Report from the Commission to the Council on the follow-up to 2003 Discharge Decisions (Summary) - Council Recommendations {SEC(2005) 1160}
Date: 2005-09-19
Institutions: European Commission
Subjects: Council of the European Union, EC recommendation, EU office or agency, budgetary discharge, closing of accounts, financial year, general budget (EU), report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.9.2005 
COM(2005) 448 final 

REPORT FROM THE COMMISSION TO THE COUNCIL 

on the follow-up to 2003 Discharge Decisions (Summary) - Council Recommendations 

{SEC(2005) 1160} 

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TABLE OF CONTENTS 

PREAMBLE ...............................................................................................................................3 

I. 

Council recommendation on the General Budget.........................................................4 

a) Introduction (Commission working document, points 1-4)....................................................4 

b) Statement of assurance (DAS) and supporting information 

(Commission working document, points 6-11) ............................................................4 

c) Budgetary management (Commission working document, points 5 and 12-13)....................4 

d) Own Resources (Commission working document, points 14-15) ..........................................5 

e) The common agricultural policy (Commission working document, points 16-21)................5 

f) Structural measures (Commission working document, points 22-26) ....................................6 

g) Internal Policies, including research (Commission working document, points 27-33)..........6 

h) External actions (Commission working document, points 34-36) .........................................6 

i) Pre-accession aid (Commission working document, points 37-40) ........................................6 

j) Administrative expenditure (Commission working document, point 41) ...............................7 

k) Financial instruments and banking activities (Commission working document, point 42) ...7 

II. 

III. 

IV. 

V. 

Requests to the Commission concerning the agencies 
(Commission working document, point 43) .................................................................7 

Conclusions on the follow-up of the 2002 discharge 
(Commission working document, points 44-54) ..........................................................7 

Court of Auditors’ special reports 
(Commission working document, points 55-63) ..........................................................8 

European Development Funds (EDF) 
(Commission working document, points 64-66) ..........................................................9 

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PREAMBLE 

According  to  Article  276  of  the  EC  Treaty  and  Article  180b  of  the  Euratom  Treaty,  the 
“Commission  shall  take  all  appropriate  steps  to  act  on  the  observations  in  the  decisions  giving 
discharge  and  on  other  observations  by  the  European  Parliament  relating  to  the  execution  of 
expenditure, as well as on comments accompanying the recommendations on discharge adopted by 
the Council. At the request of the European Parliament or the Council, the Commission shall report 
on  the  measures  taken  in  the  light  of  these  observations  and  comments  and  in  particular  on  the 
instructions given to the departments which are responsible for the implementation of the budget. 
These reports shall also be forwarded to the Court of Auditors"1 

The  Commission,  acting  on  requests  from  the  Council  and  Parliament,  has  accordingly  prepared 
Follow-up  Reports,  which  relate  to  the  Council  recommendation  of  8  March  2005  and  the 
Resolutions  voted  by  the  European  Parliament  on  12  April  2005.  The  present  Follow-Up  Report 
deals with the recommendations made by the Council in relation to the 2003 Discharges. A separate 
Follow-up report deals with the recommendations made by Parliament in relation to the Discharges 
given for the 2003 financial year2. 

The  Follow-up  Reports  are  presented  to  the  European  Parliament,  the  Council,  and  the  Court  of 
Auditors.  They  summarise  each  sector  or  themes  raised  by  the  Council  and  the  Parliament,  the 
actions that the Commission intends to take or has already taken and also the recommendations that 
the Commission will not or is not able to follow up. 

The  summary  Follow-up  Reports  are  complemented  by  Commission  working  documents  giving 
detailed answers to each specific recommendation of both Council and Parliament. 

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See also Article 147 of the Financial Regulation 
2003 General Budget Discharge, 2003 EDF Discharge, 2003 Agencies Discharge 

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I. 

COUNCIL RECOMMENDATION ON THE GENERAL BUDGET 

A) Introduction (Commission working document, points 1-4) 

The Commission shares the Council’s disappointment that in 2003 the Court of Auditors was again 
unable  to  give  a  Statement  of  Assurance  (DAS)  in  relation  to  most  of  the  expenditure.  For  this 
reason, the Commission has announced its intention to set out in 2005 a roadmap to an integrated 
internal control framework. The aim is to establish, in close collaboration with Parliament and the 
Council, how the current internal framework can be improved in order to make it possible for the 
Commission  to  provide  the  Court  of  Auditors  with  reasonable  assurance  as  to  the  legality  and 
regularity of underlying transactions. 

The integrated internal control framework will build on the positive results achieved by the reform 
of the internal control framework of the Commission. The vast majority of the actions in the White 
Paper have been completed, in particular as regards the internal control standards. The Commission 
will continue its work to implement effective internal control systems and to improve the Annual 
Activity  Reports  and  the  declarations  and  reservations  made  by  the  Directors-General.  The 
Commission  will  further  work  with  Member  States  to  improve  controls  over  funds  under  shared 
management. 

B)  STATEMENT  OF  ASSURANCE  (DAS)  AND  SUPPORTING  INFORMATION  (COMMISSION  WORKING 

DOCUMENT, POINTS 6-11) 

In June 2005 the Commission adopted a communication setting-out the abovementioned roadmap to 
an  integrated  internal  control  framework.  The  Commission  services  are  also  currently  identifying 
the  gaps  which,  in  their  view,  lie  between  the  control  framework  in  place  for  each  area  of  all 
budgetary expenditure and the general principles defined by the Court of Auditors in its opinion No 
2/2004, with particular emphasis on the controls which limit the risks concerning the legality and 
regularity of the underlying transactions. It will propose the action required to address each gap, and 
the timetable for implementing this action, and discuss this with the Court, Council and Parliament. 

The  Commission  intends  to  come  to  an  agreement  by  November  2005  with  Parliament  and  the 
Council on how the current internal framework can be improved in order to make it possible for the 
Commission  to  provide  the  Court  of  Auditors  with  reasonable  assurance  as  to  the  legality  and 
regularity of underlying transactions. To that end, the Commissionit will undertake discussion with 
the  appropriate  Council  Committees,  and  by  October  2005  present  the  initial  report  exploring  the 
road map to a protocol with Member States. 

As  regards  the  new  accounting  system  of  the  Commission,  which  became  operational  in  January 
2005 and is currently being used by all Directorates-General, work is ongoing to meet the remaining 
objectives and to date there are no significant delays or problems noted in meeting these objectives. 

c) Budgetary management (Commission working document, points 5 and 12-13) 

The  Commission  has  taken  due  note  of  Council’s  request  for  more  accurate  and  updated  budget 
estimates  and  more  information  on  outstanding  commitments  and  budgetary  implementation. 
Budget estimates have improved overall and in particular for structural operations. The Commission 

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also  provides  an  annual  report  on  the  evolution  of  outstanding  commitments  (RAL)  and  the 
successful  efforts  to  eliminate  “abnormal  RAL”.  Moreover,  the  2004  report  on  Budgetary  and 
Financial Management analyses the cumulative state of implementation of the Communities’ main 
multi-annual programmes. 

D) Own Resources (Commission working document, points 14-15) 

The  Commission  agrees  with  the  Council  that  further  progress  should  be  made  concerning  the 
management  of  agricultural  tariff  quotas.  It  continues  to  work  on  proposals  to  simplify  the 
procedural framework, including the development of a central, integrated IT system (AMIS Quota). 
As regards the follow-up to the Green Paper on preferential origin rules, the Commission adopted 
on  16  March  2005  a  Communication  on  “the  rules  of  origin  in  preferential  arrangements  – 
orientations  for  the  future”  (COM(2005)100  final)  which  provides  the  general  orientations  which 
the  Commission  intends  to  follow  and  promote  in  the  context  of  all  preferential  arrangements  in 
which the Community is involved. 

E) The common agricultural policy (Commission working document, points 16-21) 

The  Commission  will  work  more  actively  with  Member  States  in  order  to  improve  the  control 
systems in areas that are not checked through IACS and where serious problems such as high risks 
and  recurrent  errors  still  occur.  For  example,  the  Commission  will  follow  up  instances  where 
information supplied by Member States appears to be erroneous. Audit activity on ex-post controls 
has been reinforced in 2005.  

The  Commission  effectively  addresses  the  issues  of  revision  of  certain  control  procedures,  of 
identifying subsidies that are particularly subject to fraud and error, of improving the supervisory 
checks  and  of  using  these  checks  as  a  tool  for  comparison  by  performing  detailed  analyses  when 
establishing  the  annual  work  plan.  It  believes  that  the  current  system  of  statistical  reporting  is 
sufficient. Furthermore, the results of the IACS checks made by Member States have been included 
in the 2004 Annual Activity Report of the Director General for Agriculture. 

As  on  the  need  to  ensure  that  both  limited  audit  evidence  and  supervision  receive  sufficient 
attention  by  certifying  bodies,  during  2004,  the  Commission  provided  further  guidance  and 
arranged bilateral meetings with Certifying bodies and Paying agencies of several Member States in 
which  the  issues  of  supervision  and  audit  evidence  were  discussed.  Consequently,  the  Certifying 
Bodies paid much more attention to these issues in the 2004 certification exercise. As a result, for 
the  financial  year  2004,  the  accounts  of  only  5  paying  agencies  were  disjoined,  compared  to  29 
accounts in the 2003 financial year. 

The Commission drew up an action plan to lessen the risk of fraud in this area and implemented it. 
The  management  of  the  risks  involved  has  significantly  improved.  The  Commission  committed 
itself to provide Member States’ authorities with a new catalogue of customs documents and stamps 
of the main 50 third countries. A call for tender was launched in 2004 and a one year contract with 
the successful bidder was signed on 16th December 2004. 

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F) Structural measures (Commission working document, points 22-26) 

The  Commission  is  pursuing  its  efforts  to  remedy  the  weaknesses  in  the  supervisory  and  control 
system for structural expenditure. It is continuing its audits of the systems in 2000-06 programmes. 
It makes recommendations to the Member State to remedy any weaknesses found, follows up the 
action taken, suspends payments if the problems represent a serious risk to Community funds, and 
applies  financial  corrections.  The  management  and  control  framework  for  the  2007-13  period 
proposed  by  the  Commission  builds  on  the  experience  of  the  past  by  further  reinforcing  and 
clarifying  the  control  responsibilities  of  the  Member  States  whilst  respecting  the  requirements  of 
proportionality. Concerning annual activity reports, tables summarising the main findings including 
reservations have been included in the Directors'-General reports for 2004 and will appear in these 
reports in future. 

G) Internal Policies, including research (Commission working document, points 27-33) 

As regards supervisory systems and Controls, the Commission has taken the recommended action to 
reinforce financial information regarding payment delays and to improve monitoring of budgetary 
implementation for example by regularly producing and monitoring financial scoreboards. 

As  regards  management  and  control  systems  for  the  6th  Research  and  Technological  (RDT) 
Framework Programme (FP6), IT tools have been deployed and are being upgraded to provide the 
full range of support for proposal evaluations through to contract payments and project monitoring. 

As  regards  the  European  Refugee  Fund,  action  has  been  taken  to  remedy  internal  control 
weaknesses.  Moreover,  the  Commission  will  continue  to  work  with  Member  States  in  order  to 
further harmonise the control environment at national level. 

As  regards  the  follow-up  to  findings  of  the  ex-post  financial  audits  and  the  recovery  of  undue 
payments,  the  Commission  has  put  in  place  a  reporting  system  to  assist  the  financial  services  in 
monitoring their recoveries. Moreover, “A common audit policy of the Research DGs for FP6” was 
defined and agreed, and audit databases for the audit follow-up will be put in place. 

H) External actions (Commission working document, points 34-36) 

The Commission has taken due note of the Council’s invitation to continue the reform of external 
management. Thus the recent reorganisation of EuropeAid services aims at further strengthening its 
role  which  has  progressively  evolved  towards  supervision,  coordination  and  support  to  devolved 
management in the Commission delegations. Moreover, the Commission’s monitoring and control 
systems aim at ensuring the compliance by contract partners, such as NGOs, with  the contractual 
requirements. The introduction of new tools (such as CRIS Audit) will contribute to further improve 
the flow of information on audit results at central level. 

I) Pre-accession aid (Commission working document, points 37-40) 

The  Commission  continues  to  pursue  the  aim  to  fully  implement  the  Extended  Decentralised 
Implementation System (EDIS), both in the new Member States and the Candidate Countries. All 
new Member States had received accreditation decisions for PHARE funds by early 2005 and could 
rely on the (albeit phasing out) assistance of the PHARE Transition Teams in the local Commission 

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Representations.  Within  HQ,  at  DG  Enlargement,  the  Financial  Assistance  Follow-up  Unit  will 
provide further punctual monitoring-driven assistance. 

As for the Candidate Countries, the assistance towards the implementation of EDIS is pursued by 
means of several initiatives and measures, including high level working groups, training seminars 
and systems reviews. 

J) Administrative expenditure (Commission working document, point 41) 

As regards administrative expenditure, where, as noted by Council, the Court has been able to give 
a  positive  DAS,  the  Commission  intends  to  continue  the  effective  implementation  of  the  reform, 
including  the  internal  control  standards,  the  development  of  a  common  risk  evaluation 
methodology, the ex-post controls and the internal audit. 

K) Financial instruments and banking activities (Commission working document, point 42) 

As  regards  the  financial  instruments  in  favour  of  small  and  medium-sized  enterprises,  the 
Commission confirms that it is generally satisfied with the quality of the reports received from the 
European Investment Fund (EIF). Consistent rules are already applied in respect of guarantee calls 
as well as state aid. 

II. 

REQUESTS  TO  THE  COMMISSION  CONCERNING  THE  AGENCIES  (Commission  working 
document, point 43) 

As regards the European Agency for Reconstruction (EAR), the Commission, as recommended by 
Council, continues to undertake all appropriate actions possible within its limited remit as one of the 
26  members  (the  other  25  being  the  Member  States)  of  the  Governing  Board  of  the  EAR.  The 
Commission has already provided advice, guidance and assistance to the EAR so that it may follow-
up closely on all the  recommendations  of  the  Court of Auditors.  The  EAR  is a  unique  entity and 
legally distinct from the Commission, established on the initiative of the Budgetary Authorities and 
governed by Article 185 of the Financial Regulation as is indicated in the Council Regulation on the 
EAR  under  Article  9.  Under  this  law  it  is  the  legally  distinct  EAR  which  is  responsible  for 
management and control of the funds allocated to it, supervised by the Governing Board and subject 
to  external  audit  by  the  Court  of  Auditors.  The  Commission  is  further  considering  the  legal 
framework under which the EAR operates. 

It  must  be  clarified  that  the  Commission  does  not  have  “joint  management”  with  UNMIK.  The 
latter does have contractual relations with the EAR with respect to implementation of some CARDS 
projects  for  the  National  Programme  for  Kosovo.  The  Commission  will  reiterate  the  views  of 
Council to the other supervising members on the Governing Board. 

III. 

CONCLUSIONS  ON  THE  FOLLOW-UP  OF  THE  2002  DISCHARGE  (Commission  working 
document, points 44-54) 

The Commission has taken or is taking the recommended actions to follow-up the conclusions on 
the  2002  discharge,  for  instance  as  regards  improvements  in  supervisory  and  control  systems 
concerning  the  areas  of  agriculture,  TEN-T,  external  actions,  pre-accession  aid  and  banking 
operations.  

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Consistency  of  interpretation  and  guidance  is  being  given  increased  attention  in  the  internal  risk 
assessments of the directorates general responsible for the Structural Funds. The Commission has 
taken steps to improve Member States’ forecasts of expenditure, but has also gone over to relying 
for assessment of payment needs more on its own estimates based on the pattern of implementation 
and foreseeable trends rather than on the Member States’ forecasts. 

IV. 

COURT  OF  AUDITORS’  SPECIAL  REPORTS  (Commission  working  document,  points  55-
63) 

As regards special report 5/2003 concerning Phare and ISPA funding of environmental projects in 
the Candidate Countries the Commission will take the recommended action to maximise the future 
impact  of  projects.  For  example,  scarce  grant  financing  will  be  targeted  more  effectively  and 
absorption  capacity  will  be  increased  by  strengthening  project  preparation  and  tendering 
capabilities. 

As regards special report 14/2003 on the measurement of farm income, a feasibility study for the 
development  and  cost  of  statistics  that  measure  the  standard  of  living  of  the  farming  population 
across  all  the  Member  States  of  the  Union  is  being  launched  by  the  Commission  (Eurostat  is 
finalising  a  call  for  tender  to  be  published  soon).  The  financial  situation  and  income  levels  of 
farming undertakings and in the agricultural sector generally continue to be the subject of regular 
monitoring  on  the  basis  of  FADN  and  EAA  data,  the  harmonisation  and  consistency  of  which  is 
being strengthened through increased collaboration among the various services concerned 

As  regards  special  report  15/2003  concerning  microproject  programmes  (MPP)  financed  by  the 
EDF, the Council has recommended that the Commission take several actions, such as to improve 
the  organisation  of  central  services,  provide  Delegations  with  precise  guidelines,  and  to  improve 
monitoring  and  methods  of  measuring  results.  The  Commission  has  either  taken  or  is  taking  the 
recommended actions. 

As  regards  special  report  1/2004  on  the  management  of  indirect  RDT  actions  under  the  5th 
Framework  Programme  for  Research  and  Technological  Development  (1998  to  2002),  the 
recommended action has been taken and is continuing. The simplification of FP6 implementation in 
compliance with the legal and financial framework has been a main objective. An Action Plan on 
Rationalisation  and  Acceleration  has  addressed  many  of  the  issues  identified  as  problematic  or 
needing  improvement  under  FP6;  the  Commission  has  informed  the  Council  and  the  Programme 
Committees of progress achieved. For the future, the efforts on simplification will also address any 
potential  changes  that  may  be  necessary  to  the  legal  and  financial  framework  and  further 
improvements  in  delivery  of  the  framework  programme.  To  that  end,  a  working  paper  on 
simplification was part of the Commission's proposal for FP7 adopted on 6 April 2005. Work has 
begun on the implementation of the proposals made in that paper. 

As regards special report 6/2004 concerning the organisation of the system for the identification and 
registration of bovine animals in the European Union (SIRB), the Commission has already, under 
the  existing  legal  situation,  provided  advice  and  assistance  to  the  Member  States  setting  up  and 
managing  databases  for  bovine  animals.  A  working  document  for  benchmarking  of  the  national 
databases has been developed to assist the Member States in further improving their databases. 

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V. 

EUROPEAN  DEVELOPMENT  FUNDS  (EDF)  (Commission  working  document,  points  64-
66) 

The  Commission  has  further  improved  the  readability  and  precision  of  the  EDF  financial 
management  report  as  recommended  by  the  Council.  The  Council  also  recommends  that  an 
overview of EDF management costs charged to the general budget be included in the EDF financial 
management report. However, as activities related to the EDF are integrated into the Commission's 
other  activities  concerning  development  aid  and  political  relations  with  developing  countries,  the 
total administrative costs charged to the general budget cannot be divided between EDF activities 
and  other  activities  in  a  meaningful  way.  As  regards  budgetary  support,  the  agreements  now 
systematically include an important element of institutional support. Concerning the Stabex funds, 
the Commission has issued instructions, with deadlines, to the Delegations, in order to ensure closer 
financial monitoring and the rapid approval of all outstanding Frameworks of Mutual Obligations. 

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