Communication from the Commission - Synthesis of Annual Activity Reports 2003 of DGs and Services { SEC(2004) 732 }
Date: 2004-06-09
Institutions: European Commission
Subjects: EU institution, activity report, management, summarising

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 9.6.2004 
COM(2004) 418 final 

Communication from the Commission 

Synthesis of Annual Activity Reports 2003 of DGs and Services 

{ SEC(2004) 732 } 

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TABLE OF CONTENTS 

Communication from the Commission 

Synthesis of Annual Activity Reports 2003 of DGs and Services 

1. 

2. 

2.1. 

2.2. 

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

Internal control framework issues................................................................................ 3 

General state of play..................................................................................................... 3 

Specific issues .............................................................................................................. 4 

2.2.1.  Delegations................................................................................................................... 4 

2.2.2.  Representation offices of the Commission in the Member States ............................... 4 

2.2.3.  Commission offices and executive agencies................................................................ 4 

2.3. 

Conclusions .................................................................................................................. 4 

3. 

4. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

5.5. 

5.6. 

6. 

7. 

Activity Based Management/ Strategic Planning and programming........................... 5 

Human resources.......................................................................................................... 5 

Financial management and reporting ........................................................................... 6 

Shared management ..................................................................................................... 6 

Direct and indirect centralised management ................................................................ 7 

Ex ante and ex post control .......................................................................................... 7 

Implementing the financial regulation ......................................................................... 7 

Accounting/financial reporting .................................................................................... 7 

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

Governance issues........................................................................................................ 8 

Conclusions .................................................................................................................. 9 

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1. 

INTRODUCTION 

The  Commission’s  Directorates  General  (DGs)  and  services  reviewed  the  main  policy 
achievements  against  the  objectives  set  in  the  2003  Annual  Policy  Strategy  In  their  annual 
activity reports, and took stock of the management in that year. 

The present Synthesis focuses only on the management of DGs and services in 2003. It does 
not  pay  full  tribute  to  the  emphasis  the  Commission’s  administrative  reform  has  put  on  the 
fact that management is oriented towards the delivery of the Union policy objectives. This is 
the rationale behind the annual strategic cycle starting with the Annual Policy Strategy which 
informs the services work programmes to which the DGs’ annual activity reports refer. 

The annual activity reports of the Commission DGs and services provide more detail of the 
actions the Commission conducted and its policy work. 

2003  was  a  year  of  substantial  progress  in  the  implementation  of  the  Commission’s 
administrative  reform,  with  virtually  all  actions  laid  down  in  the  White  Paper  being 
implemented1. Likewise, most of the actions plans undertaken to address cross-cutting issues 
identified in the previous Syntheses are completed or well advanced. 

Taking  note  of  these  achievements,  this  Synthesis  deals  with  a  number  of  cross-cutting 
management issues raised in annual activity reports. For this Synthesis, the Commission has 
decided  to  focus  on  the  management  and  organisation  issues  resulting  from  the  work  of  its 
DGs and services which are particularly relevant to the functioning of the enlarged Union. 

It also takes stock of the issues identified and the recommendations contained in the annual 
report  of  the  internal  auditor  pursuant  to  Article  86(3)  of  the  Financial  Regulation,  the 
overview  of  the  state  of  the  internal  control  systems2  and  the  annual  report  of  the  Audit 
Progress  Committee3.  On  these  recommendations,  this  Synthesis  draws  the  appropriate 
conclusions. 

2. 

INTERNAL CONTROL FRAMEWORK ISSUES 

2.1. 

General state of play 

The 2002 European Court of Auditors’ Report underlined the necessity to ensure the effective 
and complete application of the internal control standards, as they, together with the principle 
of responsibility of Directors General, represent the cornerstone for much of the Reform in the 
Commission.  At  the  end  of  2003  the  Commission  achieved  compliance  with  the  baseline 
requirements, according to the commitments made by the Commission in its 2002 Synthesis. 
The  next  steps  will  concentrate  on  further  improving  the  effectiveness  of  internal  control 
systems. 

1 
2 
3 

See for further details the Progress Report of Reform (COM(2004) 93 of 10.2.2004). 
Overview on the state of internal control in the Commission DGs and Services in 2003. 
Third  Annual  Report  of  the  Audit  Progress  Committee  –  Period  from  May  2003  to  April  2004.  The 
audit  Progress  Committee  is  responsible  for  monitoring  the  quality  of  internal  audit  work  and  the 
implementation by Commission DGs and services of audit recommendations. 

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2.2. 

Specific issues 

The  Synthesis  highlights  specific  points  concerning  cases  where  management  responsibility 
has been either de-concentrated to Commission administrative structures outside headquarters 
or to external bodies. 

One  issue  has  required  urgent  action:  the  implementation  of  internal  control  in  delegations, 
representations  and  external  bodies  reporting  to  the  Commission,  should  be  finalised  and 
implemented as a matter of priority, to avoid that a lower standard of internal control risks to 
apply beyond the Commission’s headquarters. In the above cases, the accountability, control 
and reporting requirements applicable to all Commission DGs and services should be applied 
and attention should be paid to implementing appropriate internal controls. 

2.2.1.  Delegations 

The  Commission  has  embarked  on  a  substantial  de-concentration  process  concerning  the 
management  of  external  aid,  which  has  given  Commission  delegations  in  third  countries 
responsibility for the management and control of operational expenditure. This process, which 
was  extended  to  more  delegations  in  2003  is  in  general  considered  to  be  successful  by  the 
relevant DGs. Some deficiencies concerning implementation of internal control standards in 
delegations,  such  as  separation  of  duties  are  being  addressed,  in  particular  by  tackling  the 
underlying problems regarding human resources organisation. 

2.2.2.  Representation offices of the Commission in the Member States 

The  2002  reservation  on  the  functioning  of  the  representation  offices  in  the  Member  States 
has given rise to corrective measures, which have been adopted and have started to bear fruit. 
Nevertheless, for 2003, the reservation in the relevant annual activity report and declaration 
had to be repeated in the meantime. 

2.2.3.  Commission offices and executive agencies 

The new financial regulation has made it possible for the Commission to set up administrative 
offices and executive agencies in charge of management tasks. Action to create such bodies 
has been undertaken. The first offices started to operate in 2003. The first executive agency 
will start to operate in the second half of 2004. It is important to ensure that their own internal 
control framework is subject to the same standard as any Commission services. 

2.3. 

Conclusions 

In  certain  circumstances,  the  Commission  either  de-concentrated  to  DGs’  departments 
outside  headquarters  or  delegated  management  tasks  to  external  bodies,  considering  that 
they can be more  effectively performed in this way. This de-concentration and delegation 
must  ensure  the  same  level  of  accountability  as  provided  by  the  DGs,  in  particular 
regarding their internal control systems. 

The  respective  DGs  are  responsible  for  ensuring  that  adequate  internal  control 
arrangements in representations and delegations are in place and fully operational and that 
they  provide  the  relevant  authorising  officer  by  delegation  with  the  necessary  assurance 
needed to support his/her annual declaration attached to the annual activity reports. 

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Executive  agencies  should  manage  funds  delegated  to  them  with  the  same  level  of 
assurance  as  that  of  the  Commission  DGs  and  services.  Thus  the  internal  control 
framework  set  up  by  the  executive  agencies  will  be  included  in  the  overview  performed 
twice a year by the DG Budget. 

Implementation  of  internal  control  should  continue  to  concentrate  on  effectiveness,  to 
ensure that internal control systems adequately support the assurance to be given yearly by 
the authorising officers by delegation. 

3. 

ACTIVITY BASED MANAGEMENT/ STRATEGIC PLANNING AND PROGRAMMING 

The strategic planning and programming cycle was fully operational in all its stages in 2003. 
The  process  of  establishing  the  annual  activity  reports  has  improved,  which  is  also 
acknowledged by the Court of Auditors and actions plans have readily been incorporated in 
the DGs’ annual management plans. 

A  consolidated  strategic  planning  and  programming  framework  is  now  in  place.  Further 
attention  will  continue  to  be  devoted  to  this  issue,  in  particular  by  exploring  the  possible 
development  of  a  more  multi-annual  approach  to  strategic  programming  and  making 
programming an explicit central part of the relationship between DGs and services and their 
Commissioners. 

The  Commission’s  DGs  and  services  experienced  a  certain  difficulty  in  developing 
performance indicators, including assessing progress in implementing policy objectives. The 
Court of Auditors underlines the need to improve the definition of indicators. The following 
issues require consideration: 

–  The  activity  based  management  logic  requires  that  objectives  are  set,  implemented  and 
reported upon at all levels within the Commission’s DGs and services, with an appropriate 
level of coherence and comparability. 

–  More meaningful performance indicators need to be developed to improve management’s 
capacity to monitor the achievement of objectives, as reported by the Court of Auditors. 
Stepping up the involvement of Commissioners and top managers in the exercise is one of 
the issues to address. 

Conclusions 

The  annual  process  of  defining  objectives  for  each  policy  area  and  department  needs 
consideration on how it could be made more meaningful in practice. Objective setting needs 
integration  into  the  policy  development,  to  ensure  a  sense  of  ownership  by  the  top 
management.  Although  the  overall  framework  is  now  in  place,  there  may  be  a  need  to 
consider  ways  of  simplifying,  and  thereby  improving,  the  definition  of  objectives  and 
indicators.  To  build  better  support  for  the  institution,  verifiable  annual  output  objectives 
will  also  need  to  combine  with  a  clear  vision  of  the  policy  impact  to  be  achieved  over  a 
longer period. 

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4. 

HUMAN RESOURCES 

Negotiations  on  the  new  Staff  Regulations  were  completed  in  2003,  as  one  of  the  several 
positive  developments.  The  Council  adopted  the  relevant  texts  on  22 March 2004,  and  they 
entered into force on 1 May 2004. A new exercise, consisting of identifying “sensitive” posts 
in financial or administrative matters and moving jobholders occupying these posts for more 
than 7 years, has been launched in each Commission department. 

The  first  appraisal  and  promotion  exercise  based  on  a  new  system,  reinforcing  the  link 
between merit and career development, was completed within the set deadlines. The emphasis 
on  training  constituted  an  important  element  of  personnel  policy  across  the  board.  The 
majority  of  DGs  achieved  or  surpassed  the  Commission’s  target  for  average  number  of 
training days per individual staff member. 

Against this background, and as in previous years, the annual activity reports of a number of 
DGs and services highlight staff shortages and difficulties in recruiting qualified personnel in 
specific areas of activity. The Commission’s internal auditor, for his part, observes a “chronic 
human  resources  deficit”  affecting  the  Commission’s  tasks,  in  particular  the  control  of 
spending programmes. 

Conclusions 

The Commission notes that the human resource issue is  linked  to the  examination of  the 
delivery mechanisms used for each policy. The latter are currently under review to ensure 
that  they  are  the  most  appropriate.  Governance  options,  such  as  shared  management  or 
outsourcing,  are  being  examined  case  by  case.  Finally,  alignment  between  human 
resources and priorities is an issue for the Annual Policy Strategy, where needs and risks at 
Commission  level  need  careful  examination.  Risk  analysis  should  help  in  orienting 
resource  allocation,  alongside  other  elements  such  as  policy  priorities.  Such  an 
examination should include arbitration as to the activities that can no longer be done and 
have to be abandoned, so that resources can be freed and redeployed to activities that need 
to be strengthened. 

5. 

FINANCIAL MANAGEMENT AND REPORTING 

2003  was  the  first  year  of  implementation  of  the  new  Financial  Regulation:  thanks  to  a 
thorough preparation, the introduction of the new financial rules was generally successful. For 
the  first  time,  DGs’  activity  statements  have  been  used  in  the  budgetary  procedure.  Several 
financial management issues have emerged from the annual activity reports and declarations 
for 2003, which are not new; all of them are subject to on-going corrective actions at various 
stages of implementation. 

5.1. 

Shared management 

Notwithstanding the progress made in 2003 through considerable advances on the closure of 
programmes  relating  to  1994-1999  and  increased  controls  on  the  beneficiary  countries’ 
management  and  control  systems,  what  emerges  from  the  annual  activity  reports  and 
declarations of all DGs involved in shared management of Structural Funds is that in 2003 it 
was not yet possible to give an unqualified assurance for such expenditure. 

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Several  measures  are  envisaged,  such  as  obtaining  reasonable  assurance  regarding 
management and control systems in the Member States, both by the audit strategy established 
by each DG and by assurance declarations to be obtained from the bodies charged by Member 
States  with  the  management,  payment  and  control  of  Community  Funds.  This  is  also  a  line 
advocated by the internal auditor. 

5.2. 

Direct and indirect centralised management 

The  annual  activity  reports  and  declarations  of  the  relevant  DGs  demonstrate  a  satisfactory 
level  of  assurance  as  expressed  by  the  Commission  DGs  and  services  in  the  field  of 
centralised  management.  A  difficulty  persists  in  relation  to  grants  based  on  the  partial 
reimbursement  of  actual  costs  declared  by  the  beneficiaries.  This  question  has  once  again 
given rise to reservations concerning the frequency of errors affecting the declaration of most 
DGs dealing with this kind of programme. The need for controls to avoid conflict of interest 
in the selection process is put forward. The development of an effective strategy of controls 
and recovery actions to counter the risk of payment of non-eligible costs and consideration of 
alternative funding criteria are also suggested. A weakness has also been disclosed in the area 
of management and control with regard to information relays and networks, which has given 
rise to the adoption of corrective measures. 

5.3. 

Ex ante and ex post control 

The new financial regulation introduces precise requirements for ex ante and ex post controls 
to be carried out. At the end of 2003 the Commission achieved compliance with the baseline 
requirements  on  the  internal  control  standards,  according  to  the  commitments  made  by  the 
Commission in its 2002 Synthesis. Implementation of such controls will be further improved 
through more extensive exchanges of best practices. 

5.4. 

Implementing the financial regulation 

The  recast  financial  regulation,  which  entered  into  force  on  1  January  2003,  introduced  a 
robust  legal  framework  which  served  as  the  foundation  for  more  effective  and  accountable 
financial management and better protection of the Community's financial interests. Although 
considerable progress  was  made, certain annual  activity reports disclose residual difficulties 
in  implementing  some  provisions  of  the  new  Financial  Regulation.  This  issue  is  being 
examined as regards the implementing rules, for which a limited review is foreseen in the near 
future. 

5.5. 

Accounting/financial reporting 

The  project  to  reform  the  accounting  system  moved  ahead  in  2003  in  accordance  with  the 
multi-annual plan aimed at putting in place accrual accounting by 2005. 

5.6. 

Conclusions 

The  Commission  is  responsible  under  Article  274  EC  for  implementation  of  the  budget, 
while the apportionment of responsibilities between the Commission and the Member States 
under  shared  management  is  in  process  of  being  further  clarified.  Notwithstanding  the 
progress made in 2003, the Commission is not yet in a position to supervise everyone of the 
Member  State’s  management  and  control  system  in  the  area  of  the  Structural  Funds.  It 
should  seek  to  obtain  this  overall  assurance  by  its  own  control  efforts  and  by  obtaining 

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from the bodies entrusted by the Member States with the management, payment and control 
of  Community  funds  assurance  on  the  effectiveness  of  their  systems.  This  goal  will  be 
pursued  by  strengthening  the  controls  carried  out  by  the  Commission  services  and  by  the 
application  of  financial  corrections  wherever  it  is  necessary.  In  particular,  for  the 
Structural Funds, for the current programming period, there will be increased cooperation 
with national authorities concerning system audits and ex post controls and, for the period 
2007-2013,  the  introduction  of  an  appropriate  instrument  in  the  legislative  acts.  Such 
instruments  could  include,  as  already  indicated,  declarations  of  assurance  by  the  bodies 
charged by the Member States with the management, payment and control of Community 
funds.  Initiatives  in  this  area  will  take  account  of  the  recommendations  of  the  Court  of 
Auditors in its Opinion on the Single Audit Model. 

Direct  management  is  demanding  for  the  Commission’s  resources.  This  issue  will  be 
addressed,  in  particular  through  further  consideration  of  the  different  management 
implementation  methods  and  simplification  of 
the  Commission’s  management  of 
programmes  with  significant  budgetary  volumes,  as  recently  requested  by  the  European 
Council,  including  the  consideration  of  possible  externalisation  of  management  tasks  (as 
proposed  by  the  Commission  in  its  Communication  on  the  multi-annual  financial 
framework  2007-2013),  review  of  control  tasks  (audit  certificates  certifying  the  eligibility 
and reality of the costs claimed, outsourcing of controls to independent auditors)  and the 
related supervisory arrangements at Commission level. 

Ex ante and ex post controls are key elements in ensuring proper use of Community funds. 
At the end of 2003 the Commission achieved compliance with the baseline requirements on 
the internal control standards according to the commitments made in its 2002 Synthesis. An 
increase in volumes and skills of resources allocated to these tasks is bearing fruit, but is 
still  developing  across  the  Commission’s  DGs  and  services.  Further  support  and  training 
on  these  issues  (including  the  use  of  sampling  tools  for  additional  ex  ante  controls, 
checklists and risk-based strategies for on-the-spot controls) will be provided by the central 
services, and exchanges of practice organised, including within the ex post control network 
under  creation.  The  introduction  of  the  Commission-wide  contract  database  in  the 
accounting  system  coupled  with  ex  ante  and  ex  post  controls,  combined  with  a  review  of 
management and control systems, will also help to reduce the risk of double funding. 

The project of modernising the Commission’s accounting system will continue according to 
the timetable set, and the Commission’s DGs and services should deploy the needed effort 
to adapt to the new framework in compliance with the financial regulation. 

A  review  of  the  Implementing  rules  of  the  Financial  Regulation  will  be  launched  in  the 
coming months4. 

6. 

GOVERNANCE ISSUES 

As a follow-up to the problems encountered at Eurostat and to the 2002 annual activity reports 
and Synthesis, several governance measures have been taken in 2003 to ensure stronger links 

4 

This fast-track review will be limited to title V of the implementing rules in order to integrate the new 
requirements of the newly adopted Directive on Public Procurement and some ceilings related to low 
value procurement procedures as well as articles 180 to 183 dealing with flat-rate grants and article 166 
which deals with the deadline for the adoption and publication for the annual work program for grants. 

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and more effective communication between the DGs and services and the Commissioners and 
between  the  horizontal  services  and  the  operational  DGs.  A  new  version  of  the  code  of 
conduct governing relations between Commissioners and DGs and services further specifies 
information to be received by Commissioners on internal control and audit matters. Regular 
reporting on these questions, as well as on issues reported to OLAF, is in place, as the annual 
activity reports show. 

The  transmission  of  information  and  coordination  within  the  Commission’s  internal  audit 
community was also improved. 

The reservations expressed in the 2003 annual activity reports and declarations show that in 
some cases their impact on reasonable assurance is not adequately assessed. The scope of the 
declaration should be free of ambiguity, as the Court of Auditors also points out. It was noted 
that the peer review exercise of draft reservations was positive in terms of introducing a more 
consistent approach, but it is also necessary to address the need for the DGs to draw up their 
declaration in such a way as to reflect the exact state of internal control without emptying the 
assurance  given  of  its  substance.  Furthermore,  additional  reflection  will  be  given  to 
developing best practice on internal assurance mechanisms for supporting the declarations of 
Directors General, including monitoring and reporting mechanisms at the different levels of 
the hierarchy. 

Conclusions 

The  annual  activity  report  process  has  been  progressively  refined.  Information,  in 
particular from resource directors, is available for the authorising officer by delegation to 
express  his/her  declaration  of  assurance,  and  the  communication  flow  between  DGs  and 
services and Commissioners has become more regular and explicit. 

One  key  issue  to  be  addressed  is  for  annual  declarations  by  authorising  officers  by 
delegation to accurately reflect the actual functioning of their internal control systems and 
action  will  be  pursued  in  this  field.  Guidelines  and  assistance  from  central  services  and 
sharing  of  best  practices  across  Commission  DGs  and  services  will  help  to  strengthen 
further the process. 

Also  with  a  view  to  obtaining  unqualified  declaration  of  assurance  by  the  Court  of 
Auditors, the Commission’s DGs and services should ensure that the assurance expressed 
in  the  declaration  is  both  consistent  with  regard  to  the  reservations  expressed  and  firmly 
established  on  effective  risk  management  and  accurately  reflect  the  operation  of  their 
control systems. 

Commission  DGs  and 
recommendations in terms of risk and potential impact and reinforce their follow-up. 

should  prioritise  audit  and 

services 

internal  control 

7. 

CONCLUSIONS 

The points raised by DGs and services by the Internal/External auditor, and in the overview 
are already identified and subject to previous action plans undertaken in prior synthesis. Since 
2003  was  the  year  of  major  implementation  of  the  Commission  Reform  actions,  the 
Synthesis does not suggest new actions, but consolidation of horizontal action plans. DGs 
have drawn up specific action plans, which will need implementation, as a result of the annual 

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activity  reports.  The  Commission  notes  that  most  actions  included  in  the  2001  and  2002 
action plans show good progress, although it may vary on a case-by-case basis as explained 
below: 

•  Some actions completed under the terms of the previous Syntheses require further follow-

up to fully bear fruit. 

It  is  the  case,  amongst  others,  of  the  assessment  to  be  carried  out  by  the  Heads  of 
delegation  following  the  conclusions  drawn  on  the  state  of  internal  controls  in 
Delegations; the implementation of the measures agreed concerning the DG Press’ relays 
and network and Representations; the results of the different actions in the field of shared 
management  (clarification  of  responsibilities  between  the  Commission  and  the  Member 
States,  measures  envisaged  in  the  audit  field),  which  need  being  put  into  practice  where 
possible during the current programming period and reflected in the legal framework of the 
next  period;  further  reflection  on  the  question  of  the  introduction  of  broader  flat-rate 
elements into subsidies. 

•  Actions laid down in the previous Syntheses still ongoing are: 

The need for enhanced attention by DGs and services on the effectiveness of their internal 
control  systems,  also  to  ensure  that  they  adequately  support  the  assurance  to  be  given 
yearly  by  them  as  authorising  officers  by  delegation;  the  proper  communication  at  all 
levels  within  the  DGs  of  the  management  and  control  framework;  the  re-examination  of 
the  scope  for  synergies  between  the  services  involved  in  external  relations  announced  in 
the 2001 Synthesis; the adoption of the Communication to address the issue of scarce skills 
in  certain  areas;  the  development  of  a  database  of  legal  entities  and  of  a  database  of 
contracts;  the  finalisation  of  the  work  on  interoperability  of  management  information 
systems, launched by the 2001 Synthesis. 

The  Reform,  one  of  the  main  priorities  of  this  Commission  is  largely  in  place.  The 
instruments of the Reform, which are designed to make the Commission’s management better 
performing,  more  accountable  and  transparent,  have  now  become  part  of  the  day-to-day 
functioning of the Commission DGs and services5, thus contributing to a more efficient and 
effective Commission able to rise up to the challenges of the enlarged Union. 

A reflection on the most appropriate management models to deliver better policy results and 
to provide better value for money at European level is currently ongoing in the context of the 
proposals for the financial framework 2007-2013: 

•  In case of shared management, the Commission should continue to work to increase the 
responsibility of the bodies entrusted by the Member States with the management, payment 
and  control  of  Community  funds,  and  the  Commission’s  powers  to  correct  irregularities 
need  to  be  strengthened.  Concerning  centralised  management,  simplification  of  the 
instruments is needed, so that the rules can be better understood by the beneficiaries and 
management  and  controls  can  be  made  more  cost-effective.  The  Commission  can  also 

5 

For further details concerning the state of play of the Commission’s administrative reform, reference is 
made to the Communication on the Progress report for 2003 (COM(2004) 93 of 10.2.2004.), which also 
contains a comprehensive section on the measures adopted in the wake of the Eurostat crisis. 

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build upon existing work in the respective management domains and review the scope for 
increased externalisation of functions. 

•  Whatever  methods  are  used  and  whatever  assurance  mechanisms  are  pursued,  there  will 
always  be  an  obligation  on  the  Commission  to  ensure  that  control  mechanisms  are 
adequate to discharge its overall responsibility for the implementation of the budget.  

•  Properly qualified resources should be devoted to audit and controls, particularly in the 
areas of greater risk. Synergies with bodies performing audits and controls at national and 
European level should be developed. Cooperation between auditors and auditees should be 
increased,  so  to  ensure  mutual  understanding  and  smooth  implementation  of  agreed 
recommendations.  Proper  attention  should  continue  to  be  paid  to  the  quality  of  internal 
audit work. 

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