Opinion No 10/2005 on the draft Council Regulation amending Regulation (EC, Euratom) No 1605/2002 of  25 June 2002  on the Financial Regulation applicable to the general budget of the European Communities
Date: 2005-12-07
Institutions: European Court of Auditors
Subjects: award of contract, financial management, financial regulation, general budget (EU), implementation of the budget, public contract

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I

(Information)

COURT OF AUDITORS

OPINION No 10/2005

on the draft Council Regulation amending Regulation (EC, Euratom) No 1605/2002
of 25 June 2002 on the Financial Regulation applicable to the general budget
of the European Communities

(Submitted pursuant to Article 248(4), second subparagraph, of the EC Treaty)

(2006/C 13/01)

CONTENTS

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

STABILITY AND COHERENCE OF THE FINANCIAL RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BUDGETARY PRINCIPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Principle of annuality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Principle of universality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Principle of specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Principle of transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ESTABLISHMENT AND STRUCTURE OF THE BUDGET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IMPLEMENTATION OF THE BUDGET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Methods of implementing the budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Role of the Accounting Officer: reliability of the accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Responsibilities of the financial actors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interinstitutional cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PROCUREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cases of exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The appointment of experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interinstitutional cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

GRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The non-profit principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-cumulation principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procurement contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Articles 248(4) and 279
thereof,

Having regard to the Treaty establishing the European Atomic Energy Community, and in particular
Articles 160C(4) and 183 thereof,

Having regard to Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regu-
lation applicable to the general budget of the European Communities (1), and in particular Article 184 thereof,
which provides for a review of the Regulation every three years,

Having regard to the Proposal for a Council Regulation amending Regulation (EC, Euratom) No 1605/2002 (2),

Having regard to the Council’s request for an opinion on this proposal, which was submitted to the Court of
Auditors on 15 July 2005,

HAS ADOPTED THE FOLLOWING OPINION:

— to justify legislative changes in relation to:

Introduction

1.

The proposal presented by the Commission aims:

— the Commission’s obligation to implement the budget
and accomplish the prescribed policy objectives,

— to improve efficiency and transparency in the operation of

the rules,

— the requirements of sound financial management,

— to simplify the rules and requirements for contracts and

grants in proportion to the costs and risks incurred,

— the protection of the EU’s financial interests,

— to clarify and streamline the provisions governing the vari-

ous methods of management.

2.
In its explanatory memorandum, the Commission declares
that, since the Financial Regulation is the main legislative instru-
ment for the implementation of the budget, its objectives must be
achieved whilst maintaining the stability of the rules and, in par-
ticular, the basic principles, concepts and architecture of the
Financial Regulation (3).

3.

To that end the proposal establishes the following criteria:

— to confine the legislative changes to those problems for

which there are no alternative solutions,

— not to adopt any proposal for amendment that would call
into question the key elements of the Commission’s reform,

— to limit to an absolute minimum any derogations from bud-

getary principles,

— to take into account the amendments imposed by the new

sectoral regulations for the 2007-2013 period,

(1) OJ L 248, 16.9.2002; Corrigendum published in OJ L 25, 30.1.2003.
(2) COM(2005) 181 final of 3 May 2005.
(3) Financial Regulation — Council Regulation (EC, Euratom)

No 1605/2002.

— the need to obtain a positive statement of assurance in

the short term.

The Court has examined the draft regulation submitted by
4.
the Commission, taking into account the principles, objectives
and criteria stated above. It considers that obtaining a positive
Statement of Assurance is not a relevant criterion for guiding the
revision of financial rules. Improving the Community’s financial
management should, however, be a criterion for determining
what changes to the Financial Regulation are necessary.

5.
The Court considers that in many areas the proposed
adjustments and changes constitute an important step towards
the simplification and flexibility necessary for effective financial
management. However, for the reasons set out below, the prin-
ciples and criteria that should have guided these changes were not
always followed and the objectives pursued have not been fully
achieved.

6.
As a consequence some of the amendments proposed by
the Commission are not justified and risk complicating manage-
ment. On the other hand, the proposed revision does not provide
solutions to certain management needs as indicated in para-
graphs 21, 26, 29, 30, 32 and 39.

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Stability and coherence of the financial rules

The previous Financial Regulation was

7.
repeatedly
amended, making it incoherent, as the Court pointed out in Opin-
ion No 4/97 (1). In particular, the Court’s criticisms (2) related to
the overall inconsistency of the text and the following:

— piecemeal introduction of changes in order to resolve par-

ticular problems,

— the

coexistence of

several

regimes

and numerous

derogations,

— certain fundamental financial provisions were contained in
the regulations governing particular policies, measures or
programmes but had not been included in the Financial
Regulation and, sometimes, were incompatible with it.

In 1998, as the result of that Opinion and the inconsistencies
identified, the Commission embarked on the revision procedure,
which, after a great deal of interinstitutional preparation and dis-
cussion, led in 2002 to the current Regulation.

8.
The Commission has recognised that some aspects (inter-
nal control standards, activity based budgeting and management)
of the current Financial Regulation which is part of the process of
financial management reform undertaken by this Institution have
not been fully implemented and that additional effort is still
required for them to function effectively (3). Furthermore, the
other Institutions have only recently introduced some elements of
that Regulation.

9.
In this context, the explanatory memorandum accompa-
nying the proposal sets out as the guiding principles for the revi-
sion, to ensure stability of rules and, in particular, of the budget-
the Financial
ary principles as laid down in Article 2 of
Regulation (4).

10.
However, in addition to editorial changes, the draft revi-
sion contains proposals for amendments to 74 articles — 40 %
of the current articles — affecting almost every title of the Regu-
lation. The Commission proposal therefore represents a substan-
tial recasting of the text of the Financial Regulation.

11.
Furthermore, the current revision of the Financial Regu-
lation is accompanied by three proposals for the amendment of
the rules implementing the Financial Regulation which were pre-
sented or announced during 2005.

(1) Opinion No 4/97 on the proposal for a Council Regulation (Euratom,
ECSC, EC) amending the Financial Regulation of 21 December 1977
applicable to the general budget of the European Communities
(OJ C 57, 23.2.1998).

(2) Opinion No 4/97, paragraph 3.
(3) Synthesis report, COM(2005) 256 final of 15.6.2005.
(4) Proposed revision Recital 5: ‘The principle that other legislative acts
concerning budget implementation must comply with the Financial
Regulation should be reinforced’.

Some of the proposed amendments were initiated at the
12.
request of Commission departments in order to simplify budget-
ary management. However there is a risk of complicating man-
agement by introducing exceptions and derogations, particularly
in the areas of agriculture and research. Other proposals are either
the outcome of amendments to sectoral legislation or were pro-
vided for in the Commission’s legislative proposals for the period
2007-2013 (especially the common agricultural policy (CAP)
and research).

13.
Under these circumstances, the Court considers that
some of the principles and criteria set out by the Commission
(stability of rules, legislative changes only in essential cases where
there is no other solution, limiting any derogations from budget-
ary principles to an absolute minimum) have not been adhered to,
thus complicating the financial management before the results of
the important changes introduced by the current Financial Regu-
lation have been achieved.

14.
Notwithstanding that Article 184 of the Financial Regu-
lation provides for its review every three years, there is a need to
limit modifications to those which are strictly necessary, in order
to maintain the stability in the financial rules.

15.
The Court’s Opinion focuses on Titles I to VI of the Com-
mon Provisions since the proposed amendments to Title VII ‘Pre-
sentation of the Accounts and Accounting’ of Part One of the
Regulation (Common Provisions) and Part Three (Transitional
and Final Provisions) are mostly of a technical nature and consist
of updating provisions in the light of the accounting changes that
have taken effect since 1 January 2005. Moreover, the proposed
amendments to Part Two (Special Provisions) affect, in particular,
the budgetary principles laid down in Title II of the Common
Provisions.

Budgetary principles

The Court’s Opinions No 4/97 and No 2/2001 (5) con-
16.
cerning the Financial Regulation both recommended stricter
application of budgetary principles and limiting exceptions to the
minimum. These recommendations were adopted by the Com-
mission as a guiding principle for the current revision of the
Financial Regulation.

17.

However, the proposed changes affect the principles of:

— budgetary unity
prefinancing),

(Article 5a:

interest

generated by

— annuality (Article 149:

carrying over of non-
the
differentiated EAGF (6) appropriations; Article 160a: making
research appropriations available again; Articles 12 and 150:
advance commitment of expenditure for humanitarian aid
and the EAGF),

(5) Opinion No 4/97, paragraph 16; Opinion No 2/2001 on a proposal
for a Council Regulation on the Financial Regulation applicable to the
general budget of the European Communities, paragraph 5 (OJ C 162,
5.6.2001).

(6) European Agricultural Guarantee Fund.

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— universality (Article 18: earmarking of revenue from contri-
butions from Member States for external aid programmes
and from the sale of equipment),

— specification (Article 23: transfers from the ‘provisions’ titles;
transfers of administrative appropriations; notification pro-
cedure; Articles 26, 45 and 46: adaptations due to the abo-
lition of the reserve relating to loans and loan guarantees to
third countries),

— transparency (Article 29): extension of the deadline for pub-

lishing the budget.

18.
Although some changes are due to simplification of the
management of budgetary appropriations and introduce clarifi-
cations which are justified by specific circumstances (i.e. budget-
ary unity: interest generated by prefinancing; annuality: advance
commitments to deal with humanitarian crises), the necessity of
other exceptions is not always demonstrated. These issues are dis-
cussed below.

Principle of annuality

19.
In Opinion No 2/2001 (1) the Court expressed the view
that carrying over appropriations was not desirable under the sys-
tem of differentiated appropriations because its financial effect
was marginal and it introduced unnecessary complications into
the management systems. As a result of the approval of financial
discipline measures for direct payments under the common agri-
cultural policy (2), the Commission proposes that the possibility
of carry-over should be extended to include non-differentiated
appropriations (Article 149). This exception is not justified
because the amounts concerned are small and could therefore
easily be absorbed by the budget for the next financial year.

The Court also stated its opposition to permitting decom-
20.
mitted appropriations to be made available again (3). It considered
that such an exception to the general rule was unnecessary
because any needs in terms of appropriations could be covered by
new commitment appropriations. The proposal reduces the pos-
sibility of making appropriations available again in the case of the
Structural Funds, but opens up the possibility for research
(Article 160a). The Court considers that exceptions of this kind
are not justified because the budgetary amendments and the man-
agement mechanisms already provided under the current rules
are sufficient to cope with all eventual needs.

Principle of universality

21.
There are no proposals for amendments to deal with the
known problems in the context of buildings policy. Contrary to
the principle laid down in Article 7 of the Financial Regulation,
commitment appropriations for transactions relating to purchase

(1) Paragraph 7.
(2) OJ L 270, 21.10.2003.
(3) Paragraph 54.

or construction of buildings do not cover the total cost of the
legal commitments entered into, because administrative appro-
priations are non-differentiated appropriations under Article 179
of the same Regulation. The Court therefore reiterates its recom-
mendation (4) that differentiated appropriations should be used
for this type of operation.

the Court

As regards exceptions to the universality principle
22.
recommended in Opinion
(assigned revenue),
No 2/2001 (5) that marginal cases should not be treated as excep-
tions and should be handled in accordance with the general pro-
visions. In the Court’s opinion, the proposed amendment on the
earmarking of revenue resulting from the sale of vehicles, equip-
ment and installations or apparatus, equipment and material for
scientific and technical use (Article 18(1)(ea)) is a marginal case
for which there is no justification.

Principle of specification

23.
The proposed amendment to Article 23(1)(b) abolishes
all limits for transfers of administrative appropriations from one
title (policy area) to another, provided that the expenditure in
question is of the same nature. Contrary to the principles of the
Commission reform, the proposal breaks the link between the
activity-based budget and activity-based management, so reduc-
ing the reform to a simple change in the presentation of the bud-
get. In fact, the proposal does not take into account the fact that
when administrative appropriations are granted by the budgetary
authority for the management of activities specific to individual
policy areas (budget titles) they are related to specific objectives.
The Court recommends the Council and the Parliament to con-
sider in the context of ABB/ABM whether such a decision should
remain one for the budgetary authority.

Principle of transparency

The proposed amendment of Article 29 extends the
24.
deadline for publication of the budget by one month compared
with the current Regulation. The Court considers that any exten-
sion of the deadline for publishing the budget is contrary to the
principle of transparency and may add to the difficulty of
adequate management.

Establishment and structure of the budget

25.
The proposed amendments (Article 46) aim to distin-
guish the information that is part of the budget from other
accompanying information that is included in the preliminary
draft budget and intended as supporting information for the bud-
getary authority. The Court takes a positive view of this distinc-
tion, which particularly affects the implementation schedules for
payment appropriations. However, it is of the opinion that, tak-
ing into account the expected effect, this information should be
provided for in Article 33 of the Financial Regulation.

(4) Opinion No 4/97, Annex, paragraph 2.18.
(5) Paragraph 9.

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The Court also considers that this part of the Financial

26.
Regulation could have been more radically simplified by:

Methods of implementing the budget

— eliminating the possibility of negative reserves, which impede
the clear and accurate presentation of precisely calculated
budgetary appropriations and contravenes the principle of
transparency,

— increasing the flexibility necessary for managing staff so as to
enable the Institutions, within a budgetary allocation of staff
costs, to choose the most appropriate mix of staff and to
recruit those with the necessary skills for certain functions,

— revising the budgetary nomenclature to one where the small-
est subdivision would be the chapter so as to allow greater
management flexibility thereby avoiding the burden of trans-
fers below that level.

Implementation of the budget

The proposed changes to Title IV of the Financial Regu-

27.
lation aim, in particular:

— to clarify and define more precisely the roles and responsi-
bilities of the persons involved in the various methods of
implementing the budget: shared, decentralised, joint, cen-
tralised and indirect management (Articles 52 to 57),

— to define clearly the responsibilities of the Authorising Offic-
ers and Accounting Officers in respect of accounting infor-
mation (Articles 60 and 61),

— to align the rules on the financial responsibility of the finan-
cial actors more precisely with the rules laid down in the pro-
visions concerning persons employed by the Communities
(Article 66),

— to ensure better protection of the financial interests of the
Community via the strengthening of the rules for the recov-
ery of amounts receivable (Articles 72 and 73).

Most of the description of roles and responsibilities of
28.
persons involved in the various methods of implementing the
budget was already in the current Financial Regulation and the
sectoral regulations and has now been consolidated in the Com-
mission proposal. While the Court welcomes the Commission’s
initiative in trying to systematise this information, it considers
that it would have been appropriate for the Commission to take
this opportunity to make provision for an integrated Community
internal control framework (1) in the Financial Regulation.

Role of the Accounting Officer: reliability of the accounts

29.
The Court welcomes the Commission proposal to clarify,
the roles and responsibilities of the various financial actors in
respect of the establishment of the accounts by providing for cer-
tificates to be delivered by the Authorising Officers by delegation
and by the Accounting Officers as follows:

— the Authorising Officers by delegation shall report to their
Institutions on the performance of their duties in the form of
an annual activity report together with financial and manage-
ment information and a declaration of assurance certifying
that the information contained in the report presents a true
and fair view (2),

— the Accounting Officers of the Institutions and by analogy of
the Community bodies, shall prepare the accounts on the
basis of information provided and certified by the Authoris-
ing Officers. 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 of the Financial
Regulation and with the accounting principles, rules and
methods set out in annex to the financial statements (3),

— the Commission’s Accounting Officer shall furthermore pre-
pare the final consolidated accounts on the basis of the infor-
mation presented by the other Institutions. The final consoli-
dated 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 (4).

These clarifications and the increased precision are positive steps
towards improving financial management. However, the Court
considers them to be insufficient as regards the following aspects.

(1) Opinion No 2/2004.
(2) Commission proposal on Article 60(7).
(3) Commission proposal on Article 61(2a).
(4) Commission proposal on Article 129(2a).

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According to Article 61(1)(e) of the current Financial
30.
Regulation, the Accounting Officers are responsible for validat-
ing the systems laid down by the Authorising Officers to supply
or justify accounting information. In order for the Accounting
Officers to be in a position to certify that the accounts present a
true and fair view as provided by Article 123 of the current Finan-
cial Regulation, such validation should cover the effective func-
tioning of systems over the period concerned and thus the reli-
ability of the data produced and not only the introduction or
modification of such systems as is the current practice. There is a
risk that, in the case of the Institutions’ accounts (1), drawing up
the accounts may become limited to simple mechanical compi-
lation, the result of accounting procedures established for this
purpose, or, in the case of the consolidated accounts, the process
will be one of simple aggregation, instead of consolidation. The
Court considers that Article 61(1)(e) of the Financial Regulation
should clarify that the Accounting Officers are empowered to vali-
date the effective functioning of such systems.

31.
The Commission proposes (Article 185), that the role of
the Commission’s internal auditor services is henceforth limited
to certifying that the agencies’ internal audit function operates in
accordance with international audit standards. Given the require-
ment to consolidate the Community bodies’ accounts with those
of the Institutions, this situation entails loss of the direct indepen-
dent information currently available to the Commission in respect
of the reliability of these agencies’ accounts, despite their drawing
administrative subsidies from the Commission budget and, in
some cases, managing sizeable operational appropriations.

Responsibilities of the financial actors

32.
The proposed amendment to Article 66 relegates to the
Staff Regulations the requirement on liability for payment of
compensation. The Court has already given the opinion (2) that
the provisions and mechanisms laid down in the Staff Regulations
do not deal adequately with the issue of the financial actors’ liabil-
ity for payment of compensation. In order to ensure that the rules
are effectively applied without over-burdening Community man-
agement with procedural rules that aim to protect the financial
actors responsible, the invoking of their liability for payment of
compensation should be subject to the principle of proportion-
ality. A distinction should therefore be made between:
intentional/fraudulent behaviour, serious negligence, simple neg-
ligence and error. The circumstances governing the action of
financial actors — such as the resources that are available to them
to fulfil their obligations — should also be taken into account.

Interinstitutional cooperation

33.
Without wishing to call into question the legislative sta-
bility required for the basic principles and rules of budgetary and
financial management, the Court considers that more advantage
could be taken of interinstitutional cooperation, in order to avoid

(1) Annual Report 2003, paragraph 1.26 (OJ C 293, 30.11.2004).
(2) Opinion No 4/97, Annex, paragraph 5.20; Opinion No 2/2001, para-

graph 24.

unnecessary bureaucracy, for the small Institutions in particular.
Thus, a common irregularities panel covering several Institutions
could be introduced.

Procurement

34.
The amendments proposed in the area of procurement
aim, amongst other things, to adapt the rules of the Financial
Regulation to the provisions of Directive 2004/18/EC of the
European Parliament and of the Council of 31 March 2004 on
the coordination of the procedures for the award of public works
contracts, public supply contracts and public service contracts (3)
(the Directive). In the case of exclusion criteria, the adaptation
also simplifies and relaxes the documentary requirements for ten-
derers (Article 93).

35.

The amendments also aim to:

— dispense with the requirement for each Institution to keep its
own database concerning tenderers excluded from participa-
tion in a procurement procedure (Article 95), by providing
for the possibility of several Institutions sharing a common
database,

— extend to other fields the simplified regime for appointing

experts in the research area (Article 97),

— clarify the cases where procurement procedures may be sus-
pended or the performance of contracts halted in the event
of fraud (Article 103).

As the Court states in Opinion No 3/2005 (4), it takes a
36.
favourable view of the modernisation and simplification of pub-
lic procurement procedures, but considers that this simplification
should follow the terms of the Directive more strictly and exclude
the possibility of awarding authorities making use of unjustified
discretionary powers.

Cases of exclusion

37.
The Directive differentiates between exclusion criteria on
the basis of their severity and allows the least important criteria
to be disregarded by the Member States. It specifies that rules are
necessary on this point (5). The Court considers that the require-
ment in Article 93 for an analysis of risks to be carried out by the
contracting authority is insufficient and recommends that further
clarification be included in the Financial Regulation itself or in its
implementing rules.

(3) OJ L 134, 30.4.2004.
(4) Opinion No 3/2005 on the draft Regulation (EC) of the Commission
amending Regulation (EC, Euratom) No 2342/2002 of 23 December
2002 laying down detailed rules for the implementation of Council
Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the
Financial Regulation applicable to the general budget of the European
Communities, paragraphs 7 to 14 (OJ C 124, 23.5.2005).

(5) The end of Article 45(2), ‘Member States shall specify, in accordance
with their national law and having regard for Community law, the
implementing conditions for this paragraph’.

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The appointment of experts

38.
The proposal aims to extend the simplified scheme for
appointing experts in the research field to other areas by amend-
ing the provisions on procurement. However, the simplified
scheme for research (1) concerns the recruitment and appoint-
ment of experts. These procedures are closer to the rules on the
recruitment of other Community employees than to those on
public contracts. In actual fact, as the explanatory memorandum
accompanying the draft regulation recognises, awarding a con-
tract only on the basis of candidates’ capabilities without any con-
sideration for price (proposed amendments to Article 97(2) of the
Financial Regulation) diverges from the principles of the Direc-
tive and the Financial Regulation itself as regards service contracts.

Interinstitutional cooperation

39.
The creation of common databases of cases of exclusion
to be shared between different Institutions (proposed amendment
to Article 95 of the Financial Regulation) is an example of inter-
institutional cooperation. It would be useful to envisage other
possibilities of intensifying such cooperation covering the Insti-
tutions and Community bodies in order to avoid unnecessary rep-
etition of administrative work. The possibility of utilising con-
tracts concluded by other Institutions or bodies under certain
conditions and/or quantitative limits that safeguard the principles
of competition and equality of opportunity should be examined.
For contracts covering a number of Institutions, the possibility of
delegating some of the contracting authority’s responsibilities
(namely, the opening and evaluation of tenders) to another Insti-
tution or body could also be envisaged.

Grants

40.
include:

The amendments proposed to the articles under this title

— widening the

concept of grants

equity
investments/participations which have an aid function but
which usually
Institutions
(Article 108),

to include

assets of

constitute

the

— the possibility of significant exceptions to the non-profit

principle (Article 109),

— the possibility of derogations from the principle of non-
cumulation of aid financed by several budget headings when
the basic acts so provide (Article 111),

— clarifications and explanations regarding actual practice,

The Court welcomes the clarifications, explanations and
41.
simplifications proposed, but considers that some of the excep-
tions and derogations to the non-profit and non-cumulation prin-
ciples and in the procurement context are not really justified,
because:

(a)

could entail

they
management;

additional

risks

and complicate

(b) verification might be problematic in some cases;

(c)

simpler solutions could have been found.

The non-profit principle

42.
The current implementing rules already provide some
exceptions to the non-profit principle. These have been included
in the proposed amendments to Articles 109 and 113a:

— scholarships paid to private individuals,

— prizes awarded in competitions,

— actions with the objective of reinforcing the financial capac-

ity of beneficiaries,

— reimbursement of a specified proportion, flat rates and lump

sums.

43.
In a previous Opinion (2), the Court has already pointed
out the difficulty of verifying compliance with the non-profit
principle in cases where organisations obtain grants from mul-
tiple sources.

44.
Moreover, the amendment to Article 109 proposes to
apply the non-profit principle at the level of an action rather than
at the level of each beneficiary individually. The Court considers
that such a change will open up the possibility for abuse in the
context of multipartner actions. As a consequence it will in future
be permissible for grants towards multipartner actions to gener-
ate profits for some beneficiaries.

45.
In addition, only part of the strict conditions imposed by
the current implementing rules as regards certain exceptions has
been included in the proposed amendments:

— a rule excluding the grant of surplus revenue to the members
leading to their personal

of beneficiary organisations,
enrichment,

— simplification with regard to management of aid (flat-rate
amounts) (Article 113a), obligations of beneficiaries and
management procedures (exclusion situations, evaluation of
applications, application of the principles concerning pro-
curement) (Articles 114, 116 and 120).

— a limitation, in the case of flat-rate amounts, to contributions

lower than 5 000 euro,

as the Commission intends to provide more detail in the imple-
menting rules.

(1) Regulation (EC, Euratom) No 1605/2002, Article 160, and Regulation

(2) Opinion No 2/2001, comments to Article 102(2)

(OJ C 162,

(EC) No 2321/2002, Article 11 (OJ L 355, 30.12.2002).

5.6.2001).

C 13/8

EN

Official Journal of the European Union

18.1.2006

Non-cumulation principle

46.
The Commission justifies the possibility of a measure
being awarded several grants of aid from the Community budget
(Article 111) on grounds of the situation prevailing in the area of
structural measures and trans-European networks. This exception
is subject to a rule excluding double financing of the same costs.

47.
However, recent audits by the Court on this subject iden-
tified the risk of aid exceeding 100 % of the costs funded and, in
the area of research, non compliance with the applicable thresh-
old for State aid (1). The cumulation of aid may also, in fact, entail
a duplication of administrative work, contrary to the objective of
simplifying management, in particular where differences exist in
the eligibility criteria.

48.
The Court concludes that it would be preferable to con-
tinue to apply the principle of ‘one measure — one Community
aid’:

— by providing that the rate of subsidy may cover aspects of
several Community policies — provided that the rate does
not exceed 100 % of the eligible costs incurred and/or the
thresholds applicable under the State aid rules,

— by improving interdepartmental coordination of Community

interventions.

Procurement contracts

49.
Lastly, the Court considers that the proposed amendment
to Article 120(1) is not justified. Where implementation of a mea-
sure makes it necessary for the beneficiary to award contracts,
taking into account the Community funding, it is, in fact, normal
to require compliance with the principles set out in Title V of the

Financial Regulation (namely, equal treatment for all tenderers,
competition and transparency). On this basis the implementing
rules should provide for simplified procedures depending on the
size of the contract.

Conclusion

50.
As the previous financial management reform is too
recent to have been able to achieve all its objectives, there is no
justification for the scale of the revision proposed by the Com-
mission. The extent of the revision and the contents of some
amendments risk complicating management unnecessarily.

51.
This applies particularly in the case of the new exceptions
to budgetary principles that have been introduced in response to
difficulties experienced by some Commission departments and as
a result of amendments to sectoral regulations. The Court con-
siders that most of these needs could be resolved within the
framework of the current Financial Regulation.

52.
The steps taken to simplify financial management in the
areas of procurement and grants and the effort made to protect
the Communities’ financial interests (proposed amendments con-
cerning recoveries, suspension or implementation of contracts,
sanctions)
financial
management.

represent

progress

towards

better

transactions

53.
Nevertheless, the proposed revision does not provide the
solution to certain management needs (flexibility in the manage-
ment of employees,
involving the purchase/
construction of buildings, clarification of the responsibilities of
the financial actors). In other cases, the amendments proposed are
not radical enough to resolve the problems to which they are try-
ing to respond (methods of implementing the budget, role of the
Accounting Officer). Furthermore, the Court considers that
greater use should have been made of the possibilities of interin-
stitutional cooperation.

This Opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 7 Decem-
ber 2005.

For the Court of Auditors
Hubert WEBER
President

(1) Community framework for State aid for Research & Development
(OJ C 83, 11.4.1986), revised in 1996 (OJ C 45, 17.2.1996) and 1998
(OJ C 48, 13.2.1998). Its applicability was extended to 30 June 2002
and 31 December 2005, by Commission Communications
2001/C 78/15 and 2002/C 111/03 respectively.