Opinion of the European Economic and Social Committee on the  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 (COM(2005) 181 final — 2005/0090 (CNS))
Date: 2005-10-26
Institutions: European Economic and Social Committee
Subjects: financial management, financial regulation, general budget (EU)

3.2.2006

EN

Official Journal of the European Union

C 28/83

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Regu-
lation amending Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to
the general budget of the European Communities’

(COM(2005) 181 final — 2005/0090 (CNS))

(2006/C 28/17)

On 15 July 2005 the Council decided to consult the European Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the abovementioned proposal.

Given the urgent nature of the work, the European Economic and Social Committee appointed Mr Burani
as rapporteur-general at its 421st plenary session, held on 26 and 27 October 2005 (meeting of 26
October), and adopted the following opinion nem. con. with 82 votes in favour and 1 abstention.

1. Background

1.1
The new Financial Regulation (FR) was adopted by the
Council in June 2002; this was followed by adoption of the
Implementing Rules in December 2002. When it adopted the
Implementing Rules the Commission undertook to report to
the Council by 1 January 2006 on the implementation of the
Regulation and to present possible proposals for amendments.
This is the purpose of the document now under consideration,
on which the Council and the Court of Auditors are currently
in consultation. However, considering the time needed for
procedural requirements, it will not be possible to implement
the Regulation before 1 January 2007 at best: the Council's
Budget Committee will announce the position of the individual
Member States at the end of this year, and only then will the
consultation procedure — and possible conciliation procedure
— with the European Parliament, begin.

1.2
In this opinion on the Commission's proposal the EESC
intends to focus mainly on aspects of the Regulation that are
directly or indirectly relevant to relations with civil society
organisations. The Committee believes that
in principle it
should refrain from commenting on provisions governing
more strictly technical and ‘internal’ aspects, on which observa-
tions and proposals have already been made by technically
qualified EU bodies with direct experience in the matter, i.e. the
Commission's network of financial units (RUF), the administra-
tion of the Council, the Court of Justice, the Court of Auditors,
and the accounts departments of the European Parliament, the
EESC and the Committee of the Regions.

1.3
The EESC notes a view widely held by civil society orga-
nisations, and by NGOs in particular, that the current Financial
Regulation and its implementation are too complicated, making
it difficult for them to cooperate effectively and damaging their
relations with the Commission. They have also complained that
the Commission does not consult or discuss with them suffi-
leading to a feeling of general confusion, frustration
ciently,
and disappointment.

For its part, the EESC would like to see increasingly
1.4
close cooperation,
in the form of structured consultations,
between the EU institutions and civil society organisations.

it is mindful of the fact that the institutions have
However,
responsibilities and prerogatives which must be adhered to,
even if this means not being able to meet all demands. At all
events, the parties must establish relations of understanding
and respect
respective positions. Amongst other
things, it should be clearly specified in the Financial Regulation
or elsewhere that interested parties must be notified if a request
they have made will not be met, and must be informed of the
reasons for this.

their

for

2. General comments

2.1
The new rules set out in the Financial Regulation and in
the implementing rules that were introduced on 1 January
2003 are based on certain general principles. The most impor-
tant of
these is the idea of abolishing centralised ex ante
controls, which gives more power and responsibility to author-
ising officers, providing for a series of cross-checks by financial
controllers and accounting officers. The system seems to have
proved effective, even if a few adjustments are needed in the
light of experience.

2.2
The technical bodies mentioned in point 1.2 and the
civil society organisations have generally highlighted the need
for a better balance between the required checks and
greater flexibility of rules, especially when smaller amounts
are involved. The Commission appears sympathetic to this
request; however,
that
smaller amounts means something different to the Com-
munity institutions — which together handle huge sums of
money — than to relatively small-scale civil society players
(suppliers, consultants, NGOs, etc.). EUR 10,000 may be a
small sum for the EU, but a quite considerable amount for a
small- or medium-sized operator.

the EESC would like to point out

2.3
In this connection it should be noted that in the expla-
natory memorandum accompanying the proposal, the Commis-
sion states: ‘Any proposed amendment should … enhance the protec-
tion of the EU's financial interests against fraud and illegal activities’.
In other words, and seen from another perspective, EU
accounting rules must (or ought to) encourage good market
practice by acting as a disincentive against the easy temptation

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to take advantage of ‘flexible’ rules. The EESC is aware that
painstaking and complicated audits are onerous for the EU, but
it thinks that the legitimate aim of reducing red tape should
not encourage slipshod or oversimplistic solutions. As OLAF
reports show, fraud is rife at every level. Here the Committee
would note that the Commission could perhaps have learned
valuable lessons — and translated them into appropriate rules
— if it had consulted OLAF during the drafting of the new
Financial Regulation.

That said, the Committee notes the need, highlighted
2.3.1
by civil society organisations, to strike a balance between effi-
ciency, efficacity and responsibility, so as not to jeopardise the
principle of partnership between those granting funding and
those receiving it, the aim being not to impede either possible
innovative developments or the prudent use of public funds.
The Committee agrees with this need, but stresses that under
no circumstances must the principles underpinning the use of
public funds — transparency, efficacity of use, and reporting
obligation — be violated.

2.4
Another statement worth commenting on is that ‘chan-
ging the rules too often, or without adequate justification, can
have a negative impact on such beneficiaries and on the
image of
the European Union’. Obviously the Committee
agrees with this position, but it should be qualified by the
consideration that new rules could be justified in the sectors
where abuses most often occur. In this case too, consultation
of OLAF reports could provide useful suggestions.

3. Specific comments

3.1 With regard to recovery of amounts receivable
(Articles 72-73a), the new FR stipulates that the Community's
claims are also to benefit from the instruments adopted with
relevant Directives on judicial cooperation, and requires that the
Member States treat Community claims in the same way as
national fiscal claims. While the EESC is aware that a regu-
it wonders
lation has direct
whether this rule might require a change in national legisla-
tion,
in particular bankruptcy laws, which normally grant a
right of pre-emption to (national) fiscal claims but do not
mention debts towards the EU. To be binding on third parties,
every form of pre-emption right should be provided for
under national law.

force in each Member State,

3.2
Adoption in 2004 of the latest EU Directive on public
procurement means that the FR proposal must be brought
into line with the new rules; in 2002 the Union had already
adopted a Directive on procurement to apply the same stan-
dards as those in force in the Member States. The EESC does
not feel any need to comment on rules that have already been
adopted, which can only be judged and if necessary modified
on the basis of experience.

in situations of

finding themselves

3.2.1
The Committee would draw attention to the para-
graph added to Article 95. This states that a ‘common database’
may be set up by ‘two or more institutions’ in order to identify
exclusion
candidates
(Articles 93 and 94). Setting up a centralised database (i.e. one
that is not limited to a single institution) is a good idea, but the
Commission says only that two or more institutions may share
their data. The EESC agrees about the usefulness of databases in
general, but thinks that in this specific case the costs of integra-
tion might outweigh the benefits: the systems of each indivi-
dual institution are quite different and data-gathering criteria
are not always the same.

3.3
The Committee is also concerned about the grounds
for exclusion (Article 93), which include (in Article 93(1)(a))
judgments having the force of res judicata. This provision
was drafted in accordance with laws and principles enshrined
in the constitutions of the majority of Member States, and as
such it is irreproachable; however, the EESC notes that in some
Member States appeals procedures against a judgment delivered
by a court of first instance may have to pass through two other
levels of the judicial system (appeals court and cassation court),
and that a judgment is not considered final until all the possibi-
lities of appeal have been exhausted. There can be long time
lapses between one judicial level and another, during which a
first- or second-instance judgment, even if clearly well
founded, cannot be considered legally valid grounds for
exclusion. At a practical level, it will be up to those respon-
to exercise the utmost caution when awarding
sible
contracts, but it will not always be easy — especially in certain
cases — to take decisions that comply with the law and are at
the same time duly prudent.

3.3.1
The above-mentioned provision, though incontestable,
thus leaves much room for confusion. It also seems inconsis-
tent with the following article, 93(1)(b), which provides for
exclusion from procurement procedures of candidates who are
‘are currently subject to an administrative penalty, referred
to in Article 96’. Administrative or legal recourse against the
application of an administrative penalty is still allowed, but the
proposed text seems to imply that an administrative penalty is
final, even if the candidate is only currently ‘subject to’
it.
Comparison of the two provisions raises doubts as to the
logical and legal criteria behind them: on the one hand, Article
93(1)(a) allows presumed perpetrators of serious crimes to be
presumed innocent until a definitive judgment is delivered, while
under Article 93(1)(b) administrative penalties to which a
candidate is currently subject (and can therefore appeal against)
constitute a reason for immediate exclusion. The EESC does not
ask that Article 93(1)(b) be made more flexible, but rather
that a criterion be added to make Article 93(1)(a) less
open-ended.

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3.4
The section on grants (Article 108 ff.) deserves particu-
lar attention, not just because it is such a tricky issue, but also
because paying public funds to a large number of different
beneficiaries may, for very different reasons, invite public criti-
cism. Such criticism might be justified in some cases, but it
often arises from a real or supposed lack of transparency,
which also means difficulty understanding the rules and the
criteria for applying them. Admittedly it is anything but easy
to draft provisions to cover such a varied and heterogeneous
range of cases that cannot easily be reduced to precise patterns.
Transparency (understood here above all as clarity of concepts
and language)
the
administration will use its wide discretionary powers respon-
sibly.

thus represents the best guarantee that

3.4.1
Article 109 is a prime example of poor comprehensi-
bility: paragraph 2 states ‘Grants may not have the purpose or
effect of producing a profit’, but paragraph 3(c) notes that
paragraph 2 does not apply to ‘actions the objective of which is the
reinforcement of the financial capacity of a beneficiary or the genera-
tion of an income’. It is not obvious what the difference between
‘profit’ and ‘income’
is in practice: the EESC would like the
this rule to be clarified both in form and in
wording of
substance.

Under Article 109(3)(d),

3.4.2
exemption from the
requirement that grants should not produce a profit also
applies to low-value grants which take the form of lump
sums or flat-rate financing (Article 113(1)(c) and (d)). The
EESC would make the same point as in 2.2 above regarding the
concepts of ‘low-value’ and ‘small’, namely that a balance must
be struck between the concept of ‘low-value’ for the EU and
what ‘small’ means for the beneficiaries of grants. In any case,
the question should be resolved and the changes incorporated
into the FR, not the IR.

3.4.3
Still on the subject of grants, and particularly low-
value grants, nowhere does the FR mention any accountability
requirement, or any obligation at all to present a report on
how the sums received are actually used. The EESC has taken
note of the Commission's wish to reduce administrative costs,
but it cannot accept that public money should be disbursed
without any idea of how it will subsequently be employed.

Brussels, 26 October 2005

Spot checks on accounting records should be provided for,
and penalties should be imposed for non-compliance, if only to
uphold the principle of sound public administration.

3.4.4
Article 114 also merits comment. Paragraph 4 states:
‘Administrative and financial penalties which are effective,
proportionate and dissuasive may be imposed on applicants by
the authorising officer …’. However, it seems reasonable to ask
what guarantees grant beneficiaries (who in many cases are
very different from contract holders, also in terms of their
financial situation) provide that they are able, or willing, to
meet their penalty obligations. In the EESC's view it is necessary
— in the case of applicants established in the territory of a
Member States — for the Member State itself to channel appli-
cations and guarantee that obligations arising from any admin-
istrative or financial penalties are met.

4. Conclusions

The EESC endorses

4.1
the approach adopted by the
Commission in its proposal, especially regarding the abolition
of centralised ex ante controls and their replacement by controls
to be carried out before authorising payments for projects that
have already been approved.

4.2
On the other hand, the EESC advises caution when it
comes to meeting the requests made by the financial depart-
ments of many institutions to simplify or scrap various formal-
ities and controls for contracts and ‘modest’ grants. Although it
agrees that controls are costly and time-consuming, it feels that
the worthy intention to contain costs should be qualified by a
countervailing concern, namely the need not
to give the
impression to Europe's citizens and stakeholders that ‘small’
amounts are treated in an oversimplified and perfunctory
manner.

4.3
For their part, civil society organisations ask that any
revision of the Financial Regulation be conducted in consulta-
tion with the Commission, in a spirit of mutual understanding
and taking account of the need for sound financial manage-
ment on both sides. The Committee supports this request, but
points out that all decisions adopted must respect the impera-
tive need for sound, transparent management of public funds.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND