Report on the annual accounts of the European Agency for Reconstruction for the financial year 2007 together with the Agency's replies
Date: 2008-09-18
Institutions: European Court of Auditors
Subjects: European Agency for Reconstruction, European Court of Auditors, administration of the Institutions, financial control, implementation of the budget, powers of the institutions (EU), report

C 311/42

EN

Official Journal of the European Union

5.12.2008

on the annual accounts of the European Agency for Reconstruction for
the financial year 2007 together with the Agency’s replies

REPORT

(2008/C 311/07)

CONTENTS

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

STATEMENT OF ASSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-2

3-6

7-9

Tables 1 to 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Agency’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43

43

43

45

49

Paragraph

Page

5.12.2008

EN

Official Journal of the European Union

C 311/43

INTRODUCTION

The Court has thus obtained a reasonable basis for the

6.
statement set out below:

established

by Council Regulation

1.
The European Agency for Reconstruction (hereinafter the
(EC)
Agency) was
No 1628/96 (1), as last amended by Council Regulation (EC)
No 1756/2006 of 28 November 2006 (2). When it was set up in
2000, the Agency was responsible for managing the EU’s aid pro-
grammes in Kosovo. Its mandate was later extended to Serbia and
Montenegro and the former Yugoslav Republic of Macedonia.
The Agency’s head office is in Thessaloniki and it has operational
centres in Belgrade, Podgorica, Pristina and Skopje. It implements
programmes to foster institution-building and good governance,
to promote the development of a market economy and essential
infrastructure and to consolidate civil society. Its mandate is
scheduled to end on 31 December 2008.

2.
Table 1 summarises the Agency’s competences and activi-
ties. Key data taken from the financial statements drawn up by the
Agency for the financial year 2007 are presented inTables 2, 3
and 4 for information purposes.

Reliability of the accounts

The Agency’s accounts for the financial year ended 31 Decem-
ber 2007 are, in all material respects, reliable.

Legality and regularity of the underlying transactions

The transactions underlying the Agency’s annual accounts,
taken as a whole, are legal and regular.

The observations which follow do not call the Court’s state-
ment into question.

STATEMENT OF ASSURANCE

OBSERVATIONS

3.
This statement is addressed to the European Parliament
and the Council in accordance with Article 185(2) of Council
Regulation (EC, Euratom) No 1605/2002 (3). It was drawn up fol-
lowing an examination of the Agency’s accounts, as required by
Article 248 of the Treaty establishing the European Community.

The Agency’s accounts for the financial year ended
4.
31 December 2007 (4) were drawn up by its Director, pursuant
to Article 8(2) of Council Regulation (EC) No 2667/2000 (5), and
sent to the Court, which is required to give a statement of assur-
ance on their reliability and on the legality and regularity of the
underlying transactions.

The Court conducted its audit in accordance with the IFAC
5.
and ISSAI (6) International Auditing Standards and Codes of Eth-
ics, insofar as these are applicable in the European Community
context. The audit was planned and performed to obtain reason-
able assurance that the accounts are reliable and that the under-
lying transactions are legal and regular.

(1) OJ L 204, 14.8.1996, p. 1.
(2) OJ L 332, 30.11.2006, p. 18.
(3) OJ L 248, 16.9.2002, p. 1.
(4) These accounts were drawn up on 10 July 2008 and received by the

Court on 16 July 2008.
(5) OJ L 306, 7.12.2000, p. 7.
(6) International Federation of Accountants (IFAC) and International Stan-

dards of Supreme Audit Institutions (ISSAI).

7.
The Agency’s 2007 budget amounted to 250,2 million
euro, as compared with 268,8 million euro for the previous year.
Although the rate of implementation of the budget at year end
was satisfactory, they were still unused budgetary appropriations
(453 million euro) for operating activities: 163 million euro yet
to commit and 290 million euro to cover payments on existing
commitments. Due to the multiannual character of the Agency’s
activities, part of these amounts will have to be implemented in
the years beyond 2008 which is the last year of existence of the
Agency.

The Agency’s mandate expires on 31 December 2008. On
8.
24 April 2008 the European Commission adopted a Decision
concerning the handover of programmes previously delegated to
the Agency and on 11 June 2008 issued an instruction and guid-
ance note on the transfer of programme/contract files. This guid-
ance note does not cover all items on the Agency’s Balance Sheet.
To formalise the transfer of all programmes and items a Memo-
randum of Understanding should be signed between the Agency
and the Commission and endorsed by the Agency’s Governing
Board. This Memorandum will facilitate the transfer of items and
ensure that they are reflected correctly on the Agency’s accounts.

C 311/44

EN

Official Journal of the European Union

5.12.2008

The accumulated surplus of 180 million euro shown on
9.
the Balance Sheet at 31 December 2007 mostly reflected the
funds received from the Commission for the pre-financing

payments made by the Agency under contracts and grant agree-
ments. These will also have to be taken over and managed by the
European Commission at the end of the Agency’s mandate.

This report was adopted by the Court of Auditors in Luxembourg at
18 September 2008.

its meeting of

For the Court of Auditors
Vítor Manuel da SILVA CALDEIRA
President

Table 1

European Agency for Reconstruction (Thessaloniki)

.

.

5
1
2
2
0
0
8

Areas of Community
competence deriving
from the Treaty

The
Community
out,
carry
shall
within its spheres of
competence,
eco-
nomic,
financial
and technical coop-
eration measures
with third countries.
measures
Such
must be
comple-
mentary to those
carried out by the
Member States and
consistent with the
development policy
of the Community.

(Article 181a)

Competences of the Agency as defined in Council Regulation (EC)
No 2667/2000 of 5 December 2000

Governance

Resources available to
the Agency in 2007
(2006)

Activities and services provided in 2007

Objectives

Application

Tasks

— To advise the
Commission of
priority needs;

— To devise pro-
grammes
for
reconstruction
and the return
of refugees and
displaced per-
sons;

— To take every
possible step to
implement EU
assistance.

The agency manages
the principal aid pro-
grammes in Serbia
and
Montenegro
(Republic of Serbia,
Kosovo and Repub-
lic of Montenegro)
and in the Former
Yugoslav Republic
Macedonia
of
(FYROM). Beneficia-
ries may
include
States, bodies under
UN administration,
ferated regional and
local bodies, public
and
semi-public
bodies, both sides of
business
industry,
organisa-
support
tions, cooperatives,
mutual companies,
charities,
founda-
tions and NGOs.

To provide EU assis-
tance:

(i)

(ii)

(iii)

for reconstruc-
tion and the
return of refu-
gees and dis-
placed persons;

to
promote
sound adminis-
tration,
stron-
ger institutions
and the rule of
law;

to support the
development of
market
a
and
economy
investment
in
essential physi-
infrastruc-
cal
ture
and
environmental
measures;

(iv)

to
support
social develop-
ment and con-
solidate
civil
society.

1. Governing
Board

Comprises one rep-
resentative
from
each MemberState,
two representatives
from the Commis-
sion and an observer
from the European
Investment Bank.

2. Director

Appointed by the
Governing Board on
a proposal from the
Commission. Opera-
in
tional Centres
Belgrade,
Pristina,
and
Podgorica
Skopje with a high
level of management
autonomy.

3. External con-
trol

Court of Auditors.

Final Budget:

By operational centre (main developments):

250,2 million euro
(268,8 million euro)

KOSOVO:

Staff at 31 Decem-
ber 2007:

108 (108) TA posts
listed in the estab-
lishment plan

TA posts occupied:
83 (90)

Other posts:

Local
165
staff:
(164) posts of which
154
(157) were
occupied.

staff:
Contract
29(29)
of
which 27 (26) were
occupied.

posts

Total staff: 264 (273)

Responsible for

Operational
163 (171)

tasks:

(a)

Social economic development assistance to minority communities;

(b)

Support for civil society and the media;

(c)

Support to the ministries of Justice, Internal Affairs, Local Govern-
ment, Trade and Industry, Agriculture, Energy and to border manage-
ment bodies and municipalities;

(d) Capacity building of Agency for European Integration and advice on

EU compatibility and participation in the SAP;

(e) Drafting of public procurement law, and support for developing a

public investment programme;

(f)

Incorporation of publicly owned utilities;

(g)

Sustainable forest management and land utilisation;

(h)

Livestock breeding and development of food safety control systems;

(i)

Support for the energy, environment, professional training, transport
sectors.

SERBIA:

(a) Draft laws in public administration reform;

4. Discharge
Authority

Administrative tasks:
101 (102)

The Parliament fol-
lowing a recommen-
dation
from the
Council.

(b)

(c)

Supply of equipment and support to the police and the border police;
support for Juvenile Detention Centres;

Introduction of capitation payment in state primary health care facili-
ties;

(d)

Support for privatisation and training support for enterprises;

E
N

O

f
f
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c
i
a
l

J
o
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n
a
l

o
f

t
h
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3
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5

Areas of Community
competence deriving
from the Treaty

Competences of the Agency as defined in Council Regulation (EC)
No 2667/2000 of 5 December 2000

Governance

Resources available to
the Agency in 2007
(2006)

Activities and services provided in 2007

(e)

(f)

Support for the facilitation of FDIs;

Support for vulnerable groups including refugees and displaced per-
sons;

(g) District Heating renovation and modernisation;

MONTENEGRO:

(a)

Support for refugee and IDP integration and support to civil society
organisations;

(b)

Strengthen environmental management;

(c) Upgrade road infrastructure in coastal areas;

(d) Assist Public Administration Reform: police and prison reform;

(e)

(f)

Electricity utility unbundling/restructuring, energy efficiency strategy;

Providing management expertise to companies;

(g) Animal identification and registration system and fishery resource

management;

FORMER YUGOSLAV REPUBLIC OF MACEDONIA:

(a) Twinning support on Money Laundering, Corruption and Organised

Crime, Statistics, Air Quality, Financial Control;

(b) Completing the establishment of the National Animal Identification

System;

(c)

(d)

(e)

(f)

(g)

Fostering performance of SMEs and development of Human Resource
Development Fund; elaborating a National Transport Strategy;

Support for civil society organisations and municipalities;

Support for the elimination of industrial hotspots, municipal waste
water management and healthcare risk waste management;

Support for the programming of the Pre-accession Assistance Instru-
ment;

Support for the implementation of professional standards in prison
administrations.

Source:

Information submitted by the Agency.

C
3
1
1
/
4
6

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
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2
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8

.

.

5
1
2
2
0
0
8

European Agency for Reconstruction (Thessaloniki) — Implementation of the budget for the financial year 2007

Table 2

Source of revenue

Revenue

Revenue
entered in
the final bud-
get for the
financial year

Revenue col-
lected

Allocation of
expenditure

Final budget appropriations

Appropriations carried over from the previous
financial year

Appropriations available (from financial year plus
previous year)

Entered

Com-
mitted

Paid

Car-
ried
over

Can-
celled

Avail-
able

Com-
mitted

Paid

Carried
over

Can-
celled

Entered

Com-
mitted

Paid

Carried
over

Can-
celled

Expenditure

(1 000 euro)

Commission
subsidy

24 559

23 960

Other revenue

p.m.

4 743

Earmarked rev-
enue

225 642

222 461

Title I
Staff

Title II
Administration

Title III
Operating
activities

18 702 17 869 17 540

330

832

187

5 857

4 768

4 299

469

1 089

507

0

0

133

471

54

18 889

17 869

17 673

330

886

36

6 364

4 768

4 770

469

1 125

13 727

3 031

120 13 607

0 678 806 276 086 236 172 439 217

3 417 692 533 279 117 236 292 452 824

3 417

Total

250 201

251 164

Total 38 286 25 668 21 959 14 406

1 921 679 500 276 086 236 776 439 217

3 507 717 786 301 754 258 735 453 623

5 428

Source: Data supplied by the Agency. This table summarises the data provided by the Agency in its annual accounts. Revenue collected and payments are estimated on a cash basis.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
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E
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7

C 311/48

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Official Journal of the European Union

5.12.2008

European Agency for Reconstruction (Thessaloniki) — Economic outturn account for the financial years 2007
and 2006

Table 3

(1 000 euro)

2007

2006

Operating revenue

Community subsidies

Other revenue

Operating expenses

Staff expenditure

Fixed asset-related expenses

Other administrative expenses

Operational expenditure

255 537

1 243

Total (a)

256 780

16 724

412

5 454

225 568

248 158

8 622

36

– 36

8 586

273 192

239

273 432

16 164

581

5 510

247 509

269 764

3 668

25

– 25

3 643

Surplus/(deficit) from operating activities (c = a – b)

Total (b)

Financial expenditure (d)

Surplus/(deficit) from non operating activities (e = – d)

Economic result for the year (f = c + e)

Source: Data supplied by the Agency — This table summarises the data provided by the Agency in its annual accounts. These accounts are

drawn up on an accrual basis.

European Agency for Reconstruction (Thessaloniki) — Balance sheet at 31 December 2007 and 2006

Table 4

Non-current assets

Intangible fixed assets

Tangible fixed assets

Long-term receivables

Current assets

Short-term pre-financing

Short-term receivables

Cash and cash equivalents

Current liabilities

Provisions for risks and charges

Accounts payable

Reserve

Accumulated surplus/deficit

Economic result for the year

(1 000 euro)

2007

2006

41

529

3 618

179 810

30 329

41 499

Total assets

255 826

1 189

79 108

80 297

Total liabilities

70

743

10 175

166 885

24 562

51 991

254 425

1 986

85 496

87 482

Net assets

175 529

166 943

166 943

8 586

Net capital

175 529

163 300

3 643

166 943

Source: Data supplied by the Agency — This table summarises the data provided by the Agency in its annual accounts. These accounts are

drawn up on an accrual basis.

5.12.2008

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Official Journal of the European Union

C 311/49

THE AGENCY’S REPLIES

At the end of 2007, due to the multi-annual character of the CARDS programmes, the Agency could
7.
still proceed to commitments and payments for annual programmes 2004, 2005 and 2006. The CARDS dead-
line for committing is 2009 and for disbursement is 2010. These three live programmes amounted to € 1,8
billion. Having € 163 million still to be committed (9 %) and a total amount of € 453 million still to be paid
(25 %) three years ahead of the CARDS deadline, shows a very high rate of implementation. The Court has
praised the Agency’s performance on its Special Report no 5/2007 (OJ C 285, 27.11.2007, p. 1.)

8.
The Agency is doing its utmost to make this hand over exercise a successful one. It is in process of draft-
ing agreements for the disposal of items of its assets with several EU Institutions. Moreover, the Agency is in
contact with the Commission in view of formalising all aspects of the hand over and will present the result to
the Governing Board for endorsement.