The Commission is taking the recommended action. 

The  Commission  presented  a  proposal  on  11  June  2002  for  the  new  (9th)  EDF 
Financial Regulation. This came into force on the 2nd April 2003, the same date 
as  the  entry  into  force  of  the  Cotonou  Agreement  as  requested  by  the  Court  of 
Auditors. In addition the Commission presented a proposal in October 2003 for the 
budgetisation  of  the  EDF  which  would  entirely  remove  delays  caused  to  EDF 
transition problems for the future. 

The  Commission  has  taken  concrete  steps  to  introduce  new  IT  based  forecasting 
tools  under  the  auspices  of  the  Common  Relex  Information  System  which  is 
planned  for  full  implementation  in  2004.  This  action  has  been  supported  by 
substantial  structural  change  and  new  procedures  in  relation  to  planning  and 
financial forecasting responsibilities by ACP delegations. The subsequent forecasts 
for 2002 and 2003 have been proved to be highly accurate.  

The Commission has given significant priority in the Reforms announced in May 
2000 to the acceleration of implementation. In particular, the devolution process - 
which  should  be  completed  for  all  ACP  countries  in  2004  –  should  have  a 
significant impact on the rapidity and quality of payments. In addition, given that 
implementation of programmable aid will always be influenced by the capacities of 

51 

 
 
  
 
 
partner  countries,  the  Commission  has  made  major  efforts  on  capacity  building 
and support in this area. 

66. 

Precise guidelines should be drawn up and they should be applied in a uniform way. 
They  should  be  based  on  the  best  practice  observed  in  the  many  audits  already 
carried out. In particular, the terms of reference of the audit contracts should include: 

- details of the checks to be carried out on the various types of expenditure, including 
the search for infringements of tender rules, over-invoicing and purchases at higher 
than market prices; 

- the establishment of the main cases of ineligibility for EDF financing; 

-  rules  for  the  presentation  of  the  summary  audit  reports,  envisaging  the 
quantification of the coverage of the audit and the cases of ineligibility found as well 
as  a  detailed  account  of  the  expenditure  audited,  together  with  an  indication  of 
whether the expenditure has been accepted or rejected or is doubtful  

Therefore, the current audit mechanism does not yet make it possible to ensure that 
Community  financing  is  verified  in  an  appropriate  and  uniform  way.  The 
Commission should improve its system by specifying the nature of the audit work to 
be carried out and the structure and contents of the audit reports more clearly in the 
financing  agreements  and  the  terms  of  reference.  It  should  improve  their  actual 
implementation  and  its  analysis  and  monitoring  of  the  necessary  corrective  action. 
(paragraph 26.paragraph 30) 

Commission's response: 

The Commission is taking the recommended action. 

The Commission continues its efforts for the creation and the improvement of its 
audit  systems  and  significant  progress  has  been  made  particularly  as  far  as  the 
provision  of  standard  documentation  is  concerned  relating  to  the  preparation, 
execution  and  reporting  on  audits  carried  out  under  the  direct  supervision  of 
headquarters and delegations.  

Most of these audits are carried out by external audit firms under two operational 
framework  contracts  that  are  operational  since  2002  and  2003  respectively.  This 
documentation is available on dedicated WebPages on the EuropeAid Intranet and 
should  be  considered  as  being  part  of  the  methodological  framework  for  audits. 
The development of such a methodological framework is an ongoing task. 

As  the  majority  of  audits  are  mandatory  by  financial  agreements  or  contracts, 
carried out on request of the beneficiary, standardisation and improvement can be 
achieved  by  including  or  modifying  audit  related  dispositions  in  those  legal 
documents. For certain contract types these rules have been improved in 2002.  

Whilst  as  from  2003  audits  carried  out  under  the  direct  supervision  of 
headquarters and delegations are registered in CRIS AUDIT, this system is not yet 
available  to  accommodate  data  on  audits  on  request  of  beneficiaries  (so  called 
certification-audits).  This  function  will  become  operational  during  the  current 
exercise. 

52 

 
 
  
 
 
 
 
 
67. 

In December 2001 a budget of 9 million euro for the 2002-2004 period was allocated 
to  ad  hoc  projects  (meetings,  seminars,  workshops  and  studies)  involving 
expenditure that is, by its nature, difficult to distinguish from the expenditure relating 
to the ACP Secretariat's normal operations. 

The  Court  recommends  that  the  Commission  prevent  this  budget  being  used  to 
finance activities that are covered by the flat-rate operating subsidy paid to the ACP 
Secretariat. In addition, the Court recommends that the Commission reduce, as far as 
possible, the advances earmarked for these ad hoc projects, so that the Secretariat is 
not  provided  with  funds  in  excess  of  its  requirements.  The  reduction  in  its  cash 
resources  should  encourage  the  ACP  Secretariat  to  practise  more  rigorous 
management (paragraph 46/47) 

Commission's response: 

The recommended action has been taken. 

1) All the Ad Hoc Projects implemented by the ACP Secretariat have been gathered 
under a single Financing Agreement and a yearly programming of the activities is 
ensured by means of regular work programmes; technical and financial reporting 
of  the  yearly  activities  are  requested  in  order  to  allow  financing  of  subsequent 
work programmes;  

2)  All  costs  related  to  the  statutory  activities  of  the  ACP  Secretariat  (i.e. 
participation  to  missions  of  the  ACP  Secretariat’s  staff,  etc.)  are  duly  financed 
within the Financing Agreement for the Functioning of the ACP Secretariat. No 
such costs are budgeted or incurred under the FA for the Ad Hoc Projects; 

3) The percentage of the first advance payments of both the Ad Hoc Projects and 
the Functioning of the ACP Secretariat have been reduced from 80% to no more 
than 50%; 

53 

 
 
  
 
 
European Coal and Steel Community (ECSC) 

68. 

At  the  end  of  the  financial  year,  dormant  commitments  had  been  cancelled  to  the 
tune  of  58  million  euro.  These  cancellations  regarded  rehabilitation  aid  and  social 
measures  (23,2  million  and  15,5  million  euro  respectively),  interest  rebates  (10,3 
million  euro)  and  research  (9,1  million  euro).  It  should  be  noted  that,  in  2001,  the 
Commission  cancelled  amounts  that  it  should  have  cancelled  during  previous 
financial years. In  view  of the liquidation  of  the  ECSC  on  23  July  2002,  the  Court 
suggests  that  the  Commission  should  carry  out  a  special  examination  of  all  the 
commitments  that  are  still  open  and  cancel  those  that  it  can  assume  will  not  to  be 
used in the future (paragraph 13) 

Commission's response: 

The Commission is taking the recommended action. 

The  Commission  shares  the  Court's  concern  regarding  cancellations  of  dormant 
commitments and regularly examines commitments that are still open with a view 
to  cancelling  them  where  necessary,  as  shown  by  the  relatively  high  level  of 
cancellations  in  2001.  Since  the  expiry  of  the  Treaty  in  2002  the  balance  of 
outstanding commitments has continued to drop. 

Caution is nevertheless required since cancellations cannot be reversed. As regards 
interest rebates, a minimum level of appropriations needs to be maintained in case 
a sub borrower were to supply additional documentation proving entitlement to the 
late payment of a rebate. 

69. 

The  Commission  (DG  Personnel  and  Administration)  is  required  to  draw  up  an 
annual report concerning the situation of loans to officials, which amounted to 34,8 
million euro at the end of 2001. Until 1987, this report was forwarded to the Council. 
Since then, it has only been sent to the various Commission departments. The most 
recent  report  available  relates  to  the  period  1994  to  1995.  In  reply  to  the  Court's 
report  concerning  the  financial  year  2001,  the  Commission  committed  itself  to 
drawing  up  the  missing  reports  by  the  end  of  2001.  It  did  not  comply  with  this 
commitment.(paragraph 14) 

Commission's response: 

The recommended action has been taken.  

An internal auditor was appointed in February 2002 who analysed the files of 1996 
to 2002. The final audit report was submitted to the Commission by the end of 2002 
and approved by Commission Decision E/396/2003 of 24 March 2003. 

70. 

Up  until  July  1999,  the  Commission's  departments  used  a  certain  database  for  the 
management of loans to officials. Following various problems, it exported the data to 
another database without validating them. The Commission only started the task of 
validating  the  data  for  the  financial  years  after  1999  at  the  beginning  of  February 
2002. Furthermore, there is a gap of two to three months between DG ADMIN's data 
(the  personnel  and  administration  Directorate-General)  and  the  data  held  by  DG 
is 
ECFIN  (the  economic  and  financial  affairs  Directorate-General),  which 

54 

 
 
  
 
responsible  for  drawing  up  the  ECSC's  monthly  and  annual  balance  sheets.  The 
Court  notes  with  concern  the  weaknesses  found  in  the  management  of  these  loans 
and  recommends  that  urgent  steps  should  be  taken  to  restore  sound  management. 
(paragraph 15) 

Commission's response: 

The recommended action has been taken.  

On  1  January  2003,  the  management  of  construction  loans  to  officials  was 
transferred to PMO. 

55