Report on the annual accounts of the European Agency for Reconstruction for the financial year 2003, together with the Agency's replies
Date: 2005-02-17
Institutions: European Court of Auditors
Subjects: European Agency for Reconstruction, budgetary control, interinstitutional relations (EU), management audit, operation of the Institutions, report

17.2.2005

EN

Official Journal of the European Union

C 41/35

on the annual accounts of the European Agency for Reconstruction for the financial year 2003,
together with the Agency’s replies

REPORT

(2005/C 41/02)

CONTENTS

Paragraph

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Reliability of the accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

1

2-6

3

4-6

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

7-16

Tables 1 to 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

36

36

36

36

36

38

42

C 41/36

EN

Official Journal of the European Union

17.2.2005

INTRODUCTION

1.
The European Agency for Reconstruction (hereinafter
called ‘the Agency’) was set up pursuant to Council Regulation
(EC) No 1628/96 (1). This regulation was replaced by Council
Regulation (EC) No 2667/2000 (2). The Agency, which was set up
in February 2000, was initially responsible for managing the EU’s
aid programmes in Kosovo. Following two extensions to its man-
date in 2001 and 2002, its operations now also cover Serbia-and-
Montenegro and the Former Yugoslav Republic of Macedonia.
The Agency’s head office is in Thessaloniki and it has operational
centres in Belgrade, Podgorica, Pristina and Skopje. It implements
programmes to foster institution-building and good governance,
to promote the development of a market economy and essential
infrastructure and to consolidate civil society. Table 1 summarises
the Agency’s powers and activities based on information provided
by the Agency itself.

THE COURT’S OPINION

2.
The Court of Auditors has examined the Agency’s annual
accounts for the financial year ended 31 December 2003 and the
underlying transactions. The Court performed its audit in accor-
dance with its auditing policies and standards. These are based on
international standards adapted to the Community context. The
Court has thus obtained a reasonable assurance in support of the
following opinions.

Reliability of the accounts

3.
In the Court’s opinion, the Agency’s accounts do not
present a true and fair view of the Agency’s actual economic and
financial situation (see paragraphs 8 and 10).

Legality and regularity of the underlying transactions

4.
Owing to the lack of the requisite information on the final
use of funds entrusted by the Agency to external bodies (both
national and international), the Court is unable to express an
opinion on the legality and regularity of the underlying transac-
tions for payments of 21,4 million euros made in 2003 (see para-
graph 15). For the remainder and except for the qualifications set
out in paragraphs 5 and 6 below, the Court is of the opinion that
the transactions underlying the Agency’s annual accounts were
legal and regular.

5.
As far as payments are concerned, the Court noted errors
relating to the validity of supporting documents, the observance
of contractual provisions and delegations of public authority
powers (see paragraph 13).

(1) OJ L 204, 14.8.1996, p. 1.
(2) OJ L 306, 7.12.2000, p. 7.

With regard to procurement, the Court noted, for one out
6.
of five of the operations it has examined, procedural anomalies
that call into question the respect of the principle of equality of
opportunity between tenderers (see paragraph 14).

OBSERVATIONS

7.
The implementation of the appropriations for the finan-
cial year 2003 and of the appropriations carried over from the
previous financial year is shown in Table 2. The Agency’s revenue
and expenditure account and balance sheet for the financial year
2003 are presented in summary form in Tables 3 and 4 (3).

8.
Article 1 of the Agency’s Financial Regulation stipulates
that its budget should be authorised according to the principle of
differentiated appropriations, which distinguishes between com-
mitment appropriations and payment appropriations. Article 3 of
this same regulation lays down that total revenue should cover
total payments, which implies that the budget should be shown
to balance and that implementation should be as close as possible
to equilibrium. In practice, however, the Agency’s budget as
adopted by the Governing Board does not observe the principle
of differentiated appropriations, as a result of which the Agency
presents as expenditure not only payments for the period charged
to the appropriations for the financial year but also all the out-
standing payments in respect of commitments for the financial
year (4), irrespective of the extent to which these commitments
have been implemented. The accounting out-turn for the finan-
cial year therefore bears no relation to the economic reality of the
Agency’s operations. The cumulative deficit as at 31 December
2003, i.e. 140,95 million euro, is thus largely artificial since it is
due to outstanding commitments concerning economic transac-
tions which have not yet been implemented.

In 2003 the Agency’s accounting system still exhibited
9.
serious weaknesses. For example, the general accounts were still
being kept on a single-entry basis despite all the risks of error that
involves for the integrity of the data and in spite of the fact that
Article 55 of the Agency’s Financial Regulation lays down that the
accounts should be kept on a double-entry basis.

(3) All of the tables in this report were drawn up on the basis of the most
exact values possible for the data used. For presentational purposes,
the figures were rounded up or down, which may produce minor dif-
ferences in the totals. A dash indicates a non-existent or nil value and
0,0 indicates a value below the rounding threshold.

(4) Payments made during the financial year against outstanding pay-
ments from previous years are not considered as expenditure in the
Agency’s revenue and expenditure account.

17.2.2005

EN

Official Journal of the European Union

C 41/37

Despite the observation made by the Court in its report
10.
concerning the financial year 2002 (1), funds paid out to finan-
cial intermediaries under loan programmes have not been entered
on the assets side of the balance sheet. The use made of these
funds is merely the subject of an information note in the report
annexed to the accounts (2). Since its creation, the Agency has
paid out 52,4 million euro (3) under these programmes. More-
over, various programmes which were still being implemented in
2003 provide for the management of funds by contractors to the
Agency. The funds thus paid out, which have been identified by
the Court, amounted to 43,38 million euro. In both cases, the bal-
ances still available at the end of the financial year 2003 should
have appeared on the assets side of the Agency’s balance sheet.

The efforts made by the Agency to improve its budget-
11.
ary, financial and accounting management should be stepped up
with a view to the consolidation of the Agency’s accounts with
those of the Community institutions, which will take place as
from the financial year 2005 (4). The Agency’s budget must in fact
be adopted in the form provided for by its Financial Regulation
(see paragraph 8) and the accounting rules governing the revenue
and expenditure must be brought into line with the principles
governing accruals-based accounting.

The management of one financial body which the
12.
Agency had set up in Kosovo, the management of which had
been entrusted to an external consultant, was characterised by sig-
nificant shortcomings (e.g. defective accounts, inadequate analy-
sis of borrower-related risk, inadequate documentation provided
in support of loan applications). The Agency’s supervision was
not sufficient to identify these shortcomings and take the neces-
sary corrective action as swiftly as possible.

13.
Anomalies were noted in respect of payments made in
2003. In some cases they arise from failure to observe either con-
tractual provisions or payment conditions (invalid, even inad-
equate, supporting documents). In other cases, most of the

anomalies are due to the fact that the acts against which the pay-
ments were made do not comply with the rules governing the del-
egation of public authority powers and/or those governing the
amendments of contracts already concluded. These anomalies
show that the Agency should improve its supervision of proce-
dures relating to the commitment and validation of expenditure.

14.
Anomalies likely to affect decisions to award contracts
were also noted. For example, some tenderers were sidelined for
administrative or technical reasons which were disputable or were
inadequately substantiated. In other cases, project managers were
replaced shortly after the start of the implementation of the con-
tract by persons who did not have the same qualifications as
those which enabled the tenderer to win the contract. In order to
reduce the risk of errors, the Agency should strengthen its system
of internal control by rigorously selecting the staff responsible for
evaluating tenders and by checking that the evaluation commit-
tees clearly substantiate their decisions.

15.
In several cases, the Agency concluded agreements with
public or semi-public, national or international, third parties. In
all these cases, it should ensure a more rigorous application of the
existing mechanisms in order to ensure that these bodies provide
it with the requisite information to assess the legality and regu-
larity of the underlying transactions.

In its report concerning the financial year 2002 (5), the
16.
Court stressed the excessive number of authorising officers by
delegation and sub-delegation. At the end of 2003, there were 45
for Title III and 11 for Titles I and II, i.e. 56 as compared with 67
in June 2003. Moreover, no limit is placed on the number and
length of delegations. The Agency should continue its efforts to
reduce the number of delegations.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 8 and
9 December 2004.

For the Court of Auditors
Juan Manuel FABRA VALLÉS
President

(1) See paragraph 14 of the report concerning the financial year 2002

(OJ C 319, 30.12.2003, p. 1).

(2) This is the case of the counterpart funds and of the funds disbursed

via loan mechanisms or credit lines.

(3) Estimate before the necessary adjustments were made.
(4) See recitals Nos 32, 35, 48 and 49 of the financial regulation appli-
cable to the general budget of the European Communities, Council
Regulation (EC, Euratom) No 1605/2002, OJ L 248, 16.9.2002, p. 1.

(5) See paragraph 15 of the report concerning the financial year 2002.

C 41/38

EN

Official Journal of the European Union

17.2.2005

n

i

d
e
d
i
v
o
r
p

s
e
c
i
v
r
e
s

d
n
a

s
e
i
t
i
v
i
t
c
A

3
0
0
2

f
o
n
o
i
t
u
b
i
r
t
s
i
d

l
a
c
i
h
p
a
r
g
o
e
G

n

i

e
r
u
t
i
d
n
e
p
x
e

g
n

i
t
a
r
e
p
o

.

3
0
0
2

n
o

i
l
l
i

m

9
3
1

:

o
v
o
s
o
K

—

.

o
r
u
e

n
o

i
l
l
i

m

9
0
1

:

a
i
b
r
e
S

—

.

o
r
u
e

n
o

i
l
l
i

m

9
1

:

o
r
g
e
n
e
t
n
o
M

—

.

o
r
u
e

r
e
b
m
e
c
e
D

1
3

t
a

s
a

f
f
a
t
S

:

3
0
0
2

n

i

d
e
t
s
i
l

s
t
s
o
p

)
2
2
1
(

0
2
1

1

e
l
b
a
T

)
i
k
i
n
o
l
a
s
s
e
h
T
(

n
o
i
t
c
u
r
t
s
n
o
c
e
R
r
o
f

y
c
n
e
g
A
n
a
e
p
o
r
u
E

t
e
g
d
u
b

l
a
n
i
F

d
r
a
o
B

i

g
n
n
r
e
v
o
G

s
k
s
a
T

n
o
i
t
a
c
i
l
p
p
A

s
e
v
i
t
c
e
j
b
O

o
t

e
l
b
a
l
i
a
v
a

e
d
a
m

s
e
c
r
u
o
s
e
R

y
c
n
e
g
A
e
h
t

)
2
0
0
2

r
o
f

a
t
a
d
(

e
c
n
a
n
r
e
v
o
G

0
0
0
2
/
7
6
6
2

o
N

)

C
E
(

n
o
i
t
a
l
u
g
e
R

l
i
c
n
u
o
C

n

i

d
e
n
i
f
e
d

s
a

s
r
e
w
o
p

’

s
y
c
n
e
g
A
e
h
T

y
t
i
l
i

b
i
s
n
o
p
s
e
r
U
E

f
o

s
a
e
r
A

y
t
a
e
r
T

e
h
t

o
t

i

g
n
d
r
o
c
c
a

o
r
u
e

n
o

i
l
l
i

m

,

6
8
5
3

-
a
t
n
e
s
e
r
p
e
r

e
n
o

s
e
s
i
r
p
m
o
C

-
s
i

m
m
o
C

e
h
t

e
s
i
v
d
a

o
T

—

e
h
t

s
e
g
a
n
a
m

y
c
n
e
g
A

e
h
T

)
i
(

e
c
n
a
t
s
i
s
s
a
U
E
e
d
i
v
o
r
p
o
T

y
r
r
a
c

l
l
a
h
s

y
t
i
n
u
m
m
o
C

-
d
u
l
c
n

i

)
o
r
u
e
n
o
i
l
l
i

m

,

9
5
9
4
(

r
e
b
m
e
M

h
c
a
e

m
o
r
f

e
v
i
t

;
s
d
e
e
n

y
t
i
r
o
i
r
p

f
o

n
o
i
s

s
e
m
m
a
r
g
o
r
p

d
i
a

l
a
p
i
c
n
i
r
p

e
h
t

,

n
o
i
t
c
u
r
t
s
n
o
c
e
r

r
o
f

f
o

s
e
r
e
h
p
s

s
t
i

i

n
h
t
i

w

e
h
T

,
t
u
o

:
f
o

t
n
a
r
g

U
E

n
a

g
n

i

s
e
v
i
t
a
t
n
e
s
e
r
p
e
r

o
w

t

,
e
t
a
t
S

s
e
m
m
a
r
g
o
r
p

e
s
i
v
e
d

)

%
5
2
9
(

,

%
4
7
9

,

d
n
a

n
o
i
s
s
i

m
m
o
C

e
h
t

m
o
r
f

-
o
r
u
E

e
h
t

m
o
r
f

r
e
v
r
e
s
b
o
n
a

d
n
a

n
o
i
t
c
u
r
t
s
n
o
c
e
r

s
e
e
g
u
f
e
r

f
o

n
r
u
t
e
r

o
T

r
o
f

e
h
t

.

k
n
a
B

t
n
e
m

t
s
e
v
n
I

n
a
e
p

;
s
n
o
s
r
e
p

d
e
c
a
l
p
s
i
d

d
n
a

—

o
r
g
e
n
e
t
n
o
M
-
d
n
a
-
a
i

b
r
e
S

n

i

-
s
i

d

d
n
a

s
e
e
g
u
f
e
r

f
o

n
r
u
t
e
r

,
c
i
m
o
n
o
c
e

,
e
c
n
e
t
e
p
m
o
c

o
v
o
s
o
K

,
a
i
b
r
e
S
f
o
c
i
l

b
u
p
e
R

(

-
o
r
p

o
t

)
i
i
(

;
s
n
o
s
r
e
p

d
e
c
a
l
p

-
p
o
o
c

l
a
c
i
n
h
c
e
t
d
n
a

l
a
i
c
n
a
n
i
f

r
e
m
r
o
F

e
h
t

n

i

d
n
a

-
e
n
e
t
n
o
M

f
o

c
i
l

b
u
p
e
R

d
n
a

)
o
r
g

-
a
r
t
s
i
n
m
d
a

i

d
n
u
o
s

s
n
o
i
t
u
t
i
t
s
n

i

r
e
g
n
o
r
t
s

e
t
o
m

,

n
o
i
t

d
r
i
h
t

h
t
i

w

s
e
r
u
s
a
e
m
n
o
i
t
a
r
e

s
e
r
u
s
a
e
m

h
c
u
S

.
s
e
i
r
t
n
u
o
c

r
o
t
c
e
r
i
D

e
l
b
i
s
s
o
p

y
r
e
v
e

e
k
a
t

o
T

—

f
o

c
i
l

b
u
p
e
R

v
a
l
s
o
g
u
Y

o
t

)
i
i
i
(

;

w
a
l

f
o

e
l
u
r

e
h
t

d
n
a

o
t

y
r
a
t
n
e
m
e
l
p
m
o
c

e
b

l
l
a
h
s

U
E

t
n
e
m
e
l
p
m

i

o
t

p
e
t
s

-
n
e
B

.
)

M
O
R
Y
F
(

a
i
n
o
d
e
c
a
M

t
n
e
m
p
o
l
e
v
e
d

e
h
t

t
r
o
p
p
u
s

e
h
t

y
b

t
u
o

d
e
i
r
r
a
c

e
s
o
h
t

.
e
c
n
a
t
s
i
s
s
a

e
d
u
l
c
n

i

y
a
m

s
e
i
r
a
i
c
i
f
e

d
n
a

y
m
o
n
o
c
e

t
e
k
r
a
m
a

f
o

-
s
i
s
n
o
c

d
n
a

s
e
t
a
t
S

r
e
b
m
e
M

n
o

i
l
l
i

m

6
3

:

M
O
R
Y
F

—

.

o
r
u
e

)
1
0
1
(

4
9

:

d
e
i
p
u
c
c
o

s
t
s
o
p

.

o
r
u
e

n
o

i
l
l
i

m

2
0
3

:
l
a
t
o
T

—

:
f
f
a
t
s

l
a
c
o

l

—

s
t
s
o
p

r
e
h
t
o

h
c
i
h
w

f
o

,
s
t
s
o
p

d
e
i
p
u
c
c
o

e
r
e
w

)
5
9
1
(

)
6
7
1
(

1
0
2

3
7
1

)
7
7
2
(

7
6
2

:
f
f
a
t
s

l
a
t
o
T

r
o
f

e
l
b
i
s
n
o
p
s
e
r

)
6
3
1
(

)
7
0
1
(

0
4
1

:
s
k
s
a
t

l
a
n
o
i
t
a
r
e
p
o

7
9

:
s
k
s
a
t

e
v
i
t
a
r
t
s
i
n
m
d
a

i

)
4
3
(

0
3

:
s
k
s
a
t

d
e
x
i
m

l
a
s
o
p
o
r
p

a

n
o

d
r
a
o
B

g
n

i

.

n
o
i
s
s
i

m
m
o
C
e
h
t

m
o
r
f

n

i

s
e
r
t
n
e
c

l
a
n
o
i
t
a
r
e
p
O

,

a
n

i
t
s
i
r
P

e
j

p
o
k
S

d
n
a

,

e
d
a
r
g
l
e
B

a
c
i
r
o
g
d
o
P

-
n
a
m

f
o

l
e
v
e
l

h
g
i
h

a

h
t
i

w

.

y
m
o
n
o
t
u
a

t
n
e
m
e
g
a

l

o
r
t
n
o
c

l
a
n
r
e
t
x
E

s
r
o
t
i
d
u
A

f
o

t
r
u
o
C

y
t
i
r
o
h
t
u
a

e
g
r
a
h
c
s
i
D

a

i

g
n
w
o

l
l

o
f

t
n
e
m
a
i
l
r
a
P

e
h
t

e
h
t

m
o
r
f

n
o
i
t
a
d
n
e
m
m
o
c
e
r

.
l
i
c
n
u
o
C

n
a
l
p

t
n
e
m
h
s
i
l

b
a
t
s
e

e
h
t

-
n
r
e
v
o
G
e
h
t

y
b

i

d
e
t
n
o
p
p
A

t
r
o
p
p
u
s

-
a
r
e
p
o
o
c

s
s
e
n
i
s
u
b

,

y
r
t

,
s
n
o
i
t
a
s
i
n
a
g
r
o

,
s
e
i
n
a
p
m
o
c

l
a
u
t
u
m

,
s
e
v
i
t

d
n
a

s
n
o
i
t
a
d
n
u
o
f

,
s
e
i
t
i
r
a
h
c

.
s

O
G
N

.

y
t
e
i
c
o
s

l
i
v
i
c

N
U

r
e
d
n
u

s
e
i

d
o
b

,
s
e
t
a
t
S

l
a
i
t
n
e
s
s
e

n

i

t
n
e
m

t
s
e
v
n

i

t
n
e
m
p
o
l
e
v
e
d

e
h
t

h
t
i

w

t
n
e
t

,

d
e
t
a
r
e
d
e
f

,

n
o
i
t
a
r
t
s
i
n
m
d
a

i

d
n
a

e
r
u
t
c
u
r
t
s
a
r
f
n

i

l
a
c
i
s
y
h
p

.

y
t
i
n
u
m
m
o
C
e
h
t

f
o

y
c
i
l

o
p

c
i
l

b
u
p
-
i

m
e
s

,
s
e
i
d
o
b

l
a
c
o

l

d
n
a

d
n
a

l
a
n
o
i
g
e
r

c
i
l

b
u
p

;
s
e
r
u
s
a
e
m

l
a
t
n
e
m
n
o
r
i
v
n
e

-
l
e
v
e
d

l
a
i
c
o
s

t
r
o
p
p
u
s
o
t

)
v
i
(

-
s
u
d
n

i

f
o
s
e
d
i
s
h
t
o
b

,
s
e
i
d
o
b

e
t
a
d

i
l

o
s
n
o
c

d
n
a

t
n
e
m
p
o

)

A

1
8
1

e
l
c
i
t
r

A

(

.

y
c
n
e
g
A
e
h
t

y
b

d
e
i
l

p
p
u
s

n
o
i
t
a
m
r
o
f
n
I

:
e
c
r
u
o
S

17.2.2005

EN

Official Journal of the European Union

C 41/39

2

e
l
b
a
T

3
0
0
2

r
a
e
y

l
a
i
c
n
a
n
i
f

e
h
t

r
o
f

t
e
g
d
u
b

e
h
t

f
o

n
o
i
t
a
t
n
e
m
e
l
p
m

I

—
n
o
i
t
c
u
r
t
s
n
o
c
e
R
r
o
f

y
c
n
e
g
A
n
a
e
p
o
r
u
E

)
o
r
u
e

n
o
i
l
l
i

m

(

e
r
u
t
i
d
n
e
p
x
E

r
a
e
y

l
a
i
c
n
a
n
i
f

s
u
o
i
v
e
r
p

e
h
t

m
o
r
f

r
e
v
o

d
e
i
r
r
a
c

s
n
o
i
t
a
i
r
p
o
r
p
p
A

s
n
o
i
t
a
i
r
p
o
r
p
p
a

e
l
b
a
l
i
a
v
A

i

g
n
d
n
a
t
s
t
u
o

s
t
n
e
m

t
i

m
m
o
c

)
1
(

d
e
l
l
e
c
n
a
c

d
i
a
p

s
t
n
e
m

t
i

m
m
o
c

r
o
f

e
c
n
a
l
a
b

r
e
v
o

d
e
i
r
r
a
c

t
n
e
m

t
i

m
m
o
c

d
e
l
l
e
c
n
a
c

r
e
v
o

d
e
i
r
r
a
c

d
i
a
p

d
e
t
t
i

m
m
o
c

d
e
r
e
t
n
e

f
o

n
o
i
t
a
c
o

l
l

A

e
r
u
t
i
d
n
e
p
x
e

e
u
n
e
v
e
R

d
e
v
i
e
c
e
r

e
u
n
e
v
e
R

n

i

d
e
r
e
t
n
e

l
a
n
i
f

e
h
t

r
o
f

t
e
g
d
u
b

e
h
t

l
a
i
c
n
a
n
i
f

r
a
e
y

e
u
n
e
v
e
R

e
u
n
e
v
e
r

f
o

e
c
r
u
o
S

—

—

1
0

,

1
0

,

2
0

,

1
0

,

0
2

,

0
2

,

—

—

9
1

,

,

3
0

,

0
7
1

,

3
7
1

,

2
9
1

I

e
l
t
i
T

,

0
0
7
2

,

3
9
4
3

s
t
n
a
r
g

y
t
i
n
u
m
m
o
C

1
1

,

,

2
1

3
5

,

,

5
6

6
7

,

I
I

e
l
t
i
T

,

4
8
2

0
4

,

s
t
n
a
r
g

r
e
h
t
O

f
f
a
t
S

,

9
9
7

,

6
0
3

,

6
7
2
2

,

2
8
3
3

,

7
9
4
1

—

,

2
2
5
1

,

8
9
2

,

0
2
8
1

,

8
1
3
3

I
I
I

e
l
t
i
T

,

5
5

3
5

,

e
u
n
e
v
e
r

r
e
h
t
O

n
o
i
t
a
r
t
s
i
n
m
d
A

i

,

9
9
7

,

8
0
3

,

7
9
2
2

,

4
0
4
3

,

7
9
4
1

,

0
8
7

,

9
9
7

,

8
0
3

,

7
9
2
2

,

4
0
4
3

,

8
7
2
2

0
3

,

5
2

,

5
5

,

,

7
3
5
1

,

2
3
1
1

,

9
6
6
2

,

1
2
5

,

8
9
3

,

9
1
9

,

7
8
5
3

,

1
2
9
5

l
a
t
o
T

,

8
5
0
2

,

0
3
5
1

,

6
8
5
3

,

5
3
3
2

-
t
i

m
m
o
c

i

g
n
d
n
a
t
s
t
u
O

)
1
(

s
t
n
e
m

s
e
i
t
i
v
i
t
c
a

g
n
i
t
a
r
e
p
O

l
a
t
o
T

,

9
3
0
3

,

6
8
5
3

l
a
t
o
T

d
n
a
n
i
a
g
a

e
l
b
a
l
i
a
v
a

e
d
a
m
e
r
e
w
s
n
o
i
t
a
i
r
p
o
r
p
p
a

i

g
n
d
n
o
p
s
e
r
r
o
c

e
h
T

.
s
t
n
e
m

t
i

m
m
o
c
e
d
o
t

d
n
o
p
s
e
r
r
o
c

)
o
r
u
e
n
o

i
l
l
i

m

,

6
0
3

(

3
0
0
2
n

i

d
e
l
l
e
c
n
a
c

e
r
e
w
h
c
i
h
w
d
n
a

r
a
e
y

l
a
i
c
n
a
n
i
f

s
u
o
i
v
e
r
p
e
h
t

m
o
r
f

r
e
v
o
d
e
i
r
r
a
c

e
r
e
w
h
c
i
h
w
s
n
o
i
t
a
i
r
p
o
r
p
p
a

f
o
t
n
u
o
m
a

e
h
T

)
1
(

.
r
a
e
y

l
a
i
c
n
a
n
i
f

e
h
t

f
o

i

g
n
n
n
i
g
e
b

e
h
t

t
a

i

g
n
d
n
a
t
s
t
u
o

s
t
n
e
m

t
i

m
m
o
c

e
h
t

o
t

d
e
d
d
a

.
s
t
n
u
o
c
c
a

n
w
o

s
t
i

n

i

y
c
n
e
g
A
e
h
t

y
b

d
e
d
i
v
o
r
p

a
t
a
d

e
h
t

e
s
i
r
a
m
m
u
s

s
e
l
b
a
t

e
s
e
h
T
—

a
t
a
d

’

s
y
c
n
e
g
A
e
h
T

:
e
c
r
u
o
S

.

i

g
n
d
n
u
o
r

f
o

s
t
c
e
f
f
e

e
h
t

o
t

e
u
d

e
r
a

s
l
a
t
o
t

n

i

s
e
i
c
n
a
p
e
r
c
s
i
D

:

B
N

C 41/40

EN

Official Journal of the European Union

17.2.2005

European Agency for Reconstruction — Revenue and expenditure account for the financial years 2003 and 2002

Table 3

(1 000 euro)

Total revenue (a)

Revenue

Commission grants

Financial revenue

Miscellaneous revenue

Counterpart funds

Contributions from third parties

Expenditure

Staff — Title I of the budget

Payments

Appropriations carried over

Administration — Title II of the budget

Payments

Appropriations carried over

Operating activities — Title III of the budget

Payments

Appropriations carried over

Total expenditure (b)

Outturn for the financial year (a–b) (1)

Balance carried over from the previous financial year

Payments on the Commission’s behalf

Payments to be made on the Commission’s behalf

Cancellations of appropriations carried over from previous financial
years

N–1 appropriations carried over which lapse (Titles I and II)

Complement: 2001 appropriations carried over

Financial revenue to be repaid

Counterpart fund adjustments

Exchange-rate differences

2003

275 280

3 955

1 517

379

28 034

309 164

17 027

306

5 261

1 215

69 565

265 352

358 725

– 49 560

– 112 908

– 5 231

– 515

30 649

146

0

– 3 955

400

23

2002

462 804

5 978

495

497

500

470 274

17 771

206

6 211

2 037

138 512

293 106

457 844

12 430

– 73 127

– 25 407

0

5 463

135

– 32 423

0

0

22

Balance for the financial year

– 140 951

– 112 908

(1) Calculated according to the principles laid down in Article 15 of Council Regulation (EC, Euratom) 1150/2000 of 22 May 2000 (OJ L 130, 31.5.2000, p. 8).
NB: Any discrepancies in totals are due to the effects of rounding.
Source: The Agency’s data — These tables summarise the data provided by the Agency in its own accounts.

17.2.2005

EN

Official Journal of the European Union

C 41/41

European Agency for Reconstruction — Balance sheet at 31 December 2003 and 31 December 2002

Table 4

Assets

2003

2002

Liabilities

2003

2002

(1 000 euro)

Fixed assets

Fixed assets at cost (1)

Depreciation (1)

Current assets

Sundry accounts receivable

Advances

Recoverable VAT

Cash accounts

Bank accounts

Cash

Fixed capital

3 877

3 400 Own capital (1)

1 771

1 960

– 2 106

– 1 440

Balance for the financial year

– 140 951

– 112 908

Subtotal

1 771

1 960

Subtotal

– 139 180

– 110 948

Current liabilities

56

57

23

135

58 Automatic carry-overs of appropriations

345 271

338 112

(Title III)

53 Automatic carry-overs of appropriations

1 521

2 244

(Titles I and II)

26

Sundry accounts payable

5 002

49

137

Subtotal

351 794

340 405

Subtotal

210 664

227 307

44

53

Subtotal

210 708

227 360

Total

212 614

229 457

Total

212 614

229 457

(1) Fixed assets at cost and depreciation for financial year 2002 have been recalculated according to the methods followed for financial year 2003.
NB: Any discrepancies in totals are due to the effects of rounding.
Source: The Agency’s data — These tables summarise the data provided by the Agency in its own accounts.

C 41/42

EN

Official Journal of the European Union

17.2.2005

REPLIES OF THE AGENCY

As the Agency does not dispose of an own budget line in
8.
the EC budget, the annual budgetary procedure takes place exclu-
sively within its Governing Board, under the guidance of the
Commission. In that context, the Agency presents its draft bud-
get as differentiated appropriations, accompanied by ‘likely sched-
ules of payments vis-à-vis commitments’, in full accordance with
the Commission’s practice. Such differentiation is not visible,
however, when its annual budget is published in the special OJ
issue for the Agencies, as the common format used there is that
of non-differentiated appropriations applicable to most Agencies.
The Agency has now taken steps for clarifying the financial pre-
sentation of its operations. The resulting consolidated revenue
and expenditure account for the whole period will be completed
for 2004 and used for the opening balance 2005 in order to com-
ply with the ABAC approach.

This body was created in 2000 in an immediate post-war
12.
situation where no banking system was in place. As conditions on
the ground improved progressively, improvements were intro-
duced in the management of this office. In fact the EAR, as part
of its active supervision of the programme, commissioned an
audit in 2002 (the report of which is the basis for the Court’s
observations), which included a review of the management of the
fund. It is true that the EAR reacted with a certain delay. This was
due to the late transmission of the audit report. On the basis of
the findings the EAR instructed the consultants to take corrective
action.

9.
The Agency has fully overcome the weaknesses mentioned
by the Court and now uses a computerised double entry general
accounting system along with the budgetary tool SI2. During the
first half of 2004 the accounting data of 2003 were introduced
in that accounting tool and the final accounts for 2003 were
established on that basis. The integrity (completeness and reliabi-
lity) of the data presented using the previous system were con-
firmed in that context.

The amount of EUR 52,4 million represents the cumu-
10.
lative total of payments made to all these intermediaries since
2000. Of this, only EUR 15 million have been paid to bodies cre-
ated by the Agency (EUR 3,71 million in 2003). The transitional
ownership clause for the funds used by the Agency essentially
preserved the Community interests until the funds could be safely
transferred to the managing authorities. The Agency will integrate
the value of these funds and report on their use in its financial
statements as from 2004. Of the 12 ‘special funds’, three had been
closed before the end of 2003; the outstanding balance of the
remaining funds was EUR 5,87 million at 31.12.03 and is almost
fully liquidated at the end of 2004.

In 2003, the Agency Accountant post was considerably
11.
upgraded, an internal controller recruited, new accounting tools
acquired, the finance and general ledger services reorganised and
the system of delegations reviewed. In 2004, the Agency contin-
ued its efforts to further improve its financial management sys-
tem, in particular through enhancing its accounting service.

13.
For the first category of findings mentioned by the Court,
the Agency has made payments to public organisations in condi-
tions different to those foreseen in the contract. This was done to
better harmonise the timing of payments to the cash flow needs
and the internal rules of the organisations concerned and thus
avoid delays in project implementation. In other cases, the Agency
has considered the technical and financial information provided
by the contractor to be in substance equivalent to the submissions
formally requested by the contract. In addition, in a few cases, due
to local laws and conditions, it was impossible for the Agency to
obtain supporting documents of EU standard. The second cat-
egory which constitutes the majority of the Court’s findings, con-
cerns procurement agent contracts. This type of contract is no
longer used since the entry into force of the new Financial Regu-
lation on 1 January 2003. Some of these contracts are already ter-
minated and the outstanding balance of the others is now being
liquidated. The EAR approach has always been to ensure efficient
project management (in often difficult and urgent conditions)
while respecting the applicable rules. The recommendations made
by the Court are however duly noted. A special effort will be
made to ensure that the contractual conditions of payments are
respected.

The great majority of the Court’s findings relate to ten-
14.
ders and evaluations carried out before 2003. In some cases the
Agency accepted an interpretation of the EC rules by the Evalua-
tion Committees in a different way to that understood by the
Court. This in effect led to the exclusion of some companies. As
regards the replacement of team leaders leaving a project, a situ-
ation which occurs occasionally despite the will of the Agency,
the EAR considers that in practice, the proposed new expert was
equally able to implement the contract efficiently. The Agency
appoints as members of the evaluation committees not only its
experienced staff in the field, but also independent experts or
competent persons designated by the national authorities con-
cerned. Central monitoring and guidance is now provided by the
Senior Procurement Advisor recruited in 2004 in view of further
improving the relevant internal control system.

17.2.2005

EN

Official Journal of the European Union

C 41/43

This observation concerns grant agreements with UNMIK
15.
and other international organisations, signed before 2003 in line
with the practice of the Commission (EC rules). When the Agency
has been aware of problems with the implementation of a grant,
corrective measures have been taken in concert with the benefi-
ciary and after clarification of the disputed issues. In the light of
the observation made by the Court, in future, the Agency will
monitor more closely the implementation of these grants.

The process of reduction of the number of delegations
16.
was initiated in 2003 as evidenced by the Court’s remark. It was
completed in February 2004, and there are since then only 20
delegations and sub-delegations in total, which allow for proper
implementation of the adapted workflow (financial circuit).