Report from the Commission - Member States' replies to the Court of Auditors' 2002 Annual Report
Date: 2005-01-05
Institutions: European Commission
Subjects: EU Member State, European Union membership, agricultural expenditure, financial management, implementation of the budget, management audit, own resources, report, structural expenditure

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 05.01.2005 
COM(2004) 859 final 

REPORT FROM THE COMMISSION  

Member States' replies to the Court of Auditors' 2002 Annual Report 

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TABLE OF CONTENTS 

1. 

2. 

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

Synthesis of Member States reactions to the Court of Auditors' main observations, by 
sector ............................................................................................................................ 5 

2.1. 

Own resources.............................................................................................................. 5 

2.1.1.  Accounting for traditional own resources .................................................................... 5 

2.1.2.  Customs surveillance of arrivals of goods at airports .................................................. 5 

2.1.3.  VAT/GNP own resources ............................................................................................ 6 

2.2. 

Agriculture ................................................................................................................... 6 

2.2.1.  Systems of management and controls .......................................................................... 6 

2.2.2.  Clearance of accounts .................................................................................................. 7 

2.2.3.  Other issues .................................................................................................................. 8 

2.3. 

Structural Funds ........................................................................................................... 8 

2.3.1.  Delays in the closure of the oldest projects.................................................................. 9 

2.3.2.  Compliance with Regulation No 438/2001 on control of the Structural Funds......... 10 

2.3.3.  The reservation given by the Director-General for Regional Policy ......................... 11 

2.3.4.  Controversial observations......................................................................................... 11 

2.4. 

Other sectors .............................................................................................................. 12 

3. 

3.1. 

3.2. 

4. 

Areas of agreement and disagreement ....................................................................... 14 

Methodological problems .......................................................................................... 14 

DAS errors ................................................................................................................. 14 

Conclusion ................................................................................................................. 15 

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1. 

INTRODUCTION 

a) 
Since the 1996 Dublin European Council, and in line with its conclusions on 
sound  and  efficient  financial  management,  the  Commission  had  requested  Member 
States  to  reply  to  the  observations  made  by  the  Court  of  Auditors  in  its  Annual 
Report  and  special  reports  and  to  provide  information  on  any  corrective  measures 
they have adopted.  

Article 143 (6) of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 
on  the  Financial  Regulation  applicable  to  the  general  budget  of  the  European 
Communities1  has  taken  over  this  practice  by  requiring  the  Commission  to  'inform 
the Member States concerned immediately of the details of that report which relate to 
management of the funds for which they are responsible under the rules applicable.' 
After  having  received  this  information,  the  Member  States  have  to  reply  to  the 
Commission within 60 days. The present report, which is transmitted to the Court of 
Auditors, the Council and the European Parliament, summarizes the Member States' 
replies to the Court of Auditors' 2002 Annual Report.  

In its 2002 Annual Report,2 the Court of Auditors has once more pointed out that the 
areas  of  the  budget  for  which  management  is  shared  between  the  Commission  and 
the Member States "pose particular challenge due to their complexity and the many 
layers of administration involved".3 For its part, the Commission has taken steps to 
ensure that weaknesses are corrected. The 2001 Synthesis Report action 124 has been 
achieved and will be complemented by concrete steps to promote a convergence of 
audit  methodologies.  Besides,  in  its  2002  Synthesis  Report,  the  Commission  has 
committed itself to making all appropriate recommendations to clarify the respective 
responsibilities  of  Member  States  and  of  the  Commission  in  case  of  shared 
management.5 

Furthermore, given the importance of shared management and subsequently the place 
it occupies in the Court of Auditors' reports, it is particularly necessary to know the 
Member  States'  positions  on  the  problems  raised  by  the  external  auditor.  Firstly,  it 
allows  the  Member  States  to  give  their  opinion  on  the  observations  and 
recommendations drawn up by the Court.6 Secondly, Member States can present the 
corrective measures they have implemented or are planning to implement. Lastly, It 
should also give the Commission a general picture of various problems encountered 
at national level and allow it to take proper remedial action. 

1 
2 
3 
4 
5 
6 

OJ L 248 of 16.9.2002. 
OJ C 286 of 28.11.2003. 
Idem, p. 6. 
For Action 12, see COM(2002) 426 of 24.7.2002, point 5.2.2., p. 25. 
COM(2003) 391 of 9.7.2003, point 5.3.3., p. 22 and 23. 
This in no way affects the contacts between the Commission and the Member States concerned in order 
to  take  follow-up  action  on  the  Court's  observations.  Follow-up  action  by  the  Commission  and  the 
Member States on the Court's sector letters is a specific exercise focusing on measure which may need 
to be taken to correct problems detected. 

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b) 
The Court of Auditors presented its 2002 Annual Report to the Commission on 
Budgetary  Control  of  the  European  Parliament  on  17  November  2003  and  to  the 
Council Budget Committee on 20 November 2003. After this early presentation, the 
Commission sent a letter to all the Permanent Representatives asking them to provide 
their  replies  before  the  19th  of  December.  In  an  attempt  to  provide  a  coherent  and 
harmonised framework for the national contributions, the Commission's request was 
accompanied  by  a  questionnaire  drawn  up  in  close  collaboration  with  the  Court  of 
Auditors.  It  consisted  of  a  list  of  specific  references  to  each  Member  State  in  the 
Annual Report and of a summary of Statement of Assurance (DAS) errors for each 
Member State. 

c) 
This report is therefore based on the contributions from the Member States. It 
should  be  pointed  out  that  despite  the  creation  of  the  general  framework,  these 
contributions remain fairly heterogeneous both in form and especially in substance. 
The  Member  States  thus  replied  in  full  or  in  part  to  the  points  or  DAS  errors 
submitted  to  them  and  in  a  few  cases  made  recommendations  or  more  general 
observations. The time limits set by the Financial Regulation were not fully complied 
with  and  some  contributions  arrived  several  weeks  late.  In  so  far  as  some  Member 
States  either  fail  to  reply  to  specific  observations  concerning  them  or  give  only 
fragmentary information related to the failures highlighted by the Court of Auditors, 
it  is  sometimes  difficult  to  get  a  complete  picture  of  Member  States'  positions 
regarding important findings. Only four Member States made general comments on 
specific matters dealt with in the Court's Annual Report. One Member State did not 
transmit any reply at all.  

d)  A  large  part  of  the  Community  budget  is  administered  in  the  form  of  shared 
management.  Therefore,  Member  States’  systems  of  management  and  control  are  a 
central  feature  of  the  Annual  Report  by  the Court  of  Auditors.  The  purpose  of  this 
procedure  is  to  give  the  Member  States  an  opportunity  to  put  forward  their  views, 
observations  and  any  recommendations  following  publication  of  a  report  which 
concerns  them  both  directly  and  in  the  more  general  framework  of  the  discharge 
procedure.  Although 
the 
implementation of the budget, their contribution, in summary form, throws particular 
light on the management of Community appropriations. 

the  ultimate  responsibility  for 

they  do  not  bear 

The  national  contributions  can  thus  be  used  to  identify  a  number  of  major  issues 
which are of particular interest for analysing sectors involving shared management. 
They highlight in particular the specific problems encountered in the Member States 
and on the solutions which might be contemplated at that level. That is why the first 
part  of  the  report  concentrates  as  usual  on  Own  Resources,  Agriculture  and  the 
Structural Funds. The issues which have held the attention of several Member States 
are highlighted for each of these sectors. 

After this presentation by sector, two more analytical parts give an account of areas 
of  agreement  and  disagreement  between  the  Member  States  and  the  Court  of 
Auditors and then try to identify the main conclusions which can be drawn. 

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2. 

SYNTHESIS  OF  MEMBER  STATES  REACTIONS  TO  THE  COURT  OF  AUDITORS'  MAIN 
OBSERVATIONS, BY SECTOR 

2.1. 

Own resources 

The  Member  States  focus  on  three  main  issues  which  are  the  accounting  for 
traditional  own  resources,  the  customs  surveillance  of  arrivals  of  goods  at  airports 
and the VAT/GNP own resources. 

2.1.1.  Accounting for traditional own resources  

Most Member States (in particular United Kingdom, Netherlands, France, Germany, 
Italy,  Sweden,  Finland,  Belgium,  Denmark,  Greece  and  Ireland)  still  bring  up  this 
question  and,  on  the  whole,  they  do  not  dispute  the  Court's  observations  about  the 
existence  of  remaining  errors  in  keeping  the  B  accounts  or  relating  to  delays, 
discrepancies  between  B  and  A  accounts,  as  well  as  several  other  anomalies  in 
reporting the B account balances to the Commission. However, in a number of cases, 
they point to their compliance with the pertinent provisions of Regulation 1150/2000, 
the  lack  of  any  financial  impact,  the  negligible  nature  of  the  errors  or  the  various 
actions  taken  to  follow  them  up.  Most  of  the  Member  States  concerned  also 
announce that they have taken, or are in the process of taking, measures to improve 
the situation (e.g. the French, Swedish and German computerisation of the procedure, 
the further standardization of some procedures in Sweden and the Dutch and Italian 
technical  amendments).  Finland  expresses  the  opinion  that  there  is  no  unanimity 
between  the  Commission  and  the  Member  States  on  the  B-account  procedures  and 
urges the Commission to ensure that all Member States uniformly apply the rules in 
force. Finally, the United Kingdom expresses support for the Commission's proposal 
(COM 366) to amend Regulation No 1150/2000 in respect of improved management 
of amounts entered in B-Account. 

2.1.2.  Customs surveillance of arrivals of goods at airports  

Some  Member  States  concerned  acknowledge  differences  in  control  practices  and 
weaknesses in control arrangements pointed out by the Court of Auditors. 

The  United  Kingdom  mentions  significant  effort  having  been  made  to  address 
properly the question of apparent outstanding consignments. 

Sweden considers that in some respects the Court of Auditors takes a different view 
from  Swedish  Customs  of  how  customs  clearance  and  other  controls  should  be 
carried  out.  It  maintains  that  EU  legislations  are  complied  with  and  that  the  risk 
analysis and quality checks used are sufficient to ensure that mistakes are kept to an 
acceptable  level  from  the  point  of  view  of  risk  in  all  essential  aspects.  As  regards 
customs clearance by fast couriers, Sweden believes that in some respects the Court 
of Auditors has taken a different view of how customs clearance and other controls 
should be carried out. 

Italy  gives  a  detailed  picture  of  the  control  system  applied  at  Italian  airports.With 
regard to the goods moved by road between airports under a transit system, France 

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mentions  new  progress  made  from  2003  onwards  and  is  planning  to  repeal  the 
simplified  Community  procedure  known  as  collective  de  transfert  from  2005 
onwards. Austria reports also on measures taken  in  this  area  and  considers  that  the 
guarantees  that  the  goods  will  be  correctly  processed  are  no  less  with  customs 
warehouse schemes than with temporary storage. 

2.1.3.  VAT/GNP own resources 

As  regards  VAT  collection  in  Member  States,  France  has  recalculated  the  receipts 
related to fines and default interest for Metropolitan France and the receipts for the 
overseas departments for the years 1999 and 2000. Portugal acknowledges that it sent 
its  VAT  statement  for  2001  much  later  than  the  deadline  laid  down  in  Community 
legislation and announces that this will be also the case for 2002. It intends to resolve 
definitively  this  question  and  is  considering  setting  up  an  interministerial  working 
party  to  that  effect.  Portugal  also  mentions  that  it  has  reconciled  the  VAT  receipts 
and  the  figures  from  the  State  accounts  for  1998  and  has  sent  them  to  the 
Commission. 

2.2. 

Agriculture 

As a general comment, one Member State (Netherlands) underlines the necessity of 
good  control  systems  and  straightforward  Community  regulations  for  guaranteeing 
the  legality  of  the  operations.  It  considers  that,  as  a  result  of  the  forthcoming 
agricultural  reform,  a  larger  proportion  of  CAP  expenditure  will  be  managed  and 
audited  using  the  integrated  administration  and  control  system  (IACS).So  Member 
States  need  to  make  the  necessary  efforts  to  optimise  the  control  systems  required, 
but that, because Regulations are sometimes open to differing interpretations and are 
regularly subject to revision, it can prove difficult to apply them fully and correctly. 

Greece  indicates  that  progress  in  implementing  the  integrated  administration  and 
control system (IACS) has been  confirmed  by  thorough  inspections at all levels by 
Community  inspectors,  who  have  consistently  found  that  positive  steps  have  been 
taken. 

The other Member States' contributions reveal two main issues: the Court's criticisms 
of the various systems of management and control, based on the errors detected, and 
the clearance of accounts as regards the paying agencies. 

2.2.1. 

Systems of management and controls 

With  regard  to  the  area  aid  schemes,  where  important  discrepancies  between  the 
arable area declared by farmers and the area found when parcels were measured in 
the  presence  of  Court's  auditors,  some  of  the  Member  States  concerned  (France, 
Greece,  the  Netherlands)  do  not  dispute  that  there  were  errors.  Nevertheless,  the 
Netherlands  question  the  extent  of  the  error  rate  detected  by  the  Court  and  the 
methodology  applied.  In  one  case,  France  also  questions  the  method  used  by  the 
Court  of  Auditors  for  measuring  the  extent  of  the  discrepancy  and  would  like  the 
Court  to  consider  changing  its  position.  Both  Member  States  concerned  stress  that 
the Court's observations do not question either the reliability of their own inspections 
or  their  compliance  with  pertinent  regulations  and  that  sanctions  laid  down  by  the 

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Community regulations have been imposed. Portugal disputes the Court's assessment 
according  to  which  a  significant  difference  between  the  average  size  of  claim 
submitted and the average size of claim checked may have an impact on the rates of 
error revealed. Any interpretation should take into account the weighting of different 
factors,  including  those  relating  to  geographical  reality,  i.e.  in  the  case  of  Portugal 
the different sizes of areas concerned in the North and in the South of that country. 
Sweden  also  raises  an  objection  on  the  Court's  methodology  since  the  Court  is 
carrying out its checks with a two-year time-lag it cannot tell if it is measuring the 
field  boundaries  as  they  were  in  the  year  to  which  the  audit  relates,  as  the  field 
boundaries often change over the years. 

As regards the animal premiums, Portugal disputes the accuracy of the high error rate 
detected  in  the  number  of  suckler  cows  claimed.  It  considers  that  the  error  rate 
should  be  determined  on  the  basis  of  the  number  of  ineligible  animals  found 
compared to the number of animals being checked. The United Kingdom accepts the 
Court's findings and announces that it has taken steps to recover amounts paid out in 
error. The Netherlands criticize an extrapolation made by the Court on the basis of 
one random check. 

2.2.2.  Clearance of accounts 

-  The  Court  of  Auditors  highlights  that  22  paying  agencies  out  of  a  total  of  86 
received  a  qualified  or  negative  opinion  in  the  context  of  the  Commission's  annual 
"financial clearance" decision on the acceptance of the paying agencies' accounts for 
the  preceding  budgetary  year.  The  Commission  took  3  conformity  decisions  in 
respect of expenditure in 1996-2001, a sum of 301,4 million euro being 'disallowed' 
from Community financing and corrections made accordingly. 

-  As  regards  the  breaches  of  accreditation  criteria  and  control  weaknesses,  France 
mentions  that  the  French  offices  cited  were  in  fact  the  subject  of  reservations 
expressed  by  the  Commission  de  certification  des  comptes  des  organismes  payeurs 
(CCCOP) which initially considered it impossible to formulate an opinion on some 
expenditure lines, in particular with regard to export refunds. Since then, the CCCOP 
has  transmitted  to  the  Commission  additional  reports  and  certificates  lifting  the 
reservations  expressed.  France  states  that  the  accounts  of  the  paying  agencies 
concerned meet now the conditions of completeness, accuracy and veracity required 
by  Community  rules.  Belgium  states  that  the  Flemish  administrative  authorities 
replied to the Commission in 2003 and that a new body including an internal audit 
service has been set up. Germany reports improvements leading to the satisfaction of 
the accreditation criteria. 

-  As  regards  the  paying  agencies,  France,  Germany,  Belgium,  Greece,  the  United 
Kingdom  and  Portugal  have  accepted  the  validity  of  the  Court's  criticisms  and 
reforms are planned, under way or have been made. 

-  As  regards  the  financial  corrections,  most  of  the  Member  States  concerned 
emphasise that the procedures are still under way internally or with the Commission. 
The  corrections  relating  to  milk  quotas  are  the  most  contested.  One  Member State 
(Spain)) has also referred corrections relating to the milk quota policy to the Court of 
Justice. On the same point, Italy has stressed that the problems in collecting the levy 

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are  due  to  internal  administrative  and  legal  procedures  which  should  not  lead  to 
corrections. Germany, on the other hand, recognises the difficulties which have led to 
the  flat-rate  corrections  following  the  control  of  export  refunds  (supervisory 
agencies) and states that it has taken far-ranging measures to resolve the problem. 

2.2.3.  Other issues  

With regard to 'other expenditure' (support of agricultural markets, subsidies for the 
production  and  disposal  of  fruit  and  vegetables,  restructuring  and  conversion  of 
vineyards),  Spain  cannot  identify  the  source  on  which  the  Court  of  Auditors  has 
based its observation according to which the Commission has "identified numerous 
weaknesses  in  the  way  a  posteriori  checks  are  performed  and  planned  and  errors 
recorded  and  corrected".  The  United  Kingdom  refers  to  the  Commission's  reply  to 
the  Court's  Annual  Report  according  to  which  major  improvements  have  occurred. 
The  Netherlands  stress  that  the  conclusion  reached  by  the  Court  of  Auditors  in  the 
case of an audit relating to the design and implementation of a posteriori cheks under 
Regulation  No  4045/89  is  not  consistent  with  the  conclusion  communicated  by  the 
Commission following this control visit. 

2.3. 

Structural Funds  

3 Member States comment on Structural measures' observations presented in Chapter 
5 of the Court's Annual Report. 

- 

The  United  Kingdom  agrees  with  some  of  the  criticisms  in  the  report.  For 
instance,  it  considers  that,  for  a  variety  of  reasons,  there  will  be  a 
decommitment despite the aptitude of the new financial profiling for ensuring a 
regular flow of funds to the programmes. 

Nevertheless, it disagrees with the Court of Auditors on the following points: 

- 

- 

- 

extrapolation of criticism from a limited number of audits; 

Court's own audits of Member States are not always completed, and even 
when  they  are,  the  delays  mean  that  little  can  be  done  to  make 
improvements; 

impact of the rule "n+2" on the volumes of funds needed to be spent at 
the end of the end of the programming. 

The United Kingdom also feels that it did distribute sufficient guidance to managing 
authorities on the necessary management and control systems by the end of 2002. It 
adds  that  it  is  the  inconsistencies  from  the  Directorates-General  that  incite 
inconsistent interpretations by Member States and that this question has been raised 
on several occasions with the Commission. 

The United Kingdom recalls that the Court of Auditors considered that little progress 
had  been  made  in  closing  interventions  from  the  1994-99  programming  period. 
Despite the lateness of the guidance issued to Member States, all the English regions 
made  great  efforts  to  submit  the  closure  documents  to  the  Commission  by  the 
deadline  of  31  March  2003.  A  number  of  queries  on  these  documents  have  since 

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been raised and are being dealt with. The United Kingdom has prepared a “lessons 
learned” document which examines the difficulties experienced during the closure of 
the 1994-99 programmes and which will benefit the management of the 2000-2006 
programming period. 

On  the  whole,  the  United  Kingdom  supports  the  Commission’s  responses  to  the 
Court's 2002 Annual Reports, especially in the areas of evaluation and audit visits. In 
the  former,  the  Commission  has  undertakena  variety  of  evaluations  which  will  be 
extremely beneficial to both existing and new Member States, whilst the decision to 
dovetail United Kingdom's audits with Commission audits wherever possible is to be 
lauded. 

- 

Ireland's comments. 

Ireland  agrees  with  the  Court  of  Auditors’  view  that  the  Commission  was  late  in 
producing  regulations  and  clarifications  to  Member  States.  Regulation  2064/97 
establishing  detailed  arrangements  for  the  implementation  of  Council  Regulation 
(EEC) No 4253/88 as regards the financial control by Member States of operations 
co-financed by the Structural Funds was adopted in November 1997, nearly 4 years 
after  the  beginning  of  the  programming  period.  According  to  Ireland,  clarifications 
on this and other regulations came as late as 2001 and 2002.  

- 

Netherlands' comments. 

The Netherlands share the views expressed by the Court of Auditors and considers 
that  the  internal  management  and  control  systems  in  the  Member  States  are  still 
inadequate.  According  to  this  Member  State,  the  Commission  has  still  not  made 
enough  progress  in  winding  up  the  period  1994-99.  Finally,  new  guidelines  were 
drawn  up  in  the  middle  of  the  aforementioned  programming  period,  leading  to 
confusion  in  the  Member  States  about  which  rules  were  to  be  applied  in  particular 
situations, with the result that they were unable to take the measures required within 
the prescribed time limits. 

Particular  comments  made  by  the  Member  States  in  this  sector  cover  issues  which 
cut across the main sections of Chapter 5 of the Annual Report: 

- 

the closure of the oldest projects; 

the  compliance  with  Regulation  No  438/2001  on  control  of  the  Structural 

- 
Funds;  

- 

The reservations given by the Director-General for Regional Policy. 

Furthermore,  several  Member  States  do  not  agree  with  some  of  the  Court's 
observations. 

2.3.1.  Delays in the closure of the oldest projects 

The  Court  has  pointed  once  again  to  difficulties  in  closing  old  projects.  It  has 
ascribed them to the late issuing of guidelines and to the fact that the control systems 
had  not  been  set  up  in  the  Member  States  early  enough  for  them  to  be  effective 

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before the closure of the programmes. The Court observed that the Commission itself 
found significant shortcomings at a stage when the final declarations were due to be 
sent.  Generally  speaking,  the  Member  States  which  have  replied  recognise  that 
problems may have been encountered, thus generating excessive delays. With regard 
to  11  Objective  3  (ESF)  programmes,  Spain  mentions  that  it  has  sent  the  final 
balances including the financial corrections known about when they were drawn up 
between  August  2001  and  May  2003.  Denmark  is  completing  supplementary 
investigations  into  the  completion  of  the  FIFG  programmes  from  the  period  1994-
1999, as well as carrying out supplementary controls concerning 1999 as regards the 
PESCA  programmes.  Ireland  reports  progress  made  in  the  closures.  However, 
Germany  challenges  the  Court's  comment  according  to  which  closure  statements 
relating  to  the  closures  from  the  period  1994  to  1999  should  have  been  rejected 
because of doubts about the independence of the auditors carrying out checks, or of 
the  provider  of  the  closure  statement.  The  reason  for  rejection  was  due  to  the 
inadequacy  of  details  regarding  the  independence  of  these  persons.  These 
descriptions have been, or are being, completed. 

2.3.2.  Compliance with Regulation No 438/2001 on control of the Structural Funds 

The  Court  of  Auditors  analysed  the  management  and  control  systems  operated  by 
Member States under Regulation No 438/2001 which set standards for the control of 
the Structural Funds in the 2000-06 programming period. As regards the weaknesses 
identified by the Court of Auditors in the management and control systems operated 
by  Member  States  in  the  framework  of  the  implementation  of  the  aforementioned 
Regulation,  France  reports  on  the  measures  put  in  place  in  order  to  complete  the 
audit  trail.  Nonetheless,  France  disagrees  with  the  findings  made  by  the  Court  of 
Auditors  stating  that  it  had  put  in  place  a  procedure  for  checking  applications  for 
payment in relation to centralised management measures. Finally, France is planning 
to complement the monitoring of actual payments. 

Spain admits that its auditors had carried out ten sample checks on operations in the 
period 2000 to 2006 when the 2002 Court of Auditors’ Annual Report closed. This 
was due to the fact that the efforts were focused on the closure reports for the 1994 to 
1999 period. However, Spain stresses that its auditors have made up for part of the 
delay that occurred during the initial years of the current programming period. Spain 
also  mentions  that  it  has  informed  the  Commission  in  October  2003  of  the 
application  in  2001  and  2002  of  the  checks  referred  to  in  Article  10  of  Regulation 
(EC) 438/01. Spain details numerous actions taken for putting into effect Regulation 
1386/2002  of  29  July  2002  laying  down  detailed  rules  for  the  implementation  of 
Council  Regulation  (EC)  No  1164/94  as  regards  the  management  and  control 
systems for assistance granted from the Cohesion Fund and the procedure for making 
financial corrections. 

The United Kingdom reports in detail on the observations relating to the assessment 
of  management  and  control  systems  for  ESF  in  West  Wales  and  the  Valley  and 
mentions  that  the  Scottish  Executive  has  prepared  a  proposal  for  monitoring  of 
ERDF projects in Scotland. 

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2.3.3.  The reservation given by the Director-General for Regional Policy 

This reservation concerns Greece, Spain and Italy. 

Greece  reports  that  it  it  passed  on  to  the  Commission  the  views  of  the  CSF 
Management  Authority  and  the  paying  authority  regarding  improvements  in  the 
management and control system by the end of January 2003. 

Italy reports some follow-up made. 

Spain finds that the reserve expressed is not very clear and sets out the wide range of 
national  measures  taken  for  putting  into  effect  Regulation  1164/1994  following  the 
publication of Regulation 1386/2002 of 29 July 2002. 

2.3.4.  Controversial observations 

It  should  finally  be  noted  that  at  least  6  Member  States  dispute  some  Court's 
observations. 

Germany  disputes  the  one  according  to  which  closure  statements  from  the  period 
1994 to 1999 relating to EAGGF Guidance programmes were not accepted because 
of  doubts  about  the  independence  of  the  auditors  carrying  out  checks  or  of  the 
provider of the closure statement7. On the contrary, Germany assesses that all closure 
programmes  regarding  the  programme  referred  to  were  accepted.  The  Länder 
concerned  had  presented  some  closure  statements  at  an  early  stage  before  the 
Commission had issued guidelines and they have completed or are in the process of 
completing further questions from the Commission. 

Austria  disputes  the  table  and  the  corresponding  negative  statement  of  the  Court 
relating  to  the  assessment  of  the  implementation  of  the  management  and  control 
systems, as far as they concern the European Regional Development Fund in Upper 
Austria8. Austria requests that the Court of Auditors 'corrects' them. 

As regards the closures of several programmes (ESF) from the period 1994 to 1999, 
Spain states that none of the closures processed were rejected while the Court states 
that  the  final  payment  was  not  made  because  the  approval  of  the  Monitoring 
Committee was not obtained before submitting the final reports to the Commission. 

Greece  states  that  Regulation  (EC)  No  438/2001  does  not  require  the  paying 
authorities  to  carry  out  direct  checks  to  establish  whether  the  statements  of 
expenditure meet the requirements of the second paragraph of Article 9(b)(ii) of that 
Regulation regarding their reliability and that the paying authority may thus satisfy 
the requirements of the regulation by other means. For its part, the Court of Auditors 
has criticized in its Annual Report the lack of "sufficient checks (as specified in the 
Regulation) before certifying statements of expenditure" 9. 

7 
8 
9 

See OJ C 286 of 28.11.2003, p. 173. 
See OJ C 286 of 28.11.2003, p. 191.  
See OJC 286 of 28.11.2003, p. 170. 

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France challenges the observation of the Court of Auditors according to which there 
was no manual of procedure at the time the Court performed its audit relating to the 
2000 to 2006 Nord-Pas-de-Calais Objective 1 (ESF) programme. In this case, France 
also  contests  the  alleged  lack  of  independence  of  the  certification  of  expenditure 
body.  

Referring  to  the  Commission's  approval,  the  United  Kingdom  states  that  since  no 
expenditure had occurred, no financial management, control or monitoring had been 
undertaken in the United Kingdom in 2001 and that there was therefore no need to 
refer to Regulation 438/2001 in its Financial Control Annual Report for 2001. 

2.4. 

Other sectors 

Some  Member  States  have  drawn  up  replies  on  subjects  other  than  shared 
management.  Their  main  concern  is  to  express  their  views  on  the  forthcoming 
reforms  which  were  recommended  by  the  Court  or  which  they  themselves  deem 
necessary.  

As  regards  External  action,  Pre-accession  Aid  and  European  Development  Funds, 
only the United Kingdom makes general comments. According to this Member State, 
the  Court’s  review  continues  to  raise  concerns  because  of  the  similarity  with  last 
year’s  Annual  Report  particularly  on  key  policy  and  implementation  issues.  For 
External actions these would include the uneven pace of deconcentration (on which 
more was expected from the Court, particularly with respect to the implications for 
the future), the increase in the stock of old and outstanding commitments (the RAL), 
and  weaknesses  in  financial  management,  internal  control  systems  and  monitoring. 
Together,  these  factors  are  of  particular  concern  given  the  reform  process  was 
expected to be completed by the end of 2003. There are also concerns over the skills 
mix required to ensure that the Commission can engage in policy dialogue. Chapter 2 
(on budgetary management) of the Court of Auditors' 2002 Annual Report underlines 
the  uneven  level  of  spend  between  regions.  The  Commission’s  reply  illustrates  the 
importance  of  making  allocation  decisions  based  on  performance  and  need  .These 
principles are supported by the introduction of Activity Based Budgeting and should 
be taken into account when planning the preliminary draft budget (PDB). 

According to the United Kingdom, the slow pace of payments for pre-accession aid 
within a few months of Accession is of even more concern than it was last year. The 
shortcomings which account for delayed information in the Accession countries are 
in themselves quite serious since they point to insufficient institutional capacity. This 
raises  fundamental  questions  about  measuring  the  effectiveness  of  these  payments 
once  they  are  made  and  the  capacity  to  monitor  and  account  for  them  accurately. 
Chapter  2  (Budgetary  management)  summarises  the  problems  starkly.  The 
Commission’s  replies  suggest  that  the  problems  encountered  should  have  been 
foreseen and addressed. 

The United Kingdom is expecting the Court’s and Commission’s views on the value 
of  including  a  brief  summary  of  specific  recommendations  for  clearly  identified 
Commission  follow-up  action,  together  with  dead-lines.  These  might  reinforce  the 
multi-annual  aspect  of  the  Commission’s  work,  and  provide  a  baseline  for 
subsequent reports. As regards the Annual Report's chapter on financial instruments 

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and  banking  activities  Spain  considers  that  the  Court's  observation  pointing  out 
problems of efficiency in eight of the 10 projects of the global loan examined and a 
waste-water treatment is wrong. According to Spain, public aid programmes allow to 
stimulate  the  channelling  of  investment  towards  certain  sectors  and  to  speed  up 
implementation of infrastructure projects. As far as the conditions for the global loan 
are concerned, Sweden stresses that the Commission should examine if the rules on 
procurement  have been followed in  the  cases  brought  up by the Court of  Auditors. 
According to this Member State, the Commission should examine the facts with the 
European  Investment  Bank  and  take  appropriate  action  because  it  is  of  vital 
importance that the EU follows the rules on procurement. 

From  a  more  general  point  of  view,  the  Netherlands  emphasize  that  it  is  important 
the  Commission  take  steps  in  the  immediate  future  to  remedy  the  shortcomings 
identified  in  its  financial  management  and  that  the  statement  of  assurance  (DAS) 
becomes positive. They also consider that the reforms have stalled because progress 
in  various  areas  of  the  reform  is  still  inadequate:  simplification  of  financial 
the 
management  and  enhanced  financial  control  of  research  programmes, 
clarification of the respective powers and responsibilities of the Commission and the 
Member  States  in  shared  management  and  the  introduction  of  internal  control 
standards. 

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3. 

AREAS OF AGREEMENT AND DISAGREEMENT 

3.1.  Methodological problems 

As  with  the  reports  concerning  previous  years,  the  Member  States  still  express  a 
number  of  methodological  criticisms  about  the  Court  of  Auditors'  procedures, 
especially  as  regards  the  examination  of  transactions.  First  of  all,  some  Member 
States state that the Court of Auditors should not extrapolate observations from what 
they  consider  as  a  too  limited  number  of  audits  (United  Kingdom,  France,  the 
Netherlands). Others consider in some cases that the audit method used by the Court 
is  misleading  (e.g.  Sweden  as  far  as  the  audit  of  the  area  aid  scheme  for  cereals  is 
concerned).  Sometimes  factual  findings  are  disputed  (e.g.  France  in  the  case  of  the 
Court's  audit  relating  to  2000  to  2006  Nord-Pas-de-Calais  Objective  1)  and  the 
interpretation of legal provisions is different (e.g. Greece as regards Regulation (EC) 
438/2001).In  general,  Member  States  are  often  prompt  to  stress  that  some  findings 
made by the Court of Auditors are not the result of systematic faults in their own on-
the-spot  checking  procedure.  They  also  play  down  the  importance  of  some  errors 
found by the Court by stressing either that are formal or that their financial impact is 
insignificant.  

This raises once again the question of the introduction of a contradictory procedure 
which  would  allow  both  Member  States  and  the  Court  of  Auditors  to  defend  their 
respective viewpoints. 

3.2. 

DAS errors  

It may be noted that in general the Member States devoted less attention to the DAS 
errors and that few of them replied systematically and in detail to the cases referred 
to  them  .  No  specific  conclusions  can  thus  be  drawn  from  examining  them. 
Nevertheless, for some limited cases, Member States having replied either challenge 
the method of control used by the Court of Auditors or the findings. In most cases, 
those Member States report on corrections made and/or remedial measures taken. 

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4. 

CONCLUSION 

A  relatively  limited  number  of  conclusions,  lessons  and  recommendations  may  be 
drawn  from  an  analysis  of  the  Member  States'  replies  to  the  Court  of  Auditors' 
Annual Report for 2002. 

These  replies  principally  defend  the  validity  of  their  management  and  the  controls 
they carry out. This approach occurs at a number of levels: formal disagreement with 
the  Court  of  Auditors,  playing  down  the  significance  of  its  findings  and  the 
conclusions it draws, and presentation of specific or structural corrective measures to 
remedy the shortcomings detected. This stratification of arguments presented in their 
defence  varies  from  one  Member  State  to  another;  some  are  more  inclined  to 
question the Court's critical observations against them. 

This attitude is not particularly surprising, since the Member States – apart from their 
replies  to  sector  letters  -  do  not  have  the  possibility  to  defend  contradictorily  their 
point of view before the Court of Auditors when the latter question their management 
of EU funds. 

The number of structural corrective measures announced is limited. For instance, in 
the Own Resources area, Member States have taken steps to improve the accounting 
and  control  procedures.  As  regards  Agriculture,  the  need  for  better  legislation  and 
good  control  systems  is  expressed.  Several  Member  States  also  expect  more  input 
from  the  Commission  in  the  Agriculture  and  Structural  funds  areas,  as  regards 
simplification  of  legislation,  timely  issuing  of  guidance  and  better  monitoring  of 
management and control systems. 

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