Report on the annual accounts of the European GNSS Supervisory Authority for the financial year 2007 together with the Authority's replies
Date: 2008-09-25
Institutions: European Court of Auditors
Subjects: EU office or agency, European Court of Auditors, administration of the Institutions, financial control, implementation of the budget, powers of the institutions (EU), report, satellite navigation

5.12.2008

EN

Official Journal of the European Union

C 311/107

on the annual accounts of the European GNSS Supervisory Authority for
the financial year 2007 together with the Authority’s replies

REPORT

(2008/C 311/16)

CONTENTS

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

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

Paragraph

1-5

6-9

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

10-18

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

The Authority’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

108

108

108

111

115

C 311/108

EN

Official Journal of the European Union

5.12.2008

INTRODUCTION

STATEMENT OF ASSURANCE

The Supervisory Authority for the European Global Navi-
1.
gation Satellite System (GNSS) (hereinafter the Authority) was set
up as a Community Agency by Council Regulation (EC)
No 1321/2004 (1) of 12 July 2004 to manage the public inter-
ests relating to the European GNSS programmes and to act as the
regulatory authority for the programme during the deployment
and operational phases of the Galileo Programme. The Authority
took over responsibility for its financial operations in September
2006 and 2007 is its first full year of activity. Table 1 summarises
the Authority’s objectives and activities.

2.
Council Regulation (EC) No 1942/2006 (2) of 12 Decem-
ber 2006 extended the mandate of the Authority to cover the
activities of the development phase (first phase of the Galileo Pro-
gramme (3)) which the Galileo Joint Undertaking (GJU) had not
been able to finalise before its winding-up on 31 December 2006.
The Regulation assigned ownership of the tangible and intangible
assets acquired during the development phase to the Authority.
In 2007, the Galileo Joint Undertaking transferred 80,5 million
euro to the Authority in addition to the 70 million euro already
transferred at the end of 2006.

3.
Although the Authority had been set up to monitor the
deployment phase of the Galileo project (4), which should have
been entrusted to a concession holder under a private-public part-
nership, this approach was abandoned due to a dispute on the
issue of the risks relating to the project. In November 2007, after
receiving its opinion from the European Parliament, the Council
decided to relinquish the concession-contract option and to fund
construction (deployment) from the EU budget. The entire archi-
tecture of the project had thus to be redesigned and the Commis-
sion lodged a proposal to amend Regulation No 1321/2004 on
19 September 2007. This proposal does not clarify the Authori-
ty’s new role and refers, without any further detail, to delegation
agreements to be concluded by the Authority and the ESA (5)
regarding the management of the programme’s funds and the
ownership of its assets.

It was in this fragile legal environment that the Authori-

4.
ty’s accounts were prepared at the end of 2007.

6.
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 (6); it was drawn up fol-
lowing an examination of the Authority’s accounts, as required by
Article 248 of the Treaty establishing the European Community.

7.
The Authority’s accounts for the financial year ended
31 December 2007 were drawn up by its Executive Director, pur-
suant to Article 12 of Council Regulation (EC) No 1321/2004,
and sent to the Court, which is required to give a Statement of
Assurance on their reliability and on the legality and regularity of
the underlying transactions.

8.
The Court conducted its audit in accordance with the IFAC
and ISSAI (7) 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.

The Court has thus obtained a reasonable basis for the

9.
Statement expressed below:

Reliability of the accounts

Due to the situations described in paragraphs 3 and 4, and 13
to 18, the Court is unable to form an opinion as to the reli-
ability of the Authority’s accounts for the financial year ended
31 December 2007.

Legality and regularity of the underlying transactions

The transactions underlying the Authority’s annual accounts
for the financial year ended 31 December 2007 are, taken as
a whole, legal and regular.

5.
Key data taken from the financial statements drawn up by
the Authority for the financial year 2007 are presented in Tables
2, 3 and 4.

OBSERVATIONS

(1) OJ L 246, 20.7.2004, p. 1.
(2) OJ L 367, 22.12.2006, p. 18.
(3) The Galileo programme is divided into three phases: development and
validation (2001-2008); deployment (2009-2012); and commercial
operations (2013 onwards).

10.
The Authority’s final 2007 budget was 436,5 million
euro. The main expenses concern the two European satellite navi-
gation programmes, Galileo and EGNOS (8). The budget was

(6) OJ L 248, 16.9.2002, p. 1.
(7) International Federation of Accountants (IFAC) and International Stan-

(4) 30 satellites to be set in orbit and related ground stations.
(5) European Space Agency.

dards of Supreme Audit Institutions (ISSAI).

(8) European Geostationary Navigation Overlay System.

5.12.2008

EN

Official Journal of the European Union

C 311/109

mainly financed from Commission subsidies (1), transfers from
the Galileo Joint Undertaking (GJU) and third countries contribu-
tions (2). The appropriations actually made available to the
Authority (210 million euro) were substantially lower than the
436,5 million euro initially foreseen due to the delays incurred by
the Galileo programme.

According to the GalileoSat declaration (7), the cost of
15.
the IOV phase should be equally shared between the ESA and the
European Union. At the end of 2007, the Union’s contribution
exceeded the ESA’s own contribution by some 114 million euro.
This prefinancing should have been shown in the Authority’s
accounts.

Even with a de facto 50 % budget reduction, the con-
11.
sumption level of commitment and payment appropriations for
operational activities was low: 63 % for commitments and 51 %
for payments.

12.
Furthermore, there were weaknesses in the management
of the budget, such as an absence of a clear link between the
Authority’s work programme and the budget, transfers neither
adequately justified nor documented, repeated late booking of
recovery orders (3) in the budgetary accounts and inconsistent
presentation of the budget’s implementation.

13.
Under the In Orbit Validation (IOV) phase of the Galileo
programme, assets are being created which will be largely inte-
grated into the infrastructure installed under the deployment
phase (4). The funds invested in this infrastructure can therefore
not be considered as research expenditure. This is particularly per-
tinent as the Galileo system is meant to be operated on a com-
mercial basis from 2013 onwards (5). At the end of 2007, the
process of ownership transfer of the Galileo project’s assets was
far from complete. Despite the signature of transfer agreements
between the interested parties (GJU, ESA and the Authority), no
list of the Galileo project’s assets held by the ESA had been estab-
lished at the end of 2007, so the Authority was unable to disclose
their existence in its accounts.

14.
In December 2006, the assets developed under the
EGNOS project had been devolved to the Authority due to an
amendment to Regulation No 1321/2004 (6). These assets will be
integral elements of the Galileo system (back-up signal necessary
for Galileo’s official approval for air transport safety). The modali-
ties for the transfer of these assets are subject to an agreement
being reached with the original EGNOS investors. These negotia-
tions were not complete at the end of 2007. There is no up to
date accurate inventory of the EGNOS assets and no indication of
their value in the Authority’s accounts.

(1) Operating subsidy of 7,6 million euro and operational funds of

194,5 million euro.

(2) MATIMOP (Israeli Industry Centre for Research and Development),
National Remote Sensing Centre of China (NRSCC — People’s Repub-
lic of China) and Belgium.

(3) Recovery orders are established after the receipt of the corresponding
funds and then booked, often with delays, in the budgetary accounts.
(4) Ground stations, signal protocols and even satellites (tangible and

intangible assets).

(5) It is intended that the EGNOS signal will be commercialised before

Galileo becomes operational.

(6) This was repeated in article 3 of the agreement between the European
GNSS supervisory Authority and the European Space Agency on the
integration of EGNOS into Galileo (16 May 2007). The total cost of
the EGNOS programme is around 660 million euro.

16.
According to its founding Regulation, the Authority
received the GJU assets. These include the unsettled prefinancings
paid to the ESA. In its 2007 accounts, the Authority only included
the GJU cash assets remaining at the end of 2006 which had been
transferred to it in 2006 and 2007 (70,1 and 80,4 million euro
respectively). Although an amount of some 558 million euro had
been received by the ESA for the IOV phase, only 53,7 million
euro paid in 2007 by the Authority had been recorded as prefi-
nancing. The Authority had not checked the earlier prefinancings
paid by the GJU to determine which amounts should still be
shown on the assets side of its balance sheet. There is therefore a
serious uncertainty as to the real amount of outstanding prefi-
nancings forming part of the Authority’s assets (8) as at the end
of 2007.

17.
In 2006 and 2007, 150,5 million euro were transferred
in several instalments by the GJU to the Authority which recorded
these cash transfers as prefinancing received among short-term
liabilities for 121,2 million euro (liability side of the balance
sheet) and as revenue for 29,3 million euro. Most of these funds
represent the remaining part of the GJU capital subscribed at the
time by the Commission and the ESA. These postings raise the
following issues:

(a) As there is no clear schedule for when the funds received by
the Authority shall be used, it is unclear whether the liabili-
ties should be considered as short term liabilities;

(b) While it relates to an exceptional transfer of net equity car-
ried forward from the GJU, the amount of 29,3 million euro
was recorded as ‘own resources’. This is the only reason for
the large surplus for the year (27,1 million euro). In order not
to distort the image of the operations of the year, as this
amount is revenue from previous years, it should not have
been posted again to the economic outturn account. It should
instead have been considered as a simple transfer of equity.
The real economic outturn should have been a deficit of
2,3 million euro.

(7) The GalileoSat declaration is the project masterplan established by the

ESA which specifies its overall technical and financial set up.

(8) This question is further complicated by the fact that the ESA itself pays
prefinancing to its industrial partners to an extent which is not known
by the Authority.

C 311/110

EN

Official Journal of the European Union

5.12.2008

In order to improve the quality of its financial management, the
Authority should adopt clear rules for recording revenue under an
accruals accounting system.

The GJU had received 15 million euro from third par-
18.
ties (1). The status of these sums is unclear and no specific disclo-
sure was made in the Authority’s 2007 accounts.

This report was adopted by the Court of Auditors in Luxembourg at
24 and 25 September 2008.

its meeting of

For the Court of Auditors
Vítor Manuel da SILVA CALDEIRA
President

(1) MATIMOP, NRSCC and Belgium (5 million euro each).

Areas of Community competence
deriving from the Treaty

The Authority’s powers as defined in Council regulation (EC) No 1321/04 and as
amended by Council regulation (EC) No 1942/06

Governance

Resources made available to the
Authority in 2007
(2006)

Products and services 2007

Table 1

European GNSS Supervisory Authority (Brussels)

Competitivity
employment

for

growth and

Objectives

Tasks

1. Administrative Board

Final budget

Galileo system:

— To manage the public
interests relating to the
European GNSS pro-
grammes;

— To be the regulatory
authority for the Euro-
pro-
GNSS
pean
grammes.

— To conclude the concession contract
with the private concession holder
responsible for implementing and man-
aging the Galileo deployment and oper-
ating phases;

Composition

— one representative per Mem-

210,0 million euro (7,0) of which Com-
munity subsidy 4 % (100 %):

berState;

Staff as of 31 December 2007

— one representative from the

46 (39) establishment plan posts,

of which filled: 39 (18),

+ 10 (5) other servants (contract agents
and seconded national
experts and
interim staff)

Number of staff: 49 (23) of which
assuming:

— operational tasks: 30 (9)

— administrative tasks: 11 (9)

— mixed tasks: 8 (5)

— To ensure that the concession holder
complies with the concession contract;

Tasks

Commission.

— To ensure the continuity of services in
case of default of the concession holder;

— To manage the funds allocated to the

European GNSS programmes;

— Appoints the Director;

— Adopts the annual work pro-

gramme;

— Adopts the budget;

— To take over the management of the
agreement with the economic operator
charged with operating EGNOS;

— Adopts the annual report on
the activities and prospects of
the Authority.

— To present a framework on the future
policy options concerning EGNOS;

— To coordinate Member States’ actions in
respect of the frequencies necessary to
ensure the operation of the system;

— To assist the Commission in preparing
proposals for the European GNSS pro-
grammes;

— To modernize the system and develop

new generations thereof;

2. Executive Director

Appointed by the Administrative
Board.

3. Scientific
Committee

and

Technical

Composed of acknowledged experts
from Member States and the Com-
mission.

— To accomplish budgetary implementa-
tion tasks entrusted by the Commission;

4. System Safety and Security
Committee

— To ensure that the components of the

system are duly certified;

— To manage all aspects relating to the

system safety and security;

— To take over the completion of the
development phase of the Galileo pro-
gramme;

— To carry out all research of benefit to the

European GNSS programmes.

Composed of one representative per
MemberState and one representative
from the Commission.

5. External audit

European Court of Auditors.

6. Discharge authority

European Parliament on a recom-
mendation from the Council.

.

.

5
1
2
2
0
0
8

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C
3
1
1
/
1
1
1

— Support to the Commission regarding the
alternatives for Galileo after termination
the Concession negotiations and
of
regarding preparation of
Full-
Operational-Capability
deployment
phase;

the

— Restart of the formal Mission Require-
ments Document Change Control Board;

— Launch of Galileo Performance Monitor-

ing and Analysis Facility;

— Contribution to task forces and work

groups for frequencies;

— Certification requirements and certifica-
tion plan for the Committee on Galileo
Certification;

— Draft standards for Galileo in aviation and

maritime sectors.

European Geostationary Navigation Over-
lay System (EGNOS):

— Structuring of the EGNOS operational
phase through agreement of a baseline for
the
agreement
between the Authority, the Commission,
the ESA and the Egnos Operator and Infra-
structure Group;

framework

EGNOS

— Assistance to the Commission for the

EGNOS master-plan;

— Update of the EGNOS System Safety Case
(issuance of the EGNOS certification plan
and new versions of the Design Safety
Case and Operations Safety Case);

— Modification to EGNOS Mission Require-

ments Document;

— Monitoring of

the EGNOS operations

qualification;

— Production of a statement of work for the
contract with the future EGNOS service
provider.

Areas of Community competence
deriving from the Treaty

The Authority’s powers as defined in Council regulation (EC) No 1321/04 and as
amended by Council regulation (EC) No 1942/06

Governance

Resources made available to the
Authority in 2007
(2006)

Products and services 2007

Systems security:

— Establishment of the System Safety and
Security Committee and participation in
the Galileo Security Board;

— Technical management of the System spe-
cific Security Requirements Statement for
Galileo;

— Production, validation and application of

security documents for EGNOS;

— Definition of the Galileo Security Moni-

toring Centre.

Market development:

— Definition of market development tools;

— Support to EGNOS market entry.

Research and development:

— Management of 61 projects under the 6th
framework program for research trans-
ferred by the Galileo Joint Undertaking;

— Preparation and launch of the 1st call for
GNSS R&D under the 7th framework pro-
gramme for research;

— Implementation of a web-based knowl-
edge management and dissemination tool.

Source:

Information supplied by the Authority.

C
3
1
1
/
1
1
2

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

.

5
1
2
2
0
0
8

.

.

5
1
2
2
0
0
8

European GNSS Supervisory Authority (Brussels) — Implementation of the budget for the financial year 2007

Table 2

(1 000 euro)

E
N

Origin of revenue

Revenue

Revenue entered in
the final budget for
the financial year

Revenue received

Allocation of expenditure

Expenditure

Final budget appropriations for the financial year

Appropriations carried over from the previous
financial year

entered

available

committed

paid

carried
over

cancelled

entered

committed

paid

cancelled

Community subsidy

7 599

7 599

Operational funds from
the Commission (R0)

194 500

24 950

Title I
Staff (NDA)

Title II
Administration (NDA)

Title III
Operating activities (DA)

4 437

4 437

4 050

3 996

54

387

1 364

1 364

1 322

526

796

42

398

878

0

0

164

234

648

230

Transfers from Galileo
Joint Undertaking (R0)

234 368

150 487

— CA

— PA

1 798

1 798

1 798

1 798

1 653

0

0

1 042

0

0

145

756

Assigned revenue

Other revenue

0

396

— CA

428 868

202 436

128 176

0

113 475

— PA

428 868

175 436

0

88 961

86 475

0

0

Total

436 467

183 432

Total PA 436 467

183 035

0

94 525

87 325

1 185

Total CA 436 467

210 035

135 201

0

114 325

574

198

198

0

0

0

1 474

1 276

0

0

0

198

0

0

0

0

0

0

0

0

0

812

812

464

464

NDA: non differentiated appropriations (commitment appropriations equal payment appropriations).
DA:
CA:
PA:

differentiated appropriations (commitment and payment appropriations may differ).
commitment appropriations in a system of differentiated appropriations.
payment appropriations in a system of differentiated appropriations.

The difference of 226,4 million euro between ‘entered’ and ‘available’ commitments appropriations concerns 50 million euro for the ‘In Orbit Validation’ phase which was to be financed by a TEN T grant, 100 million euro for the Galileo deploy-
ment phase, 11,3 million euro to be received from Matimop and 65 million to be contributed by the NRSCC. These amounts were not made available in 2007 due to the delays incurred by the Galileo programme.

The difference of 253,4 million euro between ‘entered’ and ‘available’ payment appropriations concerns 50 million euro for the ‘In Orbit Validation’ phase which was to be financed by a TEN T grant, 100 million euro for the Galileo deployment
phase, 11,3 million euro to be received from Matimop, 65 million euro to be contributed by the NRSCC, a balance of 2 million euro to be received through the Sixth Framework Programme for Research, a balance of 20 million euro to be received
through the Seventh Framework Programme for Research and a balance of 5 million euro concerning a grant for EGNOS. These amounts were not made available in 2007 due to the delays incurred by the Galileo programme.
Source: Data supplied by the Authority. This table summarises the data provided by the Authority in its annual accounts. Revenue collected and payments are estimated on a cash basis.

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C
3
1
1
/
1
1
3

C 311/114

EN

Official Journal of the European Union

5.12.2008

European GNSS Supervisory Authority (Brussels) — Economic outturnn account for the financial years 2007
and 2006

Table 3

(1 000 euro)

2007

2006

Operating revenue

Own resources

Community subsidies

Other revenues

Operating expenditure

Staff expenditure

Fixed asset related expenditure

Other administrative expenditure

Operational expenditure

31 746

51 360

44

Total (a)

83 150

3 740

77

2 028

50 872

56 717

26 433

643

0

643

0

1 981

60

2 041

564

4

595

53

1 216

825

0

0

0

825

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

Total (b)

Financial operations revenue (e)

Financial operations expenditure (f)

Surplus/(deficit) from non-operating activities (g = e – f)

Economic result for the year (h = c + g)

27 076

Source: Data supplied by the Authority. This table summarises the data supplied by the Authority in its annual accounts: these accounts are

drawn up on an accrual basis.

European GNSS Supervisory Authority (Brussels) — Balance sheet at 31 December 2007 and 2006

Table 4

Non-current assets

Intangible fixed assets

Tangible fixed assets

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 of the year

(1 000 euro)

2007

2006

111

228

28

68 931

91 942

Total assets

161 240

68

133 271

133 339

27 901

825

27 076

27 901

Total liabilities

Net assets

Net capital

0

65

0

59

76 485

76 609

29

75 755

75 784

825

0

825

825

Source: Data supplied by the Authority. This table summarises the data supplied by the Authority in its annual accounts: these accounts are

drawn up on an accrual basis.

5.12.2008

EN

Official Journal of the European Union

C 311/115

THE AUTHORITY’S REPLIES

The Authority is taking the necessary action to improve its performance in respect of its budget report-
12.
ing. In 2007 the Authority had to perform a high number of transfers due to an exceptional budgetary situ-
ation (50 % reserve on operating budget) which made it extremely difficult to keep a clear link between work
programme and budget.

The Court is correct in pointing out that, as at 31 December 2007, the Authority was not controlling
13.
the assets of the IOV Phase. These assets were at that time under the control of ESA. This was due to the legal
uncertainties surrounding the project at that date, with ESA claiming that, as an international organisation, it
was not bound by Regulation (EC) No 1942/2006. The Authority shares the view that an inventory of the
project assets is desirable. This is one of the deliverables of the GalileoSat Programme, which shall be made
available by ESA to the Commission, as new programme manager.

14.
The Court is right in pointing out that no agreement had been reached by 31 December 2007 on the
transfer of assets of EGNOS by ESA, and that, as a consequence, the Authority was not controlling these assets.

15.
The Authority only recognised advance payments of 53,2 million euro in respect of the costs of the
IOV phase as these 53,2 million euro were the total of the sums paid by the Authority to ESA for the IOV
Phase.

16.
All payments made by GJU were treated as expenditure in the GJU’s annual accounts and therefore
are not recorded in the Autority’s accounts. The accounts of GJU for the year 2006 were discharged by its
Administrative Board in September 2007 after receiving a positive audit opinion. From the point of view of
the Commission, the net position registered in the accounts of GJU at the end of 2006 (i.e. neither a payable
position towards the Commission, nor a receivable position towards third parties) reflected the situation of
the grants.

17.

(a) Taking into account the uncertainty over the Authority’s role on the Galileo & EGNOS projects, those
settlements are classified as a current liability. The Authority recognises that it could perform a more
detailed analysis of the liabilities in the future.

(b) The Authority considers that the amount of 29,3 million euro is related to the activities of the GJU in the
previous years, not to the activities of the Authority in the previous years. The Authority considers it there-
fore as extraordinary revenue in the reporting year.

According to the information received by the Authority, the Administrative Board of the GJU in the
18.
liquidation plan decided that there would be no redistribution of the unused amounts to the shareholders of
the GJU.

The Liquidator of GJU has informed the GSA that all unused funds (except for an amount of 200 000 euro)
had been transferred to the Authority.