Resolution of the European Parliament containing the comments which are an integral part of the decision on the discharge for implementing the general budget of the European Union for the financial year 2003, Section III — Commission
Date: 2005-04-12
Institutions: European Parliament
Subjects: European Commission, budgetary discharge, financial year, general budget (EU), implementation of the budget

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RESOLUTION OF THE EUROPEAN PARLIAMENT

containing the comments which are an integral part of
for implementing the general budget of

the decision on the discharge
the European Union for the financial year 2003,

Section III — Commission

THE EUROPEAN PARLIAMENT,

— having regard to the general budget of the European Union for the financial year 2003 (1),

— having regard to the final annual accounts of the European Communities, Financial year 2003, Volume I
the budget and consolidated financial statements

— Consolidated reports on implementation of
(SEC(2004) 1181 — C6-0012/2005, SEC(2004) 1182 — C6-0013/2005) (2),

— having regard to the Commission's report on the follow-up to 2002 discharges (COM(2004) 0648 —

C6-0126/2004),

— having regard to the Annual Report to the Discharge Authority on internal audits carried out in 2003

(COM(2004) 0740),

— having regard to the Court of Auditors' Annual Report for 2003 (3) and to its special reports accom-

panied by the replies of the institutions audited,

— having regard to the Statement of Assurance concerning the reliability of the accounts and the legality
and regularity of the underlying transactions, provided by the Court of Auditors pursuant to Article 248
of the EC Treaty (4),

— having regard to the Council Recommendation of 8 March 2005 (C6-0077/2005),

— having regard to Articles 274, 275 and 276 of the EC Treaty and Articles 179a and 180b of the

Euratom Treaty,

— having regard to Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial
Regulation applicable to the general budget of the European Communities (5), in particular Articles 145,
146 and 147 thereof,

— having regard to the Financial Regulation of 21 December 1977 applicable to the general budget of the

European Communities (6),

— having regard to Rule 70 of and Annex V to its Rules of Procedure,

— having regard to the report of the Committee on Budgetary Control and the opinions of the other

committees concerned (A6-0070/2005),

A.

B.

Whereas implementation of EU policy is characterised mainly by ‘shared management’ between the
Commission and the Member States.

‘implementation tasks shall be
Whereas, according to Article 53(3) of the Financial Regulation,
delegated to Member States’ where the Commission implements the budget by shared management,
and whereas Member States must act in accordance with the guidelines adopted by the Union.

(1) OJ L 54, 28.2.2003, p. 1.
(2) OJ C 294, 30.11.2004, p. 1.
(3) OJ C 293, 30.11.2004, p. 1.
(4) OJ C 294, 30.11.2004, p. 99.
(5) OJ L 248, 16.9.2002, p. 1.
(6) OJ L 356, 31.12.1977, p. 1.

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C.

D.

E.

A.

1.

2.

3.

4.

Stressing again (1) that the discharge procedure is a process seeking, inter alia, to improve financial
management in the EU by improving the basis for decision-taking in the light of the Court of
Auditors' reports and the replies and opinions of the institutions.

Whereas the Commission has the right of initiative according to the Treaty, and whereas ultimate
financial responsibility for implementation of the budget is indivisible and lies — with due consid-
eration to the subsidiarity principle as adopted with Treaty of Maastricht — with the Commission, as
laid down by Article 274 of the Treaty, and accordingly the appropriate checks on Community funds
must be laid down.

Whereas above all the Commission has an interest in ensuring that supervisory provisions are
complied with in full,

HORIZONTAL ISSUES

Regrets the Court's misleading statement as regards the outstanding commitments on the structural
funds, which at the end of 2003 represented ‘five years' worth of payments at the current spending
rate (…)’
(0.6) as this figure includes the years 2004 to 2006 which in 2003 could not be
committed; recalls that unused funds are reimbursed to the Member States at the end of the period;

Welcomes the fact that the introduction of the rule n +2 (year of commitment +2) has largely
contributed to solving this problem, such that for the last two years there has been an absorption
of more than 99 % of the structural funds;

Invites the Commission, also bearing in mind the post-2006 Financial Perspective, to find a balance
between the preparation of policy and the process of accounting for its proper implementation, and
calls on it to undertake a critical analysis by reconsidering the distribution of power within the
Commission (governance set-up) as well as administrative processes;

Further invites the Commission to include implementation costs and administrative burdens for
Member States and final beneficiaries in the extended impact assessment for new Regulations,
thereby creating checks and balances to keep the costs of implementation and the administrative
burden within acceptable bounds;

Reliability of the accounts — qualified opinion

5.

6.

Notes that, except for the effects of the absence of effective internal control procedures for miscel-
laneous revenues and advances, the Court is of the opinion that the consolidated annual accounts of
the European Communities and the notes thereto faithfully reflect the revenue and expenditure of the
Communities for the year 2003 and their financial position at the year-end (Statement of Assurance,
paragraphs II and III);

Draws attention to the following extracts from the ‘Annual Report to the Discharge Authority on
Internal Audits carried out in 2003 (2)’ as regards the accounting and management information
systems:

‘(…) the accounting function within DGs needs to be strengthened and professionalised so that
within and across DGs the Commission and its management can have systemic assurance that the
accounts are complete, accurate and relevant’ (page 5),

‘systems must ensure that the accounts capture all relevant information’ (page 5),

‘Management and external stakeholders need to have assurance that the numbers represent reality’
(page 6),

(1) OJ L 330, 4.11.2004, p. 82.
(2) COM(2004) 0740.

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and concludes that the wording indicates that:

— there is no systemic assurance that accounts are complete, accurate and relevant,

— systems do not ensure that the accounts capture all relevant information,

7.

8.

9.

10.

11.

12.

13.

— management and external stakeholders do not have assurance that the numbers represent reality;

Regrets that the distribution of power in the governance structure in the Commission downgrades
the role of the Accounting Officer to aggregating the information on the accounts that he receives
from the authorising officers; believes that the Accounting Officer should assume overall responsi-
bility for the integrity of the accounts for the Institution as a whole, and not rely exclusively on more
than 30 individual delegated authorising officers;

Expects the Accounting Officer to sign off the accounts, not the note accompanying the accounts,
thereby accepting personal responsibility for the figures presented in them, and, if there are quali-
fications, to explain exactly the nature and scope of the reservations made; underlines the difference
between the formal adoption of the accounts by the College and the certification of the accounts as a
true and fair record by the Accounting officer; invites the Commission, once again (1), to submit the
requisite legislative proposals for amendment of the Financial Regulation and/or the implementing
provisions relating thereto;

Regrets the Commission's resistance to upgrading the role of the Accounting Officer; stresses that the
certification of the accounts is a fundamental element in the control structure and that other
is
elements in the overall control structure are seriously weakened as long as this element
missing; agrees with the thrust of the recent reform of financial management in the Commission
which was to give responsibility to each Director-General; is however convinced that the assurance
given by the Directors-General must be supported by an overall assurance by the Accounting Officer,
who shall be fully accountable and have the necessary means to fulfil this duty;

Expects the Commission to include in the proposal for revision of the Financial Regulation provisions
which require the Accounting Officer to certify the accounts, e.g. on the basis of systemic validations
or spot checks; considers that the Accounting Officer must be upgraded to Chief Financial Officer
(CFO), assuming the role of the management's institutional counterweight to its 39 services, and that
his current role, in which he merely gives a very formal validation of information received from the
Directors-General without being free to make his own qualifications where required (Financial Regu-
lation, Article 61), is contrary to the aim of the financial management reform;

Stresses that the upgrading of the Accounting Officer is not a retrograde step back the old system, in
which the then ‘Financial Controller’ had an authorisation role for payments and commitments and
performed ex ante transaction checks; stresses the difference between the old system and the upgrade
the Accounting Officer so that he will be able to perform ex ante system checks and ex post spot
checks of
the Commission continues to advance the misleading and
erroneous argument that an enhanced role for the Accounting Officer in the control structure is a
move back to the old system and that the Accounting Officer's signature of the accounts is a mere
formality;

transactions; regrets that

Informs the Commission that it cannot accept any purely cosmetic improvement as regards the
Accounting Officer's role; expects the Financial Regulation to include a requirement of a declaration
from the Chief Financial Officer in which he, on his own account and not on the basis of infor-
mation received from the Directors-General, declares that the accounts present a true and fair view
and that the underlying transactions are legal and regular;

Fails to understand how the Court of Auditors can for 10 years have given a negative Statement of
Assurance on payment appropriations whilst at the same time giving a de facto clean opinion on the
Commission's general accounts; would appreciate a short written explanation from the Court on the
matter;

(1) Paragraph 21 of its resolution of 4 December 2003 (OJ C 89 E, 14.4.2004, p. 153) and paragraph 68 of its resolution

of 21 April 2004 on the discharge for 2002 (OJ L 330, 4.11.2004, p. 82).

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14.

Recalls that on 17 December 2002 the Commission approved an action plan for the modernisation
of the European Communities' accounting system which should be operational as from 1 January
2005; emphasises that the operation of drawing up the opening balance sheet is crucial to the
success of the transition from a cash-based accounting system to an accruals-based system;

Court of Auditors' global assessment 2003 — no reasonable assurance

15.

Notes with disappointment that, once again, the Court ‘has no reasonable assurance that the super-
visory systems and controls of significant areas of the budget are effectively implemented (by the
Member States) so as to manage the risks concerning the legality and regularity of the underlying
operations’ (0.4);

Court of Auditors' specific assessment

16.

Recalls the Court's specific conclusions as regards payment expenditure:

— agriculture: ‘There is still room for progress as regards agricultural expenditure in its entirety in
order to rectify the significant shortcomings observed in the supervisory systems and controls’
(Statement of Assurance, paragraph VI(a)),

— structural funds: ‘… persistent weaknesses at Member State level in the systems for supervising
and controlling the implementation of the EU budget …’ (Statement of Assurance, paragraph
VI(b)),

— internal policies: ‘… the improvements noted in the supervisory systems and controls are not yet

sufficient to prevent significant errors …’ (Statement of Assurance, paragraph VI(c)),

— external actions:

‘… it is essential that the tools needed to supervise and control systems and
expenditure should become operational with a view to making the improvements which are still
necessary’ (Statement of Assurance, paragraph VI(d)),

— pre-accession aid: ‘shortcomings in the supervisory systems and controls which had already been
identified in 2002 resulted in errors and greater risks affecting the legality and regularity of the
transactions’ (Statement of Assurance, paragraph VI(e)),

— shared management: ‘In the area of shared or decentralised management … a greater effort must
be made to apply the supervisory systems and controls in an effective manner so as to improve
the handling of the attendant risks’ (Statement of Assurance, paragraph VIII);

Notes that the Court's findings clearly identify the main problems as regards the legality and
regularity of the underlying transactions as being located first and foremost at Member State level
and to a lesser degree at Commission level;

Takes the view that, in cases involving shared management of Community funds, the Commission
must, as a matter of urgency, find ways to improve accountability at Member State level by dealing
efficiently with the ‘delegation risk’ which results from the fact that the Commission, whilst having
final budget responsibility for all its expenditure, is also required to bear that responsibility when EU
funds are expended in shared management with Member States;

17.

18.

Delegation risk

19.

Notes that, while Member States are in charge of the implementation of the majority of the EU
budget, the European Commission bears ultimate responsibility for implementation and, with due
consideration to the subsidiarity principle as adopted with the Treaty of Maastricht, hence, also for
control measures within Member States and the Commission itself;

20.

Notes that the distinction between the financing and the implementation of a Community policy
gives rise to the so-called ‘delegation risk’, which concerns matters such as:

(a) recognition of the fact that Member States and beneficiaries do not always give the same

attention to the spending of European money as to the spending of national money;

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(b) the heterogeneous quality of Member States' control standards and the notable absence of
involvement of most national audit institutions in seeking assurance that European funds are
being used regularly and legally for the intended purposes;

(c)

the excessive reliance placed on legal and contractual definitions of control mechanisms without
any sufficient attempt to base the relationship between the Commission and the Member States'
administrative authorities on principles of good governance and good accountability;

(d) the ex post nature of recovery mechanisms, which diverts attention from the need for remedial
action to be taken as early as possible and in many cases allows errors to be repeated over too
long a period;

(e)

the lengthy chain of events leading from budget commitment to receipt by the final beneficiaries,
which requires major efforts to ensure that the audit trail can be followed;

(f)

the limited substantive testing of samples that can be carried out from a practical standpoint as
compared to the total number of transactions;

21.

Takes the view that these problems cannot only be resolved by centrally imposed controls, and that
the current situation clearly demonstrates the need for new instruments to enhance the Commission's
insight into the Member States' management and control systems; considers that only sufficiently
comprehensive ex ante disclosure in a formal Disclosure Statement and an annual ex post Declaration
of Assurance as regards the legality and regularity of the underlying transactions from each Member
State's highest political and managing authority (Finance Minister), as suggested several times by the
Commission's Internal Audit Service (1), will enable the Commission to fulfil its obligations under
Article 274 of the Treaty;

22.

Invites the Commission to present before 1 October 2005 an initial report exploring the road map to
a protocol with Member States in which the managing authority (Finance Minister) will declare, prior
to disbursement and on an annual basis, that proper control systems, capable of providing adequate
assurance for Commission accountability purposes, are in place;

23.

Recommends that this report require that the annual Disclosure Statement includes:

(a) a description of the control systems by the managing authority of a Member State;

(b) an assessment of the effectiveness of these control systems;

(c) a remedial action plan if necessary, drawn up by the managing authority of the Member State in

consultation with the Commission;

(d) confirmation of the description by a national audit institution or another external auditor, and

24.

25.

recommends further that this report specify the rights of the Commission to verify the Disclosure
Statement, and establish clear legal authority for penalties affecting the overall funding of the Member
State concerned, in the event of inadequate disclosure;

Considers it inappropriate to decide the appropriations for shared management policy for the period
after 2007 without giving a concrete answer to the remarks of the Court of Auditors and substan-
tially improving the control mechanisms in the Member States;

Advises the Commission and the Council of the difficulties involved in concluding an Interinstitu-
tional Agreement on the new Financial Perspective until the principle of disclosure statements from
each Member State's highest political and managing authority (Finance Minister) as described in
paragraphs 21 to 23 has been fully accepted and its operational implementation given status as a
matter of priority;

(1) See ‘Annual Report to the Discharge Authority on Internal Audits carried out in 2003’ (COM(2004) 0740), p. 6.

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26.

27.

Takes the view that progress in the European Union's financial management is not possible without
Member States' active participation, and that this ‘participation’ must be anchored at political level;

Is convinced that a Finance Minister will prefer to establish properly functioning supervisory systems
and controls instead of running the risk of having to explain to his/her Parliament why the national
purse has to repay substantial sums to the European Union;

28.

Calls on the Commission to be more rigorous in its supervision of paying agencies and less tolerant
of incompetence, by considering the feasibility of:

— requiring all payment agencies to be audited annually by an external auditor,

— establishing performance targets,

— suspending payments when clearly defined performance targets are not met and ensuring that
agencies were made aware in advance that this would be the inevitable consequence of poor
performance,

— removing agencies which fail regularly to meet performance targets,

— making agencies financially responsible for their mistakes;

The Court of Auditors' Statement of Assurance …

29.

30.

31.

Recalls that since the Maastricht Treaty entered into force the Court is required each year to provide
Parliament and the Council with a Statement of Assurance (known as the ‘DAS’, which is the
abbreviation of the French ‘déclaration d'assurance’) as to the reliability of the accounts and the
legality and regularity of the underlying transactions;

Stresses that the decision as to the criteria and method by which the Court would arrive at the DAS
was left to its discretion and not prescribed by the legislative authority;

Recalls that,
initially, the Court based its audit opinion entirely on a statistical method which
consisted of the direct substantive testing of a global sample and the extrapolation of a most
likely error rate;

… and its inherent problems

32.

Summarises as follows some of the limitations inherent in, and the nature of, the DAS, inasmuch as
these elements must be taken into consideration when assessing the results of the DAS analysis and
the effects of these results on the decision whether or not to grant discharge, as well as possible
future improvements of the DAS methodology:

(a)

the DAS is a part of the financial audit carried out by the Court; as such the objective is to obtain
assurance as to the regularity and legality of the underlying transactions; the typical financial
audit questions are: ‘Do the accounts present a true and fair view?’ and ‘How many errors were
found in the transactions?’;

(b) the DAS is only indirectly part of the performance audit (1), which is wider in scope as it
examines whether resources have been used in an optimal manner; the typical performance
‘Were resources spent wisely and used in accordance with the principles of
audit question is:
economy, efficiency and effectiveness?’;

(c) even if the DAS can show that the manner in which resources have been used is 100 % regular
and legal, this does not give any indication as to whether the expenditure has provided value for
money, because the DAS does not and cannot either pose the question or give the answer; in
other words: money may be totally wasted even though it is used in an absolutely regular and
legal manner;

(1) Also called ‘sound financial management audit’ or ‘value for money audit’.

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(d) the focus actually given to the legality and regularity of the spending does not help to inform the

legislator and the public as to whether the money has been spent effectively;

(e)

the DAS approach is a corollary of the political attention paid to the ‘need’ to reduce fraud and
irregularity, but it does not significantly contribute to any reduction in waste;

(f)

the media very often misinterpret the current Statement of Assurance and present the negative
DAS as evidence that more or less all EU funds are subject to fraud; this misleading picture may
have a negative influence on citizens' attitudes to other EU issues such as the Constitution or the
new Financial Perspective;

(g) the DAS approach is not yet sufficiently able to identify progress: either the DAS is positive or
negative; the methodology should be further developed in order to obtain sufficient information
indicating which improvements have been made in each sector from year to year in the different
Member States;

The current reform of the DAS …

33.

34.

Acknowledges that, in recent years, the Court of Auditors has shown a degree of awareness of the
criticisms raised and has attempted to reform the DAS methodology by widening the basis for its
evaluation;

Notes that the global DAS is now the result of a consolidation of specific appraisals concerning own
resources and each of the operational chapters of the Financial Perspective, and that the sector-related
assessments are now based on four sources of information:

(a) an assessment of the supervisory systems and controls;

(b) substantive transaction testing;

(c) review of the annual activity reports and declarations of the Directors-General at the Commission;

(d) evaluation of relevant results of other auditors;

… is a step in the right direction but seems to be too modest

35.

36.

37.

38.

39.

Notes that the central question in the context of the DAS should be whether the supervisory systems
and controls that have been implemented at Community and national level provide the Commission
with a reasonable assurance as regards the legality and regularity of the underlying transactions;

Invites the Court to further improve the presentation of the global Statement of Assurance and the
specific appraisals by continuing the trend towards a more comprehensive description of the reser-
vations, and to include more explicit and specific information on weaknesses in the different sectors
and Member States with a view to establishing an operational
listing, drawn up on a risk-based
approach, of the reservations which can be monitored over time;

Understands that the objective of examining a sample of transactions is no longer to calculate the
most likely error rate, and that the results of the testing under the new approach are considered
together with the results obtained in the other three pillars;

Invites the Court, in order to assess whether the new approach is fundamentally different from the
initial approach, to provide further information on the relationship between the four sources of
information of the sector-related assessments;

Invites the Court to explain in detail the degree to which it has been able to obtain audit results from
‘other auditors’ and the role which these results have played in the Court's judgement; notes the
absence of references to results from other auditors in the Annual Report; would in particular
appreciate information on results and difficulties as regards cooperation with ‘other auditors’
in
the different Member States, as these ‘other auditors’ also include national audit institutions which
enjoy complete autonomy vis-à-vis the European institutions;

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40.

41.

42.

43.

Considers that, although it is a step in the right direction, the present reform of the DAS is not
sufficient to correct the limitations and shortcomings listed above; welcomes the fact that the new
approach provides some insight into regularity per sector, but regrets that insight into regularity of
the DAS is still an
expenditure per Member State is still not sufficiently available;
finds,
instrument which is based too much on analysis of
therefore,
the functioning of supervisory and control systems should be
strengthened with a view to proposing concrete improvements of such systems and identifying
the origin of the weaknesses ascertained;

transactions and individual errors;

the analysis of

finds that

that

Invites the Court to develop further its qualitative DAS approach in order to take sufficiently into
account the multi-annuality of many of the programmes and corresponding compensatory controls
such as ex post audits and clearance of accounts corrections, which serve to protect the EU budget by
providing for recovery of undue payments; would appreciate it if the Court would present a Special
Report on this crucial issue and thereby clarify the relationship between ex ante controls and ex post
verifications;

Stresses that although compensatory controls are an important element of supervisory systems and
controls, they cannot compensate for deficiencies in supervisory systems and controls or, indeed, in
policy formulation as such;

Regrets in this respect the increasing number of references for preliminary rulings on the interpre-
tation and validity of Community law; stresses the importance of avoiding poor Community legis-
lation because it has a negative effect on the performance of the Union and leads to legal uncertainty
among persons, institutions and enterprises subject to it in the Member States; notes the Court's
unambiguous statement as regards the research framework programmes, where ‘(significant errors of
the rules governing the
legality and regularity in terms of payments) are likely to persist
programmes are not revised’ (Statement of Assurance, paragraph VI(c));

if

44.

Invites the Commission to reduce the risks of error in the claims on Community funding by ensuring
that Community legislation includes clear, workable rules regarding the eligibility of costs, and that it
requires the imposition of dissuasive and proportionate administrative penalties when eligible costs
are found to have been overstated;

Single audit

45.

Recalls that in paragraph 48 of its decision of 10 April 2002 concerning discharge in respect of the
implementation of the general budget of the European Union for the 2000 financial year (1),
it
requested the Court to provide an opinion ‘on the feasibility of introducing a single audit model
in relation to the EU budget in which each level of control builds on the preceding one, with a view
to reducing the burden on the auditee and enhancing the quality of audit activities, but without
undermining the independence of the audit bodies concerned’;

46.

Also recalls that the Commission was requested by the same decision to prepare a report on the same
subject, and notes that the Commission has not yet done so;

47. Welcomes the Court's Opinion No 2/2004 (2) on the ‘single audit’ model, which it considers to be a
very important contribution to the debate on the DAS and therefore deserving of close study by all
concerned; notes that the opinion is not mainly about a ‘single audit’ model in the strict sense of this
concept, meaning that a transaction is only subject to one audit by one authority, but first and
foremost about the establishment of a ‘Community internal control framework (CICF)’ (paragraph 3);

48.

Notes with particular interest the recommendations set out by the Court for an effective and efficient
internal control framework:

(a)

‘common principles and standards … (are) to be applied at all levels of administration in the
institutions and Member States alike’ (paragraph 57),

(1) OJ L 158, 17.6.2002, p. 1.
(2) OJ C 107, 30.4.2004, p. 1.

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(b) internal controls should ‘provide reasonable’ (not absolute) ‘assurance on the legality and regu-
larity of transactions, and compliance with the principles of economy, efficiency and effectiveness’
(paragraph 57),

(c)

the ‘cost of the controls should be in proportion to the benefits they bring in both monetary and
political terms’ (paragraph 57),

(d) the ‘system should be based around a logical chain structure where controls are undertaken,
recorded and reported to a common standard, allowing reliance to be placed on them by all
participants’ (paragraph 57) (1);

49. Wonders, in the light of the constant criticism levelled at the traditional DAS approach over the last

10 years, why these recommendations have not been published much earlier;

50.

51.

52.

53.

54.

55.

56.

Takes the view that the proposed structure for a Community internal control framework could be an
important instrument for the achievement of better and more efficient supervisory and control
systems, and could thereby contribute to the much needed modernisation of the DAS methodology;

Underlines that accountability for the use of EU funds begins in the Member States and that
disclosure statements, as described in paragraphs 21 to 23, by each Member State's highest
political and managing authority (Finance Minister) must consequently form an integral part of the
Community internal control framework;

Notes that the Community internal control framework is, as its name indicates, situated in the
‘internal control’ area and therefore does not deal with the players in the ‘external audit’ area;

Regrets that the Court has not presented any bold proposals as regards national audit institutions'
participation in enhancing transparency and accountability (core elements of good public adminis-
tration) at Member State level, especially inasmuch as the Court's audit results clearly show that that
is where it is most needed;

Notes and welcomes the Netherlands Court of Auditors' initiative to publish each year an ‘EU Trend
Report’ in which it examines financial management in the European Union and presents its opinion
on the monitoring and control of the use of EU funds in the Netherlands (2); would like to encourage
other national audit institutions to follow that initiative;

Invites the Commission to initiate discussions with the discharge authority, the Council and, with due
respect to its independence, the Court of Auditors as an observer, and to draw up an action plan for
the implementation of a Community internal control framework as soon as possible;

Further invites the Commission to make sure that the detailed proposals setting out the legal
framework of the policy proposals made by the Commission as part of the political project for
the Union until 2013 take full account of the elements contained in the ‘Community internal control
framework’ and the principle of annual disclosure statements by each Member State's highest political
and managing authority (Finance Minister) as described in paragraphs 21 to 23;

57.

Invites the Court of Auditors to inform the EP's competent committee whether the Commission's
proposals are in line with the ‘Community internal control framework’ and the principle of annual
disclosure statements;

Improvement of the annual activity reports and declarations by Directors-General
58. Welcomes the fact that the Court of Auditors ‘found that for the first time the Commission had
presented an analysis of the degree of the assurance provided by the supervisory systems and controls
with regard to the legality and regularity of the underlying transactions’ and that it so assumed
‘responsibility for the implementation of the budget … by adopting as its own the Authorising
Officers by delegation's management representations’ (paragraph 1.58 of the Court of Auditors' 2003
Annual Report);

(1) See ECA Opinion No 2/2004.
(2) http://www.rekenkamer.nl/9282200/v/index.htm

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59.

60.

61.

62.

63.

64.

Notes, however, that the Court of Auditors found (see paragraph 1.69, table 1.2, paragraphs 5.57 to
5.62, 7.48, 8.36 and 8.38) that ‘the extent of the reservations expressed by some departments is not
compatible or sufficiently justified in view of the assurance provided in the declarations’ and that in
‘the annual activity reports and declarations of the Directors-General
spite of some improvement,
cannot yet systematically serve as a useful basis for its audit conclusions in the various areas of the
financial perspectives’ (see paragraph 1.71 and table 1.2);

Invites the Commission to take into account the abovementioned observations from the Court of
Auditors, and to present in each annual activity report the measures taken to limit the risk of error in
the underlying transactions together with an assessment of their effectiveness; expects such measures
to lead to an improved general understanding of risks and a strengthening of the risk-management
culture within the Commission's Directorates-General; notes however, that this will need to be
underpinned and supported by a common, centrally driven risk management methodology;

Also calls on the Commission to reinforce the annual activity report and synthesis report process and
to strengthen its expression of assurances upon which the Court of Auditors may base the formu-
lation of its Statement of Assurance; acknowledges that initial steps have been taken to improve the
understanding of this process and to make the annual activity reports, reservations and declarations
more meaningful; calls on the Commission to give careful attention to further improving the reports
and to strengthen the follow-up given to observations contained therein; invites in particular the
Commission to clarify the definition of qualifications, reservations and other observations in the
annual activity reports that might indicate exceptions to the rules;

Invites the Commission to convert the Annual Synthesis Report into a consolidated assurance
statement on the Commission's management and financial controls as a whole;

Invites the Court of Auditors to indicate the necessary conditions which might allow it to take more
account of the annual activity reports and declarations in formulating its Statement of Assurance;

Calls on the Commission to ensure by means of thorough training and information programmes that
all its civil servants are aware of the means by which they can report any suspicions of wrongdoing
or mismanagement through normal hierarchical processes and, if necessary, through the procedures
for whistleblowers;

Further recommendations

65.

66.

67.

68.

Invites the Commission to produce estimates of error rates by sector and Member State, using the
findings of the audit work it already carries out and the control work carried out by the Member
States, as well as an analysis of the quality of the information presented by Member States, and to
publish the results in the annual activity reports and the synthesis of annual activity reports in such a
way as to provide a clear view of the quality of Member States' administrative systems as regards EU
accountability;

Invites the Court of Auditors to include in its DAS observations an evaluation of the correctness of
the information presented by the Commission and the individual Member States and to evaluate the
progress achieved;

Asks the Commission to review the Financial Regulation,
in order to improve application and
comprehensibility and to increase the efficiency of controls by critically analysing the quantity and
quality of planned controls;

Reminds individual Commissioners of their political responsibility for ensuring that the Directorates-
General within their competence are well managed and repeats the suggestion that within each
cabinet an adviser be given the specific responsibility inter alia of monitoring all audit reports, (as
proposed in its resolution of 22 April 2004 (1) on Eurostat) where early warnings of problems have
in the past been ignored;

(1) OJ C 104 E, 30.4.2004, p. 1021.

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69.

70.

71.

Notes that the systematic imposition of sanctions on Member States has resulted in a reluctance by
Member States to disclose implementation problems; asks the Commission to stimulate and focus
more on the learning element of financial control, by promoting exchanges of information between
Member States, benchmarking, participation of national auditors in audit
teams and shared
investment in better IT systems, and by carrying out preventive audits which focus on giving
advice rather than on imposing sanctions;

Expects the Commission in its follow-up report to provide comprehensive details of the actions
adopted and implemented in order to address the observations and implement the recommendations
made by the Court of Auditors in the 2003 Annual Report and in the three previous annual reports
(2002, 2001 and 2000); requests the Commission to include in its follow-up report a detailed list
and a schedule of the measures planned in those cases where no action has yet been adopted and/or
implemented;

Invites the Court of Auditors to produce an annual report showing the Court's own activities, its
ability to meet production targets, the unit costs, significant areas of development and other relevant
factors as regards the institution's performance; notes that such a performance report also would be
an excellent way of publishing information on the modernisation of the DAS and other devel-
opments in the Court's audit approach;

72.

Further invites the Court of Auditors to study the possibility of publishing its audit manual and
information on the DAS approach on its website;

73. Welcomes the Council's intention ‘to further strengthen its treatment of questions of audit and
the

to have a more regular and effective monitoring process of

financial control
in order
Council's recommendation of the discharge’ (1);

74.

Invites the Court of Auditors to organise each year a number of ‘benchmark audits’ of items of
delegated expenditure, to be published in special reports, in which:

— all 25 Member States are audited for the same programme or activity,

— the results are published for each Member State openly and transparently so that comparisons can

be made,

and invites the Court to organise follow-up audits at subsequent points in the future so that progress
can be monitored;

75.

Calls on the Council to work with the Parliament and Commission to give the creation of a
comprehensive control and audit framework the priority and political momentum it requires by
establishing a high level panel of experts which would:

(i) bring together a number of leading figures with experience of the EU institutions, national audit

authorities and finance ministries as well as experts from international audit bodies;

(ii) prepare a draft action plan for the creation of a coherent internal control and external audit

environment, with particular reference to the challenge of shared management;

(iii) identify possible constitutional, political and administrative obstacles which would need to be
overcome in order for national audit bodies to be active players in the process of safeguarding
taxpayers' money channelled through the Union's budget;

(iv) report to the Council, Commission and Parliament as soon as possible;

(1) Point 8 in the Council's Recommendation of 9 March 2004 (Doc 6185/04 Budget 1).

See http://register.consilium.eu.int/pdf/en/04/st06/st06185.en04.pdf

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76. Will once a year invite a Council representative to inform its competent committee on progress in

the work of the expert group, thereby ensuring the ‘ongoing’ nature of the activity;

77.

78.

79.

Considers it essential to examine how national audit institutions can play a more operational role in
the process, bearing in mind that they are independent institutions and do not always possess
sufficient expertise as regards EU legislation; invites the Court of Auditors to forward an evaluation
(including VFM) of the results of the work of the Contact Committee of the Presidents of the SAIs of
the European Union and the Court of Auditors as well as the Court's views as to whether the effects
of enlargement could revitalise the role of this body;

Further considers that it could be necessary to analyse whether the current structure and functioning
of the ‘top heavy’ Court of Auditors should be reformed; recalls that the Court of Auditors currently
has 25 Members and 736 employees, of whom 325 are professional auditors (A and B grades), with
275 (A and B grades) working in the audit groups and 50 (A grades) in Members' cabinets;

Regrets that due to time constraints it is not able to give the Council's Recommendation the attention
it deserves, and invites the Commission to forward, and the Council to adopt, the following proposal
for modification of Article 145(1) of the Financial Regulation:

‘The European Parliament, upon a recommendation from the Council acting by a qualified majority,
shall, before 30 June of year n +2 give a discharge to the Commission in respect of the implemen-
tation of the budget for year n’.

80.

Invites its President, in his speech to the next European Council, to address the need to improve
Member States' financial management of funds from the European Union;

B.

SECTORAL ISSUES

Own resources

81.

Points out that the proportion of own resources calculated on the basis of gross national income is
growing constantly and will soon account for two thirds of own resources; therefore expressly
supports the Court of Auditors' recommendation (paragraph 3.48) that the Commission carry out
more direct verifications of the underlying data from national accounts;

Agriculture, animal health and measures to combat fraud

Recovery of irregular payments

82.

83.

84.

85.

Invites Member States to report cases of irregularities on time every three months whilst accepting
that, in exceptional cases, Member States may ask for a derogation; expects the competent services of
the Member States to be sufficiently staffed and trained, and expects all Member States, including
Germany, Greece and Spain, to use electronic reporting not later than July 2005; calls on the
Commission to inform its competent committee on the progress made in this area no later than
September 2005;

Notes that the Commission is responsible for having failed to recover, at least, EUR 1 120 million
during the period from 1971 to September 2004; considers this to be an unacceptable situation and
that the Member States and the Commission have shown a lack of due diligence; expects to receive a
report, in time for the 2004 discharge procedure, on how and when this money will be recovered;
notes that EUR 812 million is currently the subject of disputes before the courts and may also be
recoverable; furthermore expects an evaluation of the efficiency of the ‘premium’ of 20 % payable to
the payment agency for successful recovery;

Invites the Commission to propose simplified and more coherent rules on recoveries in preparation
for the revision of the Financial Regulation; expects to be consulted on this aspect before the
finalisation of the Commission's proposal;

Notes that the Commission will, by March 2005, have reviewed all of the approximately 4 000 cases
of irregularities (442 substantial cases and 3 500 smaller cases) which occurred during the reference
period;

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86. Welcomes the Commission's intention to refine the ‘black list’, which indicates operators showing

annual irregularities of more than EUR 100 000;

87.

Insists that the Commission must achieve measurable progress by realistically benchmarking future
improvements and by regularly reporting progress to its responsible Committee;

88.

Asks the Commission to improve the monitoring of the paying agencies who are responsible for
implementing the common agricultural policy; points out that before accession the paying agencies
in the new Member States were subject to approval by the Commission; requests the Commission to
follow up this practice and to submit to Parliament a report on the possibility of the approval of
paying agencies by the Commission in the present Member States;

The system for the identification and registration of bovine animals

89.

90.

91.

92.

Notes that, in the absence of common standards, the national databases set up by Member States in
the framework of the identification and registration system do not provide for data exchange
facilities; regrets that this potentially jeopardises the traceability of animals across borders;

Acknowledges that the current regulation does not enable the Commission to develop binding rules
on interconnection facilities for national databases; invites the Commission, in view of the findings
contained in the Court of Auditors' Special Report, to submit a legislative proposal extending the
Commission's implementing powers so as to ensure compatibility between the national databases;

Calls on the Commission to provide, within the existing legal framework, guidance and advice on
exchange of data, especially to new Member States which are currently setting up their national
databases;

States that replacing the current eartag system by electronic identification arrangements would not
only enhance animal welfare but would also further ensure the traceability of animals from one
Member State to another if the information kept on these electronic devices is harmonised; asks the
Commission to submit a concrete proposal on the use of electronic identification arrangements
instead of eartags; points out
the proposal should confer implementing powers on the
Commission in order to facilitate the setting up of common standards for the information kept
on the respective electronic devices; considers that the technology for the introduction of an elec-
tronic identification system must be at an appropriate standard before it can be implemented;

that

Management and supervision of the measures to control foot-and-mouth disease

93.

Notes that Community legislation requires the Commission to submit a report to Parliament and the
Council every three years on the application of foot-and-mouth disease eradication measures and the
corresponding Community expenditure; regrets that the Commission has not hitherto discharged this
obligation; asks the Commission to submit such a comprehensive evaluation every three years,
starting in 2006; considers that this evaluation should take into account cost-benefit analyses of
the Community's strategy;

94.

Points out that not only formal transposition, but also effective implementation by Member States
should be closely monitored; requests the Commission to further stimulate the research into vaccines
and testing methods and to update the study concerning the ability of Member States' veterinary
services to guarantee effective disease control in due time;

95. Observes that, during the last decade, the volume of animal transport in the single market has
multiplied, whereas the problems relating to traceability of animal movements and animal welfare
during transport have not yet been satisfactorily resolved; asks the Commission to take further into
local abattoirs;
consideration the possibility of
furthermore calls on the Commission to take immediate action to reduce transport of
ill or
injured animals;

reducing transport by making greater use of

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96.

97.

98.

Considers it vital to underline the importance of the role played by farmers in the Community's
strategy for preventing and controlling the disease; calls on the Commission to submit a legislative
proposal to the Council and Parliament making Community reimbursement of compensation paid by
Member States to farmers for disease eradication measures conditional on farmers' compliance with
their duty to notify any outbreak quickly;

States that further clarification of the financial
framework is needed in order to ensure equal
treatment for farmers and transparency in the calculation of compensation; points out that, in its
Resolution of 17 December 2002 on the 2001 foot-and-mouth crisis (1), Parliament considered the
fair administration of compensation to be essential in order to prevent fraud; asks the Commission to
align reimbursement rates for the different animal diseases and to establish viable criteria for the
calculation, such as the current market value of the animal; recognises that,
in the event of an
outbreak of disease, there is no clearly defined market value for store stock, breeding animals and
pedigree animals, but only for finished stock;

Emphasises that since public health is in the interests of the whole of society, public funds must
continue to be the main source of funding for Community eradication costs, and that farmers are
also taxpayers; notes that farmers in some Member States contribute financially towards the national
eradication costs (needed to co-finance the total costs), whereas other Member States do not demand
contributions from the farming sector, which may harm the level playing field for agricultural
producers in the EU; recalls that Parliament's Temporary Committee on Foot-and-Mouth Disease
had requested the Commission to propose solutions as to how farmers could contribute to the
Community's costs; notes the efforts made in different Member States and the study carried out
for the Commission in 2003 exploring ways of obtaining financial contributions from farmers;

The common organisation of the market in raw tobacco

99. Welcomes the reform of the CAP support for tobacco adopted by the Council in 2004, which aims
at decoupling tobacco aid through a step-by-step transfer of the tobacco premium to form enti-
tlements for single farm payments within a four-year transition period;

100. Endorses the European Court of Auditors' recommendation that the Commission seeks to ensure that
reform proposals are supported by sufficient data and impact analyses; asks the Commission to pay
particular attention to the significance of tobacco production for employment and the economy of
less-favoured areas;

101. Notes that the Community's tobacco production covers only 30 % of the needs of the industry;
the last CMO reform has already introduced mechanisms to bring European

that

points out
production into line with demand within the EU;

102. Observes that, as a result of the current mismatch between supply and demand, most of the tobacco
produced in the EU is exported; regrets that this policy is not in line with the Community's
development aid granted to small tobacco producers in developing countries who are dependent
on exports, because EU tobacco exports significantly reduce the export possibilities of developing
countries; demands that the Community's agricultural and development policy be aligned;

103. Points out that even if other crops can be cultivated, where tobacco is grown, the economic balance
of the agricultural holdings depends largely on tobacco; as Parliament recognised in its report on the
‘it is extremely difficult to find economic alternatives capable of generating the
last CMO reform,
same number of jobs as tobacco production’; asks the Commission to pursue its policy on promoting
the cultivation of alternative crops and to use the Tobacco Fund as an important instrument both for
the improvement of the quality of EU tobacco and for research into alternative crops;

104. Points out that research into alternative crops has been neglected and that producers have not been
encouraged to shift to other economic activities; the Community Tobacco Fund, which is financed by
a levy on the tobacco subsidy and managed by both the Directorate-General for Agriculture and
Rural Development (50 %) and the Directorate-General for Health and Consumer Protection (50 %),
has been under-utilised, most of the unused EUR 68 million being attributable to the Directorate-
General for Health and Consumer Protection information campaigns; from 2006, no measures to
promote a switch of production are funded; asks for a more consistent approach;

(1) OJ C 31 E, 5.2.2004, p. 137.

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105. Considers that compliance by the Member States with their notification duties as laid down in the
respective Community regulations is crucial to effective monitoring of the tobacco market and related
Community expenditure; insists that financial sanctions be imposed on those Member States which
have failed to comply with these obligations;

106. States that, since farmers face the prospect of payments to them being reduced or excluded in the
event of non-compliance, it is essential that they be made aware in advance of their new obligations
as
the
Commission and Member States to fulfil their duty to precisely define these criteria in good time
before the reform comes into force, in order to enable farmers to bring their activities into line with
the new rules;

regards cross-compliance with environmental

the 2006 reform; asks

standards after

107. Notes that the Commission will have to submit, by 31 December 2009, a report on the implemen-
tation of the 2006 reform to the Council; expresses its interest in this report and asks that it be
submitted also to Parliament;

Structural measures

108. Deplores the failure of some Member States to control and manage taxpayers' money for which they
are responsible, and points to the hypocrisy of some Member States in blaming the Commission for
failing to control expenditure for which those Member States are responsible;

109. Notes that the Court of Auditors did not find fault with the internal control mechanisms of the
Commission and noted improvements; regrets the fact that, due to insufficient resources, only a
limited number of Member States' systems have been subjected to on the spot checks;

110. Asks the Commission to inform Parliament of the countries which have failed to rapidly implement
agreed improvements in their control systems and continue to supply incomplete Article 8
statements;

111. Encourages the Commission to suspend interim payments to Member States in cases of serious
irregularity or when serious failings in the Member States' management control systems are found.

Interreg III

112.

Finds that the lack of measurable objectives and clearly defined indicators makes it difficult to assess
the extent to which the objective of the Interreg III programme, to strengthen economic and social
cohesion in the Community by promoting cross-border, transnational and interregional cooperation
and balanced development of the Community territory, has been met; thus finds it difficult to assess
whether the most efficient means for achieving this objective has been used;

113. Urges the Commission to make greater efforts to draw up clearly defined objectives and indicators
allowing the impact of this programme to be measured, so that the added value of European
spending in this area can be assessed; stresses the need for a clear and competent analysis
showing divergences between private and social costs and benefits or between local and
Community level costs and benefits, as
justify the
programme in the first place;

is necessarily those divergences

that

it

Internal policies

Environment, public health and safety

114. Considers the overall implementation rates of the budget headings for environment, public health

and food safety satisfactory;

115. Welcomes

the measures which aim at

improving the implementation cycle of multiannual
programmes; calls on the Commission to better focus calls for tenders and to provide more
assistance to applicants in order to avoid the submission of numerous project applications which
are clearly non-eligible for funding;

116. Points out that compliance with administrative and financial provisions of the Financial Regulation
should not lead to unnecessary delays in awarding grants or selecting projects to be financed;

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Research

117. Notes that the rules of participation in the European RT framework programmes are far too complex;
agrees with the Court of Auditors that this is a serious problem for the Commission and the
participants;
in particular, with less-developed administrative
structures, and SMEs have difficulties in dealing with an excessive volume of rules and requirements;

small organisations

regrets

that

118. Recalls that the sixth framework programme (FP6) is managed jointly by several Directorates-General;
notes that the Court finds that this fragmentation results in dilution of responsibilities, duplication of
functions and increased need for coordination;

119. Takes note of the Court of Auditors' recommendation for a review of ‘the rules for setting the
Community financial participation whilst allowing adequate control over expenditure’; expects the
Parliament to be fully involved from the early stages of any such review given its role as co-legislator
for the legal framework and the rules of participation in framework programmes;

120. Notes that the ‘Lisbon agenda’ is likely to be reflected in increased budgetary appropriations for the
seventh framework programme (FP7); highlights the fact that such a significant increase in the budget
will require effective simplification of the administrative procedures both for participants and for the
Commission;

121. Notes with concern the conclusion drawn by the Court that ex post financial audits again show ‘a
considerable incidence of errors, mainly due to over-declarations of costs (…) which were not
detected by the Commission's internal controls’; expects the introduction of audit certificates, with
possible improvements as recommended by the Court, to eventually result in a reduced need for
extensive ex post financial audits;

122. Urges the Commission to learn the appropriate lessons from the lack of transparency of accounting
in relation to the FP5 due to the number of cost categories, and to ensure that this is not repeated in
subsequent programmes;

123. Asks the Commission to base its proposal for FP7 on effective simplifications such as:

— concentration on fewer intervention mechanisms,

— reduction of the large number of different models for contracts,

— introduction of a single cost system to address the problem of ‘overcharging’ by participants;

124. Highlights the fact that it is not enough for the participants to comply with formal rules and
procedures, and that it is also important to ensure value for money; encourages the Commission
to perform qualitative ex post evaluations of scientific results and impacts;

125. Calls on the Commission to develop its procedures in such a way that the cost of preparing project

applications is reduced to a justifiable level;

126. Calls on the Commission to redraw the rules for participation,

introducing access to mid-term
scientific and technical evaluations of ongoing projects as a standard procedure; calls on the
Commission to identify a suitable interim evaluation board; asks the Court of Auditors to publish
an opinion on these new rules;

127. Notes with concern the delays observed by the Court in the adoption by the Commission of FP6
model contracts and financial guidelines, as well as in the implementation of the Commission's
Internal Control Standards and the deployment of the common IT system, which to some extent
offset the ‘improvements achieved by the earlier adoption of the legal framework and the simplifi-
cation of the contractual structure’; expects the Commission to profit from experience in order to
avoid similar delays in future;

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128.

Furthermore, encourages the Commission to include more efficient management structures in FP7:

— by creating the conditions for a better match between the resources of the Commission (i.e.
project officers, IT tools) and the number of projects financed, so as to ensure adequate scientific
monitoring, which is currently limited to a few days per project,

— by identifying and bringing in a suitable supervisory board for scientific evaluations,

— by developing an integrated database including a common IT system for proposals, contracts and

project management;

129. Welcomes the intention of the Commission to set up a guarantee scheme under the FP7 to better
leverage loan financing of European research projects and infrastructures, in particular by the EIB;
encourages the Commission to take into account, in the context of the proposed scheme, the special
needs of SMEs and to consider the possibility of extending such schemes to EUREKA projects;

Internal Market

130. Notes that because of internal restructuring, according to information from the Directorate-General
for Internal Market and Services, not all the funding available might be fully utilised and a number of
external studies could not even be awarded;

131.

Is satisfied, in general, at the high degree of utilisation of appropriations for the budget headings
coming under the Directorate-General for Health and Consumer Protection, the proportion of 2003
budget funding used having been 99,3 %;

132. Notes that utilisation of appropriations for the budget headings coming under the Directorate-General
for Taxation and Customs Union at 86,61 % is satisfactory but can certainly not be described as
excellent;

133. Voices its concern at the general trend that consumer programme award procedures are being held
up because of over-restrictive rules under the new Financial Regulation and potential applicants'
interest is considerably waning because of the bureaucratic procedures;

Transport

134. Notes that in the 2003 budget as finally adopted and amended in the course of the year a total of
EUR 661,8 million was included for transport policies in commitment appropriations and EUR 609,3
million was available in payment appropriations; further notes that of these totals:

— EUR 610,6 million was available in commitment appropriations for trans-European networks for

transport (TEN-T) and EUR 572 million in payment appropriations,

— EUR 16,6 million in commitments and EUR 13,3 million in payments for transport safety,

— EUR 15,0 million in commitments only for the Marco Polo programme,

— EUR 8,4 million in commitments and EUR 9,55 million in payments for sustainable mobility,

and

— EUR 7,4 million in commitments and EUR 6,35 million in payments for transport agencies;

135. Welcomes the increased rates of utilisation of both commitment and payment appropriations for
trans-European transport network (TEN-T) projects, both reaching almost 100 %, and expects that
this will result in Member States identifying resources from both the public and private sectors to
speed completion of these projects;

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136. Expresses its concern that interim and final payments for trans-European transport network projects
were often authorised by the Commission in 2003 without specific preconditions in the financial
implementing provisions being satisfied and recalls that the Court of Auditors has already drawn this
weakness to the Commission's attention in its annual reports for 2001 and 2002;

137. Notes that despite this high rate of payment appropriation utilisation the volume of outstanding
commitments or RAL (reste à liquider) was not reduced and rose slightly to EUR 1 154 million for
TEN-T in the course of 2003;

138. Notes with concern that for the other transport lines the rate of utilisation of commitment appro-
priations fell from 93 % to 83 %. The commitment utilisation rate for transport safety was parti-
cularly low at 65 % of the appropriations available and the payment rate of utilisation was 72 %. The
equivalent rates for transport safety in 2002 were 99 % and 58 %. Finds these rates of utilisation for a
key objective identified in the White Paper on Transport to be wholly unacceptable, particularly the
sharp decline in the utilisation of payment appropriations;

Culture and Education

139. Welcomes the steps that the Commission has taken to date to overcome the programme design and
management weaknesses which marred the first generation of the Socrates and Youth programmes;
welcomes the improved architecture and management procedures contained in its recently adopted
proposals for the next generation of Lifelong Learning and Youth programmes;

140. Notes that the Commission faces a difficult task in trying to reconcile demands that the adminis-
trative burdens placed on applicants for grants under programmes of this kind be as light as possible,
with the obligation imposed on it by the Implementing Rules for the Financial Regulation to ensure
sound financial management;

141. Underlines its conviction that the guiding principle of administrative and accounting requirements in
the next generation of Lifelong Learning and Youth programmes should be proportionality;
underlines the advantages of targeted derogations from the Implementing Rules for the Financial
Regulation allowing:

— greater use of flat-rate grants, permitting simpler application forms and contracts,

— greater acknowledgement of co-financing through contributions in kind and less onerous

accounting obligations on beneficiaries in such cases,

— simpler documentation on the financial and operational capacity of beneficiaries;

142. Emphasises the importance it will attach to the punctual publication of interim and ex post evaluation

reports on the future Lifelong Learning and Youth programmes;

Area of freedom, security and justice

143. Welcomes the fact that some progress has been made in the implementation of the budget for an
area of freedom, security and justice (budget title B5-8) in comparison with the 2002 budget year;
notes, however, that the level of execution in particular of payments is one of the lowest of the
Commission (68 % in 2003; 79 % for the entire internal policies) while the level of execution of
commitments now reaches the average of the internal policies; calls on the Directorate-General for
Justice, Freedom and Security to continue to improve implementation of the budget in the forth-
coming financial years;

144. Takes note of the remarks made by the Court of Auditors in its Annual Report 2003 concerning the
Commissions internal control environment, which are based on an analysis of four of the 14
Directorates-General
for Justice
and Home Affairs, as it was then called; calls on the Directorate-General for Justice, Freedom and
Security to follow the recommendations made by the Court of Auditors;

including the Directorate-General

implementing internal policies,

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145. Notes with concern and regret the remarks made by the Court of Auditors in its Annual Report
2003 about the implementation of the Refugee Fund; in view of the restructuring of the expenditure
programmes in this policy area in the context of the new Financial Perspective, which will lead to
more shared management, requests the Commission to ensure an adequate control environment at
national and European level;

146. Expresses its concern that the Commission has not yet given its opinion on the draft Financial
Regulation of Eurojust, as required by the Eurojust decision, although it was sent to the Commission
by Eurojust in November 2003;

Gender equality

147. Agrees with the Commission's political priorities for the 2003 budget inasmuch as enlargement and
the administration's preparations for this process should be considered absolute EU priorities; points
out the importance it has attached, in light of the objectives of the Lisbon and Barcelona summits, to
the need for an increased rate of participation by women in the enlarged EU labour market, in order,
particularly, to promote the socioeconomic status of women in the new Member States, and also to
the need to establish the necessary financial resources when planning the budget;

148. Points out that, by virtue of Article 3(2) of the EC Treaty, the promotion of equality between men
and women is a fundamental principle of the EU, and is also an objective relevant across the full
range of all Community activities and policies; reiterates its demand for gender equality to be taken
into due consideration as an ongoing priority objective during budgetary planning, in accordance
with the principle of gender budgeting;

149. Welcomes the significant progress achieved in the implementation of the 2003 budget with regard to
all the objectives and also the programming period for the Structural Funds, which translates into a
payments implementation rate of 89 %, well above that achieved in 2002 (71 %); draws attention as
a priority to the total absence of data relating to activities promoting gender equality that have
received Structural Fund support and calls on the Commission to remedy this situation at the earliest
opportunity;

150. Takes the view that the utilisation of budgetary resources has different effects on women and men
because of persistent gender disparities; points out that budgetary data for 2003 give hardly any
information on the extent and impact of funding allocated to the promotion of gender equality in the
context of gender mainstreaming, and calls on the Commission to present the relevant information
to Parliament without delay;

External Policies

Reform of the external aid management system

151. Points out that the Commission had high hopes for the reform when it was launched in 2000 and
has declared it to be a success; notes and endorses the Council Conclusions of 22 to 23 November
2004, in which the Council commends the Commission on the progress achieved in improving the
management and timely delivery of Community assistance and encourages continued efforts to
improve the quality and effectiveness of implementation; while fully supporting deconcentration,
notes that the considerable additional costs entailed need to be backed up by tangible results;
therefore welcomes the forthcoming Court of Auditors' evaluation of how deconcentration has
been working in the Delegations, as indicated in the Court's 2004 Work Programme and as called
for by the Committee on Foreign Affairs in its opinion on the 2002 discharge; trusts that the report
will, at the very least, include a cost-benefit analysis of deconcentration;

152. Notes that, while the 2003 Activity Report by the Directorate-General for External Relations speaks
of a need for further evaluation of the deconcentration, it would appear that this evaluation would
only concern staffing needs; draws attention particularly, therefore, to the Council's invitation to the
Commission ‘to conduct a qualitative assessment of EC External Assistance separate to the Annual
Report’ and to present this before July 2005;

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153. Draws attention to the continued absence of proper information management systems and a system
of supervision of the work of the Delegations regarding the evaluation of financial risks, a situation
recognised by the Directorate-General for External Relations itself in its Annual Activity Report of
2003 and attributed to a shortage of human resources; points out that, while the Commission's
candour and its proposals to remedy the situation are to be welcomed, these must be implemented
sooner rather than later, and calls on the Commission to issue an interim report on its progress
before July 2005;

154.

Is concerned that, in its audit of implementing organisations at project level, the Court of Auditors
found a significant number of irregular transactions (paragraphs 7.38 and 7.39 of the Annual
Report); notes that,
the
tender and procurement procedures by project management units and NGOs
observance of
remains an area of concern; expects the Members of
the Commission with responsibility for
external aid to submit an action plan by 1 September 2005 in order to bring those problems
under control;

the Commission agrees with the Court of Auditors that

in its reply,

155. Draws attention to the fact that greater coherence between different EU policies can improve the

efficiency of EU expenditure;

Court of Auditors' Annual Report

156. With regard to the Court of Auditors' Annual Report in general, would find it helpful if the Court
provided a clearer picture of the actual damage caused by any irregularities which have been
identified;

157. Recognises the need to strike a balance between reporting and procedural requirements for NGOs on
the one hand and the feasibility of NGOs meeting these on a regular basis on the other hand, and
would welcome reflection by the Court on how these interests could be better reconciled;

158. Asks whether the Commission has made attempts to compare the efficiency of various international

aid donors; if not, proposes that such an exercise be undertaken as soon as possible;

Solidarity Fund for Latin America

159. Draws attention to the support given by Parliament on numerous occasions to the idea of having a
Solidarity Fund for Latin America; notes that, while there is considerable support for such a fund, it
would have to be accompanied by greater social commitment from the political and economic
leadership of
in particular, draws attention to the responsibility of
countries with a particularly bad record of income distribution to seek to rectify this; notes that
the EU should pursue social objectives in these countries by both delivering aid and convincing the
countries in question to do more themselves, and that a satisfactory balance between these two
elements should be found;

the countries in question;

160. Expects the Commission to provide a (written) explanation to Parliament each time it does not

implement a provision set out in a budgetary remark;

Development

161. Takes the view that development policy is an essential component of the Union's external activities,
its aim being to eradicate poverty by reinforcing social infrastructure, education and health, increasing
the production capacity of poor population groups and giving support to the countries concerned so
that they can develop growth and local potential; stresses that the achievement of the Millennium
Development Goals (MDGs) would be a major step towards reaching this objective;

162. Recognises the Commission's efforts to focus its development operations on the achievement of the
MDGs including the identification of 10 key indicators; calls on the Commission to step up its efforts
in this direction and recommends devoting 35 % of the European Union's development cooperation
expenditure to achieving the MDGs;

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163. Recognises the problems of measuring the impact of Community assistance on the achievement of
the MDGs in multi-donor environments; deplores the fact that the Commission has not made efforts
to establish an appropriate mechanism to measure such impact and thus confines itself to measuring
the process of the developing countries towards the MDGs; deplores the fact that the Commission's
replies to the Development Committee's questionnaire are particularly vague as regards the imple-
mentation of the MDGs in the Commission's development actions;

164. Welcomes the improvements made by the Commission in its reporting system and recognises the
improved quality of the Annual Report 2004 on EC Development Policy and External Assistance
(COM(2004) 0536 and SEC(2004) 1027);

165. Decides to introduce an annual plenary debate on the Commission's Annual Report on EC Devel-

opment Policy and External Assistance;

166. Welcomes the fact that the share of spending for social infrastructure and services of the Official
financed by the general budget and the EDF, which totalled

Development Assistance (ODA)
EUR 8 269 million in 2003, increased from 31,4 % in 2002 to 34,7 % in 2003;

167. Deplores as unacceptable the fact that only EUR 198 million (2,4 %) was earmarked for basic
education and EUR 310 million (3,8 %)
for basic health; urges the Commission to increase
funding for these sectors and calls for 20 % of the European Union's development cooperation
expenditure to be earmarked for basic education and health in the developing countries;

168. Welcomes the role of the Commission in the debate on donor coordination and harmonisation of
procedures; deplores the lack of progress on the international level and the reluctance of Member
States; urges the Commission to increase efforts to avoid duplications of development actions and to
progress towards complementarity;

169. Considers that the Commission's support in preparing the new Members States for their participation
in the EU development policy was insufficient; urges the Commission to support the new Member
States and candidate countries in the establishment of their development policy and in the process of
awareness building for development issues;

Pre-accession aid

Phare

170. Commends the Commission for the efforts it has made so far through the Phare programme in

helping to prepare the candidate countries for managing the structural funds;

171.

Is nevertheless concerned by the failure to ensure that the accreditation process for many Phare and
ISPA agencies in the new Member States was completed before accession; urges the Commission,
however, to endeavour to ensure that such a failure does not occur in relation to Romania, Bulgaria
and the future acceding countries;

172. Notes, however, that the value of the Phare programme in terms of ‘learning by doing’ is limited as
the programmes managed differ significantly from the ERDF and ESF programmes for which they are
meant to be preparing, and that there remains a significant need for greater institution-building
support to help manage structural funds after accession; expresses concern about the capacity of
the candidate countries to absorb structural funds after accession;

173. Welcomes in principle,

for preparing for
management of the structural funds, provided that its design is not overcomplicated; whilst under-
lining the need for an appropriate control framework, therefore urges the Commission to ensure that
the new instrument is as kept simple as possible in order not to hinder its implementation;

for a new single instrument

the proposal

therefore,

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Sapard

174. Concludes that the aims and objectives of Sapard, as the first pre-accession aid to be fully decen-
tralised, were excellent, even if it did not fully achieve them; acknowledges the benefit of the Sapard
programme, which not only stimulated economic development in candidate countries but also
encouraged people to think in a new way which was more rational and project-based; acknowledges
that the programme was beneficial
in that it provided national
administrative authorities in the accession states with direct experience in the management of
Community funds; considers that the overall experience gained with this programme will definitely
be of added value in the implementation of future Community programmes; urges the Commission
to improve its ex ante analysis of needs, so as to further increase added value;

in terms of learning by doing,

175. Acknowledges that

the decentralised management system used to implement

the programme
generally functions well, but urges the Commission to improve it further by learning from the
to accession states when problems are
problems encountered so far, providing more support
found and doing more to follow up the programme;

176. Notes that, among other things, complex procedures and legal uncertainties lead to significant under-
utilisation of funds, and is disappointed that after five years of implementation only half of the
money was obtained by the (final) beneficiaries according to data as at 15 December 2004;
is
pleased, however, that no Sapard money will be lost because of delays; nevertheless, points out to
the Commission that under no circumstances should the desirable acceleration of payments eliminate
regulation and supervision of the programme;

177. Notes that most of the Sapard funds were spent on projects which increased production, and urges
that greater emphasis be placed on quality, environmental and health standards in the new
programmes;

178. Admits that clearance of accounts was better managed than in the case of Phare, but urges further

improvements to reduce loss of EU money;

179. Commends the Commission for the efforts made through the specific financial assistance in the pre-
accession strategy for Malta and Cyprus in helping these two countries prepare for membership;
regrets, however, that both Malta and Cyprus were excluded from the main pre-accession financial
instruments, Phare, Sapard and ISPA, and therefore had more limited opportunities to prepare for
managing Community Funds.