Resolution of the European Parliament of 24 April 2007 with observations forming an integral part of the Decision on the discharge for implementation of the budget for the Sixth, Seventh, Eighth and Ninth European Development Funds for the financial year 2005
Date: 2008-04-24
Institutions: European Parliament
Subjects: European Development Fund, budgetary discharge, financial year, implementation of the budget

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RESOLUTION OF THE EUROPEAN PARLIAMENT

of 24 April 2007

with observations forming an integral part of the Decision on the discharge for implementation of
the budget for the Sixth, Seventh, Eighth and Ninth European Development Funds for the financial
year 2005

THE EUROPEAN PARLIAMENT,

— having regard to the Commission report on the follow-up to the 2004 discharge decisions (COM(2006)

0641 and its annex SEC(2006) 1376),

— having regard to the financial statements and revenue and expenditure accounts for the Sixth, Seventh,
Eighth and Ninth European Development Funds for the financial year 2005 (COM(2006) 0429 —
C6-0264/2006) (1),

— having regard to the report on the financial management of the Sixth, Seventh, Eighth and Ninth

European Development Funds for the year 2005 (COM(2006) 0405),

— having regard to the Court of Auditors' annual report on the activities funded by the Sixth, Seventh,
Eighth and Ninth European Development Funds for the financial year 2005, together with the audited
institutions' replies (2),

— having regard to the statement of assurance as to the reliability of the accounts and the legality and
regularity of the underlying transactions provided by the Court of Auditors pursuant to Article 248 of
the EC Treaty (3),

— having regard to the Council's Recommendations of 27 February 2007 (6061/2007 — C6-0094/2007,
6062/2007 — C6-0095/2007, 6063/2007 — C6-0096/2007, 6064/2007 — C6-0097/2007),

— having regard to Article 33 of

the Internal Agreement of 20 December 1995, between the
representatives of the governments of the Member States meeting within the Council, on the financing
and administration of the Community aid under the Second Financial Protocol to the fourth ACP-EC
Convention (4),

— having regard to Article 32 of

the Internal Agreement of 18 September 2000, between the
representatives of the governments of the Member States meeting within the Council, on the financing
and administration of Community aid under the Financial Protocol to the Partnership Agreement
between the African, Caribbean and Pacific States and the European Community and its Member States
signed in Cotonou (Benin) on 23 June 2000, and the allocation of financial assistance for the Overseas
Countries and Territories to which Part Four of the EC Treaty applies (5),

— having regard to Article 276 of the EC Treaty,

— having regard to Article 74 of the Financial Regulation of 16 June 1998 applicable to development

finance cooperation under the fourth ACP-EC Convention (6),

— having regard to Article 119 of the Financial Regulation of 27 March 2003 applicable to the Ninth

European Development Fund (7),

— having regard to Rules 70 and 71, third indent, of and Annex V to its Rules of Procedure,

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

on Development (A6-0115/2007),

(1) OJ C 265, 31.10.2006, p. 1.
(2) OJ C 263, 31.10.2006, p. 205.
(3) OJ C 263, 31.10.2006, p. 213.
(4) OJ L 156, 29.5.1998, p. 108.
(5) OJ L 317, 15.12.2000, p. 355.
(6) OJ L 191, 7.7.1998, p. 53.
(7) OJ L 83, 1.4.2003, p. 1.

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A. whereas Article 119 of the Financial Regulation of 27 March 2003 requires the Commission to take all
appropriate steps to act on the observations accompanying the Decision giving discharge and to report,
at the request of the European Parliament, on the measures taken in the light of those observations and
comments,

B.

whereas the Partnership Agreement between the members of the African, Caribbean and Pacific Group
of States, of the one part, and the European Community and its Member States, of the other part, signed
in Cotonou on 23 June 2000 (8), was revised by the agreement signed in Luxembourg on 25 June
2005 (9),

The statement of assurance

1. Notes that, notwithstanding the problems detailed below, the European Court of Auditors (ECA) is of the
opinion that the accounts reliably reflect the revenue and expenditure relating to the Sixth, Seventh,
Eighth and Ninth European Development Funds (EDFs):

a)

the inability of the existing IT system to provide full accounting information;

b)

incomplete information on bank guarantees, resulting in an understatement of guarantees of 4 %;

2. Notes that, with regard to the underlying transactions, the ECA is of the opinion that the revenue, EDF

allocations, commitments and payments are, taken as a whole, legal and regular;

3.

the total allocations consist of programmable aid,

Recalls that about half of
intended for the
implementation of projects; observes that these funds are implemented in two steps: the Commission
takes the financing decision — shown in the accounts as financial commitment; the conclusion of
contracts — shown in the accounts as individual legal commitments — and the authorization of
payments are carried out by the national authorising officer (NAO) of the country concerned,
in
accordance with the financing agreement between the Commission and that particular country;

4. Highlights that the ECA observed an increased risk of errors affecting transactions that fall within the
responsibility of the NAOs; notes that, as regards individual legal commitments, the errors detected
concerned, for example, the use of appropriate tendering procedures, in particular under the programme
estimates and grant agreements, banking guarantees and the failure to meet deadlines for starting the
implementation of programmes; observes that, with regard to payments, errors concerned the amounts
of payments and other errors such as non-compliance with contractual obligations;

5.

6.

Recognises, in line with the ECA, the Commission's efforts to build the NAOs' management capacity by
providing technical assistance, equipment and training; is however worried that the ECA may judge the
results of these efforts to be variable; requests the Commission to refine its support strategy as regards
problematic cases;

Enhancing accountability in the Commission's management of EDF funds

Recalls that, in the previous discharge Resolution, Parliament called upon the Commission to clarify the
breakdown of the Commissioners' responsibilities as regards the EDF and external aid; is conscious of the
Commission's position that the division of responsibilities, despite a certain complexity due to the need
for coordination of different Commission services, works well in practice; nevertheless, calls upon the
Commission to reflect on possible ways to simplify the current management structure in order to
minimise the risk of ambiguities as regards responsibilities for the EDF;

(8) OJ L 317, 15.12.2000, p. 3.
(9) OJ L 287, 28.10.2005, p. 4.

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Stepping up democratic control over EDF funds managed by the European Investment Bank

7. Notes that, out of the total initial allocation of the Ninth EDF, which amounts to EUR 13 800 million,
the European Investment Bank (EIB) is responsible for EUR 2 200 million, which is spent through the
EDF investment facility; observes that the investment facility is neither covered by the ECA's statement of
assurance nor by the Parliament's discharge procedure;

8.

9.

Proposes that the EIB give an account of its management of the EDF investment facility before
Parliament's Committee on Budgetary Control and points out that, pursuant to Title VII of the Financial
Regulation applicable to the Ninth EDF, the EIB-managed EDF accounts are subject to examination by the
ECA;

Reiterates the view taken in previous discharge Resolutions that there is a certain discrepancy in the
current EDF Financial Regulation as regards the EDF accounts: whereas, in the course of the discharge
procedure, the Commission presents the consolidated EDF accounts to Parliament including the financial
statements and information supplied by the EIB, Parliament subsequently only examines the accounts
excluding the information provided by the EIB;

10. Recalls that the ECA, in its Opinion No 12/2002 (10), regretted that the EDF operations managed by the
EIB were not subject to a discharge procedure involving the Parliament and the Council; supports the
ECA's arguments that those operations were conducted by the EIB on behalf of and at the Community's
risk and that, in the beginning, the funds for those operations were contributed by European taxpayers
and not by the financial markets;

11.

Is convinced that transparency and democratic control over EDF funds managed by the EIB would be
strengthened if these operations were subject to a discharge procedure involving the Parliament and the
Council; calls on Member States, the Commission and the EIB to address this issue during the
forthcoming revision of the EDF Financial Regulation;

Tackling resource constraints

12. Concludes once again that integration of the EDF into the EU budget would enhance the overall
consistency of European development cooperation, ensure greater transparency and effectiveness and
facilitate democratic scrutiny;

13.

Is concerned that the Commission, in its financial management report, indicates that, due to resource
constraints, some areas of financial control were overlooked, with the monitoring of Stabex programmes
and the implementation of ex post controls constituting appropriate examples; furthermore notes that
annual activity reports by both DG AIDCO (EuropeAid) and DG Development predict a shortage of staff
in the face of significant increases in workload during the coming years;

14. Notes that the Commission uses benchmarks derived from the comparison with other donors, and that
the Commission has set itself the target of maintaining a ratio of 4,5 staff per EUR 10 million of
assistance; is of the opinion that the fact of reaching a certain overall ratio of staff per EUR 10 million of
assistance cannot in itself give the discharge authority sufficient assurance that implementation and
financial control do not suffer from the existing shortage of staff as recognised by the Commission itself;

15. Requests, in line with the ECA, that the Commission, in its financial management report for 2006,
indicates the priorities which have been established as a result of the existing resource constraints and the
impact on the implementation of the EDFs;

16. Calls upon the Commission to review its audit strategy and to reorganise existing audit structures and
staff and, not least in view of the possible resource constraints, to consider closer cooperation with
national experts from the Member States' administrations in the financial management of EDF funds in
general and the extended use of well known and highly reputable private enterprises from the Member
States in the execution of programmes and individual projects;

(10) OJ C 12, 17.1.2003, p. 19.

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Building solid IT systems for accounting and management purposes

17. Shares the ECA's concerns with regard to the fact that the current accounting system did not deliver full
accounting information for the financial year 2005 and that, therefore, the accounts had to be
complemented manually in order to comply with accrual accounting principles;

18.

Is worried about the result of an audit of EuropeAid's local IT system carried out by EuropeAid's internal
audit capacity, stating that application controls were adequate, but that system administration and system
security only met the minimum standards according to ‘leading practices’;

19. Notes that the management of EDF funds will be migrated to the same IT system used for the
management of development aid financed from the general budget (CRIS — ABAC); observes that the
migration has been delayed and is now scheduled to be carried out by the end of 2007, on time for the
start of the Tenth EDF in 2008; calls upon the Commission to inform Parliament about the results of the
migration process; expects the Commission to ensure that during the migration process complete and
reliable accounting information be provided to the ECA and the discharge authority;

20. Welcomes the Commission's willingness to inform Parliament about the integration of the financial
administration of the EDF into the Common RELEX Information System (CRIS) in July and then again in
September;

21. Supports the Commission's intention to improve EuropeAid's IT system not only as regards its
functioning as an accounting tool, but also as a management tool; requests the Commission, in this
context, to pay particular attention to an improved and coherent follow-up of audit findings;

Evaluating the impact of EU funding of development aid through the EDF

22.

Is convinced that measuring the output of EU development aid funded through the EDF requires — as a
first step — that the Commission work with the partners in the beneficiary countries towards setting as
precise objectives as possible, which allow for progress to be easily and exactly measured at each stage of
implementation;

23. Notes that the Commission, in its follow-up to the 2004 discharge which was presented in October
2006, indicates that, with regard to the 2007-2013 round of country programming, it is in the process
of developing recommendations for the use of meaningful
indicators in each of the domains of
concentration covered by the programming documents;

24. Considers that it is crucial that meaningful performance indicators be included in the programming
process right from the beginning; calls upon the Commission to indicate, in its financial management
report for 2006, to what extent the recommendations for the setting of performance indicators have
been implemented in time in the programming process for the period 2007-13;

25. Expects the Commission to instruct its delegations in the beneficiary countries as a general rule to spell
out in its reports the practical results of the deployment of EU funds so that the Commission can gauge
and publicise the results of EU development cooperation;

Further improving the implementation of EDF funds

26.

Is hopeful that the forecast in the performance assessment will come true, stating that all funds of the
Ninth EDF will be committed by the end of 2007 when the Ninth EDF expires; requests the Commission
to inform Parliament, in time for the discharge concerning the financial year 2006, about the evolution
of the commitments concerning the Ninth EDF, the situation with regard to previous EDFs and the
situation with regard to payments;

27. Recalls that the reduction of outstanding commitments (reste à liquider (RAL)) has been a long-standing
concern of Parliament in previous discharge exercises; supports the Commission's recent initiatives to
in 2006, the RAL was reduced for the first time and now stands at
reduce the RAL; notes that,
EUR 10 324 million; notes that the ‘old’ RAL, i.e. commitments which are over five years old, has been

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reduced from EUR 1,62 billion to EUR 867 million; notes that the dormant commitments, i.e. those for
which no contract has been signed and for which no payments have been made over the last two years,
have been reduced from EUR 350 million to EUR 285 million; requests the Commission to pursue its
efforts to reduce the RAL and to report back, in detail, to the discharge authority on progress made;

28. Notes that the report on financial management for the financial year 2005 was forwarded late; expects
the Commission to provide, in its financial management report for the financial year 2006, more detailed
information as requested by the ECA, in particular information on the strategy to reduce the level of
dormant commitments;

29. Welcomes the fact that the share of EU funding spent on the basic health and basic education sectors was
raised from 4,98 % to 6,83 %; regrets however the fact that this share is still far removed from the 20 %
target which it set in the 2005 budget; cannot accept the fact that the Commission is using the legitimate
and necessary objective of better donor coordination and work-sharing between donors as an excuse for
too low a level of investment in the basic health and basic education sectors and urges it to adopt
measures forthwith to achieve the 20 % target and inform Parliament in writing at least twice a year
about the progress of implementation and about the factors taken into account in the calculation;

30. Regrets the fact that the Commission has not so far developed any comprehensive strategy together with
the beneficiary countries for making the health and education sectors priorities in the new country
strategy papers;

31. Further regrets that, despite assurances to the contrary from the Commission, country strategy papers
currently under preparation generally lack a clear Millenium Development Goal (MDG) profile, not to
mention specific targets and timetables for achieving each MDG, and fail to treat adequately the
Community's contribution to achieving them;

32. Calls on the Commission to keep a closer watch on the emigration of skilled labour from developing
countries to EU countries and to propose appropriate measures for enabling skilled people from
developing countries to remain in, or return to, their home countries so that action by donors, for
example in the health and education sectors, can be of long-term and effective benefit in combating
poverty in the developing countries;

33. Welcomes the Commission's efforts to implement the strategy for incorporating the environment into
development cooperation, and calls on the Commission to continue to press ahead with the
environmental dimension in development policy,
including measures to promote environmentally
friendly energy supply;

Ensuring sound financial management with regard to budget support

34. Observes that the Commission considers budget support granted to the beneficiary countries to be an
ever more important tool for efficient delivery of development policies; notes that the share of EDF
commitments in the field of general and sectoral budget support rose considerably, from 18 % in 2004
to 32 % in 2005;

35. Points out that the ECAs' control powers in the field of budget support are limited; quotes the example
that, with regard to the legality and regularity of underlying transactions, the ECA can only verify that the
relevant conditions have been properly assessed by the Commission; therefore, strongly supports the
ECAs' request that the Commission should set out in a structured and detailed manner, in its financial
management report for 2006, the criteria leading to the Commission's conclusions on the relevant
country's eligibility for budget support; welcomes the Commission's commitment to provide the
information requested;

36. Reiterates that Parliament, in line with the ECA, attaches great importance to the role of national supreme
audit institutions (SAIs) in countries which are the recipients of budget support; insists on receiving, as
requested in the previous discharge resolution, the Commission's assessment of the different possibilities
for the European Community to cooperate with those SAIs;

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37. Welcomes the Commission's initiative to support twinning projects involving national experts from
Member States' SAIs and SAIs in budget support recipient countries, such as the cooperation between the
UK National Audit Office and the Ghana Audit Office; asks the Commission to further explore the use of
expertise of Member States' SAIs in order to step up public financial control in the partner countries;

Supervisory and control systems

38. Notes the ECAs' view that a coherent overall control strategy with regard to the management of EDF
funds and external aid has yet to be established; welcomes the ECAs' concrete recommendations for
elements to be included in this strategy; observes that the Commission's Action Plan towards an
Integrated Internal Control Framework (11) envisages common guidelines which are to be established for
each policy family and that this should result in clearer and more coherent reporting in the annual
activity reports; recognises the Commission's willingness to further improve the supervisory and control
systems and the concrete measures it proposed in this respect; asks the Commission to report, in the
light of the ECAs' concrete recommendations, on the progress achieved in the forthcoming annual
activity reports;

39. Welcomes the fact that the ECA has recorded an improvement in the Commission's supervisory and
control systems; regrets however the fact that this improvement does not extend to supervision, control
and audit of the implementing institutions; considers it unacceptable that, as a result, such a large
number of material errors continue to occur at a central point in the chain between the European
taxpayer and the final beneficiary in the developing country;

40. Calls on the Commission to develop and implement a comprehensive approach towards supervision,
control and audit of the implementing organisations so as to ensure the proper application of contractual
procedures by the implementing organisations, which has too often not been the case hitherto;

41. Calls on the Commission, with a view to improving financial supervision, to ensure that EuropeAid
provides better support for the operational financial personnel
in delegations and central services,
arranges for better risk analysis focusing on particularly high-risk sectors and more monitoring visits,
achieves better central supervision of performance and follow-up of external audits initiated by
delegations and central services and initiates fewer ex post verifications while at the same time improving
their scope, timing and quality control;

42.

In general, strongly supports the ECAs' request that the Commission should set out in detail how it has
followed up the ECAs' audit findings in the annual activity reports and in the reports on financial
management of the EDF funds.

(11) OJ C 67, 18.3.2006, p. 32.