Proposal for a Council Regulation amending Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities
Date: 2005-05-03
Institutions: European Commission
Subjects: budgetary procedure, drafting of EU law, financial management, financial regulation, general budget (EU), implementation of the budget

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 3.5.2005 
COM(2005) 181 final 

2005/0090 (CNS) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation 
applicable to the general budget of the European Communities 

REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 

Report on the application of the provisions 
of the new Financial Regulation 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

BACKGROUND 

The  recast  Financial  Regulation  ('FR')  was  adopted  by  the  Council,  acting  unanimously,  in 
June 2002, after recourse to a successful conciliation procedure with the European Parliament 
and  after  significant  input  from  the  Court  of  Auditors.  In  December  2002  the  Commission 
adopted  the  Implementing  Rules  ('IR')  of  the  recast  FR after  extensive  consultation  of  the 
institutions.  Both  these  regulations,  which  apply  to  all  institutions,  entered  into  force  on 
1 January 2003.  

The FR is subject to review every three years, or whenever it proves necessary to do so. 

At the time of the adoption of the new FR in 2002, the Commission made a statement in the 
Council  minutes  in  which  it  “undertakes  to  make  a  report  by  1 January 2006  on  the 
application  of  the  provisions  of  the  new  FR  and,  in  particular,  on  the  discontinuation  of 
centralised  ex  ante  controls,  and,  if  necessary,  to  submit  appropriate  proposals  to  the 
Council”. This report is annexed. 

2. 

– 

– 

– 

– 

3. 

MAIN OBJECTIVES OF THE COMMISSION REVIEW 

To  improve  efficiency  and  transparency  in  the  operation  of  the  rules.  In  many 
cases,  the  rules  do  not  necessarily  need  to  be  changed,  but  their  interpretation  and 
application need to be clarified. 

For  contracts  and  grants,  simplification  of  the  procedural  and  documentation 
requirements,  especially  for  those  of  low  value,  and  ensuring  the  requirements  are 
proportionate  to  the  costs  and  risks  involved.  This  process  of  simplification  was 
initiated  with  the  ongoing  ("fast  track")  revision  of  the  IR;  it  will  be  further 
completed  with  the  proper  revision  of  the  implementing  rules  linked  with  the 
revision of the FR.  

As  regards  grants,  simplification  of  the  requirements  for  prior  verification  and  for 
financial  and  legal  guarantees:  ensuring  these  requirements  and  the  administrative 
burdens they place on beneficiaries, are proportionate to the costs and risks involved. 

Clarification and streamlining of the rules governing methods of management. 

GENERAL APPROACH FOR THE REVIEW  

3.1. 

Scope 

The Commission believes that these objectives can be achieved while maintaining stability as 
regards  the  basic  principles,  concepts  and  architecture  of  the  FR,  and  hopes  that  the  other 
institutions  will  share  this  view.  Stable  rules  are  necessary  for  sound  financial 
management. Moreover, the financial rules also impose requirements on the beneficiaries of 
grants and contracts. Changing the rules too often, or without adequate justification, can have 
a  negative  impact  on  such  beneficiaries  and  on  the  image  of  the  European  Union.  The 
revision will therefore be limited in its scope.  

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3.2. 

Timetable 

The objective is to reach agreement on the amendments so that they can enter into force on 1 
January 2007. This will coincide with the entry into force of the financial framework for the 
period 2007-2013. The IR will also be modified, and the new IR must also be adopted by that 
date.  There  must  be  adequate  time  following  adoption  of  the  new  regulations  for  the 
institutions and services to prepare for the changes before the regulations enter into force.  

4. 

METHOD AND CRITERIA APPLIED BY THE COMMISSION IN ITS REVIEW 

The  Commission  has  applied  strict  criteria  in  assessing  which  changes  are  absolutely 
necessary.  In  July  2004,  the  financial  units  of  all  the  Commission  services,  at  their  own 
initiative,  set  out  their  difficulties  with  the  rules  in  a  special  report.  Suggestions  were  also 
given by the other institutions. The Commission intends to have appropriate consultations of 
"stakeholders" in EC policies who will be affected by the rules. 

The Commission took into account the following considerations: 

a) 

b) 

c) 

Legislative  changes  should  be  reserved  for  those  problems  where  there  is  no 
alternative.  Wherever  possible,  other  solutions,  such  as  interpretative  notes  or 
administrative measures, should be used.  

Amendments that would reverse the internal reforms or undermine any of their key 
elements are unacceptable.  

Legislative changes should be proposed only where there are real difficulties. Any 
proposed amendment should: 

– 

– 

– 

facilitate  the  Commission’s  obligation  under  the  Treaty  to  implement  the 
budget and to accomplish its policy objectives; 

improve or ensure sound financial management; 

enhance the protection of the EU's financial interests against fraud and illegal 
activities; 

– 

Contribute to the objective of a positive statement of assurance. 

5. 

AMENDMENTS CONSIDERED NECESSARY 

5.1. 

Budgetary principles 

a) 

b) 

Other  legislative  acts  concerning  budget  implementation  need  to  comply  with  the 
FR. This principle should be reinforced (Art. 2 FR).  

The principle of budget accuracy should be expanded (Art. 5 FR) to underline that 
existing  legal  commitments  must  be  covered  by  an  adequate  allocation  of 
appropriations in the budget.  

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c) 

Regarding  the  principle  of  unity  of  the  budget,  the  rule  governing  interest 
generated  by  pre-financing  should  be  simplified  (Art. 5(4)  FR).  The  current  rule  is 
that pre-financing, and interest generated by it, belongs to the Community, and that 
interest must be recovered, at least annually. The existing scope of this rule is limited 
to grants subject to centralised management by the Commission services (Art. 3 IR). 
This  places  a  disproportionate  burden  on  those  programmes  where  in-house 
administrative  resources  are  required  to  administer  recovery  orders.  It  is  therefore 
proposed to allow for the amount of interest to be set off against the final payment to 
the  beneficiary.  This  maintains  the  principles  of  Community  ownership  of  pre-
financing  and  accounting  for  the  interest  generated.  The  limits  on  the  scope  of 
application of the general rule should be incorporated in the FR instead of the IR. 

d) 

With regard to the principle of annuality, more efficiency and transparency should 
be introduced to respond to the following needs: 

– 

– 

– 

– 

The  carry-over  of  non-differentiated  appropriations  should  exceptionally  be 
permitted in the case of expenditure on direct payments to farmers. 

Commitment  of  expenditure  in  advance,  from  15  December  of  year  n-1, 
should be exceptionally authorised for crisis management aid and humanitarian 
aid as referred to in Art. 110 FR.  

Restrictions on the maximum threshold for advance commitments against the 
current "EAGGF/Guarantee" (from 15 November of year n-1) to cover routine 
management  expenditure  (charged  to  the  budget  of  the  year  n)  should  be 
removed  (Art. 150(3)  FR).  Under  the  new  European  Agricultural  Guarantee 
Fund 
concentrated 
overwhelmingly at the beginning of the budget year n. 

(COM(2004) 489), 

requests  will 

payment 

be 

Non-differentiated  appropriations  for  veterinary  measures,  charged  against 
the  current  "EAGGF/Guarantee"  should  be  converted  into  differentiated 
appropriations,  more  suited  to  the  multi-annual  nature  of  the  expenditure 
(Art.149 (1) FR). 

e) 

Regarding  the  principle  of  universality,  two  items  should  be  added  to  the  list  of 
assigned revenue (Art.18):  

– 

The  possibility  for  Member  States  to  make  ad  hoc  contributions  for  external 
relations programmes; 

– 

Proceeds from the sale of vehicles, equipment, installations, etc. 

f) 

g) 

At  present,  the  Commission  must  be  authorised  by  the  budgetary  authority  before 
accepting  any  donations  (Art.  19(2)).  To  avoid  unnecessary  and  cumbersome 
procedures, it would be useful to limit the requirement for authorisation to donations 
which involve significant charges.  

In  relation  to  the  principle  of  specification  of  the  budget,  the  rules  governing 
transfers of appropriations should be simplified and clarified where they have proven 
cumbersome or unclear:  

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– 

– 

– 

“Notification  procedure"  (Art.  22  and  23):  the  text  does  not  say  when  the 
deadline for the decision of the budgetary authority is deemed to start running, 
so a correction is necessary. 

For  reasons  of  efficiency,  the  Commission  should  be  allowed  to  decide 
autonomously on transfers from the reserve where no basic act exists for the 
action concerned when the budget is established but is adopted during the year 
(Art. 23(1) new paragraph (d)). 

Rules on transfers of administrative appropriations should be adapted to the 
new Activity-Based Budgeting (ABB) structure.  

5.2.  Methods of management (Arts 53-57) 

a) 

b) 

c) 

d) 

e) 

f) 

The  limitation  of  shared  management  to  EAGFF  and  Structural  funds  should  be 
removed, to reflect current practice based on existing regulations as well as proposals 
for future basic acts after 2006. 

For  joint  management  with  international  organisations,  the  definition  and 
requirements need to be clarified and need to be completed in line with operational 
needs. 

The  conditions  and  criteria  for  using  national  public-sector  bodies  ("national 
agencies") should be simplified in order to facilitate their use, and the scope of the 
provision is extended to international public bodies.  

The specific case of special advisers/heads of mission appointed by the Council to 
manage  certain  actions  in  common  foreign  and  security  policy  (CFSP)  needs  to  be 
included as a special case of indirect centralised management. 

The prohibition on delegating budget implementation tasks to private bodies should 
be  modified,  since  experience  has  proved  the  terms  of  this  prohibition  to  be 
unnecessarily strict.  

Finally,  taking  account  of  the  need  for  a  common  control  framework,  controls 
carried out by the Commission on decentralised or indirect centralised management, 
and where appropriate in shared management, are reinforced, particularly by adding 
provisions concerning the Member States’ responsibilities under shared management. 

5.3. 

Financial Actors 

The relationship between the Commission's internal auditor and the agencies (FR) should 
be adjusted (Art. 185 FR). The latter should have their own internal audit function reporting to 
their  own  management  boards,  whereas  the  Commission's  internal  auditor  reports  to  the 
College on the procedures and systems of the Commission.  

As  regards  the  Accounting  Officer,  his/her  responsibility  for  certifying  the  accounts,  on  the 
basis  of  the  financial  information  supplied  to  him/her  by  the  authorising  officers,  has  to  be 
clarified. 

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5.4. 

Recovery of amounts receivable (Arts. 72-73b) 

The rules on recovery of amounts receivable should be clarified and strengthened. 

a) 

b) 

c) 

Enforced  recovery  should  be  assisted  by  ensuring  (in  Art.  72  FR)  that  the 
Community's  claims  also  benefit  from  the  instruments  adopted  under  the  Treaty 
provisions  on  judicial  cooperation  in  civil  law  matters  having  cross-border 
implications (Art. 65 ECT).  

Recoveries  should  be  treated  by  the  Member  States  in  the  same  way  as  they  treat 
their  own  fiscal  claims  within  their  jurisdiction  and  should  enjoy  the  same 
privileges. 

The  practical  experience  of  the  Commission  services  shows  that,  unlike  state 
authorities in many national jurisdictions, the Community is not subject to a period 
of  limitation  under  which  financial  claims  extinguish  after  a  certain  period  of 
time. The introduction of such a period of limitation corresponds to the principles 
of  sound  financial  management  and  of  equal  treatment  of  operators.  The  same 
period  of  limitation  of  five years is already provided for fines  and periodic  penalty 
payments  by  the  Council  Regulation  on  the  implementation  of  the  rules  on 
competition. 

5.5. 

Public procurement and contracts 

One of the main objectives, and achievements, of the FR adopted in 2002 was to transpose 
the EC Public Procurement Directives so that the Community institutions would apply the 
same  standards  as  the  Member  States.  Given  the  adoption  of  the  new  EC  Public 
Procurement Directive in 2004, some further amendments to the FR are necessary: 

a) 

b) 

Including the possibility of declaring procurement to be secret. 

Distinguishing  between  the  most  serious  grounds  for  exclusion  and  other  grounds 
which involve a lower level of financial risk. : the most serious grounds for exclusion 
should be obligatory, while the rest should be applied as necessary, on the basis of a 
risk assessment by the contracting authority.  

Experience has proved the following amendments to be necessary: 

a) 

b) 

c) 

Possibility  of  sharing  a  common  database  of  those  candidates  or  tenderers  in 
situations of exclusion according to Arts 93 and 94 FR. 

Extension of simplified rules to govern the awarding contracts to external experts for 
evaluation and technical assistance (Arts 91, 97 FR).  

Clarification  of  the  obligations  of  the  institutions  to  suspend  a  procurement 
procedure or a contract in cases of fraud, etc. 

5.6. 

Grants 

Simplification  of  the  rules  is  needed:  requirements  for  checks  and  guarantees  need  to  be 
better adjusted to the financial risks involved. 

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a) 

b) 

c) 

d) 

e) 

f) 

g) 

h) 

i) 

j) 

The  scope  of  the  title  on  grants  (Title  VI  of  Part  One  FR)  needs  to  be  clarified 
(Art.108  FR)  in  particular  as  regards  financing  related  to  loan  activities  and 
shareholdings. 

As  for 
proportionality. 

the  public  procurement, 

it 

is  necessary 

to  add 

the  principle  of 

The scope of the non-profit rule needs to be clarified and its articulation between FR 
and IR. 

In  certain  situations,  the  nature  of  the  action  leaves  no  choice  in  the  selection  of 
beneficiaries. This category should therefore be added in Art. 110 FR. 

The same action should not give rise to more than one grant to any one beneficiary. 
However,  some  basic  acts  permit  Community  funding  to  be  combined  since  it  is 
considered  useful  for  example  for  the  structural  funds  to  be  complemented  by 
interventions from other programmes (e.g. TENs). It should also be made clear that 
the same costs can never be financed twice (Art. 111 FR). 

Where grants are given for running costs, the rule that the necessary agreement may 
not be signed more than four months after the start of the beneficiary's financial year 
has proved unnecessarily rigid. Since there are strict rules on retrospective funding, 
this deadline could safely be fixed at six months (Art. 112 FR). 

The use of flat-rate payments should be authorised at the level of the FR along with 
the  more  traditional  method  of  reimbursing  pro  rata  costs  actually  incurred  (new 
Art. 113a). 

Certain  restrictions  on 
the  eligibility  of  beneficiaries  should  be  removed 
(Art. 114 FR) in order to allow for grants to physical persons and certain types of 
association without legal personality.  

The rules on exclusion from grant procedures should include the same distinction as 
that for procurement (see 5.6, subparagraph 1 (b) above), in relation to the level of 
seriousness (Art. 114 FR). 

The case in which the implementation of an action needs to give a financial support 
to third parties has to be expressly provided for. 

5.7. 

Accounting 

No substantial changes are proposed for Title VII of Part One (Arts 121-138 FR). Only the 
following clarification is required: the possibility to extend the scope of the consolidation in 
accordance with EC accounting rules should be specified. 

5.8. 

Specific policy sectors in Part Two of the FR 

a) 

Title I: agriculture. Some changes have already been referred to above under section 
5.1 (Budgetary Principles). In addition:  

– 

Terminology  needs  to  be  adjusted  to  the  existence  of  the  new  European 
Agricultural Guarantee Fund (EAGF).  

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– 

– 

Provisional  commitments  can  be  made  later  than  the  normal  two-month 
deadline after receipt of the Member States' statements of expenditure in cases 
where a decision on a transfer of appropriations is expected. 

Art. 153 FR concerning transfers is inaccurate: reference should be made only 
to the notification procedure in Art. 23.  

b) 

Title II: structural funds. 

– 

– 

Terminology needs to be adjusted in the title and in Art. 155(1) and (3) to refer 
specifically  to  the  structural  funds,  cohesion  fund,  fisheries  funds  and  rural 
development fund. 

In  the  new  basic  acts  proposed  by  the  Commission  for  structural  actions 
post-2006  the  rule  on  the  automatic  decommitment  of  appropriations  is 
suspended in cases of force majeure seriously disrupting the implementation of 
the actions. The making available again of appropriations is therefore no longer 
necessary in this case. The Commission, however, considers it justified to keep 
the  case  of  "manifest  error"  attributable  to  itself  (Art.  157).  This  will  allow 
commitment  appropriations  to  be  found  without  disrupting  the  overall 
programming of appropriations for the seven-year period. 

c) 

Title III: Research 

it  should  be  possible 

Exceptionally, 
to  make  decommitted  commitment 
appropriations  available  again  in  the  case  of  the  framework  research  programme, 
under  strictly  defined  conditions;  this  will  enable  decommitted  appropriations 
earmarked for projects which were not implemented totally or partially to be re-used 
for alternative projects of sufficient quality. 

5.9. 

Offices 

The inter-institutional European Offices should be authorised to act as delegated authorising 
officers for appropriations corresponding to the budget of other institutions. 

5.10.  The constitutional treaty 

The Commission has presented this proposal in accordance with the state of law on the date 
the proposal is adopted. When the constitutional treaty is ratified, any necessary amendments 
of the FR will be proposed. 

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2005/0090 (CNS) 

Proposal for a 

COUNCIL REGULATION 

of […] 

amending Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation 
applicable to the general budget of the European Communities 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 279 thereof, 

Having regard to the Treaty establishing the European Atomic Community, and in particular 
Article 183 thereof, 

Having regard to the proposal from the Commission1, 

Having regard to the opinion of the European Parliament2, 

Having regard to the opinion of the Court of Auditors3, 

Whereas: 

(1) 

(2) 

(3) 

Council  Regulation  (EC,  Euratom)  No  1605/20024,  hereinafter  “the  Financial 
Regulation”, lays down the legal foundations of the financial management reform. As 
such,  its  essential  elements  should  be  maintained  and  strengthened.  Moreover,  it 
establishes budgetary principles which should be respected by all legislative acts and 
from which derogations should be kept to a strict minimum. 

Certain amendments are justified in light of practical experience in order to facilitate 
budget implementation and the  realisation of the underlying policy objectives and to 
adjust  some  procedural  and  documentary  requirements  so  as  to  make  them  more 
proportionate to the risks and cost involved. 

All  amendments  must  contribute  to  achieving  the  objectives  of  the  Commission's 
reforms,  should  help  improve  or  ensure  sound  financial  management,  and  should 
enhance the protection of the Communities’ financial interests against fraud and illegal 
activities,  thus  contributing  to  obtaining  a  reasonable  assurance  of  the  legality  and 
regularity of financial operations. 

1 
2 
3 
4 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L 248, 16.9.2002, p. 1. 

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(4) 

(5) 

(6) 

(7) 

Some  modifications  are  necessary  to  take  account  of  provisions  implementing  the 
revenue  and  expenditure  of  the  budget,  contained  in  the  legislative  acts  due  to  be 
adopted for the period 2007 to 2013, in order to ensure coherence between those acts 
and the Financial Regulation. 

The  principle  that  other  legislative  acts  concerning  budget  implementation  must 
comply with the Financial Regulation should be reinforced.  

On  certain  points,  more  efficiency  and  transparency  is  needed  with  regard  to  the 
application of budgetary principles, in order better to suit operational needs. 

As regards the principle of unity of the budget, the rule governing interest generated 
by  pre-financing  should  be  simplified.  The  administrative  burden  involved  in  the 
recovery  of  that  interest  is  disproportionate  to the objective pursued and it would be 
more  efficient  to  allow  for  interest  to  be  set  off  against  the  final  payment  to  the 
beneficiary. 

(8)  With regard to the principle of annuality, more flexibility and transparency should be 
introduced  to  respond  to  functional  needs.  The  carry-over  of  appropriations  should 
exceptionally  be  permitted  in  the  case  of  expenditure  on  direct  payments  to  farmers 
under  the  new  European  Agricultural  Guarantee  Fund  (EAGF).  Commitment  of 
expenditure  in  advance  should  be  authorised  for  crisis  management  aid  and 
humanitarian  aid  so  that  the  Community  can  respond  adequately  if  an  international 
disaster occurs at the end of the budget year. 

(9) 

Payment requests from the Member States under the new agricultural regulations will 
be concentrated overwhelmingly at the beginning of the budget year n. Therefore the 
maximum threshold for advance commitments against the EAGF (from 15 November 
of  year  n-1)  to  cover  routine  management  expenditure  (charged  to  the  budget  of  the 
year  n)  should  be  removed  with  regard  to  the  last  adopted  agricultural  budget.  As 
regards  the  limit  on  advance  commitment  of  administrative  expenditure,  the  text 
should be amended so that it refers to appropriations decided by the budget authority. 

(10)  The use of non-differentiated appropriations for veterinary measures, charged against 
the EAGF, unduly hamper the implementation of such actions, especially in respect of 
the  limits  placed  on  the  possibilities  for  carry-overs.  The  use  of  differentiated 
appropriations  for  such  expenditure  should  therefore  be  permitted,  as  this  is  more  in 
keeping with the multi-annual nature of the actions. 

(11)  As  regards  the  principle  of  universality,  two  points  should  be  added  to  the  list  of 
assigned revenue. First, as is currently possible under specific research programmes, it 
should  be  possible  for  the  Member  States  to  make  ad  hoc  contributions,  as  assigned 
revenue,  for  projects  under  external  relations  programmes  managed  by 
the 
Commission.  Secondly,  proceeds  from  the  sale  of  vehicles,  equipment,  installations, 
materials, and scientific and technical apparatus which are being replaced or scrapped 
should be treated as assigned revenue, as an encouragement to authorising officers to 
obtain the best prices for their disposal. 

(12)  At  present,  the  Commission  must  be  authorised  by  the  budgetary  authority  before 
accepting  donations,  such  as  gifts  or  bequests,  which  involve  a  charge.  To  avoid 

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unnecessary and cumbersome procedures, authorisations should be made compulsory 
only in the case of significant charges. 

(13) 

In relation to the principle of specification of the budget, the rules governing transfers 
of  appropriations  should  be  simplified  and  clarified  on  certain  points  because  in 
practice they have proven cumbersome or unclear. The intention was for Article 22 of 
the Financial Regulation to apply to institutions other than the Commission since the 
Commission  has  its  own  regime.  That  provision  should  therefore  be  amended 
accordingly. 

(14)  As  regards  the  "notification  procedure",  the  Commission  and  the  other  institutions 
notify  their  transfer  proposals  to  the  budgetary  authority,  which  may  invoke  the 
normal procedure if it wishes to raise objections. In such cases, in theory, the normal 
deadlines apply for the decision of the budgetary authority on the transfer. However, 
the text does not state when time for the purposes of the deadline is to be deemed to 
start running, and that omission should be remedied. 

(15)  As  a  measure  of  simplification  for  the  management  of  their  budget,  the  institutions 
other than the Commission should be enabled to make transfers of appropriations from 
article  to  article  within  the  same  chapter  without  prior  notification  to  the  budgetary 
authority. 

(16)  For reasons of efficiency, the Commission should be allowed to decide autonomously 
on  transfers  from  the  reserve  in  cases  where  no  basic  act,  within  the  meaning  of 
Article 49 of the Financial Regulation, exists for the action concerned at the time when 
the budget is established, but where the basic act is adopted in the course of the year. 

(17)  The rules on the Commission's administrative transfers should be adapted to the new 
Activity-Based Budgeting (ABB) structure. Thus, the "notification procedure" should 
be limited to transfers between articles, within the administrative chapter of each title, 
which  exceed  10%  of  the  appropriations  of  the  year.  On  the  other  hand,  transfers 
between articles of different titles financing expenditure of identical nature should be 
decided autonomously by the Commission. 

(18)  Articles 26, 45 and 46 of the Financial Regulation should be amended because of the 
abolition  of  the  reserve  relating  to  Community  loans  and  loan  guarantees  to  third 
countries and the adoption of a new provisioning mechanism for the Guarantee Fund 
for external actions. 

(19)  As  regards  the  budget  procedure,  the  requirement  laid  down  in  Article  29  of  the 
Financial Regulation that the budget be published within two months of adoption has 
proven unrealistic: three months would be more practicable. The concept of "Activity 
Statement" should be inserted in Article 33 in order to render official one of the key 
elements  of  ABB.  In  Article 46  concerning  the  content  of  the  budget,  the  payment 
schedules should be included in the working documents accompanying the preliminary 
draft  budget  instead  of  in  the  budget  itself,  as  they  are  not  relevant  to  the  budgetary 
procedure and are unnecessarily burdensome.  

(20)  As  regards  methods  of  management,  it  is  necessary  in  Article  53(3)  of  the  Financial 
Regulation  to  remove  the  limitation  of  shared  management  to  the  European 
Agricultural  Guidance  and  Guarantee  Fund  (EAGGF)  and  Structural  Funds,  because 

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additional programmes will now operate under shared management. The requirements 
laid down in Article 53(7) for joint management need to be made clearer. The criteria 
set  out  in  Article  54  for  using  national  public-sector  bodies  should  be  simplified  in 
order to facilitate their use and to respond to growing operational needs, and the scope 
of the provision should be extended to international public bodies. Article 54 should 
also  clarify  the  position  as  regards  the  special  case  of  special  advisors  or  heads  of 
mission appointed by Council to manage certain actions in the context of the common 
foreign and security policy. 

(21)  The responsibilities of the Member States under shared management should be set out 
in  more  detail,  to  take  account  of  the  ongoing  discussions  between  the  institutions 
concerning  the  discharge  procedure  and  the  appropriate  control  systems  to  put  in 
place, reflecting the mutual responsibilities of the Member States and the Commission. 
Taking account of the need for a common control framework, controls carried out by 
the  Commission  in  decentralised  or  indirect  centralised  management  and,  where 
appropriate, in shared management, should be reinforced. 

(22)  The  prohibition  on  delegating  implementation  tasks  to  private  bodies  should  be 
modified  in  Article 57  of  the  Financial  Regulation  because  the  terms  of  that 
prohibition  have  turned  out  to  be  unnecessarily  strict.  It  should  be  possible,  for 
example, for the Commission to engage the services of a travel agency or a conference 
organiser  to  take  charge  of  reimbursing  the  costs  of  participants  at  conferences, 
provided that care is taken to ensure that no discretionary powers are exercised by the 
private company. 

(23)  The  authorising  officer  by  delegation  should  be  entitled  to  refer  a  matter  to  the 

financial irregularities panel if he considers that a financial irregularity has occurred. 

(24)  As regards the accounting officer, his responsibility for certifying the accounts on the 
basis of the financial information supplied to him by the authorising officers has to be 
clarified. 

(25)  As  regards  the  internal  auditor,  the  relationship  between  the  Commission's  internal 
auditor and bodies set up by the Communities should be clarified. Those bodies should 
have  their  own  internal  audit  function  reporting  to  their  own  management  boards, 
whereas  the  Commission's  internal  auditor  reports  to  the  College  on  the  procedures 
and systems of the Commission. It should be necessary for the Commission's internal 
auditor  only  to  certify  that  the  bodies'  internal  audit  functions  meet  international 
standards, and for that purpose he should be able to conduct quality audits. 

(26)  The  rules  on  recovery  of  amounts  receivable  should  be  clarified  and  strengthened  in 
order to take account of recent case-law and better to safeguard the financial interests 
of the Communities. Enforced recovery should be assisted by ensuring in Article 72 of 
the  Financial  Regulation  that  the  Community's  claims  may  also  benefit  from  the 
instruments  adopted  under  the  EC  Treaty  provisions  on  judicial  cooperation  in  civil 
law matters having cross-border implications, which notably means that an entitlement 
established by the courts in one jurisdiction would be recognised in the others under a 
simplified  procedure.  In  order  to  improve  the  effectiveness  of  recoveries,  a  new 
Article 73a should be introduced, under which the Member States should be required 
to treat Community claims in the same way as claims of fiscal nature within their own 
jurisdiction. 

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12 

   EN 

 
(27)  A period of limitation on the validity of claims should be introduced. The Community, 
unlike many of its Member States, is not subject to a period of limitation under which 
financial claims are extinguished after a certain period of time. Nor is the Community 
restricted  by  a  period  of  limitation  in  the  pursuit  of  its  claims  against  third  persons. 
The  introduction  of  such  a  period  of  limitation  in  a  new  Article 73b  corresponds  to 
sound financial management. 

(28)  As  regards  the  rules  on  public  procurement  contracts,  certain  technical  adjustments 
should be made to ensure that the terminology of the Financial Regulation is fully in 
line with that of Directive 2004/18/EC of the European Parliament and of the Council 
of  31  March  2004  on  the  coordination  of  procedures  for  the  award  of  public  works 
contracts, public supply contracts and public service contracts5. The possibility open to 
Member States under that Directive of declaring procurement procedures to be secret 
should be made available to the Community institutions in Article 91 of the Financial 
Regulation. 

(29)  The Financial Regulation rules on the exclusion of tenderers impose a stricter regime 
for  the  Community  institutions  than  that  provided  for  in  Directive  2004/18/EC.  The 
Financial  Regulation  makes  no  distinction  between  the  most  serious  grounds  for 
exclusion  and  other  grounds.  Directive  2004/18/EC,  on  the  other  hand,  does  make 
such  a  distinction  and  that  distinction  should  be  made  available  for  the  Community 
institutions.  Articles  93  and  94  of  the  Financial  Regulation  should  provide  for 
mandatory exclusion in the most serious cases, while allowing the possibility for the 
contracting  authority,  on  the  basis  of  a  risk  assessment,  to  add  other  cases  of 
exclusion.  The  same  distinction  should  be  made  in  Article  114  of  the  Financial 
Regulation, as regards grants. The rules on penalties, laid down in Article 96 of that 
Regulation, should be adjusted accordingly. 

(30) 

It  should  be  made  obligatory  under  Article  93  of  the  Financial  Regulation  for 
candidates  or  tenderers  in  procurement  procedures  to  certify,  if  so  requested,  the 
ownership or the management, control and power of representation of the legal entity 
submitting a tender. 

(31)  Article  95  of  the  Financial  Regulation  requires  all  institutions  to  keep  databases  of 
those candidates or tenderers in situations of exclusion under Article 93 or 94 and to 
have  access  to  each  other's  databases.  It  would  be  more  cost-effective,  but  still 
consistent with that principle, to allow small institutions with only a few procurement 
procedures to meet that obligation by sharing a database. 

(32)  Successive  framework  research  programmes  have  facilitated  the  work  of  the 
Commission  by  laying  down  specific  simplified  rules  to  govern  the  awarding  of 
contracts to external experts for evaluation and technical assistance. Articles 91 and 97 
of  the  Financial  Regulation  should  make  similar  provision  in  respect  of  all  other 
programmes where there is a need for such a procedure. 

5 

OJ  L  134,  30.4.2004,  p.  114.  Directive  as  amended  by  Commission  Regulation  (EC)  No  1874/2004 
(OJ L 326, 29.10.2004, p. 17). 

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13 

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(33)  The  obligations  of  the  institutions  to  suspend  a  procurement  procedure  or  a  contract 
under Article 103 of the Financial Regulation in cases of fraud and irregularities need 
to be clarified, so that the obligations are understandable and capable of being applied. 

(34)  As regards grants, simplification of the rules is needed. Requirements for checks and 
guarantees  should  be  more  proportionate  to  the  financial  risks  involved.  Some 
essential  changes  need  to  be  made  first  in  the  Financial  Regulation,  so  that  detailed 
provision can later be made in the implementing rules. The scope of grants needs to be 
clarified in Article 108 of the Financial Regulation, in particular as regards financing 
related to loan activities and share-holdings. The principle of proportionality has to be 
added. 

(35) 

It  is  appropriate  that  the  exceptions  to  the  non-profit  rule,  provided  for  in  the 
implementing rules, be included in the Financial Regulation. Furthermore, Article 109 
of  the  Financial  Regulation  should  make  it  quite  clear  that  the  whole  purpose  of 
awarding grants to certain actions is to help reinforce financial capacity or generate an 
income. 

(36)  The rule that grants should be awarded on the basis of calls for proposals has proved 
its worth. Experience has shown, however, that in certain situations the nature of the 
action  leaves  no  choice  in  the  selection  of  beneficiaries,  and  Article  110  of  the 
Financial Regulation should expressly recognise that such exceptional cases arise. 

(37)  The rule that the same action should not give rise to more than one grant to any one 
beneficiary should be adjusted because some basic acts do permit Community funding 
to  be  combined  and  such  cases  may  increase  in  future  in  order  to  ensure  the 
effectiveness of expenditure. However, the opportunity should be taken to make clear 
in Article 111 of the Financial Regulation that the same costs can never be financed 
twice by the Community budget. 

(38)  Where grants are given for running costs, the rule that the necessary agreement may 
not be signed more than four months after the start of the beneficiary's financial year 
has  proven  unnecessarily  rigid  and  Article  112  of  the  Financial  Regulation  could 
safely fix that deadline at 6 months. 

(39)  For  reasons  of  clarity  and  transparency,  the  use  of  flat-rate  payments  should  be 
authorised in a new Article 113a of the Financial Regulation, to co-exist with the more 
traditional method of reimbursing costs actually incurred. 

(40) 

In  Article  114  of  the  Financial  Regulation,  certain  restrictions  on  the  eligibility  of 
beneficiaries  should  be  removed  in  order  to  allow  for  grants  to  natural  persons  and 
certain types of entity which lack legal personality. 

(41)  While grants will continue to be awarded on the basis of selection and award criteria, 
there  is  no  need  in  practice  to  have  those  criteria  evaluated  by  one  and  the  same 
committee and that requirement should therefore be removed from Article 116 of the 
Financial Regulation. 

(42)  As  regards  the  procurement  standards  to  be  applied  by  beneficiaries  of  grants,  the 
current  rule  in  Article  120  of  the  Financial  Regulation  is  unclear  and  needs  to  be 

EN 

14 

   EN 

 
simplified. Moreover, the case in which the implementation of an action necessitates 
financial support to third parties has to be expressly provided for. 

(43)  As  regards  the  rules  on  accounting  and  the  accounts,  Article  121  of  the  Financial 
Regulation  should  make  it  possible  for  the  Commission’s  accounting  officer  to 
determine, in compliance with international standards, which other bodies, in addition 
to those receiving Community subsidies, fall under the scope of the consolidation. 

(44) 

In view of the coming into existence of the EAGF, which replaces the EAGGF from 
2007,  terminology  needs  to  be  adjusted  in  the  title  of  Title  I  of  Part  Two,  and  in 
Articles  148  to  151,  of  the  Financial  Regulation.  Clarification  is  required  in 
Article 151 to the effect that provisional commitments may be made after the normal 
two-month deadline following receipt of the Member States' statements of expenditure 
in  cases  where  a  decision  on  a  transfer  of  appropriations  is  expected.  Article  153 
concerning transfers needs clarification. 

(45)  As  well  as  in  the  title  of  Title  II  of  Part  Two,  terminology  should  be  adjusted  in 
Article 155(1) and (3) of the Financial Regulation so that reference is made only to the 
structural funds, the cohesion fund, the fisheries fund and the rural development fund. 
References  to  pre-accession  structural  measures  (ISPA)  and  agricultural  measures 
(SAPARD) should be removed, since they involve management by third countries on 
a  decentralised  basis  in  accordance  with  Article  164  and  will  continue  to  be 
implemented largely in the same way as at present. As regards the making available 
again  of  decommitted  appropriations,  in  line  with  the  new  basic  acts  for  structural 
actions in the period 2007 to 2013, which cover the case of force majeure, provision 
should  be  maintained  in  the  Financial  Regulation  only  for  cases  where  "manifest 
error" is attributable to the Commission. 

(46) 

(47) 

In Article 160 of the Financial Regulation, a provision needs to be added to cover the 
assigned  revenue  generated  by  the  winding-up  of  the  European  Coal  and  Steel 
Community and the making available of the corresponding appropriations. 

It  is  necessary  to  allow  appropriations  which  have  been  decommitted  as  a  result  of 
total or partial non-implementation of the projects for which they were earmarked to 
be  made  available  again.  However,  that  should  be  possible  only  under  strict 
conditions,  and  only  in  the  area  of  research,  since  research  projects  present  a  higher 
financial risk than those in other policy areas. 

(48)  As  regards  external  actions,  it  should  be  clarified  that  the  grant  procedures  to  be 
applied  by  third  countries  in  the  case  of  decentralised  management  have  to  be 
specified  in  the  financing  agreements  concluded  with  those  countries.  That  would 
amount to a codification of existing practice. 

(49)  As  regards  the  European  Offices,  it  should  be  made  possible  for  the  institutions  to 
delegate authorising officer power to directors of inter-institutional European Offices 
for  the  management  of  appropriations  entered  in  their  respective  sections  of  the 
budget,  in  order  to  facilitate  management.  Whilst  the  content  should  remain 
unchanged, Articles 171, 173 and 176 of the Financial Regulation should be slightly 
re-structured  in  order  to  clarify  the  sub-delegation  of  authorising  powers  by  the 
directors of Offices. 

EN 

15 

   EN 

 
(50)  Regulation (EC, Euratom) No 1605/2002 should therefore be amended accordingly, 

HAS ADOPTED THIS REGULATION: 

Article 1 

Regulation (EC, Euratom) No 1605/2002 is amended as follows: 

(1) 

In Article 1, the first paragraph is replaced by the following: 

"This Regulation lays down the rules for the establishment and implementation of the 
general  budget  of  the  European  Communities,  hereinafter  "the  budget",  and  the 
presentation and auditing of the accounts." 

(2) 

Article 2 is replaced by the following: 

"Article 2 

Any provision concerning the implementation of the revenue and expenditure of the 
budget,  contained  in  another  legislative  act,  must  comply  in  particular  with  the 
budgetary principles set out in Title II." 

(3) 

In Article 5, paragraph 4 is replaced by the following: 

"4.  Subject to Articles 5a, 18 and 74, interest yielded by the funds which are the 
property  of  the  Communities  shall  be  entered  in  the  budget  as  miscellaneous 
revenue." 

(4) 

The following Article 5a is added in Chapter 1 of Title II of Part One: 

"Article 5a 

1. 

Interest  generated  by  pre-financing  payments  shall  be  assigned  to  the 
programme  or  the  action  concerned  and  deducted  from  the  payment  of  the 
balance of the amounts due to the beneficiary. 

The  Regulation  laying  down  the  rules  for  implementing  this  Regulation, 
hereinafter  ’the  implementing  rules’,  shall  specify  the  cases  in  which  the 
authorising  officer  responsible  shall,  by  way  of  exception,  recover  annually 
such interest by means of a recovery order. That interest shall be entered in the 
budget as miscellaneous revenue. 

2. 

Interest shall not be due to the Communities in the following cases:  

(a) 

pre-financing  which  does  not  represent  a  significant  amount,  as 
determined in the implementing rules; 

(b)  pre-financing  paid  under  a  procurement  contract  within  the  meaning  of 

Article 88; 

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16 

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(c) 

pre-financing paid to Member States; 

(d)  pre-financing paid under the pre-accession aid; 

(e) 

advances  paid  to  members  of  the  institutions  and  to  staff  in  accordance 
with the Staff Regulations of Officials of the European Communities and 
the  Conditions  of  employment  of  other  servants  of  the  European 
Communities, hereinafter ’the Staff Regulations’; 

(f) 

pre-financing paid in the framework of  joint  management as referred to 
in point (c) of Article 53(1)." 

(5) 

In Article 8(1), the following sentence is added: 

“The amounts paid in advance shall be treated as revenue of the next financial year.” 

(6) 

In Article 12, the following paragraph is added: 

"However,  in  duly  substantiated  exceptional  cases,  the  appropriations  for  the 
purposes  of  crisis  management  aid  and  humanitarian  aid  operations  may  be 
committed as from 15 December of each year against the appropriations provided for 
the following financial year. Such commitments may not exceed one quarter of the 
appropriations on the corresponding budget line for the last adopted budget." 

(7) 

In Article 16, the second paragraph is replaced by the following: 

"However, for the cash-flow purposes referred to in Article 61, the accounting officer 
and, in the case of imprest accounts, the imprest administrators, and, for the needs of 
the  administrative  management  of 
the 
authorising officer responsible, shall be authorised to carry out operations in national 
currencies as laid down in the implementing rules." 

the  Commission’s  External  Service, 

(8) 

In Article 18, paragraph 1 is amended as follows: 

(a) 

the following point (aa) is inserted: 

"(aa)  financial  contributions  from  Member  States,  other  donor  countries  or 
international organisations to certain external aid projects or programmes 
financed  by  the  Community  and  managed  by  the  Commission  on  their 
behalf, pursuant to the relevant basic act;"  

(b) 

the following point (ea) is inserted: 

"(ea)  proceeds  from  the  sale  of  vehicles,  equipment,  installations,  materials, 
and  scientific  and  technical  apparatus  which  are  being  replaced  or 
scrapped;". 

(9) 

In Article 19(2), the first sentence is replaced by the following: 

“Acceptance  of  donations  which  involve  a  significant  financial  charge  shall  be 
subject  to  the  authorisation  of  the  European  Parliament  and  the  Council,  both  of 

EN 

17 

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which shall act on the matter within two months of the date of receipt of the request 
from the Commission.” 

(10) 

Article 22 is replaced by the following: 

“Article 22 

1.  Any institution other than the Commission may, within its own section of the 

budget, make transfers: 

(a) 

from one title to another within a total limit of 10% of the appropriations 
for the financial year on the line from which the transfer is to be made;  

(b) 

from one chapter to another without limit. 

2. 

Three  weeks  before  making  the  transfers  referred  to  in  paragraph  1,  the 
institutions  shall  inform  the  budgetary  authority  and  the  Commission  of  their 
intentions.  In  the  event  of  duly  substantiated  reasons  being  raised  within  this 
period by either branch of the budgetary authority, the procedure laid down in 
Article 24 shall apply.  

The budgetary authority shall take decisions on these transfers within the time 
limits laid down in Article 24, which shall be deemed to begin on the date on 
which the budgetary authority was informed by the institution of the intended 
transfer. 

3.  Any  institution  other  than  the  Commission  may  propose  to  the  budgetary 
authority,  within  its  own  section  of  the  budget,  transfers  from  one  title  to 
another exceeding the limit of 10% of the appropriations for the financial year 
on the line from which the transfer is to be made. The budgetary authority shall 
inform  the  Commission  accordingly.  Those  transfers  shall  be  subject  to  the 
procedure laid down in Article 24. 

4.  Any institution other than the Commission may, within its own section of the 
budget,  make  transfers  within  chapters  without  first  informing  the  budgetary 
authority.” 

(11) 

Article 23 is amended as follows: 

(a) 

paragraph 1 is amended as follows: 

(i) 

point (b) is replaced by the following: 

"(b)  as  regards  staff  and  operating  expenditure,  transfer  appropriations 
to  another  only  between  articles  financing 

title 

from  one 
expenditure of identical nature"; 

(ii) 

the following point (d) is added: 

"(d)  transfer  appropriations  from  the  "provisions"  title  referred  to  in 
Article 43  for  the  cases  where  no  basic  act  exists  for  the  action 

EN 

18 

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concerned when the budget is established but is adopted during the 
course of the budget year"; 

(iii) 

the second subparagraph is deleted; 

(b) 

the following paragraph 1a is inserted:  

“1a.  The Commission shall inform the budgetary authority three weeks before 

making the following: 

(a) 

transfers  between  articles  within  the  chapter  corresponding  to 
administrative  appropriations  of  the  same  title  which  exceed  10% 
of the appropriations of the year  shown  on  the  article  from  which 
the transfer is made; 

(b) 

transfers referred to in point (c) of paragraph 1.  

In  the  event  of  duly  substantiated  reasons  being  raised  within  that 
three-week  period  by  either  branch  of  the  budgetary  authority,  the 
procedure  laid  down  in  Article  24  shall  apply.  The  budgetary  authority 
shall take decisions on these transfers within the time limits laid down in 
Article 24,  which  shall  be  deemed  to  begin  on  the  date  on  which  the 
budgetary  authority  was  informed  by  the  Commission  of  the  intended 
transfer.”; 

(c) 

in paragraph 2, "paragraph 1(c)" is replaced by "paragraphs 1 and 1a". 

(12) 

In Article 26(2), the first subparagraph is replaced by the following: 

"Decisions on transfers to allow the utilisation of the reserve for emergency aid shall 
be taken by the budgetary authority on a proposal from the Commission. A separate 
proposal must be submitted for each individual operation." 

(13) 

In Article 29, paragraph 2 is replaced by the following: 

"2.  The President of the European Parliament shall have the budget and amending 
budgets, as finally adopted, published in the Official Journal of the European 
Union. 

The budget shall be published within three months following the date on which 
the budget is declared finally adopted. 

The  consolidated  annual  accounts  and  the  report  on  budgetary  and  financial 
management  drawn  up  by  each  institution  shall  be  published  in  the  Official 
Journal of the European Union." 

(14) 

In Article 33(2), point (d) is replaced by the following: 

"(d)  the  activity  statements  containing  the  information  on  the  achievement  of  all 
previously  set  objectives  for  the  various  activities  as  well  as  new  objectives 
measured by indicators; evaluation results shall be consulted and referred to as 
evidence of the likely merits of a proposed budget amendment." 

EN 

19 

   EN 

 
 
 
 
(15) 

In Article 40, point (a) is replaced by the following: 

“(a)  a general statement of revenue and expenditure;” 

(16) 

Article 43 is amended as follows: 

(a) 

in  the  second  subparagraph  of  paragraph  1,  "Article  24"  is  replaced  by 
"Articles 23 and 24"; 

(b) 

in paragraph 2, "Article 24" is replaced by "Articles 23 and 24". 

(17) 

In  the  second  paragraph  of  Article  44,  "Articles  22,  23  and  25"  is  replaced  by 
"Articles 23 and 25". 

(18) 

Article 45 is replaced by the following: 

"Article 45 

1. 

2. 

The  Commission  section  of  the  budget  shall  include  a  reserve  for  emergency 
aid for third countries. 

The reserve referred to in paragraph 1 shall be drawn upon before the end of 
the  financial  year  by  means  of  transfer  in  accordance  with  the  procedure  laid 
down in Articles 24 and 26." 

(19) 

Article 46(1) is amended as follows: 

(a) 

point (1) is amended as follows: 

(i) 

the introductory phrase is replaced by the following: 

“in the general statement of revenue and expenditure”; 

(ii)  point (f) is deleted; 

(iii)  point (g) is replaced by the following: 

“(g)  appropriate 

remarks  on  each  subdivision,  as  defined 

in 

Article 41(1)”; 

(b)  point (2) is replaced by the following: 

"(2)  in  the  section  for  each  institution,  the  revenue  and  expenditure  shall  be 

shown in the same structure as in point 1"; 

(c) 

in point (3), point (c) is replaced by the following:  

“(c)  as  regards  scientific  and  technical  staff,  the  classification  may  be  based 
on groups of grades, in accordance with the conditions laid down in each 
budget;  the  establishment  plan  must  specify  the  number  of  highly 
qualified  technical  or  scientific  personnel  who  are  accorded  special 
advantages under the specific provisions of the Staff Regulations;” 

EN 

20 

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(d)  point (5) is replaced by the following: 

"(5)  the  budget 

lines  under  revenue  and  expenditure  necessary  for 

implementing the Guarantee Fund for external actions." 

(20) 

In the second subparagraph of Article 47(1), "grades A1, A2 and A3" is replaced by 
"grades AD 16, AD 15 and AD 14". 

(21) 

Article 52 is replaced by the following: 

“Article 52 

1.  All  financial  actors  and  any  other  person  involved  in  budget  implementation, 
management, audit or control shall be prohibited from taking any action which 
may  bring  their  own  interests  into  conflict  with  those  of  the  Communities. 
Should such a case arise, the person in question must refrain from such actions 
and refer the matter to the competent authority. 

2. 

There is a conflict of interests where the impartial and objective exercise of the 
functions of a financial actor or other person, as referred to in paragraph 1, is 
compromised for reasons involving family, emotional life, political or national 
affinity, economic interest or any other shared interest with the beneficiary." 

(22) 

Article 53 is amended as follows: 

(a) 

paragraphs 3 and 4 are replaced by the following: 

"3.  Where  the  Commission  implements  the  budget  by  shared  management, 
implementation tasks shall be delegated to Member States. That method 
shall  apply  in  particular  to  the  actions  referred  to  in  Titles  I  and  II  of 
Part Two.  

In  order  to  ensure  in  shared  management  that  the  funds  are  used  in 
accordance  with  the  applicable  rules  and  principles,  the  Member  States 
shall take all the measures necessary to: 

(a) 

satisfy  themselves  that  actions  financed  from  the  budget  are 
actually  carried  out  and  to  ensure  that  they  are  implemented 
correctly; 

(b)  prevent and deal with irregularities and fraud; 

(c) 

recover  funds  wrongly  paid  or  incorrectly  used  or  funds  lost  as  a 
result of irregularities or errors. 

To that effect, the Member States shall conduct regular checks and shall 
put in place an effective internal control system. They shall bring judicial 
proceedings if necessary for the purposes of points (b) and (c). 

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21 

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4.  Where 

the  Commission 

the  budget  by  decentralised 
management,  implementation  tasks  shall  be  delegated  to  third  countries 
in accordance with Article 56 and Title IV of part two.”; 

implements 

(b)  paragraph 6 is deleted; 

(c) 

paragraph 7 is replaced by the following: 

“7.  Where  the  Commission  implements  the  budget  by  joint  management, 
certain 
international 
organisations,  in  accordance  with  the  implementing  rules,  in  the 
following cases: 

tasks  shall  be  entrusted 

implementation 

to 

(a)  wherever  the  Commission  and  the  international  organisation  are 
bound  by  a  long-term  framework  agreement  laying  down  the 
administrative and financial arrangements for their cooperation; 

(b)  wherever  the  Commission  and  the  international  organisation 

elaborate a joint project or programme; 

(c)  where the funds of several donors are pooled and are not earmarked 
for specific items or categories of expenditure, that is to say, in the 
case of multi-donor actions. 

These  organisations  shall,  in  their  accounting,  audit,  control  and 
procurement  procedures,  apply  standards  which  offer  guarantees 
equivalent to internationally accepted standards. 

The  individual  agreement  concluded  with  the  international  organisation 
for  the  award  of  the  financing  shall  contain  detailed  provisions  for  the 
implementation of the tasks entrusted to the international organisation.” 

(23) 

Article 54 is amended as follows: 

(a) 

in paragraph 1, the following subparagraph is added: 

“The  delegation  of  budget-implementation  tasks  shall  comply  with  the 
requirements of sound financial management and shall ensure compliance with 
the principle of non-discrimination, and the visibility of Community action. No 
implementing  tasks  entrusted  in  this  way  may  give  rise  to  conflicts  of 
interests.”; 

(b)  paragraph 2 is amended as follows:  

(i) 

point (c) is replaced by the following: 

“(c)  national or international public-sector bodies or bodies governed by 
private  law  with  a  public-service  mission  providing  adequate 
financial  guarantees  and  complying  with  the  conditions  provided 
for in the implementing rules.”; 

(ii) 

the following point (d) is added: 

EN 

22 

   EN 

 
 
 
“(d)  persons  entrusted  with  the  implementation  of  specific  actions 
pursuant to Title V of the TEU, and identified in the relevant basic 
act within the meaning of Article 49.”; 

(c) 

in paragraph 3, the second subparagraph is replaced by the following: 

“Such  bodies  or  persons  shall 
to  prevent 
irregularities  and  fraud  and  if  necessary  bring  judicial  proceedings  to  recover 
funds wrongly paid or incorrectly used.” 

take  appropriate  measures 

(24) 

Articles 55 and 56 are replaced by the following: 

“Article 55 

1. 

The executive agencies shall be legal persons under Community law created by 
Commission Decision to which powers may be delegated to implement all or 
part of a Community programme or project on behalf of the Commission and 
under 
accordance  with  Council  Regulation 
its 
(EC) No 58/2003(*). 

responsibility 

in 

2. 

Implementation  of  the  corresponding  operational  appropriations  shall  be 
carried out by the director of the agency. 

Article 56 

1.  Where  the  Commission  implements  the  budget  by  indirect  centralised 
management,  it  shall  first  obtain  evidence  of  the  existence,  relevance  and 
proper  operation  within  the  entities  to  which  it  entrusts  implementation,  in 
accordance with the rules of sound financial management, of the following: 

(a) 

(b) 

(c) 

transparent  procurement  and  grant-award  procedures  which  are  non-
discriminatory  and  exclude  any  conflict  of  interest  and  which  are  in 
accordance with the relevant provisions of this Regulation; 

an  effective  internal  control  system  for  the  management  of  operations, 
which  includes  effective  segregation  of  the  duties  of  authorising  officer 
and accounting officer or of the equivalent functions; 

accounting  arrangements  for  the  operations  and  procedures  for  the 
presentation  of  the  accounts  which  will  enable  the  correct  use  of 
Community funds to be ascertained and the true extent of this use to be 
reflected in the Community accounts; 

(d) 

an independent external audit;  

(e) 

public  access  to  information  at  the  level  provided  for  in  Community 
Regulations. 

2. 

In the case of decentralised management, the criteria laid down in paragraph 1 
shall  apply,  in  full  or  in  part,  depending  on  the  degree  of  decentralisation 
agreed between the Commission and the third country concerned. 

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23 

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The third country concerned shall undertake to fulfil the following obligations: 

(a) 

(b) 

(c) 

(d) 

to  comply,  subject  to  the  first  subparagraph  of  this  paragraph,  with  the 
criteria laid down in paragraph 1; 

to ensure that the audit referred to in point (d) of paragraph 1 is exercised 
by a national institution for independent external auditing; 

to conduct regular checks to ensure that the actions to be financed from 
the budget have been implemented correctly; 

to  take  appropriate  measures  to  prevent  irregularities  and  fraud  and,  if 
necessary, to bring judicial proceedings to recover funds wrongly paid. 

3. 

The  Commission  shall  ensure  supervision,  evaluation  and  control  of  the 
implementation of the tasks entrusted.  It shall take the equivalence of  control 
systems into account when it carries out controls using its own control systems. 

_________________ 
(*) 

OJ L 11, 16.1.2003, p. 1.” 

(25) 

In Article 57, paragraph 1 is replaced by the following: 

"1.  The  Commission  may  not  entrust  measures  of  implementation  of  funds 
deriving from the budget, including payment and recovery, to external private-
sector entities or bodies, except in the case referred to in Article 54(2)(c)or in 
specific  cases  where  the  payments  involved  are  to  be  made  to  beneficiaries 
determined by the Commission, are subject to conditions and amounts fixed by 
the Commission and do not involve the exercise of discretion by the entity or 
body making the payments." 

(26) 

Article 59 is amended as follows: 

(a) 

the following paragraph 1a is inserted: 

“1a.  For the purposes of this Title, the term “staff” refers to persons covered 

by the Staff Regulations.”; 

(b)  paragraph 3 is replaced by the following: 

"3.  The powers of authorising officer shall be delegated or subdelegated only 

to staff." 

(27) 

In Article 60, the first sentence of paragraph 7 is replaced by the following: 

"The  authorising  officer  by  delegation  shall  report  to  his/her  institution  on  the 
performance of his/her duties in the form of an annual activity report together with 
financial and management information and a declaration of assurance certifying that 
the information contained in the report presents a true and fair view." 

(28) 

Article 61 is amended as follows: 

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24 

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(a) 

the following paragraph 2a is inserted: 

"2a.  The  accounting  officer  shall  prepare  the  accounts  on  the  basis  of  the 
information  presented  under  paragraph  2.  The  final  accounts  drawn  up 
under  Article  129(2)  and  (3)  shall  be  accompanied  by  a  certificate 
established  by  the  accounting  officer,  by  which  he  declares  that  they 
were  prepared  in  accordance  with  Title  VII  and  with  the  accounting 
principles,  rules  and  methods  set  out  in  annex  to  the  financial 
statements."; 

(b)  paragraph 3 is replaced by the following: 

"3.  Save  as otherwise provided  in this Regulation, the accounting officer is 
alone  empowered  to  manage  cash  and  cash  equivalents.  He  shall  be 
responsible for their safekeeping." 

(29) 

In Article 62, the first paragraph is replaced by the following: 

“The accounting officer may, in the performance of his duties, delegate certain tasks 
to subordinate staff.” 

(30) 

Article 63 is replaced by the following: 

"Article 63 

1. 

Imprest  accounts  may  be  set  up  for  the  collection  of  revenue  other  than  own 
resources  and  for  the  payment  of  small  sums  as  defined  in  the  implementing 
rules. 

However, in the field of crisis management aid and humanitarian aid operations 
within  the  meaning  of  Article  110,  imprest  accounts  may  be  used  for  larger 
payments. 

2. 

Imprest  accounts  shall  be  endowed  by  the  institution's  accounting  officer  and 
shall be placed under the responsibility of imprest administrators designated by 
the institution's accounting officer." 

(31) 

In Article 65, paragraph 1 is replaced by the following: 

“1.  The  provisions  of  this  Chapter  are  without  prejudice  to  the  criminal-law 
liability  which  the  financial  actors  referred  to  in  Article  64  may  incur  as 
provided  in  the  applicable  national  law  and  in  the  provisions  in  force  on  the 
protection  of  the  Communities'  financial  interests  and  on  the  fight  against 
corruption  involving  officials  of  the  Communities  or  officials  of  Member 
States.” 

(32) 

Article 66 is amended as follows: 

(a) 

in paragraph 1, the first sentence is replaced by the following: 

EN 

25 

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“The  authorising  officer  shall  be  liable  for  payment  of  compensation  as  laid 
down in the Staff Regulations, which specify that a member of staff covered by 
the relevant provisions may be required to make good, in whole or in part, any 
damage  suffered  by  the  Communities  as  a  result  of  serious  misconduct  on 
his/her part in the course of or in connection with the performance  of his/her 
duties, in particular if he/she determines entitlements to be recovered or issues 
recovery  orders,  commits  expenditure  or  signs  a  payment  order  without 
complying with this Regulation and the implementing rules.”; 

(b) 

the following paragraph 2a is inserted: 

"2a.  An  authorising  officer  by  delegation  may  refer  a  matter  to  the  panel 
referred to in paragraph 4 if he/she considers that a financial irregularity 
has occurred." 

(33) 

In Article 72(2), the following subparagraph is added: 

"The institution may also obtain an enforcement order from the competent authority 
by  ordinary  judicial  procedure.  For  such  purposes  its  receivable  amounts  are 
assimilated  to  receivable  amounts  under  civil  and  commercial  law  within  the 
meaning of the instruments adopted on the basis of Article 65 of the EC Treaty." 

(34) 

In Article 73(2), the following subparagraph is added: 

"The responsible authorising officer may furthermore cancel or adjust an established 
amount  receivable,  in  accordance  with  the  conditions  set  out  in  the  implementing 
rules." 

(35) 

The following Articles 73a and 73b are inserted: 

"Article 73a 

In order to protect their financial interests, amounts receivable by the Communities 
shall  enjoy  the  same  privileges  in  national  legal  systems  as  entitlements  of  a  fiscal 
nature which belong to public bodies in the Member States. 

Article 73b  

Without prejudice to the provisions of specific regulations and the application of the 
Council Decision relating to the Communities' own resources system, entitlements of 
the Communities in respect of third parties and entitlements of third parties in respect 
of the Communities shall be subject to a limitation period of five years. 

The date for calculating the limitation period and the conditions for interrupting this 
period shall be laid down in the implementing rules." 

(36) 

In Article 75(2), “Article 49(2)” is replaced by “Article 49(2)(d)” 

(37) 

In Article 77(3), the third subparagraph is replaced by the following: 

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26 

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“The  amount  of  a  budget  commitment  corresponding  to  a  legal  commitment  for 
which  no  payment  within  the  meaning  of  Article  81  has  been  made  in  a  period  of 
three years following the signing of the legal commitment shall be decommitted.” 

(38) 

In Article 87, the second paragraph is replaced by the following: 

“If the internal auditor is a member of staff, he/she shall assume responsibility as laid 
down in the Staff Regulations and spelt out in the implementing rules.” 

(39) 

Article 88 is amended as follows: 

(a) 

in paragraph 1, the first subparagraph is replaced by the following: 

"Public  contracts  are  contracts  for  pecuniary  interest  concluded  in  writing 
between  one  or  more  economic  operators  and  one  or  more  contracting 
authorities  within  the  meaning  of  Articles  104  and  167,  in  order  to  obtain, 
against payment of a price paid in whole or in part from the budget, the supply 
of  movable  or  immovable  assets,  the  execution  of  works  or  the  provision  of 
services."; 

(b)  paragraph 2 is replaced by the following: 

"2.  This  Title  does  not  relate  to  grants,  without  prejudice  to  Articles  93 

to 96." 

(40) 

In Article 90(1), the second subparagraph is replaced by the following: 

“Contract  notices  shall  be  published  in  advance  except  in  the  cases  referred  to  in 
Article 91(2) of this Regulation and for the service contracts covered by Annex IIB 
to Directive 2004/18/EC of the European Parliament and of the Council(**). 

_______________ 
(**)  OJ L 134, 30.4.2004, p. 114.” 

(41) 

Article 91 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

“1.  Procurement procedures shall take one of the following forms: 

(a) 

the open procedure; 

(b) 

the restricted procedure; 

(c) 

contests; 

(d) 

the negotiated procedure; 

(e) 

the competitive dialogue;” 

(b) 

in paragraph 2, the second subparagraph is deleted; 

EN 

27 

   EN 

 
(c) 

the following paragraph 4 is added: 

“4.  The implementing rules shall define the procurement procedure, referred 
to in paragraph 1, applicable to service contracts covered by Annex IIB 
to Directive 2004/18/EC and to contracts declared to be secret and shall 
include specific rules for the awarding of contracts to external experts to 
provide evaluation or technical assistance.” 

(42) 

Articles 93 and 94 are replaced by the following:  

“Article 93 

1. 

Subject to paragraph 5, candidates or tenderers who are in any of the following 
situations shall be excluded from participation in a procurement procedure: 

(a) 

they  have  been  the  subject  of  a  judgment  which  has  the  force  of 
res judicata for fraud, corruption, involvement in a criminal organisation, 
money  laundering  or  any  other  illegal  activity  detrimental  to  the 
Communities' financial interests; 

(b) 

they  are  currently  subject  to  an  administrative  penalty,  referred  to  in 
Article 96. 

2. 

Subject to paragraph 5, and on the basis of the analysis of risks, the contracting 
authority may decide to exclude from participation in a procurement procedure 
candidates and tenderers who are in any of the following situations:  

(a) 

(b) 

(c) 

(d) 

they  are  bankrupt  or  being  wound  up,  are  having  their  affairs 
administered  by  the  courts,  have  entered  into  an  arrangement  with 
creditors,  have  suspended  business  activities,  are  the  subject  of 
proceedings  concerning  those  matters,  or  are  in  any  analogous  situation 
arising  from  a  similar  procedure  provided  for  in  national  legislation  or 
regulations; 

they  have  been  convicted  of  an  offence  concerning  their  professional 
conduct by a judgment which has the force of res judicata; 

they have been guilty of serious professional misconduct proven by any 
means which the contracting authority can justify; 

they  have  not  fulfilled  obligations  relating  to  the  payment  of  social 
security  contributions  or  the  payment  of  taxes  in  accordance  with  the 
legal  provisions  of  the  country  in  which  they  are  established  or  with 
those of the country of the contracting authority or those of the country 
where the contract is to be performed. 

3. 

The  situations of exclusion shall be defined in advance and communicated to 
candidates or tenderers. 

EN 

28 

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4. 

Candidates or  tenderers must  certify that they are not in one of the situations 
listed  in  paragraph  1  and,  as  appropriate,  that  they  are  not  in  one  of  the 
situations listed in paragraph 2. 

Where the candidate or tenderer is a legal entity, information on the ownership 
or on the management, control and power of representation of the legal entity 
must be provided, whenever requested by the contracting authority. 

5. 

The implementing rules shall determine the maximum period during which the 
situations  referred  to  in  paragraphs  1(a)  and  2  give  rise  to  the  exclusion  of 
candidates or tenderers from participation in a procurement procedure. 

Article 94 

Contracts  may  not  be  awarded  to  candidates  or  tenderers  who,  during  the 
procurement procedure: 

(a) 

are subject to a conflict of interest; 

(b)  have  made  false  declarations  in  supplying  the  information  required  by  the 
contracting  authority  as  a  condition  of  participation  in  the  procurement 
procedure or fail to supply this information; 

(c) 

find  themselves  in  one  of  the  situations  of  exclusion  for  this  procurement 
procedure; 

(d)  make substantial errors or commit irregularities or fraud.” 

(43) 

In Article 95, the following paragraph is added:  

“However, for cost-effectiveness reasons, two or more institutions may agree to use a 
common database." 

(44) 

Article 96 is replaced by the following:  

“Article 96 

1. 

The contracting authority may impose administrative or financial penalties on 
the following: 

(a) 

(b) 

candidates  or  tenderers  in  the  cases  referred  to  in  points  (b)  and  (d)  of 
Article 94; 

contractors  or  beneficiaries  who  have  been  declared  to  be  in  serious 
their  contractual  obligations  under  contracts  or  grant 
breach  of 
agreements covered by the budget. 

In  all  cases,  however,  the  contracting  authority  must  first  give  the  person 
concerned an opportunity to present his observations. 

EN 

29 

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2. 

The  penalties  referred  to  in  paragraph  1  shall  be  proportionate  to  the 
importance  of  the  contract  and  the  seriousness  of  the  misconduct,  and  may 
consist in: 

(a) 

(b) 

the  exclusion  of  the  candidate  or  tenderer  or  contractor  concerned  from 
the contracts and grants financed by the budget, for a maximum period of 
ten years; 

the  payment  of  financial  penalties  by  the  candidate  or  tenderer  in  the 
cases  referred  to  in  point  (a)  of  paragraph  1  or  by  the  contractor  or 
beneficiary in the case referred to in point (b) of paragraph 1, where the 
case is really serious and without exceeding the value of the contract in 
question." 

(45) 

In Article 97, paragraph 2 is replaced by the following: 

"2.  Contracts may be awarded by the automatic award procedure, or by the best-
value-for-money  procedure  or,  in  the  case  of  contracts  to  external  experts  for 
evaluation  or  technical  assistance,  on  the  basis  of  the  capability  of  the 
candidates." 

(46) 

Article 98 is amended as follows:  

(a) 

paragraph 1 is replaced by the following: 

"1.  The arrangements for submitting tenders or applications shall be such as 
to  ensure  that  there  is  genuine  competition  and  that  the  contents  of 
tenders remain confidential until they are all opened simultaneously."; 

(b)  paragraph 4 is replaced by the following: 

"4.  All  applications  or  tenders  declared  by  the  opening  board  to  satisfy  the 
conditions laid down shall be evaluated, on the basis of the selection and 
award criteria laid down in the documents relating to the call for tenders, 
with  a  view  to  proposing  to  the  contracting  authority  to  whom  the 
contract  should  be  awarded  or  before  proceeding  with  an  electronic 
auction." 

(47) 

Article 103 is replaced by the following:  

"Article 103 

Where  the  award  procedure  is  vitiated  by  substantial  errors  or  irregularities  or  by 
fraud, the institutions shall suspend the procedure and may take whatever measures 
are necessary, including the cancellation of the procedure. 

Where,  after  the  award  of  the  contract,  the  award  procedure  proves  to  have  been 
vitiated by substantial errors or irregularities or by fraud, or the performance of the 
contract  is  so  vitiated,  the  institutions  shall,  depending  on  the  stage  reached  in  the 
procedure,  refrain  from  concluding  the  contract  or  suspend  performance  of  the 
contract.  

EN 

30 

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Where  such  errors,  irregularities  or  fraud  are  attributable  to  the  contractor,  the 
institutions may in addition refuse to make payments, may recover amounts already 
paid or may terminate all the contracts concluded with this contractor, in proportion 
to the seriousness of the errors, irregularities or fraud." 

(48) 

In Article 104, the following sentence is added:  

"They  shall  delegate,  in  accordance  with  Article  59,  the  necessary  powers  for  the 
exercise of the function of contracting authority." 

(49) 

Article 105 is replaced by the following:  

"Article 105 

Subject  to  Title  IV  of  part  two  of  this  Regulation,  Directive  2004/18/EC  shall  lay 
down the thresholds which determine: 

(a) 

the publication arrangements referred to in Article 90; 

(b) 

the choice of procedures referred to in Article 91(1); 

(c) 

the corresponding time limits." 

(50) 

Article 108 is amended as follows:  

(a) 

paragraph 2 is replaced by the following: 

"2.  The following shall not constitute grants within the meaning of this Title: 

(a) 

expenditure on the institutions' staff,  

(b) 

(c) 

(d) 

(e) 

(f) 

loans, loan guarantees, the public contracts referred to in Article 88 
and aid paid as macro financial assistance and budgetary support; 

equity investments on the basis of the private investor principle and 
shareholdings  or  equity  participations  in  international  financial 
institutions  such  as  the  European  Bank  for  Reconstruction  and 
Development (EBRD) or the European Investment Fund (EIF); 

contributions  paid  by  the  Communities  as  subscriptions  to  bodies 
of which they are members; 

expenditure  implemented  as  part  of  shared,  decentralised  or  joint 
management within the meaning of Article 53; 

payments made to the delegate bodies of the Commission referred 
to  in  Articles  54  and  55  and  the  Community  bodies  referred  to  in 
Article 185; 

(g) 

repayment  of  travel  and  subsistence  expenses  incurred  by  persons 
invited or mandated by the institutions."; 

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31 

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(b) 

the following paragraph 3 is added: 

“3.  The  following  shall  be  assimilated  to  grants  and  shall  be  governed,  as 

appropriate, by this Title: 

(a) 

the benefit deriving from an interest subsidy on certain loans;  

(b) 

equity investments or participations other than those referred to in 
point (c) of paragraph 2.” 

(51) 

The title of Chapter 2 of Title VI of part one is replaced by the following: 

(52) 

Article 109 is replaced by the following:  

“Principles” 

“Article 109 

1.  Grants  shall  be  subject  to  the  principles  of  transparency,  proportionality,  and 

equal treatment.  

They may not be cumulative or awarded retrospectively and they must involve 
co-financing. 

2.  Grants may not have the purpose or effect of producing a profit. 

3. 

Paragraph 2 shall not apply to the following: 

(a) 

study, research or training scholarships paid to natural persons;  

(b)  prizes awarded following contests; 

(c) 

(d) 

actions  the  objective  of  which  is  the  reinforcement  of  the  financial 
capacity of a beneficiary or the generation of an income; 

low-value grants taking one of the forms provided for in points (b) or (c) 
of  Article  113a(1),  or  a  combination  thereof,  in  accordance  with  the 
implementing rules.” 

(53) 

In Article 110(1), the second subparagraph is replaced by the following: 

"That  work  programme  shall  be  implemented  through  the  publication  of  calls  for 
proposals  save  in  duly  substantiated  exceptional  cases  of  urgency  or  where  the 
characteristics  of  the  beneficiary  or  of  the  action  leave  no  other  choice  for  a  given 
action." 

(54) 

Article 111 is replaced by the following: 

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32 

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"Article 111 

One action may give rise to the award of only one grant from the budget to any one 
beneficiary, except where otherwise authorized by the basic acts concerned. 

A beneficiary may be awarded only one operating grant from the budget per financial 
year. 

In any case, the same costs shall not be financed twice by the budget." 

(55) 

Article 112 is amended as follows: 

(a) 

in paragraph 1, the second subparagraph is replaced by the following: 

“In such cases, costs eligible for financing may not have been incurred prior to 
the  date  of  submission  of  the  grant  application,  save  in  duly  substantiated 
exceptional cases as provided for in the basic act or in the case of expenditure 
necessary  for  the  proper  implementation  of  crisis  management  aid  or 
humanitarian aid operations as provided for in the implementing rules.”; 

(b)  paragraph 2 is replaced by the following: 

"2.  The  agreement  on  an  operating  grant  may  not  be  signed  more  than  six 
months after  the  start of  the beneficiary's budgetary  year. Costs eligible 
for financing may have been incurred neither before the grant application 
was lodged nor before the start of the beneficiary's budgetary year." 

(56) 

The following Article 113a is inserted: 

"Article 113a 

1.  Grants may take any of the following forms:  

(a) 

reimbursement  of  a  specified  proportion  of  the  eligible  costs  actually 
incurred;  

(b) 

lump sums; 

(c) 

flat-rate financing ;  

(d) 

a combination of the forms referred to in points (a), (b) and (c). 

2.  Grants shall respect an overall ceiling expressed in terms of absolute value. In 

any event, Articles 109 and 111 shall apply." 

(57) 

Article 114 is replaced by the following: 

“Article 114 

1.  Grant applications shall be submitted in writing. 

2.  Grant applications shall be eligible if submitted by the following: 

EN 

33 

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(a) 

legal persons;  

(b)  natural  persons  in  so  far  as  this  is  required  by  the  characteristics  of  the 

action or the objective pursued by the applicant. 

Exceptionally,  grant  applications  may  be  eligible  if  submitted  by  entities, 
established  in  the  Community,  which  do  not  have  legal  personality  under  the 
applicable national law, provided that their representatives have the capacity to 
undertake legal obligations on their behalf, and assume financial liability. 

3.  Grants may not be awarded to applicants who are, at the time of a grant award 
procedure, in one of the situations referred to in Articles 93(1) and 94 or, where 
appropriate, in one of the situations referred to in Article 93(2). 

Applicants must certify that they are not in one of the situations referred to in 
the first subparagraph. 

4.  Administrative  and  financial  penalties  which  are  effective,  proportionate  and 
dissuasive  may  be  imposed  on  applicants  by  the  authorising  officer,  in 
accordance with Article 96. 

Such  penalties  may  also  be  imposed  on  beneficiaries  who,  during  the 
implementation  of  the  grant  agreement,  have  made  false  declarations  in 
supplying the information required by the authorising officer or fail to supply 
this information." 

(58) 

In Article 116, paragraph 1 is replaced by the following: 

“1.  Proposals  shall  be  evaluated,  on  the  basis  of  pre-announced  selection  and 

award criteria, with a view to determining which proposals may be financed.” 

(59) 

Article 120 is replaced by the following: 

"Article 120 

1.  Where  implementation  of  the  action  requires  the  award  of  procurement 
contracts by the beneficiary, the relevant procedures shall be as set out in the 
implementing rules. 

2.  Where  implementation  of  the  action  requires  financial  support  to  be  given  to 
third  parties,  the  beneficiary  of  a  Community  grant  may  give  such  financial 
support provided that the following conditions are met: 

(a) 

the financial support is not the primary aim of the action; 

(b) 

the  conditions  for  the  giving  of  such  support  are  strictly  defined  in  the 
grant  agreement  between  the  beneficiary  and  the  Commission,  with  no 
margin for discretion; 

(c) 

the amounts concerned are small. 

EN 

34 

   EN 

 
3. 

Each  grant  agreement  shall  provide  expressly  for  the  Commission  and  the 
Court of Auditors to exercise their powers of control, on documents and on the 
premises,  over  all  contractors  and  subcontractors  who  have  received 
Community funds." 

(60) 

Article 121 is amended as follows: 

(a) 

point (a) is replaced by the following: 

"(a) 

the financial statements of the institutions as set out in Article 126, those 
of  the  bodies  referred  to  in  Article  185  and  of  other  bodies  whose 
accounts  need  to  be  consolidated  in  accordance  with  Community 
accounting rules;" 

(b)  point (d) is replaced by the following: 

"(d)  the aggregated reports on implementation of the budget which present the 

information contained in the reports referred to in point (c)." 

(61) 

In Article 122, "Article 185" is replaced by "Article 121". 

(62) 

Article 128 is replaced by the following: 

"Article 128 

The accounting officers of the other institutions and bodies referred to in Article 121 
shall  send  to  the  Commission's  accounting  officer  and  to  the  Court  of  Auditors  by 
1 March  of  the  following  year  at  the  latest  their  provisional  accounts  together  with 
the report on budgetary and financial management during the year. 

The  Commission's  accounting  officer  shall  consolidate  these  provisional  accounts 
with the Commission's provisional accounts and shall send to the Court of Auditors, 
by  31  March  of  the  following  year  at  the  latest,  the  Commission's  provisional 
accounts together with the provisional consolidated accounts.  

The  accounting  officer  of  each  institution and  body  referred  to  in  Article  121  shall 
also  send  the  report  on  budgetary  and  financial  management  to  the  European 
Parliament and the Council by the date specified in the second paragraph." 

(63) 

Article 129 is amended as follows: 

(a) 

in paragraph 1, "Article 185" is replaced by "Article 121"; 

(b)  paragraph 2 is replaced by the following: 

"2.  The  institutions  other  than  the  Commission,  and  each  of  the  bodies 
referred  to  in  Article 121,  shall  draw  up  their  final  accounts  in 
accordance  with  Article  61  and  send  them  to  the  Commission's 
accounting officer and the Court of Auditors by 1 July of the following 
year  at  the  latest  with  a  view  to  drawing  up  the  final  consolidated 
accounts."; 

EN 

35 

   EN 

 
(c) 

the following paragraph 2a is inserted: 

"2a.  The Commission's accounting officer shall prepare the final consolidated 
accounts  on  the  basis  of  the  information  presented  by  the  other 
institutions  under  paragraph  2.  The  final  consolidated  accounts  shall  be 
accompanied by a certificate established by the Commission's accounting 
officer, by which he/she declares that they were prepared in accordance 
with Title VII and with the accounting principles, rules and methods set 
out in annex to the financial statements."; 

(d)  paragraph 3 is replaced by the following: 

"3.  After  approving  the  final  consolidated  accounts  and  its  own  final 
accounts,  the  Commission  shall  send  them  both  to  the  European 
Parliament, the Council and the Court of Auditors before 31 July of the 
following financial year." 

(64) 

In Article 130, the first paragraph is replaced by the following: 

“In addition to the statements provided for in Articles 126 and 127, the Commission 
shall  report  to  the  European  Parliament  and  to  the  Council  annually  on  budgetary 
guarantees and the corresponding risks.” 

(65) 

Article 131 is amended as follows: 

(a) 

(b) 

in paragraph 1, "the Commission" is replaced by "the Commission's accounting 
officer"; 

in paragraph 2, "the Commission" is replaced by "the Commission's accounting 
officer". 

(66) 

In Article 133(1), "Article 185" is replaced by "Article 121". 

(67) 

In Article 134, "Article 185" is replaced by "Article 121". 

(68) 

In Article 138(1), "Article 185" is replaced by "Article 121". 

(69) 

In Title I of Part Two, the title is replaced by the following: 

"TITLE I 
EUROPEAN AGRICULTURAL GUARANTEE FUND" 

(70) 

In Article 148, paragraph 1 is replaced by the following: 

"1.  Parts one and three of this Regulation shall apply to expenditure effected by the 
authorities  and  bodies  referred  to  in  the  rules  relating  to  the  European 
Agricultural Guarantee Fund, hereinafter ’the EAGF’, and to revenue, save as 
otherwise provided in this title." 

(71) 

Article 149 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

EN 

36 

   EN 

 
“1.  For  each  financial  year,  the  EAGF  shall  include  non-differentiated 
appropriations,  with  the  exception  of  the  expenditure  related  to  the 
measures 
in  Article  3(2)  of  Council  Regulation 
(EC) No [xxxx/xxxx](***),  which  shall  be  covered  by  differentiated 
appropriations. 

referred 

to 

_________________ 
(***) 

OJ L […], […], p. […].” 

(b)  paragraph 3 is replaced by the following: 

“3.  Non-committed  appropriations  relating  to  the  actions  referred  to  in 
Article 3(1) of Regulation (EC)  No  [xxxx/xxxx]  may  be  carried  over  to 
the next financial year only. 

Such  carryover  shall  not  exceed,  within  the  limit  of  3  %  of  the  initial 
appropriations  referred  to  in  the  first  subparagraph,  the  amount  of  the 
adjustment  of  direct  payments  referred  to  in  Article  11  of  Council 
Regulation  (EC)  No  1782/2003(****)  and  which  was  applied  during  the 
last financial year. 

Appropriations which are carried over shall be returned exclusively to the 
budgetary lines which cover the actions referred to in Article 3(1)(c) of 
Regulation (EC) No [xxxx/xxxx]. 

Such  carryover  may  lead  to  an  additional  payment  only  to  the  final 
beneficiaries  who  have  been  subject,  in  the  last  financial  year,  to  the 
adjustment  of  direct  payments  in  accordance  with  Article  11  of 
Regulation (EC) No 1782/2003. 

The carryover decision shall be taken, at the latest on 15 February of the 
year  to  which  the  carryover  is  being  made,  by  the  Commission,  which 
shall inform the budgetary authority. 

__________________ 

(****)  OJ L 270, 21.10.2003, p. 1.” 

(72) 

In Article 150, paragraphs 2 and 3 are replaced by the following:  

"2.  The  Commission  decisions  fixing  the  amounts  of  these  payments  shall 
constitute  global  provisional  commitments,  which  may  not  exceed  the  total 
appropriations entered for the EAGF. 

3.  As from 15 November, routine management expenditure for the EAGF may be 
committed  in  advance  against  the  appropriations  provided  for  the  following 
financial year. Such commitments may not, however, exceed the corresponding 
appropriations decided by the budgetary authority for the last adopted budget. 
They may apply only to expenditure for which the principle is laid down in an 
existing basic act." 

(73) 

In Article 151(1), the first subparagraph is replaced by the following: 

EN 

37 

   EN 

 
 
 
 
 
"Expenditure effected by the authorities and bodies referred to in the rules relating to 
the  EAGF  shall,  within  two  months  following  receipt  of  the  statements  sent  in  by 
Member  States,  be  the  subject  of  a  commitment  by  chapter,  article  and  item.  Such 
commitment  may  be  made  after  the  elapse  of  that  two-month  period  whenever  a 
procedure for a transfer of appropriations concerning the budget lines in question is 
necessary.  Save  where  payment  has  not  yet  been  made  by  the  Member  States  or 
where  eligibility  is  in  doubt,  the  amounts  shall  be  charged  as  payments  within  the 
same two-month period." 

(74) 

Article 152 is replaced by the following: 

"Article 152 

In budgetary accounting, expenditure shall be booked to the accounts for a financial 
year on the basis of the repayments made by the Commission to the Member States 
by 31 December of the year concerned at the latest, provided that the payment order 
has reached the accounting  officer  by 31 January of the following financial year at 
the latest." 

(75) 

In Article 153, paragraph 1 is replaced by the following: 

"1.  Where  the  Commission  may  transfer  appropriations  pursuant  to  Article  23,  it 
shall take its decision by 31 January of the following financial year at the latest 
and  shall  inform  the  budgetary  authority  three  weeks  before  making  the 
transfers referred to in point (a) of Article 23(1)." 

(76) 

Article 154 is replaced by the following: 

“Article 154 

1.  Assigned  revenue  under  this  Title  shall  be  assigned  according  to  origin  in 

accordance with Article 18(2). 

2. 

The result of decisions on clearance of accounts, as referred to in Article 30 of 
Council  Regulation  (EC)  No  [xxxx/xxxx](*****)  [on  the  financing  of  the 
common agricultural policy] shall be entered in a single Article. 

_______________ 
(*****) OL […], […], p. […].” 

(77) 

The title of Title II of Part Two is replaced by the following: 

“TITLE II 
STRUCTURAL FUNDS, COHESION FUND, FISHERIES FUND, AND 
AGRICULTURAL FUND FOR RURAL DEVELOPMENT” 

(78) 

Article 155 is amended as follows: 

(a) 

paragraph 1 is replaced by the following: 

EN 

38 

   EN 

 
"1.  Parts one and three of this Regulation shall apply to expenditure effected 
by the authorities and bodies referred to in the Regulations governing the 
European  Regional  Development  Fund  (ERDF),  the  European  Social 
Fund (ESF), the Cohesion Fund, the European Fisheries Fund (EFF), and 
the  European  Agricultural  Fund  for  Rural  Development  (EAFRD), 
hereinafter ’the Funds‘, and to their revenue, save as otherwise provided 
in this title."; 

(b)  paragraph 3 is deleted. 

(79) 

In Article 157, the second paragraph is replaced by the following: 

"The  decommitted  appropriations  may  be  made  available  again  in  the  event  of  a 
manifest error attributable solely to the Commission." 

(80) 

Article 158 is replaced by the following: 

"Article 158 

With  regard  to  the  operational  expenditure  referred  to  in  this  title,  the  Commission 
may,  except  in  the  case  of  the  EAFRD,  make  transfers  from  one  title  to  another, 
provided  that  the  appropriations  in  question  are  for  the  same  objective  within  the 
meaning  of  the  Regulations  governing  the  Funds  referred  to  in  Article  155,  or  the 
same category of expenditure from among the following: 

(a)  Community Initiatives;  

(b)  Technical Assistance and Innovative Measures." 

(81) 

In Article 160, the following paragraph 1a is inserted: 

"1a.  The appropriations relating to the revenue generated by the Research Fund for 
Coal  and  Steel  established  by  the  Protocol  annexed  to  the  EC  Treaty  on  the 
financial consequences of the expiry of the ECSC Treaty and on the Research 
Fund  for  Coal  and  Steel  shall  be  treated  as  assigned  revenue  within  the 
meaning  of  Article  18.  The  commitment  appropriations  generated  by  this 
revenue  shall  be  made  available  as  soon  as  the  amount  receivable  has  been 
estimated  and  the  payment  appropriations  as  soon  as  the  revenue  has  been 
received." 

(82) 

The following Article 160a is inserted: 

"Article 160a 

1. 

the 
The  commitment  appropriations  corresponding 
commitment decommitted as a result of total or partial non implementation of 
the  projects  relating  to  research  for  which  they  were  earmarked  may, 
exceptionally and in duly substantiated cases, be made available again where it 
is essential to carry out the programme originally planned unless the budget for 
the current financial year contains funds for this purpose. 

the  amount  of 

to 

EN 

39 

   EN 

 
2. 

For  the  purposes  of  paragraph  1,  the  Commission  shall,  at  the  beginning  of 
each  financial  year,  examine  decommitments  made  during  the  previous 
financial year and assess, in the light of the requirements, the need for making 
the appropriations available again.  

On  the  basis  of  this  assessment,  the  Commission  may  submit  appropriate 
proposals  to  the  budgetary  authority,  by  15  February  of  each  financial  year, 
stating  for  each  budget  item  the  reasons  for  making  these  appropriations 
available again. 

3. 

The budgetary authority shall decide on the Commission's proposals within six 
weeks. Where no decision is taken within this time limit, the proposals shall be 
deemed to be approved.  

The amount of commitment appropriations to be made available again in year n 
shall  in  no  case  exceed  50%  of  the  total  amount  decommitted  on  the  same 
budget line in year n-1. 

4. 

Commitment appropriations made available again shall not be carried over.  

Legal  commitments  relating  to  the  commitment  appropriations  which  have 
been made available again shall be concluded by 31 December of year n.  

At  the  end  of  year  n,  the  unused  balance  of  the  commitment  appropriations 
made  available  again  shall  be  definitively  decommitted  by  the  authorising 
officer responsible." 

(83) 

Article 164 is deleted. 

(84) 

In Article 166(1), the second subparagraph is replaced by the following: 

"The  contracts  and  agreements  provided  for  in  points  (a)  and  (b)  of  the  first 
subparagraph shall lay down the terms on which the external aid shall be managed by 
the beneficiaries or by the contractors." 

(85) 

In Article 167(1), point (c) is replaced by the following: 

“(c)  a  national  or  international  public-sector  body  or  natural  or  legal  persons  who 
have signed with the Commission a grant agreement for the implementation of 
external action.” 

(86) 

In Title IV of Part Two, the title of Chapter 4 is replaced by the following:  

“Chapter 4 
GRANTS” 

(87) 

The following Article 169a is inserted: 

EN 

40 

   EN 

 
“Article 169a 

Grant  procedures  to  be  applied  in  decentralised  management  by  beneficiary  third 
countries shall be laid down in the financing agreements referred to in Article 166. 
These provisions shall be based on the rules laid down in Title VI of part one.” 

(88) 

In Article 171, paragraph 2 is replaced by the following: 

"2.  This  Title  shall  apply  to  the  operation  of  the  European  Anti-fraud  Office 

(OLAF), with the exception of Articles 174, 174a and 175(2)." 

(89) 

Article 173 is replaced by the following: 

“Article 173 

The Commission shall, in respect of the appropriations entered in the Annex for each 
European  office,  delegate  the  powers  of  authorising  officer  to  the  Director  of  the 
European office concerned, in accordance with Article 59." 

(90) 

In Article 174(1), the second sentence is replaced by the following: 

"Its Director shall adopt, after approval by the Management Committee, the criteria 
on which the accounting system shall be based." 

(91) 

The following Article 174a is inserted: 

"Article 174a 

1. 

Each  institution may delegate  authorising officer powers to the director of an 
interinstitutional European office for the management of appropriations entered 
in  its  section  and  shall  set  the  limits  and  conditions  for  this  delegation  of 
powers. 

2. 

The  internal  auditor  of  the  Commission  shall  exercise  all  responsibilities  laid 
down in Title IV, chapter 8 of part one." 

(92) 

Article 175 is amended as follows: 

(a) 

paragraph 1 is deleted; 

(b)  paragraph 2 is replaced by the following: 

"2.  Should the remit of a European office involve supplies to third parties for 
pecuniary  interest,  its  Director  shall,  after  approval  of  the  Management 
Committee,  lay  down  the  specific  provisions  governing  how  these 
supplies are to be made and the keeping of the corresponding accounts." 

(93) 

Article 176 is deleted. 

(94) 

Article 178 is amended as follows: 

EN 

41 

   EN 

 
(a) 

in paragraph 1, the second sentence is replaced by the following: 

"Such  commitments  may  not,  however,  exceed  one  quarter  of 
the 
appropriations decided by the budgetary authority on the corresponding budget 
line for the current financial year."; 

(b) 

in paragraph 2, the following sentence is added: 

"In this case, the limit referred to in paragraph 1 shall not apply." 

(95) 

In Article 185, paragraphs 3 and 4 are replaced by the following:  

"3.  Each body referred to in paragraph 1 shall establish an internal audit function 
which  must  be  performed  in  compliance  with  the  relevant  international 
standards. The Commission's internal auditor shall certify that the operation of 
the audit function respects international audit standards and, for that purpose, 
may conduct quality audits. 

4. 

The bodies referred to in Article 121 shall apply the accounting rules set out in 
Article  133  so  that  their  accounts  can  be  consolidated  with  the  Commission's 
accounts." 

Article 2 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

It shall apply from 1 January 2007. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, […] 

For the Council 
The President 
[…] 

EN 

42 

   EN 

 
 
 
 
1. 

2. 

3. 

4. 

5. 

6. 

REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 

Report on the application of the provisions of the new Financial Regulation 

In  a  statement  to  Article  85  of  the  Financial  Regulation  (FR),  the  Commission 
undertook “to make a report by 1 January 2006 on the application of the provisions 
of  the  new  Financial  Regulation  and,  in  particular,  on  the  discontinuation  of 
centralised ex ante controls, and, if necessary, to submit appropriate proposals to the 
Council”. 

PRACTICAL  EXPERIENCE  OF  THE  ADMINISTRATIONS  OF  THE  INSTITUTIONS  WITH 
DAY-TO-DAY FINANCIAL MANAGEMENT 

a)  Report from the Commission's network of financial units 

The  Commission's  network  of  financial  units  (RUF)  has  produced  a  report  on  the 
management  difficulties  encountered  following  the  introduction  of  the  new  FR  and 
the IR. The report, established by a group of officials representing the financial units 
of  the  Commission,  contains  almost  100  points  having  an  impact  on  the  daily 
management and provided valuable internal feedback to the Commission. 

Low-value contracts, i.e. those worth less than EUR 50 000 account, for up to 75% 
of the number of contracts for certain departments, far less in terms of value but far 
more in terms of management problems both for the departments concerned and for 
relations  with  the  economic  operators.  The  RUF  considers  that  the  implementing 
rules  in  this  area  are  unnecessarily  rigid  and  proposes  amending  a  series  of  the  IR 
provisions  in  order  to  provide  a  specific  management  environment  for  low-value 
contracts. 

For  grants,  the  RUF  requests  that  the  rules  be  adapted  to  low-value  grants  and  to 
small-scale beneficiaries or those with a particular profile. A number of Commission 
departments managing programmes made up to a large extent of small-scale projects 
would  like  the  provisions  on  grants  to  impose  obligations  on  beneficiaries  and 
authorising  officers  that  are  proportional  to the  amount  and  to  the  size  and  type  of 
beneficiaries. 

Pre-financing remains the property of the Communities unless the basic act provides 
otherwise (Article 3(1) IR). The RUF proposes that this be interpreted to allow new 
basic acts to offer an exception to this principle and adjust the provisions to the effect 
that interest generated by pre-financing of less than a certain amount does not give 
rise to establishment and recovery. 

The  RUF  sees  a  serious  shortcoming  in  the  Financial  Regulation  which  causes 
management  difficulties  and  legal  problems  in  relations  with  beneficiaries  of 
Community  funds,  in  that  there  are  no  Community  rules  on  time-barring.  The 
RUF  proposes  that  a  general  time-barring  system  be  introduced  to  apply  to  all 
Community funds on both the revenue side and the expenditure side. 

EN 

43 

   EN 

 
 
 
7. 

8. 

9. 

10. 

11. 

12. 

The  RUF  considers  that  the  rules  to  be  applied  as  regards  the  financing  decision 
should be thoroughly revised and consolidated in the IR in order to provide a suitable 
and  stable  management  environment.  As  regards  the  budget  implementation 
methods, the RUF calls for simplification and updating of the rules and an easing of 
the  conditions  for  making  use  of  national  public  or  private  bodies  for  the 
performance of tasks involving public authority. 

With specific reference to the delegation of implementing tasks, the RUF suggests 
that provision be made, subject to appropriate supervision, for private-law bodies to 
be  allowed  to  reimburse  certain  travel  and  subsistence  costs  to  participants  in 
seminars  and  other  events.  Management  of  such  events  would  require  Commission 
departments,  which  do  not  have  the  means,  to  handle  directly  a  large  number  of 
small transactions.  

The  RUF  would  like  the  provisions  and  procedures  applicable  away  from 
in  representations  and  delegations  and  also  for  operational 
headquarters, 
expenditure, to be reviewed and validated. 

Information  gathered  from  the  administrations  of  the  other  institutions 

b) 
and bodies 

In November 2004 the administrations of the other institutions were asked to report 
on their experience and any problems encountered in implementing the FR and the 
IR. The information submitted is without prejudice to any position that the respective 
institutions may take. 

the  European Parliament  has  explained 

The  administration  of 
total 
decentralisation  of  ex ante  controls  has  come  up  against  certain  difficulties, 
especially the lack of qualified staff. Application of the new arrangements has not yet 
reached  full  maturity  in  the  EP;  it  is  therefore  not  yet  possible  to  make  a  valid 
comparison  with  the  old  arrangements.  The  EP  administration  does  not  make  any 
proposals  for  reviewing  the  major  principles  of  the  reform  and  reintroducing 
centralised ex ante controls. 

that 

The  EP  administration  considers  that  most  of  the  other  provisions  of  the  new  rules 
which have posed problems for its department are already covered by the fast-track 
amendment  procedure  of  the  IR.  EP  departments  do,  however,  propose  amending 
Article 9(6)  FR  to  restrict  the  ban  on  carrying  over  appropriations  for  staff 
expenditure to the remuneration and allowances of members of staff and to add to 
the  list  of  assigned  revenue  the  proceeds  of  the  sale  of  movable  assets,  including 
sales  by  way  of  part  exchange.  They  wish  to  amend  Article 22(1)  and  (2)  FR  to 
facilitate transfers between articles and between chapters while retaining for the 
budgetary  authority  the  possibility  of  deciding  on  the  most  significant  changes.  In 
Article 47(1) FR the EP administration proposes converting grades A1, A2 and A3 
into the grades in the new Staff Regulations (A16, A15, A14, A13) and making an 
exception  to  the  rule  on  a  single  signature  to  allow  imprest  administrators  to 
conclude  legal  commitments  after  the  authorising  officer  concerned  has  signed  the 
budgetary  commitment.  The  EP  departments  suggest  harmonising  the  various 
reports  (Articles 60(7)  and  122)  at  interinstitutional  level  and  cutting  down  on  the 
duplication of information. 

EN 

44 

   EN 

 
 
13. 

14. 

15. 

16. 

17. 

18. 

The  EP  administration  notes  that  for  multiannual  expenditure  the  accounts  do  not 
reflect  the  reality  of  legal  commitments  contracted  and  proposes  that  clear 
provisions  be 
from 
administrative  budgets.  The  EP  proposes  making  it  easier  to  issue  calls  for 
tenders common to a number of institutions by introducing an exception to allow 
an  authorising  officer  to  entrust  management  to  a  member  of  staff  of  another 
institution; this would also cover grants. 

laid  down  concerning  multiannual  expenditure 

The  EP  departments  propose  that  thought  be  given  to  the  use  of  languages  in 
tendering procedures, which could result in provisions being drafted which would 
comply  with 
languages  without  adding 
unnecessarily  to  the  administrative  burden.  They  also  propose  simplifying  the 
provisions for low-value donations to institutions other than the Commission if no 
additional costs are involved. 

the  principle  of  equality  between 

The  EP  administration  identifies  certain  difficulties  which  could  be  resolved  in  the 
revision  of  the  FR.  It  wishes  to  extend  to  the  EP  all  the  provisions  governing 
grants  and,  as  regards  grants  to  European  political  parties,  it  suggests  a 
mechanism  to  allow  a  limited  and  controllable  carryover  of  part  of  the  grant 
from one year to the next (if, for instance, a major event scheduled for December n 
has to be postponed until January/February n+1). One solution EP sees would be to 
make  it  possible  to  accept  in  the  final  outturn  account  provisions  for  costs  already 
committed but which would concern year n+1. These provisions would reduce by the 
same amount any surplus of resources over expenditure, and hence any amount that 
has to be repaid in the event of an operating “profit”. 

The EP departments propose incorporating in the FR the possibility of recognising 
certain features specific to the political groups which prompted exceptions in the 
specific  rules  governing  the  use  of  appropriations  for  the  expenditure  of  political 
the  exceptional  arrangements  for  carrying  over 
groups  and 
the 
thresholds  for  public  contracts.  Finally 
appropriations  and 
administration  proposes  easing  the  management  constraints  in  EP  information 
offices for low-value contracts concerning information policy. 

in  particular 

the  higher 

The  Council  administration  reports  that  for  low  value  contracts  outside  the  EU 
suppliers have failed to provide, as requested, the banking details that are necessary 
before  a  legal  commitment  can  be  made  (third  party  file).  It  suggests  that  this 
obligation  be  confined  to  contracts  of  a  certain  size,  say  above  EUR  3 500. 
Concerning Article 47(1) FR on the establishment plan, the Council administration 
notes  the  need  to  refer  to  the  corresponding  grades  in  the  new  Staff  Regulations 
(A*16, A*15, A*14). 

For the sake of optimum budget management, the Council administration advocates 
aligning the basis for advance commitments of routine management expenditure, 
namely  a  quarter  of  the  appropriations  on  the  corresponding  budget  line  for  the 
current  year,  on  the  limit  laid  down  for  provisional  twelfths,  i.e.  a  quarter  of  the 
appropriations authorised in the chapter in question. The Council administration also 
suggests  specifying  that  the  limit  of  a  quarter  of  the  current  appropriations 
(Articles 13  and  178(1)  FR)  does  not  apply  to  Article 178(2)  FR  relating  to 
expenditure  which  must  be  paid  in  advance  pursuant  to  legal  or  contractual 

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19. 

20. 

21. 

22. 

23. 

provisions,  for  example  rents,  and  may  give  rise  to  payments  from  1 December 
onwards to be charged to the appropriations for the following financial year. 

The  administration  of  the  Court  of  Justice  reports  that  it  proved  very  difficult  to 
apply the FR and the IR from 1 January 2003. In view of the legal and administrative 
implications,  changes  in  the  organisation  and  operation  of  departments  and  in  the 
assignment of human resources, reform on such a scale could hardly be implemented 
only  six  months  after  the  broad  lines  were  laid  down  and  a  week  after  the 
implementing rules were spelled out. 

The  Secretary-General  of  the  Court  of  Auditors  states  that  because  of  the  Court's 
small size, a central ex ante verification cell was set up and directly attached to the 
delegated  authorising  officer.  The  cell  supports  the  progressive  strengthening  of 
ex ante verification in the managing departments. The results of the verifications are 
monitored,  and  contribute  to  the  action  plans  for  improving  internal  controls  in  the 
managing  departments.  It  is  possible  that  ex  ante  verification  will  in  future  be 
decentralised, but, according to the Secretary-General of the Court, the Court's size is 
a factor working against this. 

The  administration  of  the  Court  of  Auditors  seeks  clarification  of  several 
provisions: Article 22 FR and Article 16 IR (transfer of appropriations), Article 178 
FR  and  would  find  it  useful  to  specify  the  time  limit  implied  by  the  term 
"immediately" in Article 179(3) FR regarding notification of the intention to issue an 
opinion  on  building  projects.  It  made  the  experience  that  the  thresholds  in  Article 
129 of the IR regarding low-value contracts are too low and give rise to additional 
administrative  procedures  without  a  corresponding  benefit  in  internal  control.  The 
Court's "cellule marchés" made a number of further suggestions and notably that the 
Commission should register cases at the request of institutions which do not have a 
data base pursuant Article 95 FR because of the few contracts passed. 

The Secretaries-General of the European Economic and Social Committee (ESC) 
and  the  Committee  of  the  Regions  state  that  the  committees  have  undertaken 
greater decentralisation of authorisation, hedging this with appropriate safeguards in 
terms of training and preparation of the authorising officers. They point out that for 
the smaller institutions, the quantity of human resources assigned to control activities 
has increased substantially and represents a significant cost. They take the view that 
the introduction of the new FR has not brought about any fundamental change in the 
level of ex ante control of budget operations in the Committees, but they observe that 
controls  are  more  thorough  and  take  up  a  larger  proportion  of  the  time  of  the 
financial actors and this is felt in terms of the burden of financial management.  

The ESC has doubts about the relevance of performance indicators for administrative 
expenditure  and  suggest  that  they  be  dropped;  it  highlights  the  difficulty  of 
reconciling  building  projects  with  the  principle  of  budget  annuality  and  maintains 
that  reporting  obligations  on  institutions  have  increased;  it  suggests  that  they  be 
rationalised. It would like a common infrastructure to be set up for a central database 
(Article 95 FR). The Committee of the Regions underlines the heavy administrative 
burden imposed by the introduction of the internal control standards; they are beyond 
the means of the small institutions, which have only administrative costs. 

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24. 

25. 

26. 

27. 

The European Data Protection Supervisor points out that the EDPS began work in 
2004. He has not therefore had any problem in adjusting to a new system but does 
not have any hindsight to be able to draw any conclusions from his experience. 

CONCLUSIONS 

The  new  FR  laid  down  the  legal  foundations  for  a  robust  management  and  control 
system  focusing  on  decentralisation.  The  necessary  organisation  steps  have  been 
taken and formal compliance has been generally achieved. Effective implementation 
can be seen as satisfactory at this stage and can and should be further strengthened 
and improved in the light of experience with the active commitment and involvement 
of  the  actors  concerned.  In  this  process,  it  is  essential  that  the  services  are  able  to 
operate confidently in a stable legal environment during the demanding initial period 
of  implementation.  The  change  of  management  culture  and  the  integration  of  risk 
management  in  the  day-to-day  management  will  take  longer  to  become  embedded. 
The Commission will continue its efforts to this effect by developing a common risk 
methodology. 

The  overall  appraisal  shows  that  abolition  of  the  centralised  ex  ante  controls  and 
replacement  by  precise  requirements  for  ex  ante  controls  when  validating  finalised 
projects  before  payments  led  to  accrued  empowerment  and  responsibility  of  the 
authorising  officers.  The  annual  appraisal  of  their  management  mainly  through  the 
annual activity reports proves to be a key pillar in reinforcing the accountability of 
the AOD. 

None of the institutions or the administrations of the institutions proposed changes in 
the  architecture  and  the  key  elements  of  the  reform  of  the  financial  management 
embodied  in  the  FR.  (Certain  clarifications  of  the  role  of  the  accounting  officer 
concerning  the  systemic  and  overall  product  responsibility  for  the  integrity  of  the 
accounts without encroaching on the responsibility of the authorising officers need to 
be addressed.) 

Detected  internal  control  deficiencies  concern  the  implementation  of  provisions  of 
the FR and can be addressed through measures taken at the institution's level and do 
not  necessitate  any  modification  of  the  legal  framework,  which  proved  to  be 
consistent  and  unambiguous.  Therefore  the  Commission  does  not  propose  any 
modification  regarding  the  duties  of  the  financial  actors  and  the  internal  control 
system. 

28. 

The comments of the administrations of the other institutions and of the RUF on the 
need for remodulation of supervisory and control requirements should be taken into 
account in the revision of the FR and its IR. 

The changes should facilitate the Commission’s obligation to implement the budget 
and accomplish the policy objectives whilst providing reasonable assurances on the 
legality  of  expenditure  and  minimise  the  risk  of  irregularity  at  a  proportionate 
administrative cost.  

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The simplification of rules and procedures should aim at enhancing efficiency for the 
operations  of  financial  transactions  carried  out  away  from  headquarters  so  as  to 
facilitate the delivery of external aid to third countries. 

29. 

The  need  for  simplification  was  particularly  felt  in  relation  to  low-value  contracts 
and  grants.  As  a  first  step,  the  Commission  in  the  context  of  the  limited  ongoing 
revision  of  the  IR  launched  in  order  to  transpose  the  harmonised  Directive  on 
procurement took the opportunity to address specific difficulties encountered in the 
field of public procurement and grants by notably streamlining the provisions on low 
value contracts and the use of scales of costs and flat-rate amounts for grants. This 
can  be  seen  a  first  measure  to  meet  financial  management  needs.  The  forthcoming 
revision  of  the  FR  and  its  IR  should  complete  the  simplification  of  procedural  and 
documentary requirements for low-value operations. 

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   EN