The European Court of auditors : 1977-1997.
Date: 2011-06-16
Institutions: European Court of Auditors
Subjects: EU aid, common agricultural policy, control of State aid, financing of aid, structural expenditure

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The European
Court of Auditors

1977-1997

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The European
Court of Auditors

1977-1997

For general information concerning the European Court of Auditors, please contact the External
Relations Department (tel. (352) 43 98-45413; fax (352) 43 98-46430; e-mail: euraud@eca.eu.int)
or consult the Internet (http://www.eca.eu.int).

A great deal of additional information on the European Union is available on the Internet.
It can be accessed through the Europa server (http://europa.eu.int).

Luxembourg: Office for Official Publications of the European Communities, 1998

© European Communities, 1998
Reproduction is authorised provided the source is acknowledged.

Printed in Italy

FOREWORD

by Mr Bernhard Friedmann,
President of the European Court of Auditors

The 13 October 1997 was an important date for the European Court of Auditors,
which organised a ceremonial session of the Court to mark its 20th anniversary.
During this session, which was held at the Conference Centre on the Kirchberg
Plateau in Luxembourg, speeches were delivered by Mrs Ursula Schleicher, Vice-
President of the European Parliament, Mr Jean-Claude Juncker, Prime Minister of
the Grand Duchy of Luxembourg and President-in-office of the European Council,
Mr Jacques Santer, President of the European Commission, Mr Giuseppe Carbone,
doyen of the heads of the national audit institutions, as well as by the President of
the European Court of Auditors, before an audience of high-ranking officials from
the European institutions, representatives of the diplomatic corps, the Luxembourg
authorities, and the national audit institutions, various former Members of the
Court and all its current staff.

together in the first part of this brochure
These speeches have been brought
produced to commemorate our 20th anniversary, which represents a significant
milestone in the still recent history of our institution. The Court of Auditors was
established in October 1977 as the external and independent auditor of the
Communities at the instigation of the European Parliament, and more particularly
of the President of the Committee on Budgetary Control, Mr Heinrich Aigner. The
Court was elevated to the rank of an institution on 1 November 1993, when the
Treaty of Maastricht came into force.

Throughout these 20 years,
in addition to its annual report and, since 1994, the
statement of assurance as to the reliability of the Community accounts and the
legality and regularity of the underlying transactions, the Court has published an
impressive number of special reports, opinions and audit observations, both on its
own initiative and at the request of other institutions or Community bodies; these
documents are regularly listed in Annex 1
in
which the annual report is published.

to the copy of the Official Journal

For example, when the European Council met in Stuttgart in 1983, it invited the
Court to produce a general report on sound financial management. The 'Report of
the Court of Auditors of the European Communities of 24 October 1 983 (OJ
C 287), in implementation of the conclusions of the European Council of 18 June
1983' was produced as a result of this request. Taking this report, the Court asked
the directors of the audit groups to check the soundness of the financial manage¬
ment in the three main areas of expenditure, namely: the Agricultural Guarantee
Fund, the Structural Funds and development aid, on the basis of the observations
made by the Court of Auditors in its latest reports. This study dealing, therefore,
with these three main areas of budgetary expenditure and also containing a brief
analysis of the Community's resources
was

as was the case in the 1983 report

produced by the directors of the relevant audit groups, namely Messrs G. Coget
(agriculture), G. Carneroli (Structural Funds) and J. Lazaro Cuenca (development
aid), while the chapter on own resources was produced by Mr L. fvirsch, Head of
Division.
The Members of the Court would like to thank the authors for their various contri¬
butions and their colleague, Mr John Wiggins, for his part as coordinator of the
preparatory work for this study, which is found in the second part of this brochure.
the third section contains both a certain number of legal decisions
Lastly,
concerning, inter alia, the establishment of the Court, the evolution of its status
within the Community and information on its responsibilities and activities. There
is also a list of all the Court's previous Members and of all those who, to quote the
former President M. Middelhoek, since the establishment of the Court of Auditors
in 1 977, 'have contributed, each in their various ways, to establishing the credibility
of our work, without which the High Contracting Parties of the Treaty on the
European Union would never have decided to elevate the Court to the level of a
fully fledged institution'.
In conclusion, I hope that this brochure commemorating the European Court of
Auditors' first 20 years of existence will instil and perpetuate a positive memory of
our institution in the minds of those who are working, or who have worked,
towards its development.

/^^y s 'sl,*^£**

Bernhard Friedmann
President of the European Court of Auditors

SUMMARY

SPEECHES

Welcoming address by Mr Bernhard Friedmann,
President of the European Court of Auditors (cid:9)

Speech by Mrs Ursula Schleicher,
Vice-President of the European Parliament (cid:9)

Speech by Mr Jean-Claude Juncker,
President of the Council of the European Union (cid:9)

Speech by Mr Jacques Santer,
President of the European Commission (cid:9)

Speech by Mr Giuseppe Carbone,
doyen of the heads of the national
audit institutions of the European Union (cid:9)

Closing address by Mr Bernhard Friedmann,
President of the European Court of Auditors (cid:9)

SOUND FINANCIAL MANAGEMENT
IN THE EUROPEAN UNION BUDGET

ANNEXES

The Treaty of Brussels (cid:9)

Extracts from the brochure 'The European Court of Auditors
Auditing the finances of the European Union'

The Members of the European Court of Auditors 1977-1997 (cid:9)

Page

9

13

17

21

25

29

33

97

121

129

(cid:9)
SPEECHES

Speeches delivered
at the European Court
of Auditors' 20th anniversary ceremony,
on 13 October 1997
in the European Parliament's new hemicycle

SPEECHES

Welcoming address by
Mr Bernhard Friedmann,
President of the European
Court of Auditors

Your Excellencies,

honoured guests,

dear colleagues,

Thank you all for joining us in celebrating this anniversary which falls at a time
when Europe is confronted by major challenges. We have to step up the fight
against mass unemployment, the introduction of the euro is imminent, expansion
towards the East must be begun and the financial principles that govern the
Community are also being discussed and rewritten. All of these things present a
challenge not only to the Community institutions but also to the governments and
parliaments of the Member States.

It was some 20 years ago, on 18 October 1977 to be precise, that the European
Court of Auditors held its inaugural meeting here in Luxembourg. We are of the
opinion that the choice of Luxembourg as the seat of the Court was the correct one.
Luxembourg, with its hospitality and its readiness to integrate, Luxembourg with
its worldwide reputation, is a good place for us, the European Court of Auditors,
to be based. And there have also been some advantages in our being separated from
the Commission, Mr Santer, whose operating activities
where they are of finan¬
we are required to audit. Since Luxembourg is so important to us I
cial impact
am very pleased to welcome, on behalf of the Court, Mr Henri Ahlborn, Court
Chamberlain, who is here as the representative of His Royal Highness Grand Duke
Jean of Luxembourg.
I am also very pleased to extend a welcome to the Prime Minister, Minister of State
and Minister for Finance of Luxembourg and a member of its government. Mr
Juncker, you are always a valuable interlocutor for the Court and always understand
our concerns. I am certain this will also be the case when it comes to building an
extension to our main building on the Kirchberg. We are also honoured to welcome
the Mayoress of Luxembourg, Mrs Wiirth-Polfer.

The creation of the European Court of Auditors stemmed from an initiative of the
European Parliament, and in particular from a former Chairman of the Committee
on Budgetary Control, Mr Heinrich Aigner, who unfortunately departed this earth
all too soon. We have, however, named a meeting room in our building after him
in his honour. We are especially pleased, therefore, that important representatives

THE EUROPEAN COURT OF AUDITORS 1977-1997

the Committee is, however,

of the European Parliament have honoured us with their presence. The President,
Mr Gil-Robles, was unable to attend in person but we very much appreciate the fact
that Mrs Ursula Schleicher, Vice-President of the European Parliament,
is here
today and will address us later. The most important partner in the European Court
of Auditors' daily work is the European Parliament's Committee on Budgetary
Control, whose Chairwoman, Mrs Diemut Theato, has sent apologies for her
represented here by other Members of
absence:
Parliament. An equally important partner for us is the European Parliament's
Committee on Budgets, whose Chairman, Mr Samland, is here today. Mr Samland,
I am most grateful for the many interesting conversations we have had. It is always
an experience to have the benefit of your political experience and vision. And we
also have representatives of the Luxembourg Parliament among us, and may I there¬
fore welcome its Speaker, Mr Spautz. At European Union level, the Parliament and
Council are the budgetary authorities. Our job is to report to the Council and
Parliament and we are therefore happy to welcome Mr Juncker once again,
this
time as President-in-office of the European Council. We appreciate the fact that
you discuss our work time and again at meetings of the Council's Budget
Committee and that you are understanding partners.

i.e.

Our audits are directed at the financial efficiency of the European Commission's
activities. We do not audit these activities only in Brussels but everywhere where the
in the Member States and, moreover, throughout the
Commission is active,
world. I am therefore honoured to welcome, on behalf of the Court, Mr Jacques
Santer, President of the European Commission. During your Presidency coopera¬
tion between our two institutions has been especially fruitful. It is now usual to
discuss particularly difficult matters at Commissioner level with your colleagues.
therefore also extend a warm welcome to Mr Liikanen, Member of the
May I
Commission, and it is always constructive
to hold such
discussions.

for both sides, I think

Another welcome, this time to Mr Rodriguez Iglesias, President of the European
Court of Justice, and may I take this opportunity to congratulate you on your re¬
election as President of the European Court of Justice. You are a very friendly
neighbour to us. Many of our discussions are of personal benefit and professionally
valuable. Many thanks for your friendly cooperation. I should also like to welcome
the Judges and Advocates General of the European Court of Justice, the Members
of the Court of First Instance and the Registrars of both institutions. Another
welcome to the representatives of the Economic and Social Committee,
the
Committee of the Regions and the European Investment Bank. Welcome also to
the Permanent Representatives of the Member States of the European Union,
whose most senior member is currently Mr Jacques Kasel. This is linked to the
Luxembourg Presidency. Another welcome to the members of the diplomatic corps
accredited to Luxembourg, and in particular the most senior member, Mr Jung.

I should also like to extend a special welcome to the heads of the national audit
institutions and the senior representative of those present
today, Mr Carbone,
President of the Italian Court of Auditors, whose seat
is in Rome. He will also
address us later. The Treaty provides that audits by the European Court ofAuditors
in the Member States are to be carried out 'in liaison with the national audit
bodies'. In the early years it was important for us to be able to rely on the support

10

SPEECHES

of the national audit institutions and on their familiarity with the national systems,
legal systems and administrative structures. Today there are more and more joint
audits. This is a completely new aspect of our cooperation which we believe
deepens the European interest on both sides.

Ladies and gentlemen, the European Court ofAuditors' work is viewed in different
ways by the public. This will be seen later in the other welcoming speeches. It is
important for us that you have joined us today in our celebration and we expect our
own work to be greatly enriched through your speeches and our continued cooper¬
ation.

Thank you very much for listening.

11

SPEECHES

Speech by Mrs Ursula Schleicher,
Vice-President
of the European Parliament

Your Excellencies,

ladies and gentlemen,

13

When the European Court of Auditors was founded 20 years ago, it was as a result
of an initiative by the European Parliament. The Parliament was, so to speak, the
Court's 'godfather'. I am delighted to take part in your birthday celebrations today
on behalf of Mr Jose Gil-Robles Gil-Delgado,
the President of the European
Parliament, and would like to convey our best wishes to you. At the same time I
also wish to recall the moral obligation we, as 'godfather', entered into at that time.
It was, above all, a moral obligation to the European taxpayer who, two years later,
in 1979, also became a voter.

At that time the European institutions had committed themselves to maximum
efficiency in the management of taxpayers' money by declaring their willingness to
submit expenditure of this money to an effective and independent external audit.
In the course of these 20 years this commitment has been fulfilled and the corre¬
sponding resources have been granted to the Court of Auditors, which has received
its founding statute.
Today, in a symbolic sense, the Court of Auditors has come of age. It fully lives up
to its responsibilities, accomplishes its tasks in complete independence and, by so
doing, makes a significant contribution to democratising the European institutions.

It was the European Parliament which, very early on, supplied the basic idea for this
concept. It was, first and foremost, our colleague Dr Heinrich Aigner, whose death
was unfortunately all too premature, who developed this idea.

in the establishment of a Court of Auditors, an important step towards
He saw,
completing the political construction of Europe. He it was, too, who insisted on
changing the Treaty. The prerequisite for this was the merging of the Community's
institutions and the drawing-up of a general budget. The whole budgetary proce¬
dure of the European Community was transformed in two phases with the two
Treaty reforms in 1970 and 1975. Since 1975, the European Parliament and the
Council have possessed, and been linked by, complementary powers of decision in
their role as the 'joint budgetary authority' of the EC/EU.

Dr Aigner repeatedly made clear that the Community required financial autonomy
and this had to be indissolubly linked to democratic control of the budget. This was
also the time when great endeavours were being made to replace the existing system

THE EUROPEAN COURT OF AUDITORS 1977-1997

of financial contributions from the Member States with a system which would
finance the EC budget 'wholly from the Community's own resources'. That is to say,
he wanted these resources to be levied from the citizens of Europe and not paid out
of the budgets of the Member States. Only in this way could a direct and visible
connection be established between the citizen and Europe. This would, in turn,
as the institution representing the
require democratic control by the Parliament
taxpayer

of the uses to which the taxpayers' money was put.

The European Parliament (the first direct elections were about to take place) had
to rely on independent control by the Court of Auditors, without which it would
not have been in a position to accept its budgetary responsibility. The work and
legitimation of the European Court of Auditors are therefore based on the
European institutions' acceptance of their responsibility to subject the expenditure
of taxpayers' money to control by the taxpayers' representatives.

Although the basic principles underlying this were expounded and anchored in the
Treaties of 1970 and 1975, unexpected difficulties were encountered in their imple¬
mentation.

its duty to the taxpayer. They include, on the one hand,

For this reason the European Parliament did not remain idle but developed new
structures and procedures within the Parliament in order actually to be able to
fulfil
the so-called
'discharge procedure' and, on the other, the establishment of a new Budgetary
Control Committee. This was a world first, by the way! Today it has already
found some imitators. With the general and direct elections of 1979, the voters
gave the Members of the European Parliament a direct mandate for the first
time.

The difficulties which arose during implementation unfortunately meant that the
financial autonomy we wished for was respected for only relatively few years. The
budget of the EC/EU was financed, to a predominant extent, by a percentage of the
VAT revenue of the Member States. The desire to take control
themselves of
Community finances soon arose among the Member States. There were heated
debates over the following problems:

how the so-called net contributors could receive adequate compensation for the
VAT resources transferred;

how such compensation measures could be introduced;

how a fourth own resource could be introduced, based on GNP;

how the budgets of the Member States could be made the main source of finance
for the EU in order to weaken the connection between the taxpayers and Europe.

The European Parliament has never accepted such proposals as they seriously
jeopardise the democratic legitimacy of the European institutions. It has tolerated
lapses because they were presented as temporary solutions to the EU's existential
crises. Now as ever, however, it reiterates its demand for a strengthening of finan¬
cial autonomy, as it is, in its view, an indispensable prerequisite for building a politi¬
cal union.

To surrender the goal of financial autonomy would, in our view, be tantamount to
accepting the reduction of the EU to a free-trade area with purely economic objec¬
tives. If this were to happen, the European Parliament would, from then on, only

14

SPEECHES

have an advisory role to play and the Court of Auditors would be reduced to the
role of a financial audit office.

This is one reason among others why the European Parliament's reactions to the
Commission's Agenda 2000 were so muted. After all, this document puts forward
plans for own resources to be replaced by contributions from the Member States.
The argument advanced by the Commission for this step is that financing from
taxes levied autonomously would have little chance of finding the Member States'
should it yield to the
approval. I have the impression that the Commission
presumed will of the Member States in this way
cares little for its responsibili¬
ties towards the European Parliament, whose status among the institutions would
be weakened once more by such a development.
Of course, the work of the Court of Auditors would also be prejudiced by such a
development. It is crucial for the Court itself, and for the whole structure of the
institutions, that the Court continues, as before, to emphasise the significance of
the smooth working of the system of own resources and, in particular, to regularly
appraise the efficiency of this system and its capacity to spread the tax burden fairly
over all the citizens of Europe. In my opinion, the Member States have now realised
that the fairness of the system of finance is not to be measured according to the
contributions paid from the national budgets but according to the tax burden on
the citizens of Europe.
the role of the Court of Auditors is now more fully
With financial autonomy,
integrated in the work of the EU institutions. The Court makes a significant contri¬
bution to the development of Community policy in individual fields by evaluating
the results achieved in relation to the objectives targeted, by evaluating how effec¬
tively the resources employed to achieve these objectives have been used and by
contributing constructive criticism or, where necessary, proposals for improvement.
This latter aspect of the Court's activities is of particular value to the European
Parliament.
Under a system of national financing, the activities of the Court of Auditors would
undeniably be reduced to audits of the regularity of the accounts, the legality of the
procedures and the efficiency of the administration, which are undoubtedly impor¬
tant but for which internal audits are better suited. The main purpose of the work
of the Court of Auditors would then be to allow comparison of the balances of the
individual Member States and to supply arguments for those who support the
renationalisation of Community policy in the various fields.
the
European Parliament, and this was Heinrich Aigner's message, would like to see a
Court of Auditors which is independent of the other institutions and also of the
Member States, which, on the one hand, should ensure that those internal proce¬
dures which guarantee proper and efficient administration are working well and
which, nevertheless, should play a constructive role in the evaluation and improve¬
ment of the Community's financing procedures.
In the course of these 20 years the Court of Auditors has coped with this often
challenging task in a remarkable manner. This was only possible thanks to the
conscientious and precise manner in which it conducted its work and which seldom
allowed errors. The Court has skilfully nurtured its contacts with the media, which
ate indispensable for demonstrating the Court's independence but which are so
often burdened with the negative evaluations of its audits.

In contrast,

15

THE EUROPEAN COURT OF AUDITORS 1977-1997

The Court has given proof of its objectivity by expressing crtiticism where criticism
was needed but also by giving positive assessments where justified. For
this,
President Friedmann, I thank you sincerely.

On this basis, cooperation between the European Parliament,
its Budget
Committee, its Budgetary Control Committee and the Court of Auditors has been
very fruitful over the past 20 years and I hope it will continue so in future in the
form that Heinrich Aigner intended.

16

SPEECHES

Speech by Mr Jean-Claude Juncker,
President of the Council
of the European Union

Mr President,

your Excellencies,

ladies and gentlemen,

17

I am very pleased, as President of the Council, to be able to greet, here in this
debating chamber, which has contributed to the progress of the European cause, all
the Community institutions. The almost simultaneous timing of the meeting of the
Council of Ministers for Finance and the Economy may have the slight incon¬
venience of limiting our time somewhat
when there is so much to be said about
the European Court of Auditors
but it does give us the incomparable advantage
of an exceptional audience with which to honour an institution which has been
irreplaceable for 20 years. Indeed, the presence of the 1 5 Ministers for Finance of
the Member States symbolises a joint attachment to the work and powers of a
the better the objectives it has set
Court which works unobtrusively to serve all
itself.

In my view, the setting-up of the European Court of Auditors in 1977 is of very
special significance in the history of the Community, in the sense that it represents
one of the most tangible signs of the democratisation of the European institutions.

It is no accident that it was the European Parliament, under the aegis of Mr Aigner,
which strove in the mid-1970s for the creation of an independent audit body at
Community level. Let us not forget that this same period was also the time when
the European Parliament was given increased budgetary powers and was first
directly elected.

The democratisation of the institutional machinery required increased trans¬
parency. Let me quote, as an example, the setting-up of the half-yearly European
Council of Heads of State or Government giving new prominence to European
affairs by making the Community's work more accessible. That was indeed the
moment when Europe began to generate opinions and enter the public arena.

At a strictly budgetary level, the system of full financing by the Community's own
resources made it necessary for the implementation of the budget to be audited by
an external body equipped with all the guarantees of political independence.

The creation of the European Court of Auditors therefore not only met a functional
need but also made the Community landscape more democratic.

THE EUROPEAN COURT OF AUDITORS 1977-1997

Considerable progress has been made along this difficult path since 1977. Thanks
to the smooth running of a complex institutional structure, the Community has
completely changed in terms of dimension. Faced with daily problems which seem
to overwhelm us, we rather tend to forget this amazing development over the last
two decades.

On behalf of the Council of Ministers, I would like to thank the Court of Auditors
for having promoted this progress by guaranteeing the absolute transparency of the
financing circuits of the European Union.
If their legitimacy has never been
questioned, it is thanks to the actions and the technical competence of the Court's
Members.
Thus the Court of Auditors' consecration in the Community institutional frame¬
work by the Treaty of Maastricht was certainly both a recognition of the work
which it had done and an illustration of its eminent role, that of the 'financial
conscience' of the Union, as it was called at its creation by Mr Kutscher, the then
President of the Court of Justice.
the Court of Auditors and the Council enjoy excellent
I think I can say that
relations: international dialogue, to use an established expression, works perfectly.
The Ecofin Council pays the greatest attention to the observations and recommen¬
dations contained in the annual report which the Court of Auditors sends it during
the discharge procedure on the implementation of the budget. The Treaty on
European Union introduced a new and vital element to the Court of Auditors'
range of tasks, as it is now required to provide both the Council and the Parliament
with a Statement of Assurance in respect of the legality and regularity of the under
lying operations. Let me add finally that its special reports and its opinions on
in the eyes of many national audit
specific questions are very influential since,
bodies, the European Court of Auditors has become the role model.
I will not go into the detail of its audit visits. There are others much more qualified
than I am to do that. I should simply like to stress the extensive nature of the audit
carried out, which involves an examination of the legality and regularity of the sums
committed and also an examination of the soundness of the financial management,
i.e. an audit which aims to establish whether the management objectives have been
achieved and, where appropriate, how far and at what expense.

Some Member States, for example Spain, Portugal and even Luxembourg
even
though the parliamentary work has not yet been completed
based the creation
or reform of their national external audit bodies on the pre-existing European
model, a sort of forerunner in the field. It therefore seems right to me to take my
hat off to all those who helped, by their clearsightedness, to make this institution a
shining example for the whole world by its strict and innovatory methods.

18

SPEECHES

Mr President, your Excellencies, ladies and gentlemen,
Allow me to depart for a few moments from my role as President of the Council
and to abandon my neutrality to say a few words to you as Prime Minister of your
like other big
host country.
Community institutions, decided to make its home in Luxembourg. I believe I am
right in saying that it is completely at home here, since unlike the other organisa¬
tions or
the
Luxembourg authorities, a guarantee of its permanence. I hope that you do not feel
this situation is a constraint, but see it as an advantage.

it owns its own building. This represents for us,

the Court of Auditors,

I am very happy that

institutions,

In any event, the Luxembourg Government has always endeavoured to facilitate the
installation and development of one of the key institutions of the Union. The same
applies to your recent proposals to extend the building. I can assure you that the
Luxembourg Government is an attentive negotiator, in keeping with our past and ,
present cordial relations.
Byway of conclusion, I will touch on two aspects related to a more immediate topic
of interest.
The Treaty of Amsterdam, which was signed a few days ago, contains some provi¬
sions which directly concern the Court of Auditors. Though they are rather minor
provisions, which do not challenge either the Court of Auditors' powers or its
duties, the scope of these decisions should nonetheless not be underestimated. This
desire for adjustment felt by all the Member States demonstrates, if this was not
self-evident, the extent to which the European Court of Auditors is involved in the
Community institutional system.
Lastly, may I quickly mention the Court's recent work in the area of the repression
and prevention of fraud. The Court has taken a whole series of measures to
strengthen its audit approach in the area of frauds and irregularities. Fortunately
cases of fraud remain very small but they have very damaging consequences because
they rapidly affect the legitimacy of Community measures.
As guarantor of transparency, the European Court of Auditors has become, in some
way, one of the protectors of the legitimacy of the European structure. This, I
believe, is its greatest title of nobility.

Thank you for your attention.

^

1

SPEECHES

Speech by Mr Jacques Santer,
President of the European
Commission

Mr President,

ladies and gentlemen,

-^

Like Mrs Schleicher, Vice-President of the European Parliament, and Mr Juncker,
Prime Minister of the Grand Duchy of Luxembourg and President of the European
Council, I accepted your invitation to celebrate the European Court of Auditors'
20th anniversary with pleasure.

Mr President, ladies and gentlemen,

this year,

The history of the European Union has its own landmarks. They are particularly
in that 1997 not only marks the 40th anniversary of the
abundant
creation of the European Economic Community, but also two decades of existence
of the Court of Auditors, which we are here to celebrate today. In celebrating the
Court's founding we are also celebrating the long development of the instrument
for the external auditing of Community finances that was given to us by the Treaty
ofBrusselsof22July 1975.

When the Court of Auditors took up its duties in October 1977, its ambition was to
become 'Europe's financial conscience', to quote the neat expression used at the time
by Mr Kutscher, President of the Court of Justice of the European Communities.

This ambition was justifiable. It was also necessary and it has been achieved. The
incentive provided by your predecessors, as well as by you personally, Mr President,
has resulted in the Court establishing an external control function that is constantly
improving and is carefully aimed at working to ensure that
the European
Community is more effective in its financial intervention and more responsible in
its management of European taxpayers' funds.

The Court has proved effective in achieving this ambition.

The Court of Auditors was created at a time when two particularly important
factors were taking effect, namely,
the European Parliament's budgetary powers
were being extended and this same European Community budget was being
financed entirely from own resources. Moreover, it grew continually as expenditure
the common agricultural policy rose and other policies, such as those
under
connected with research and the Structural Funds, were being developed.

THE EUROPEAN COURT OF AUDITORS 1977-1997

The need to make a qualitative change in the external audit commensurate with
what was at stake was obvious.

The European Community made the necessary adjustment by creating an indepen¬
dent audit body qualified to check the transparency and reliability of the public
the legality of the operations carried out and the effectiveness of the
accounts,
results achieved in relation to the objectives aimed at and the resources used to
achieve these ends.

Since that time, the Court of Auditors has never faltered in fulfilling the weighty
task entrusted to it in a competent and dynamic manner: the 20 years that have
passed bear witness to its decisive contribution to nurturing a sound and efficient
management culture within the Community.

In fact, by highlighting in its annual reports where, why and how action needs to
be taken, the Court ofAuditors helps to raise awareness considerably. This is partic¬
ularly so:

when, in the area of the common agricultural policy, it carries out thematic evalu¬
ations of certain common market organisations and points out possible manage¬
ment improvements that could be made;

or when,
measures need to be transparent and have to be more efficient and simpler;

in the area of the Structural Funds,

it emphasises that Community

22

or when, in the area of external actions, it advocates an adequate increase in the
managerial resources available to the Commission.

Leaving aside the discussions that have ensued concerning the preoccupation with
determining what action should be taken, I realise that the audit function, when
viewed broadly, is not aimed solely at detecting weaknesses or imposing penalties.
It may reasonably result in recommendations concerning improvements in manage¬
ment.

Nor is it an accident that the Treaty on European Union drew a lesson from the
Court's continual striving in this area. Indeed, it actually raised the Court to the
rank of institution as of 1 November 1993. The Court's new status also conferred new
powers upon it.

Mr President, you are already aware of the particular attention the Commission
pays to the findings in the Statement of Assurance as to the reliability of the
accounts and the legality and regularity of the underlying transactions that your
institution has provided to the Parliament and the Council since 1995.

In this regard,
Member States aware of their responsibility in managing Community funds.

this new instrument has helped make the

I am delighted that

However, as you are aware, Mr President,
is still at the experimental
stage at present. In this context, we should ensure that we do not try to do too
much with it. The Court never helps the Commission to improve so much as
when it founds its observations and criticisms on objective and well-tried bases
and methods.

this tool

SPEECHES

In this regard, just as I did in January 1995 at the investiture ceremony for the
new Commission, I should like to emphasise that one of the factors that are of
importance for sustained improvement of the management of Community
funds is the development of constructive relations between the Court and the
Commission.

By that, I do not mean that our viewpoints should converge systematically, but
rather that our relations should be characterised by a professional approach and
take place in a calm, unruffled atmosphere. I should like to reiterate that when criti¬
cism is justified, we will rectify our approach.

My colleagues and I are determined to improve the Commission's budgetary and
administrative culture and we have already embarked upon this task.

As I promised in 1995, the Commission has been working since that time towards
sound and efficient management, notably in connection with the SEM 2000
programme.

To achieve this:

we have embarked on an in-depth reform of our own management aimed at
modernising the manner in which we operate and making our activities more
effective. With this objective in mind, for example, we have set up financial units
in all of the Commission's directorates-general;

at the same time we concentrated on engendering, at all
culture, without which there can be no real progress;

levels, an evaluation

23

lastly, we are seeking to ascertain how to ensure ever more attentive management
of Community policies. With this in mind, we are working to increase coopera¬
tion between the Commission and the Member States.

It is of course widely known by now that 80 % of Community expenditure is
executed by the administrations in the Member States, but that does not excuse the
Commission from assuming its responsibilities and taking initiatives. Thus,
the
work carried out in collaboration with the group of personal representatives of the
Ministers for Finance, in which two Members of your institution are involved, is
beginning to give rise to concrete decisions, whether in the form of measures aimed
at increasing controls and penalties in the area of the Structural Funds or standard¬
ising the definition of eligible expenditure.

Mr President, ladies and gentlemen,

The action taken by the Commission in the field of sound financial management
with the Court's assistance is essential as we are faced with important deadlines,
inevitable and historic stages that we must pass through; Agenda 2000 is the frame¬
work for future measures. The new enlargement will provide a real challenge in
several areas. We shall have to review our mode of organisation and our decision¬
making procedures. We shall have to attempt to simplify our policies and adminis¬
trative procedures. But all of this will have to be based on efficient managerial
methods and strengthened control mechanisms.

THE EUROPEAN COURT OF AUDITORS 1977-1997

Obviously, a great deal remains to be done. That will, of course, take time. But I
can assure you of the Commission's determination to forge ahead.

For this reason it is my ambition that, at the end of its mandate, the Commission
may be proud of the progress that has been made in the area of management, not
only within its own administration, but also within national administrations that
are co-managing Community funds.

In what is now a decisive battle, the Commission considers the Court to be its main
ally.

Thank you.

24

SPEECHES

Speech by Mr Giuseppe Carbone,
doyen of the heads
of the national audit institutions
of the European Union

25

As doyen of the heads of the supreme audit institutions of the European Union, it
is a great honour for me to be able to speak here today at this solemn ceremony and
give my best wishes to the European Court of Auditors as it celebrates its first 20
years of activity.

Over the last 20 years, the Court has shown ever increasing vitality and, with the
Treaty of Maastricht, was given the title of 'Institution' of the Union. This
happened neither by chance nor as a gracious concession. It was the result of the
capacity that the Court has shown of always being able to amalgamate (and make
the best of) the various experiences and the different audit strategies and 'philoso¬
phies' that it has had to take on board as the result of the successive contributions
of new members of the Union, and which it has had to take into consideration in
order to reshape its own activities, whilst taking into account, on the one hand, the
objectives that have been progressively included in the culture(s) of audit and, on
the other hand, the need to give constant attention to the pursuit of the economic
and political objectives of development.

After all, the Court was born and has grown in symbiosis with the development of
the European democracies, in all of which auditing is responsible, in different forms
for verifying the activities of public administration and
and in different ways,
management, with the twofold aim of improving results and accounting to the
in the case of the
taxpayer (the citizens, public and private organisations and,
European Union, the Member States themselves) for the utilisation of public funds
by the authorities responsible for management.

We, the representatives of the Union's supreme audit institutions, have all
looked
on, with attention and interest, at the innovative and often experimental shoots that
the young Court has been able to graft on to the consolidated and reassuring tradi¬
tion of administrative/financial audit that was at its origin. It is an extra gear
the
fifth gear needed to speed along the road towards an efficient and effective audit
activity, watchful over the sound management of the Union's finances and over the
degree of achievement of the economic/political objectives that I mentioned earlier.
Yesterday we firmly hoped to see and today we can see the consolidation of the
function of the Court of Auditors as a reference body for the Parliament of the
the political expression of the initiatives and aspirations for economic
Union,
progress of the citizens of our continent.

2(

THE EUROPEAN COURT OF AUDITORS 1977-1997

We feel that the relationship of cooperation that has developed, each with different
roles and functions, between the Court and the Commission and the Court and the
national authorities is beneficial for the sound management of the finances of the
no conflicts, but a search for well-pondered solutions to the benefit of
Union
the taxpayer. The Treaty requires the Court's audits in the Member States to be
carried out in liaison with the national audit institutions or, where these are not
competent, with the national authorities that are. A tight network of relations has
therefore developed between the European Court of Auditors and its national
counterparts. Some of these relationships have been formalised in specific agree¬
ments, but, even where this is not the case, they are maintained by the heads of all
the European institutions and have,
to a certain extent, been formalised via the
meetings of the liaison officers and the Committee of NAI Heads.
These results have emerged after a long series of joint and coordinated audits, for
example in the field of agriculture and fisheries, or via an abundant series of studies
on specific audit procedures, like the recent ones on Articles 92 and 93 of the Treaty
concerning aid to undertakings, or in the difficult field of the implementation of
the Community directives on public contracts.
In these delicate fields, as the result of joint or coordinated audits or via joint
studies that are creating a harmonious audit culture throughout the Union, the
supreme audit institutions work in a cooperative and constructive spirit, one that
rejects the European desire to find exhaustive answers in every sector for the diffi¬
culties that do, of course, exist. I would summarise these difficulties as follows: few
or none are insoluble; most are resolvable; tangible studies are under way for the
few cases still under analysis.

I would also like to mention another experience that has lasted 20 years or more
and is still under way and which involves both the Court and the supreme audit
institutions of the countries of the European Union. I say 'more than 20 years'
because, even before the creation of the Court of Auditors had been approved in
Brussels, the heads of the supreme audit institutions of the then nine Member
States of the EEC started up a fruitful dialogue centred essentially around acquiring
a full knowledge of the structures, powers and workings of the institutions in
question. This led to the founding, on an informal basis, of the Committee of NAI
Heads, in which the representatives of the Court and the other supreme audit insti¬
tutions have met (and continue to meet) every year. The mutual relations between
the various supreme audit institutions have developed around this committee
a
knowledge of constitutional systems, audit structures, exchanges of experience,
the assertion of the independence and autonomy of the
coordinated enquiries,
audit function, the recognition of the Court as an 'institution'. Working together
has enabled us to break down barriers of diffidence (dissolving arrogant attitudes
and presumptions of superiority) and has led some of us to champion and witness
the implementation of a different sort of audit in our own countries
one that is
closer to those of the other countries of the Union.

It is this, I believe, that is the most valuable result of the Court of Auditors' first 20
years. The circulation and pooling of our national experiences, together with the
ongoing construction of a European audit in which all the Member States have
been asked to share, have generated a veritable osmosis between national and
Community audit systems. As a result, countries like Italy, which have a long tradi-

SPEECHES

tion of ex ante audits, based merely on the legality of administrative acts, have
moved slowly but progressively over this period of 20 years towards an ex post type
of audit on the results of management activities, so as to measure not only legality,
but also efficiency, effectiveness and economic viability. In the same way, the Court,
which has always carried out ex post checks on the Community's finances, has, for
some time, been meditating on the usefulness and, at this point, on the inevitabilit,
of an audit that can assess more closely the compliance of management with the
rules of Community law as well as with the rules of sound financial management,
as has traditionally been the case.

I might also mention the other debate that has been started by some audit institu¬
tions with regard to the possibility of their being granted (judicial or quasi-judicial)
powers to take action against parties who have administered the resources entrusted
to them badly. As you know, some national audit institutions have already had such
powers for a long time and, in these cases, although the audit and judicial functions
are, by their very nature and characteristics, strictly separate, they work together
and support each other in the sole interest of better management of public
resources.

In this process of osmosis and convergence between systems, which has enriched us
all, we have recently been joined by many of the States of central and eastern
Europe, which have designed their national audit of public finances in accordance
with the independent, neutral and democratic type of audit found in the Member
States of the Union and in the Union itself. With a far-sightedness that honours all
the audit institutions represented here today, as early as 1989 (the year before the
Berlin Wall came down) those countries were associated with the Eurosai project,
which gathered all Europe's supreme audit institutions into one organisation.

After this, managed by others, there came politics, economic relations, Community
programmes for financing the eastern countries, and the Court of Auditors broad¬
ened the geographic scope of its audits.
It is the prerogative of a youth to be present, to innovate and, to develop. The Court
has the vitality of a 20-year-old.

27

SPEECHES

Closing address by
Mr Bernhard Friedmann,
President of the European
Court of Auditors

Your Excellencies,

honoured guests,

dear colleagues and members of the staff,

29

First of all I would like to thank this morning's speakers
Mrs Schleicher, Vice-
President of the European Parliament, Mr Juncker, President of the Council, Mr
Santer, President of the Commission and Mr Carbone.

In your speeches, particularly in yours, Mrs Schleicher and Mr Santer, critical
undertones were to be heard. This is quite usual and indeed necessary. We shall be
giving some thought to these comments and shall certainly be discussing them with
you. Of course, the European Court of Auditors wishes to respect the rules of fair
play. It is simply not true, as was recently claimed, that our reports are, or might
be, manipulated by the Commission. As you are very well aware, our draft audits
are first forwarded to the auditee so that, in accordance with the rules of audiatur
it is an
et altera pars, counterarguments can be put forward. And, in this respect,
exchange of views. This is also the reason why we do not make the 15 July version
of our observations available to the public. First we wish to hear the Commission's
and the Member States' views before we publish the final reports.

Actually, ladies and gentlemen, our birthday falls on 18 October. We brought it
forward to today, 13 October, because the Ecofin Council
is meeting here today
and because the Finance Ministers and Secretaries of State for Finances are here
thanks to Mr Juncker's presidency. We value highly the honour of your
today,
company. We know that the reports we submit are always the subject of informed
level. This is why your
debate in your Budget Committee and at
presence was so important to us. We know that you are very busy and so we
especially appreciate your being here with us today.

the highest

The Court of Auditors would not be what it is today if it had not been for the
cooperation of Parliament and Council. Neither would we have the standing we
have today without the contribution made by former Members of the Court and
their staff. Several former Members of the Court are here with us today. On behalf
of you all, I would like to name the Presidents in the order in which they held office.
The first was Sir Norman Price who is unfortunately unable to be with us today. His
presidency was of short duration but all
the more intensive for that. He was
succeeded by the then Irish Member, Michael Murphy, who cannot attend today

,,_

THE EUROPEAN COURT OF AUDITORS 1977-1997

either. We did, however, meet him last month in Dublin. He was followed by the
then French Member, Pierre Lelong, who is also here today in his capacity as repre¬
sentative of the First President of the French Court ofAuditors, Mr Joxe, who unfor¬
tunately could not come. Nevertheless, we are happy to see you here today, Mr
Lelong, in both capacities. You were followed by Marcel Mart, the then Member for
Luxembourg, a personality who, by virtue of his knowledge and good counsel, is
admired far beyond the borders of Luxembourg. Mr Aldo Angioi followed him, but
he, too, is unfortunately unable to be with us today. The next President was Mr
Andre Middelhoek, who had worked at the European Court of Auditors from the
very beginning and was able to bring all his experience to bear upon the work of the
Presidency. At the beginning of last year I was elected by my colleagues. I would like
to express my thanks here today, too, for the confidence you placed in me. We are
thanks to our staff for what the European Court of
aware that we owe special
Auditors has become. In the name of the Members I would like to offer, here and in
all due form, our sincere thanks to the staff of the Court, past and present.

Basically, every audit office has to perform two widely divergent tasks. On the one
hand, it must expose mercilessly what has not been done well but, on the other
hand, this criticism must not be negative and destructive. We try to achieve this.
We carry out our work according to strictly objective criteria. Our criticism is never
meant personally. What we have to say is not always to be found in the official
reports and special reports. Discussion in a spirit of partnership is often much more
important since much can really be achieved in such discussions where opinions
and counter-opinions are exchanged.

We can see the importance of the audit offices at this very moment
and Mr
with the eastward enlargement of the European Union.
Carbone mentioned this
If we insist that these countries must have parliamentary democracy, then efficient
audit offices are the natural corollary to this. Parliaments fought long enough in the
past to acquire the right to draw up budgets and this right implies control of the
budget. The political control of the budget is exercised by parliaments but they
require the support of qualified audit offices. The more money the taxpayer in the
the more the taxpayer will demand
West transfers to eastern Europe in future,
certainty that this money is being put to good use there. This is why the European
Court of Auditors is cooperating ever more closely with the audit offices of central
and eastern Europe, sometimes taking the Co-presidency or Presidency there.

At this point, ladies and gentlemen, as this ceremonial session draws to a close, I
would like to express my gratitude for all that the European Court of Auditors has
become, through the combined effort of many. It is a good feeling to know that one
can contribute to building Europe. Yet we should not forget one thing, budgets, i.e.
public budgets, are politics expressed in figures. Money is, indeed, not everything
but we can see and recognise, in the efficient use of money, whether policies are
successful or not.

Konrad Adenauer, a tried and proven European, once said: 'The unity of Europe
used to be the dream of the few. It became the desire of many. And today it is a
necessity for all of us.'

At that time there were many well-known Europeans who thought and spoke as
Konrad Adenauer did, for example, Robert Schumann, Alcide De Gasperi, Joseph

SPEECHES

Bech from Luxembourg, Henry Spaak from Belgium and Joseph Luns from the
Netherlands. They all laid the foundations for this Europe. And whoever, today,
works for Europe and, at the same time, thinks he is pulling in the wrong direction
has simply failed to recognise a historical trend. The future belongs to Europe and
there is a philosophy and vision behind this which has yet to find its equal in the
world.

We, the European Court of Auditors, are pleased to be able to contribute, together
with you, to this great work and thank you for that sincerely.

31

.'

3,

SOUND FINANCIAL
MANAGEMENT IN THE EUROPEAN
UNION BUDGET

A study by senior members of staff

of the European Court of Auditors

on the occasion of the Court's 20th anniversary

SOUND FINANCIAL MANAGEMENT

CONTENTS

THE COMMON AGRICULTURAL POLICY (CAP)

Page

Introduction (cid:9)
The development of the CAP (cid:9)
The Court's observations (cid:9)
The reforms and an assessment of them (cid:9)
Possible future developments (cid:9)
Conclusion (cid:9)
Annex

STRUCTURAL MEASURES

Introduction (cid:9)
Reform of the Structural Funds (cid:9)
Transparency and effectiveness of support measures (cid:9)
Coordination, simplification and diversification
of support measures
Conclusion (cid:9)
Annex

measuring the effects on employment (cid:9)

MEASURES OUTSIDE THE EUROPEAN COMMUNITY

Introduction (cid:9)
The question of resources (cid:9)
The management system (cid:9)
Programming of aid (cid:9)
Control, monitoring and evaluation (cid:9)
The role of the delegations (cid:9)
Conclusion (cid:9)
Annex 1 (cid:9)
Annex 2 (cid:9)

OWN RESOURCES

Introduction (cid:9)
Own resources (cid:9)
Common characteristics (cid:9)
Conclusion (cid:9)
Annex

37
39
42
45
47
50
51

59
60
62

64
66
67

69
71

71
72
73
74
75
77
81

87
87
88
89

91

_>_-

(cid:9)
(cid:9)
(cid:9)
SOUND FINANCIAL MANAGEMENT

THE COMMON AGRICULTURAL POLICY
(CAP)

INTRODUCTION

The common agricultural policy (CAP) has always been and remains the European
Its development was based on the concepts of
Union's premier common policy.
guaranteed prices and Community preference and structured around the common
market organisations (COMs). Common price levels and certain support measures
were intended to enable the free circulation of agricultural products and, in time,
the abolition of checks at intra-Community frontiers. After 35 years its effective¬
ness has been called into question and its cost criticised. A new trend has emerged,
in favour of a system of direct aid to producers that is open to world competition.

The European Union (EU) has undoubtedly reached a turning point in its history
as regards agricultural policy. This change of direction does not necessarily reflect
an improved economic view of the subject, in that an incomes policy is no more
the only possible way
inherently effective than a prices policy.
forward, given the current context of the CAP's problems and the EU's obligations
in the context of the World Trade Organisation (WTO), formerly GATT

It is, however,

One may ask how far the trend that began in 1992 will go and,
in particular,
whether it will go so far as to abolish all government aid for undertakings that are
for
considered to be competitive,
farmers with modest incomes or for the promotion of environmental protection.
The opening-up of eastern Europe and American policy are two factors which are
likely to influence the development of ideas in this area.

reserving the support systems,

for example,

37

This is a political choice in which the Court cannot interfere. On the other hand,
the Court is entitled to take stock of policy decisions. It has done so in the past and
will continue to do so in the future, so as to clarify issues for the budgetary
authority and the decision-makers.

This paper takes a more general approach and assesses the CAP to date and its
prospects for the future. Successive sections cover the development of the CAP, the
Court's principal observations, the adoption of the reforms and an assessment of
them and, finally, the future of the common agricultural policy.

SOUND FINANCIAL MANAGEMENT

THE DEVELOPMENT OF THE CAP

The establishment
and development of the CAP

The prosperous years

Article 39 of the EC Treaty sets the following
goals for the CAP:

(a) to increase agricultural productivity;

(b) to ensure a fair standard of living for the

agricultural community;

(c) to stabilise markets;

(d) to guarantee the availability of supplies;

(e)

to ensure reasonable prices for consumers.

These general objectives are still pertinent and
reasonable in general
they
their
sometimes
appear
practical application.

terms, even if
in

contradictory

During the 1960s, when people still
remem¬
bered times of deprivation, and the economic
environment was characterised by growth and
full employment, choices were made with the
primary aims of promoting increased crop
output and raising agricultural
incomes. The
technique adopted was to guarantee agricultural
prices on the basis of three principles: a common
market, Community preference and financial
solidarity. The European Agricultural Cuidance
and Guarantee Fund (EAGGF) was created to
establish a budgetary framework for the corre¬
sponding implementing measures, namely inter¬
vention buying ('), export refunds and various
forms of aid.

European agriculture thus became a relatively
prosperous sector which was shielded from the
rest of the world. Producers received adequate
incomes, and some incomes were even substan¬
tial. The choices made were acceptable to the
consumer and the European taxpayer because
European supplies were guaranteed and the cost
In a period of plenty, with a
was bearable.
it was
Community of six Member States,
the main
possible to establish the CAP,
Community policy,
thereby consolidating the
work of European unification.

Market organisations

(e.g.

intervention and refunds),

Market organisations were the basic CAP
technique, based on the idea of product speciali¬
sation. Although the measures applied were
they
general
were tailored to the economic, social or technical
characteristics of the sector. Cereals, for example,
were the object of public purchases at an inter¬
vention price and of export refunds, often set by
tender. Wine surpluses were addressed by distil¬
lation measures, and fruit and vegetables by
withdrawals of surpluses and processing aid. The
tobacco and olive oil sectors, on the other hand,
were characterised by aid for producers and
consumer subsidies. In the cases of beef and veal
and milk, public purchases were accompanied by
various animal-based premiums. Over the years,
the number of COMs thus increased to such
an extent that there are now 26 COMs, cover¬
ing around 90 % of Community agricultural
production.

39

Surpluses

Overproduction
and excessive budgetary costs

Over time, however, and following a number of
enlargements of the Community, what was orig¬
inally a strategy for developing agriculture
became a kind of rigid,
institutionalised and
costly established right. The European political
issues of the time often concentrated on the
sensitive aspects of the CAP; everyone remem¬
the Brussels 'marathons' at
bers,
which annual prices were set, usually at high
these marathons have still not
levels.
entirely disappeared.

for example,

In 1997,

Price guarantees removed from the agricultural
sector the flexibility associated with market risks
and producers increasingly took their decisions
on the basis of official purchases. Structural
surpluses gradually appeared in the principal
market organisations and led to the accumula¬
tion of large and expensive stockpiles (2). Public
opinion was offended by the destruction of fruit
and vegetables.

O The Community finances the depreciation of
stocks and miscellaneous costs.

(x) The infamous milk powder, butter and cereal
'mountains'.

40

THE EUROPEAN COURT OF AUDITORS 1977-1997

tion of the environment, as well as a more
The regulation of the foreign trade balance that
In terms of
was supposed to be achieved through a balanced equitable distribution of income.
system of levies and refunds was transformed resources, however,
the options were much
into structural export flows to enable some of the clearer: cutting guaranteed prices to world
surplus to be sold off. The budgetary cost of the
levels, introducing direct aid on a per hectare
corresponding refunds proved to be very high basis and expanding the aid paid on a headage
because of the need to finance the difference basis, on set-aside and on accompanying
between domestic prices and the much lower measures,
world prices. The complexity of the methods for
calculating refunds and the inadequacy of the The reform was not a universal one, however,
in that it mainly affected the COMs in cereals
export controls made this area susceptible to
and beef and veal. It was not total, in the sense
fraud.
that price policy and quantitative limits
continue to play a major role, and the reform
Furthermore, the regional and social
imbalances
between categories of farmers have not been
has not established any hierarchy between
corrected. On the contrary, a phenomenon of objectives which, on occasion, conflict. For
the link between direct aid and
intensive production has developed, in the area example,
of livestock farming in particular,
jeopardising production in the cereals sector has not been
the conservation of resources and the environ-
severed entirely since aid is proportional
to
ment, and even public health. Nor has it been
area and yield and there are no individual
in the case of sheepmeat,
in country
ceilings. Similarly,
possible to preserve employment
areas, despite the development of
the food direct aid is available to compensate for fluctu-
industry.

ations in market prices.

Criticism of the CAP

Statistics

The 1992 reform

so much of European producers and whole over a 30-year period.

These excesses gave rise to increasingly vocal
criticism of the usefulness and cost of the CAP. The %ures in the following table illustrate the
The fact was that the mechanism had been partly development of the CAP budget and of the
deflected from its proper purpose, to the benefit agricultural sector in the European economy as a
not
consumers as of a minority of well-informed EU
entrepreneurs and consumers in non-member
countries. Outside the Union, tensions built up The continuous fall in agricultural
within the GATT, making international negotia- expenditure in the budget
tions increasingly delicate, sometimes to the
detriment of Community cohesion.
In short,
change was clearly inevitable.

In terms 0f budgetary development, a distinc-
tion may be made between the 'period of
plenty'
the EAGGF, when agricultural
expenditure accounted for approximately
three quarters of the total budget, and the
period of its being called into question, during
The option which ultimately prevailed as a way which agricultural expenditure as a proportion
of counteracting the declared excesses of the of the budget,
the largest part,
CAP favoured the American technique of subsi- gradually dwindled. This reduction was due to
dising producers directly and reducing prices to the combined effects of market-specific
restraint measures ('),
the adoption of the
world levels.
agricultural guideline within the context of
The reform objectives which were announced budgetary discipline and the rapid growth of
by the Commission were somewhat general
the appropriations allocated to the Structural
nature. Their aims were to promote the Funds,
competitiveness of European agriculture,
bring production under control and keep the
agricultural budget within agreed limits. They
also included supporting the family unit
within the agricultural context,
the develop-
ment of extensive production and the protec-

(') Quotas, stabilisers, price cuts, etc.

though still

for

in

(cid:9)
SOUND FINANCIAL MANAGEMENT

Table showing the evolution of expenditure since 1968

(million ECU)

EU-6

EU-9

EU-10

EU-12

1968

1973

1978

1983

1988

1993

EU-15

1998 (')

EAGGF (2)

Budget (2)

EAGGF/Budget (%)

1 259.7

1 487.9

84.7

3 614.4

8 679.3

15 787.8

27 635.2

34 746.6

41 487.0

4 505.2

12 041.8

24 506.0

41 021.7

64 493.4

91 307.5

80.2

72.1

64.4

67.4

53.9

45.4

Agriculture C)(4)

28 421.5

36 656.0

60 806.1

92 186.9

118 801.9

123 105.3

GAV (3)(5)

481 513.7

859 167.9

1 554 864.3

2 596 333.9

3 920 238.3

5 161 889.7

Agriculture/GAV (%)

5.9

EAGGF/Agriculture (%)

4.4

4.3

99

3.9

3.6

3.0

2.4

14.3

17.1

23.3

28.2

(') 1998 draft preliminary budget.
(:) Sourer. The Commission's budgetary vade-mecum, 1996 edition.
(-') Sourer. F.urostar.
(4) Gross added value at market prices, products of agriculture, forestry and fisheries.
(') Gross added value at market prices, all sectors.

The rable creates the illusion that the financial
effects of
the 1992 reform are discernible,
the 1998 figures are estimates and a A mor£ detai,ed examination shows that
However,
the
more detailed analysts by year and by market penetradon rate differs considerably from one
shows that clear conclusions cannot be drawn on main market m anQther Tab,£ 3 and Graph 3 jn
this point (see below).

support has already been partially transferred
from the consumer to the taxpayer.

the annex show these variations. Penetration

41

The penetration rate of Community

...

rates pet market cannot be compared directly to
the global rates given in the above table because
they were calculated on the basis of the final
production value and not on the basis of gross
added value, which was not available at this level
ofd etail

Interpreting macroeconomic data for the EU
as a whole is trickier, because of the successive
enlargements to include new Member States
and differences between their production Changes in the relative importance
structures. The above table shows that agricul- or markets
ture's share in gross added value (all sectors) An examination ofthe changes in expenditure by
decreased by more than half during the period market oyer a shorter period (1980_9g)
(see
in question. By contrast,
tion rate of Community subsidies
European agriculture has increased spectacu-
from 4 % in 1968 to approximately
larly,
;
'

ann£x) reyeals ^
for ^ COMs - arable crops and beef and veal -
haye gradually taken a ,eading share_ Together;

the overall penetra- TaWe , and Graph ,

.
tor more

now account

,l
than

in ^

, c

tK

1

tney
EAGGF expenditure; 15 years ago,

l
if f
.,11
hair or all
the figure

0 to a^'

the long-term effect of the CAP was only a third' behind the COM for da,ry

Consequently,
has been to make agriculture increasingly depen- Products-
the other
dent on public subsidies
of a prices policy! This effect would be easier to
relatively important COMs cover olive oil, fruit
understand in a context of income support. It and vegetables, sugar and tobacco (vegetable
might also indicate that the cost of agricultural products) and sheepmeat (livestock products).

these three main COMs,

against the backdrop After

(cid:9)
42

THE EUROPEAN COURT OF AUDITORS 1977-1997

THE COURT'S OBSERVATIONS

The Court has made its own contribution to
heightening awareness of these problems. As well
as carrying out thematic assessments of certain
it has detected shortcomings in the
COMs,
financial management of the CAP and in the
It has
controls applied by the Member States.
also drawn attention to certain fraud risks.

General reports

The 'Stuttgart report': excessively high
prices and ineffective financial
management

In its general report on the Community's activi¬
the Court ascribed the increased
ties in 1983,
cost of the CAP to the automatic nature of
Guarantee budget expenditure, as a result of the
In the Court's
Council's farm-price decisions.
opinion, the existence of numerous management
fragmentation of
committees resulted in a
responsibility for the financial aspects of policy
implementation at
the Commission and
prevented any effective action to limit expendi¬
ture. Decisions on the clearance of accounts were
taken too late and were over-influenced by politi¬
cal compromises.

The Court noted unjustified variations in the
rates of assistance under Community subsidies
(the ratio of budgetary cost to a product's value)
between the market organisations and singled
out the sugar market as the model
the
others, because it was financed by producers
themselves. The Court
identified the inconsis¬
tency of relative prices as a cost factor of market
policy. In particular, it considered that the exces¬
sively high level of cereal prices relative to
American prices led to artificial overproduction
and increased competition between substitute
products for animal feed.

for all

The measures devised by the Commission were
in the milk sector,
judged to be ineffective (e.g.
the co-responsibility levy and the special aid to
eliminate stocks) or very expensive (e.g.
the
market premiums for beef and veal). The prefer¬
import arrangements and agrimonetary
ential
measures were regarded as detrimentally creating
unjustified excess costs.

The structural imbalance of the
markets

In almost all COMs, the Court has noted on
each occasion a failure to control overproduc¬
in the case of cereals, milk
tion. Whether
products, beef and veal (which are, moreover,
cyclical), wine, or fruit and vegetables, structural
overproduction has resulted as soon as guaran¬
teed prices or mechanisms with similar effects
have become very attractive.

The stabilisation of markets, which is the third
objective mentioned in Article 39 of the Treaty,
has thus been substantially ignored until quite
recently. Consumer demand has remained fairly
steady, and given productivity gains it ought to
have been possible to achieve balanced develop¬
ment of production,
income and agricultural
prices if the stabilisation objective had remained
as one of the benchmarks for Community
action.

Weakness of controls

the Court has constantly
In its various reports,
criticised the inadequacy of the control
instru¬
ments and on-the-spot verifications as regards
the quantity and quality of products eligible for
Community financing. Whether they concern
the composition of exported milk products, the
quality and cutting-up of meat,
the specifica¬
tions for fruit and vegetables to be sent
for
the weighing of
withdrawal or processing,
cotton,
the
vineyard register, local checks are often very few
or superficial, or simply non-existent.

the counting of olive trees or

recent example of
The most
this nature
concerns the integrated management and
inspection system (SIGC)
set up by the
Council (') in connection with direct aid per
hectare and beef and veal premiums. The short¬
comings noted by the Court in the registering
and updating of the corresponding data cast
doubt on the validity of the calculations (and
thus of subsequent payments) made using these
databases.

(') Council Regulation (EEC) No 3508/92 of 27
November 1992 (OJ L 355, 5.12.1992).

SOUND FINANCIAL MANAGEMENT

Horizontal systems

Storage and refunds, risk areas

When the Court examined the management of
it noted various shortcomings in the
stocks,
quality of inventories, the accuracy of monthly
declarations of expenditure and the adequacy of
the regulatory framework. In the area of export
the Court noted the inadequacy of
refunds,
customs controls, the absence of risk analysis, the
misuse of these advantages by traders and the
inadequacy of the Commission's checks. This
area is particularly sensitive to fraud.

Weaknesses in financial management

The Court considered that
the agrimonetary
system had ultimately given rise to disparities
between national prices and had led to a general
increase in national prices due to the 'switch¬
over' phenomenon. The complexity of
this
phenomenon makes it difficult to understand
and its application unclear.
Its budgetary 'cost'
cannot be clearly identified. The consequences
of the introduction of the euro could be a reduc¬
tion in aid for some Member States or a general
rise in agricultural expenditure.

rhe Court considers that

As regards the clearance of the accounts (the old
method (')),
the
Commission's audit is too limited in its coverage
of expenditure and that the risk analysis is inade¬
quate. The principle of flat-rate adjustments,
in itself, does not permit any
although useful
assessment of the actual extent of the cost to the
Community's finances.

The complexity of the regulations

This has become a leitmotif of any commentary
on the CAP and is a widely-shared criticism (the
regulations number several thousand). The range
of subjects governed is very wide,
from basic
regulations on the organisation of the COM or
the EAGGF financial arrangements to detailed
provisions with short-term validity, such as the
laying down of administrative formalities or the
setting of certain short-term rates. The rate at
which these regulations are renewed varies from
very slow to very rapid, depending on the subject
matter, and the provisions which they contain
are often unduly complicated.

(') The new method is dealt with below.

One characteristic example in this area is the
establishment of certain agricultural
refund
rates, which combine the specification of a
product's chemical composition and the
identification of the non-member country of
final destination.
to
contradiction
envisage
between the constraint of technical controls,
for which the Member States are responsible
in the context of protecting public funds, and
the facilitation of exports, which the EU
claims to promote.

It would be difficult

a more obvious

43

Vegetable products

There have been several audits of COMs in
vegetable products. The most
reports
tobacco, vine products, fruit
concern olive oil,
and vegetables and arable crops.

recent

In the case of olive oil the Court found that, four
years after its first observations, its main recom¬
mendations concerning the need for an improve¬
ment in the control system and the urgency of
establishing complete olive oil registers had not
been followed.

In Special Report No 8/93 on raw tobacco, the
Court highlighted the fact that every day the EU
spent ECU 3.5 million on supporting tobacco
production, even though the tobacco itself was
to health and half the output of such
harmful
poor quality that it could only be sold for export.
to the
Moreover,
legality or regularity of the expenditure in the
three main producer countries (Spain, Greece
and Italy). A system of annual production quotas
could be introduced in order to eliminate the
waste of public funds (as is the case in the United
States of America).

there was no assurance as

In the case of the market for products of the
wine-growing sector,
the relatively low produc¬
tion of table wine in the last three years has been
due to climatic conditions rather than attempts
to bring about a permanent reduction in produc¬
tion potential. The Commission is co-financing
the establishment of simplified registers in the
Member States that have not yet compiled their
initial vineyard registers, but it has not adopted
the necessary special measures. Moreover,
the
specialist Commission control body responsible
for combating fraud in the wine sector has still
not reached the staffing level demanded by the
European Parliament.

Community expenditure for fruit and vegetables
rose from ECU 708.2 million to ECU 1 556.8
million between 1988 and 1994. During recent

THE EUROPEAN COURT OF AUDITORS 1977-1997

decision to de-bone carcasses could be favourable
where the storage period exceeded 10 months.
The COM allowed the development of produc¬
tion which found an easy outlet in Community
storage and did not match consumer habits. It
in view of the risk of
was recommended that,
imbalance between supply and demand, steps
should be taken to eliminate the surpluses and
redefine the intervention procedures.

In the case of sheepmeat and goatmeat,
the
weaknesses lay in the controls on the ownership
and eligibility of animals,
in the market price
surveys used to determine the levels of premium
paid and in the statistical data forwarded by
Member States. Faced with the very limited
success of a whole battery of restrictive measures,
the Commission finally established individual
quotas for premium entitlements,
in order to
contain the rapid increase in budgetary expendi¬
ture. Such a development was inevitable, because
the method of fixing the amount of premium
was directly linked to the reduction in consumer
prices. The mechanism needed to be reviewed,
but could be redirected towards increasing the
selective aspect of Community support in the
less-favoured areas.

In order to avoid unjustified disparities in the
financing of measures to combat classic swine
fever (health and market-support measures), the
terms of the Union's financial contribution
should have been defined in advance. The rates
of aid applied were not
the
Member States in question and different bases
were used to calculate the compensation paid to
producers. The possibility of asking pigmeat
producers for a more substantial contribution
towards controlling the disease should also have
been considered.

identical

for all

44

years a large part of these funds (') has been
spent on withdrawal and processing measures.
The COM situation characteristically featured
overproduction of the main products, especially
for perennial fruit, where the incentives offered
by the institutional price adjustments were insuf¬
ficient. Withdrawing and disposing of the excess
output are also expensive and cause environ¬
mental pollution as well as having a negative
effect on public opinion.

the latter. The initial

The Court highlighted the ineffectiveness of the
co-responsibility levy as a means of reducing
overproduction in the cereals COM. This hybrid
system, spanning both tax and price-reduction
schemes, offered neither the guarantees appro¬
priate to the former nor
the effectiveness
required of
findings
regarding the new arrangements for arable crops
seem to indicate that the area aid schemes have
produced estimated over-compensation of some
ECU 8.4 billion on the part of the Commission
for the four marketing years between 1994 and
1997, mainly because the aid has not been
adjusted in line with the increase in world prices.
Furthermore, the statistics used in compiling the
regionalisation plans and base areas that serve as
the reference points for Community payments
are not sufficiently reliable.

Animal products

As regards beef and veal, shortcomings were
noted in the control procedures for de-boning,
losses in the meat
stock control and weight
during storage. The budgetary impact of the

(') 65 % in 1993 and % % in 1994.

SOUND FINANCIAL MANAGEMENT

THE REFORMS AND AN ASSESSMENT OF THEM

A first attempt was made to reduce the disad¬
vantages of the CAP by employing a strategy of
sectoral adjustment, notably by limiting produc¬
tion guarantees (quotas, stabilisers). However,
the basic changes concerned financial and
budgetary procedures and the decision, adopted
in 1992, was made to provide direct support for
producers'

incomes.

Financial
and budgetary procedures

The agricultural guideline
and financial perspectives

The increase in agricultural expenditure and the
inadequacy of own resources were not unrelated
to the deterioration in the Community's finan¬
cial arrangements and budgetary procedure
during the 1980s. In order to resolve this crisis,
a decision on budgetary discipline was taken by
the Council and an inter-institutional agreement
the Council
was concluded by the Parliament,
and the Commission, with a view to limiting the
growth of Community expenditure over a multi-
annual period (') Financial perspectives were
thus adopted for the 1988-92 period and subse¬
quently for 1993-99.

The financial perspectives divide Community
expenditure into six main headings and specify
for each an amount of annual appropriations
that constitutes a ceiling. As regards the first
heading, the CAP, an 'agricultural guideline' was
defined in 1988, and retained in 1993, stipu¬
increase in agricultural
lating that
expenditure, not including the monetary reserve,
rate of
must not exceed 74 % of the annual
increase of Community GNP.

the annual

As there is no scope for reducing expenditure
resulting from the decisions taken by numerous
level, this political will to place
traders at a local
limit on agricultural expenditure
an overall
should also have been reflected in decisions about
prices or support measures which have not always
appeared to correspond to the declared objective.

The fact is that agricultural expenditure to date
has always remained within the limits of the
guideline, despite various unforeseen events
ranging from German unification to the 'mad
cow' crisis and excessive compensation for cereals
producers. The agricultural guideline has thus
proved to be a useful instrument of EU financial
policy, even if it is at its most effective in the area
of budgetary management, and despite the fact
the EAGGF appropriations have been
that
under-utilised for a number of years. There is
every reason to suggest that the guideline should
be maintained for a number of years to come.
The matter would need to be reconsidered,
however, should the financing of structural
aspects of agricultural policy be taken over by the
Guarantee Fund in the future.

The new procedure
for the clearance of the accounts

The new procedure for the clearance of the
accounts aims, after some 20 years, to introduce
greater rigour and method into the preparation
and presentation by the Member States of their
annual accounts. EAGGF expenditure is imple¬
mented by national paying agencies. Pursuant to
Regulations Nos 729/70 and 1663/95 (2),
these
bodies must henceforth be approved and their
annual accounts certified. For
the
Commission must adopt an initial
'account
clearance' decision during the year n+ 1 and other
'certified clearance' decisions to refuse financing
no more than 24 months later.

its part,

This procedure is a considerable improvement in
terms of principles. Although the resulting
dichotomy introduced into the clearance proce¬
dure can certainly be disputed, approval and certi¬
fication are important safety measures, assuming
that they do not prove to be merely formal.

As the new procedure was applied for the first
time in 1996, any assessment that can be made in
1997 can only be very relative. It transpired that
after a series of provisional approvals, most paying

(') Council Decision 88/377/EEC of 24 June 1988,
concerning budgetary discipline (OJ
185,
15.7.1988).

L

(2) Council Regulation (EEC) No 729/70 of 21 April
1970 (OJ L 94, 28.4.1970) and Commission
Regulation (EC) No 1663/95 of 7 July 1995
(OJL 158, 8.7.1995).

45

THE EUROPEAN COURT OF AUDITORS 1977-1997

46

agencies were approved in good time. However,
an initial assessment of these approvals shows that
some of the criteria suggested in Regulation No
1663/95 were not met and that certain bodies
were not even able to present correctly reconciled
accounts of actual expenditure.

Similarly, several certifications proved unsatisfac¬
tory. In particular, the scope and quality of tests
of underlying transactions were considered
inadequate, irrespective of whether the certifying
bodies were public or private. For this reason, the
Commission decided initially to approve only
33 % of
the expenditure declared by eight
Member States.

These teething troubles are rather
instructive.
They must not, however, be taken as grounds for
the adoption of any new
undue pessimism:
system is intrinsically difficult. They should be
regarded more as a sign that it was time to sort
out
the way the accounts were kept and
presented; rapid improvements should certainly
be expected. It is even to be hoped that agricul¬
tural expenditure as a whole will be managed
more soundly as a result. The new procedure for
clearing the agriculture accounts must therefore
be regarded as an instrument for rationalising
financial management in the Member States, in
line with the Commission's recent efforts to
improve its own financial management (SEM
2000). The recommendation has already been
made, with good reason, that the same principle
should be extended to all management of
European public funds, starting with the
Structural Funds.

Direct income support 1992

The objectives of the 1992 reform included
controlling production, more equitable distribu¬
tion of income and keeping the agricultural
budget within the agreed limits.

Mixed results
of the Mac Sharry reform

The results of
the reform are rather disap¬
pointing, although care should be taken not to
draw hasty conclusions at what is still too early a
stage in the implementation of the new CAP:

(a) Although cereal production was indeed
reduced ('), alignment with world prices also

(') By 1 1 % in 1994 as compared with 1991.

occurred because the latter have risen, and not
only because European domestic prices have
fallen. Beef and veal production, which is
cyclical, has not yet fallen.

(b) The redistribution of incomes is deceptive, as
a minority of large producers continue to receive
the largest share of financial aid. This is particu¬
larly true of cereals, where in 1995 and 1996
excess compensation was paid to offset the differ¬
ence between area aid and guaranteed prices but
no ceiling was placed on individual subsidies.

is that,

(c) The new types of control needed to apply the
reform are unsatisfactory. The fact
in
spite of the Commission's efforts to set up the
integrated management and control system
in a number of
(SIGC),
Member States. The bases for calculating direct
aid, the number of hectares cultivated, the area
of land set aside, the type of crop or the number
of animals reared are therefore to be treated with
caution.

it is not operational

Changes in the structure
of budgetary expenditure

the overall budget

The limitation of budgetary expenditure is more
difficult to discern. On the one hand, the general
trend of agricultural expenditure as a proportion
of
is still definitely
downwards. On the other hand, however, there
has been a very significant increase in expendi¬
ture on the COMs affected by the 1 992 reform!
The Commission had predicted a two-phase
development: an increase in expenditure was to
be followed by a reduction. This second phase is
not yet discernible. Consequently, although it is
not possible to deduce that the new CAP is likely
to generate an increase in future agricultural
expenditure, it is also impossible to contend, in
view of the initial financial results, that consider¬
able budgetary savings will be made.

An examination of the distribution of budgetary
expenditure by category (see Table 2 and Graph
2 in the annex) shows that intervention expendi¬
ture takes the dominant share (nearly 70 %) of
the EAGGF total, in the area of price support in
particular. Export refunds now account for little
more than 15 %. This is undoubtedly an effect
of the 1992 reform that developed direct aid for
the farmers and brought prices down to world
levels. However, it should be noted that although
this trend has become much more pronounced
since 1993, it clearly began as early as 1989.

SOUND FINANCIAL MANAGEMENT

Table giving details of arable crops and beef and veal

(million ECU)

Sector

1990

1991

1992

1993

1994

1995

1996

1997 (')

1998 C-)

Arable crops (AC)

7 834.5

9 2590

10 218.3

10 610.7

12 652.3

15 018.3

16 372.2

16160.4

16 524.0

Vegetable products (VP)

14 668.9

17 537.2

19 033.6

21257.9

21852.7

22 959.4

24 980.0

25 216.1

25 930.0

AC/VP%

53.4

52.8

53.7

49.9

57.9

65.4

65.5

64.1

63.7

Beef/Veal (BV)

2 833.2

4 295

4 413.8

3 986.3

3 466.6

4 021.1

6 687.0

7 451.0

6 540.0

Animal products (AP)

9 690.8

12 169.5

10 542.5

11656.9

9 803.9

10 328.6

12 003.3

13 515.9

12 020.0

BV/AP %

29.2

35.3

41.9

34.2

35.4

38.9

55.7

55.1

54.4

Total EAGGF

26 474.9 31 865.3

32 113.6 34 590.1

32 970.2 34 502.8

39 107.4 40 733.0

40 987.0

Budget

44 062.9 53 650.2

57 946.5 64 204.5

58 898.8 66 277.5

74 870.5 80 880.1

91 307.5

EAGGF/Budget %

60.1

59.4

55.4

53.9

56

52.1

52.2

50.4

44.9

(') Final adoption of the general budget of the EU for 1997 (OJ L 44, 14.2.1997).
(2) Draft preliminary budget of the EU for 1 997.
Source: Commission accounts. DG VI. For years 1990-96: F.U budget, 1996 edition.

POSSIBLE FUTURE DEVELOPMENTS

47

Opening up to the world
market and generalisation
of direct aid

The new political
and economic environment

taxpayers,

Faced with unemployment and lower economic
growth,
represented by the
as
Budgetary Authority, are looking more closely
at the financing of the European budget. Lastly,
the outside world,
the United
intense pressure in
States, continues to exert
favour of free trade and an end to export sub¬
sidies.

in particular

The economic and political context has devel¬
oped appreciably since the CAP was first
conceived. Although the objectives of Article 39 Crucial choices for the future
of the Treaty are still pertinent, the order of prior¬
In this context, even if the initial results of the
ities has changed and other concerns have
it nevertheless
emerged. Security of supply is thus no longer a
1992 reform are inconclusive,
major concern for
appears to be moving in the right direction.
the current generation,
is perceived as a Political reluctance (as evidenced by premiums
Overproduction, by contrast,
failure of the CAP or even as an embarrassment,
that are not adjusted when world prices rise and
a lack of individual ceilings on subsidies) has
given the prevalence of malnutrition in some
third countries. Consumers are looking for better combined with farmers' swift
response to
quality in the products they buy and are more change (e.g. maximisation of the benefits to be
concerned that these products should be healthy acquired by way of area aid schemes and
and natural, even if they cost slightly more. The headage premiums) to delay, or even alter, the
to guarantee desired effects. These effects should neverthe-
producers' main concern is still
less be felt later, if political will is clearer in the
themselves a standard of living that
least
comparable to that of other skilled occupations.
future.

is at

48

THE EUROPEAN COURT OF AUDITORS 1977-1997

The fundamental problem, therefore, is to deter¬
mine precisely how far the EU could go in the
direction of reform. Substantial
limitation of
budgetary expenditure and genuine redistribu¬
tion of
income could be attained only by
abandoning guaranteed prices and by placing a
individual
ceiling on, or even regionalising,
compensatory aid for producers.

The latter point is particularly sensitive if one
considers that approximately 20 % of farms
account for about 80 % of production and also
receive 80 % of EAGGF subsidies. To take some
markets as an example, 6 % of cereal producers
account for 60 % of production, 10 % of stock
farmers produce 50 % of slaughter cattle and
50 % of all milk is produced by 15 % of farmers.
This minority of competitive producers ought to
be fully able to cope directly with external
If subsidies are capped and
competition.
adjusted to economically homogeneous regions
of the EU, it should therefore be possible both to
maintain the necessary minimum of aid and to
make substantial savings, part of which could be
reallocated to certain other objectives, such as
protecting the environment or providing subsi¬
dies of a social nature.

Possible options

The option of maintaining the status quo has the
advantage of stability, but would only mean that
the current disadvantages would persist and
eventually require even more profound changes.
reform would entail ending all price
Radical
guarantees and supporting incomes by paying
producers direct subsidies without any link to
production. This option could, however, entail
risks with no appreciable reduction in
social
budgetary expenditure over a transitional period.
In the Commission's opinion, the possibility of
agriculture being renationalised would jeopar¬
dise the cohesion of the Community.

An interim option would be to develop the 1992
approach. Price guarantees would gradually be
phased out in favour of an alignment with world
prices; compensation would be provided in the
form of individual subsidies for income support
but would be completely unrelated to produc¬
tion or prices. The exact direction to be followed
this option will depend on political
under
choices that are difficult to anticipate. However,
it is clear that, given that the EU is faced with
heavy structural unemployment,
take
account of the social dimension of the future
CAP and the preservation of jobs in the country¬
side, neither of which was really considered in
the 1992 reform.

it must

The international context

Possible enlargement to the east

Enlargement to the east (to include as many as
10 new Member States) would obviously
heighten awareness of the situation because of
the financial cost of maintaining the current
CAP. After a transitional period of accession, the
cost in 2005, as quantified by the Commission
on the assumption that conditions remain
unchanged, would be ECU 12 000 million,
namely a 30 % increase in the agricultural
expenditure of the 15 current Member States
(approximately ECU 42 000 million). The
financial contributions of these countries to the
European budget in the form of own resources
(calculated at the rate of 1 .27 % of their GNP)
would offset this cost by no more than about
25 % (i.e. ECU 3 000 million). Undoubtedly,
this is a good reason for attempting genuinely to
reduce the cost of the CAP, a reduction that the
1 992 reform has yet to make.

American perspectives

The 1 996 FAIR Act significantly reduced public
assistance by ending guide prices and the annual
freezing of land under arable crops. Fixed-rate
aid, unrelated to prices and production, is intro¬
duced by means of seven-year
'flexibility
contracts' (') This individual aid, which is
capped according to the type of production,
provides a guaranteed income and releases the
farmer from any obligation to set land aside or
produce minimum quantities.

the United States hopes to limit
In this way,
public stocks and the corresponding interven¬
tion on the world market, with the result that
world prices would become more volatile.
Exports would replace public purchases and the
mechanism to guarantee export credits would be
the year 2000, American
strengthened. For
agriculture is promoting full-capacity produc¬
tion of maize and soya as well as exports to Asian
and South American markets. The market for
semi-processed products is being encouraged.
The United States is thus defining a strategy that
could ensure that
retains the advantage in
future negotiations at the WTO.

it

(') 'Roberts contracts'.

SOUND FINANCIAL MANAGEMENT

In this situation an offensive on world prices
could be expected and it could create difficulties
for the EU, just as it is getting ready to become
genuinely open to competition. This prospect
would leave the EU little alternative but
to
employ the technique of flexibility contracts by
adapting it to the European mentality and the
materially different conditions of European
farming. To this end, the Union could revitalise
the existing infrastructure of producers' organisa¬
tions and thus involve them in the new policy.
The EU would still have the possibility of
exploiting its know-how in the fields of quality
production and diversification in order to create
and capture narrower, but more remunerative,
potential markets, especially in the area of
processed products.

criteria that influence supply and demand, and
thus market prices. The marketing of quality
products has developed independently of
guaranteed production (ranging from 'natural' or
'biological' products to luxury products).
Although these markets are still small, there is no
shortage of potential buyers.

As regards the industrial utility of agricultural
products, if profitability is the watchword, why
not promote the cultivation of plants as energy
sources? These projects are still at
the experi¬
mental stage, but
is a line that could be
pursued.
'green' energy
could be accorded tax relief, at least in the early

it
In a similar context,

stages.

Protection of the environment

Protection of the environment has become an
important issue in the modern world, especially
in developed nations. Although this concern
affects life in cities where populations are
concentrated, agriculture is also clearly a major
beneficiary of this objective due to improve¬
ments in the quality of air and groundwater, the
preservation of the landscape and the protection
of
the rural population. There is already
increasing awareness of the damage caused to the
European landscape by intensive agriculture,
nitrate pollution, grubbing up of hedges, disap¬
pearance of wild flowers,
land erosion, etc.
the environment has a price.
Respect
Europe's farmers must be given help, to enable
them to support that cost, for the benefit of the
population as a whole.

for

49

Specific objectives
to be developed

Safeguarding health
and public hygiene

This matter, which is a source of increasing
concern to consumers and citizens, came to a
It is a
head in 1995/97 with the BSE crisis.
normal development as standards of living rise
and is the primary objective of a quality of life
ethic that is tending gradually to replace basic
consumerism in the EU. Although agriculture is
naturally at the heart of these concerns, the latter
have not yet been enshrined as a general objec¬
tive of the CAP (Article 39 of the Treaty).

It is important that it should be possible for the
Community subsidies that are released as a result
of transfers to be applied to compliance with the
health and plant health standards for EU
products, rathet than to price guarantees alone.
this label could help to secure inter¬
Moreover,
national markets that are probably very lucrative.

The promotion of quality
and industrial utility

The Community authorities have not paid suffi¬
cient attention to quality, which is sometimes
quoted as a general objective of the CAP.
Although this was understandable in the early
days of the CAP, when the principal concern was
to secure supplies and to guarantee farmers'
it is less understandable now that the
incomes,
aim is to reduce excess production and to redis¬
cover market forces. Quality really is one of the

THE EUROPEAN COURT OF AUDITORS

1977-1997

CONCLUSION

Having developed successfully under cover of a
policy of public intervention, European agricul¬
ture can no longer support the budgetary costs of
It is now
overproducing at guaranteed prices.
being exposed to competition from world
markets and falling prices. The EU can accept
thanks to the
the challenge and can compete,
most efficient elements among its farmers, whilst
retaining subsidies in a modified form
no
longer tied to production and responding to the
social and environmental needs of the day.
European agriculture is, however,
a
harbinger of the future.
is
receptive to research and the development of
new commercial opportunities, welcoming
improvements in the quality of production and
accepting new scientific developments, and
leisure opportunities as well. As such it should be
able to find a healthier and more natural
dynamism.

It is a sector

also
that

50

It would thus be ready to seize any opportunities
offered by the possible expansion of interna¬
tional consumption in the decades to come. If
this prospect were to materialise, current
the volume of production,
decisions to limit
which are justified in the medium term, would
clearly be strategically misguided. An attempt
should be made to limit budgetary costs, whilst
preserving the EU's productive potential
in
competitive agricultural sectors. These sectors

must be prepared to act swiftly when world
markets recover.

Whatever political objectives are pursued, appro¬
priate operational control
instruments must be
provided. Accordingly, although the recent
introduction of a system for approving and certi¬
fying the accounts of paying agencies must be
regarded as significant progress, essential work
remains to be done on the recording of the basic
data used to calculate direct aid for producers.
Any policy that is based on the availability of
such data is dependent on the performance of
the related management tools and needs satisfac¬
tory technical controls to be in place. Without
wishing to set a policeman to watch every
farmer, such material considerations should
nevertheless underlie every CAP reform.

in order to facilitate manage¬
Broadly speaking,
ment and to ensure that fraud is not committed,
regulations which are currently too complex
should be simplified. The Commission has only
partially succeeded in doing this, because of the
technical difficulty of the task and the impossi¬
bility of choosing between stepping up controls
and simplifying formalities. Nevertheless, it may
the alignment of EU internal
be hoped that
agricultural prices and world prices will help to
simplify the regulatory ftamework and reduce
the risk of fraud, especially where export refunds
are concerned.

SOUND FINANCIAL MANAGEMENT

Annex

51

THE EUROPEAN COURT OF AUDITORS 1977-1997

Table 1
EAGGF-Guarantee: Expenditure from 1980 to 1998 (million ECU)

Chapter
Bl

Sector

1980

1981

1982

1983

1984

1985

1986

tear

10

11

12

13

14

15

16

17

18

20

21

22

23

24

25

26

30

31/32

33
34

35
36

37

38

39

40

50

Arable crops
Sugar
Olive oil
Dried fodder
Fibre plants and silk wotms
Fruit and vegetables
Products of the vine-growing sector
Tobacco
Other plant sectors or products

2 039.5

2 514.1

575.2

317.9

33.5

17.1

687.3

299.5

309.3
87.8

767.5

442.7

34.1

72.2

641.1

459.4

361.8

63-9

2 562.5
I 240.4

493.1

41.7

116.4

914.3
570.6

622.6

88.3

3 455.3
1 316.2

675.3

57.7

160.0

1 196.1

659.2

671.3

144.2

2 430.1

1 631.5

1 096.4

76.1

108.0

1 454.6

1 222.6

776.4

98.6

3 662.5
1804.6

692.2

116.9

240.6

1 230.7

921.4

862.8

104.7

5 664.8

1 725.6

604.2

154.1

565.1

986.0

630.7

782.2

117.0

Total title Bl-1

4 367.1

5 356.8

6 649.9

8 335.3

8 894.3

9 636.4

1 1 229.7

Milk and milk products
Beef/veal
Sheepmeat and goatmcat
Pigmeat
Eggs and poultrymeat
Other animal product aid measures
Fisheries

4 593.9

1 363.3

53.5

115.6

85.5

23.0

3 184.4

1 436.9
1915

154.6

83.9

2.0

28.0

3 198.1

1 158.6

4 285.3

1 736.5

5 224.7

2 546.8

251.7

111.6

103.9

4.5

34.0

305.6

145.0

123.3

4.4

25.7

433.5

195.9
69.8

0.7

15.6

5 759.9
2 745.8

502.4

165.3

63.2

16.0

5 232.9

3 481.7

616.9

151.8

97.7

1.2

18.0

Total title Bl-2

6 234.8

5 081.3

4 862.4

6 625.8

8 487.0

9 252.6

9 600.2

Refunds for processed products
ACA/MCA
Food aid
Interest payments
Distribution to deprived persons
Measures to combat fraud
Clearance of previous years' accounts
Rural development
Other measures

221.3

298.6

193.4

282.4

238.4

182.1

414.4

3131

164.9

343.2

488.6

126.9

382.4

376.2

232.1

440.9

189.8

187.1

503.0

481.7

264.3

(161.0)

(108.1)

(25.5)

(99.2)

(55.3)

136.4

113.5

Total title Bl-3

713.3

541.9

892.4

850.6

965.2

855.0

1 307.2

Income aid
Accompanying measures
Subtotal of Subsection Bl
Stock depreciation
Butter disposal
Set-aside (orientation)

Total

11315.2

10980.0

12404.7

15811.7

18 346.5

19 744.0

22 137.1

11315.2

10 980.0

12 404.7

15 811.7

18 346.5

19 744.0

22 137.1

(') Final adoption of the general budget of [he EU for the financial year 1997 (OJ I. 44, 14.2.1997).
(2) Preliminary draft general budget of the F.U fur the financial year 1998 of 30 April 1997.
(jeneral note: All years have been adapted to the budgetary nomenclature of 1996.
Source: Commission accounts, DC VI.

52

SOUND FINANCIAL MANAGEMENT

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997 (')

1998 (2)

7 245.1

2 035.6

1 1391

167.3

306.3

967.0

800.3

803.5

142.4

7 708.0

2 081.9

944.9

217.5

454.1

708.1

I 545.5

966.1

131.7

6 250.4

1 979.8

1 464.5

219.7

600.6

1 018.6

1 147.7

1 138.9

194.6

7 834.5

.388.3

1

1 168.2

306.5

580.3
1 244.6

745.2

1 232.1

169.2

9 259.0

1 814.9

1 874.2

421.7

521.9

1 088.7

1047.7

.329.6

1

179.5

10 218.3

10 610.7

12 652.3

1 937.4

1 754.3

388.5

771.3

1 253.5

1 087.2

1 2331
390.0

2 188.6

2 468.1

532.0

860.5
1 6639
1 509.6

1 1651

259.4

2 061.5

1 8195
378.4

863.5

1 556.8

1 176.2

1 057.4

287.1

15 018.3

1 831.0

812.5

342.0

876.1

1 833.4

857.5
993.0

395.6

16 372.2

16 160.4

16 524.0

1711.3

2 007.7

365.2

831.6

1 589.3

782.2

1 025.6

294.9

1 833.5

2 167.7

393.5

832.7
1 6790
862.8

1 021.2

265.3

1 759.0

2 210.0

395.0

840.0

2 007.0

826.0

1 008.0

361.0

13 606.6

14 757.8

14 014.8

14 668.9

17 537.2

19 033.6

21 257.9

21 852.7

22 959.4

24 980.0

25 216.1

25 930.0

5 013.1
2 148.6

573.8

158.6

152.0

1.0

17.4

5 915.0

2 475.9

1 293.6

215.6

194.0

0.8

46.9

4 987.1

2 428.5

1 452.8

261.0

234.1

0.6

24.0

4 955.9
2 833.2

1 452.3

246.9

178.5

0.4

23.6

5 636.5

4 295.0

1 790.4

252.2

169.2

26.2

4 006.8

4 413.8

1 749.2

141.6

193.1

6.0

32.0

5211.2

3 986.3

1 800.4

200.9

290.9

134.8

32.4

4 248.8

3 466.6

1 279.8

416.3

239.6

117.3

35.5

4 028.7
4021.1

1 780.9

143.3

200.5

114.7

39.4

3 582.0

6 687.0

1 321.2

124.2

1.38.7

116.1

34.1

3 624.8

7 451.0

1 978.8

168.0

137.8

112.7

42.8

3 318.0

6 540.0

1 660.0

237.0

106.0

116.0

43.0

8 064.5

10 141.8

9 388.1

9 690.8

12 169.5

10 542.5

11656.9

9 8039

10 328.6

12 003.3

13 515.9

12 020.0

690.3
654.0

259.4

602.4

569.5

242.7

37.5

65.X

552.1

364.3

132.6

48.5

132.9

511.5

307.5

85.6

66.6

136.9

3.0

(208.2)

29.2

(202.7)

(377.9)

704.2

1590
217.0

84.7

145.0

20.1

(437.8)

388.2

699.6

291

221.5

85.9

1.30.2

24.6

78.9

304.4

743.5

143.5

160.4

100.3

130.2

80.1

(384.8)

444.6

631.4

4.7

86.0

83.3

136.4

76.9
(612.0)

339.7

47.1

1 395.5

1 547.1

1 027.7

733.2

1 280.4

1 574.2

1 417.8

793.5

3.9

25.9

35.8

221.7

30.0

490.1

574.3

0.7

78.3

(,9.9

170.6
629
(1 146.7)

515.1

21.3

346.4

36.3

832.1

491.1

519.8

578.0

28.8

94.3

94.0

102.1

28.9

194.3

42.8

200.0

40.0

(1 122.7)

(910.0)

(600.0)

53

498.8

225.3

252.3

73.8

140.9

155.9

19.5

1 852.3

9.7

1 835.4

80.0

472.0

864.0

3.0

2 170.0

40 987.0

23 066.6

26 446.7

1 240.0

24 430.6

25 092.9

30 9910

31 176.2

34 590.1

32 970.2

34 502.8

39 107.4

40 733.0

650.2

792.7

3.0

564.3

796.4

21.3

797.4

76.9

799.5

137.9

23 066.6

27 686.7

25 876.5

26 474.9

31 865.3

32 1136

34 590.1

32 970.2

34 502.8

39 107.4

40 733.0

40 987.0

Graph 1
EAGGF-Guarantee: Expenditure from 1980 to 1998 (million ECU)

Arable crops

m Plant products

-_k

Beef and veal

Animal products

-3K Other expenditure

-*

EAGGF-Guarantee

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

THE EUROPEAN COURT OF AUDITORS

1977-1997

Table 2
EAGGF-Guarantee: Expenditure committed by chapter and nature (million ECU)

Chapter
Bl

Sector

IOC)
11

12
13 (0
14

15

16

17
18 «

20

21

22

23
24

25
26 (4)

30

31/32 p)

33
34

35
36

37
38

39 (*')

40 O
40 (8)
50

54

Arable crops

Sugar
Olive oil
Dried fodder
Fibre plants and silk worms
Fruit and vegetables
Products of the vine-growing sector
Tobacco
Other plant sectors or products

Total title Bl-1

Milk and milk products
Beef/veal

Sheepmeat and goatmeat
Pigmeat
Eggs and poukrymeat
Other animal product aid measures
Fisheries

Refunds for processed producrs
ACA/MCA
Food aid
Interest payments
Distribution to deprived persons
Measures to combat fraud
Clearance of previous years' accounts
Rural development
Other measures

Total title Bl-3

Income aid

Set-aside
Accompanying measures

Subtotal Subsection Bl

Total

Refunds

Price compens. aid

1996

Other first
category
intervention

16 372.3

1 711.3

2 007.7

365.2

831.6

1 589.3

782.2

1 025.6

294.9

312.8

1 230.0

59-3

98.4

40.8

2.4

33.3

13 840.8

106.1

1 942.8

366.2

831.6

1 146.1

154.0

928.3

116.4

2 270.9

361.1

0.0

270.8

473.0

111.7

0.2

24 980.1

1 776.9

19 432.4

3 487.7

1605.2

I 559.4

101.4

1392

3 582.0

6 687.0

1 321.2

124.2

138.7

116.1

34.1

491.1

493.9

28.9

522.8

28.8

102.1

28.9

(1 122.7)

498.8

225.3

252.4

19.5

1 852.3

1 514.8

4 503.3

1 320.3

0.1

5 824.2

273.7

9.0

1.7

18.1

25.2

1 842.1

499.1

499.1

(0.0)

(0.0)

Total title Bl-2

12 003.4

3 405.2

39 107.8

5 705.0

27 270.0

3 834.9

B2-22 C)
B0-10 (">)
B0-101 (")

Withdrawals
Stock depreciation
Butter disposal / private storage

Total

39 107.8

5 705.0

27 270.0

3 834.9

From 1986-93 including Rice'; including former chapters Bl-12 ('Oilseeds') and Bl-40 ('Set-aside').
From 1986-93 'Protein plants' (including Dried fodder').
Including 'Rice' as of 1994.
Including former chapters B2-90 (1991-92) and Bl-40 (1986-90).
Including former chapters Bl-27. 28 (1986-90).
Including former chapter Bl-29 (1986-90).
Including former chapter B2-50 (1991). title B2-221 (1992) and chapter Bl-41 (1993).
Set-aside (guidance), 1989 and 1990 chapter 39, 1991 and 1992 chapter Bl-40.
1991 and 1992 only.

') 1989-92 only; including former title chapter Bl-810 (1989. 1990).
) 1989-92 only; including former title chapter Bl-81 1 (1989. 1990).

General note: Previous years' tables do not always follow the budgetary nomenclatute of 1 996 and thetefore a year on year analysis per budget 1,
Source: Commission accounts.

SOUND FINANCIAL MANAGEMENT

Second
category
intervention

Other
expenditure

1996

Total

Refunds

Price compens. aid

Other first
category
intervention

Second
category
intervention

Other
expenditure

1995

(5.7)

14.1

5.7

(0.9)

0.0

74.0

(1.4)

3.0

144.9

15 018.3
1 8310

812.5

.342.0

876.1

1 833.4

857.5

993.0

395.6

1 092.7

1312.1

38.2

239-4

36.7

351

48.5

11451.1

105.1

862.7

342.1

876.1

1 053.6

108.1

825.7

92.7

2 412.8

398.8

0.1

(0.1)

489.6

544.1

130.1

0.9

61.7

(95.0)

168.6

2.1

233.8

22 959.4

2 802.7

15 717.2

3 976.3

137.4

(46.5)

(0.1)

115.8

(19-9)
(0.0)

49.3

180.8

619.6

7.6

(4.3)
(0.8)

4.7

(0.5)

116.1

8.8

4 028.7

4 021.1

1 780.9

143.3

200.5

114.7

39.4

2 267.1

1 761.0

118.2

200.5

800.4

131.5

10 328.6

4 346.8

574.3

"8.3

(2.8)

(0.1)

0.0

102.1

28.9

574.3

0.7

78.3

69.9

170.6

62.9

(1 122.7)

(1 146.7)

(0.3)

225.3

515.1

21.3

(769.5)

346.4

652.6

0.0

36.3

1 852.3

832.1

1 548.9

2 472.0

1 780.8

7.1

5 808.8

515.2

515.2

(163.1)
(215.4)

(378.5)

0.0

354.1

0.1

17.9

21.1

393.2

(0.1)

(0.1)

36.3

849.7

1 448.2

34 502.8

7 802.1

22 041.2

4 405.7

(241.1)

15.0

6.5

50.8

0.0

253.5

325.8

21.6

3.5

7.2

114.7

11.2

158.2

0.7

69.9

170.6

62.9

(1 146.7)

21.3

(821.3)

832.1

494.8

55

849.7

1 448.2

34 502.8

7 802.1

22 041.2

4 405.7

(241.1)

494.8

Graph 2
EAGGF-Guarantee: Expenditure committed by nature (1986-96) in million ECU

Total

Refunds

Price compens. aid

Other first category

- Second category
intervention

Other expenditure

THE EUROPEAN COURT OF AUDITORS 1977-1997

Table 3
Community expenditure in relation to the value of agricultural production (examples of the main market products)
(million ECU)

Products

1981

1982

1983

CBE (')

value (2)

%(J)

CBE (')

value (2)

%(3)

CBE (')

value (2)

%(')

Arable crops
Sugar
Fruit and vegetables
Wine sector

Total plant products

Beef and veal

Pigmeat
Sheep- and goatmeat
Milk

Total animal products

2 514.1

767.5

641.1

459.4

17 048.6

4 085.2

16 755.7

5 632.9

14.7

18.8

3.8

8.2

2 562.5
1 240.4

914.3

570.6

20 443.2

3 916.7

17 866.4

8 588.3

12.5

31.7

5.1

6.6

3 455-3

1 316.2

1 196.1

659-2

19 923.2

3 534.5
20 018.6

7 504.3

17.3
P.l
6.0

8.8

5 356.8

57 159-4

9.4

6 649-9

65 748.3 10.1

8 335.3

68 044.1 12.2

1 436.9

19 996.6

154.6

1915

15 301.3

2 479.3

7.2

1.0

7.7

1158.6

21870.2

111.6

251.7

17 123.8

2 668.6

5.3

0.7

9.4

I 736.5

22 735.3

145.0

305.6

16 540.4

2 660.4

3 184.4

24 68.3.4

12.9

3 198.1

28 002.2

11.4

4 285.3

30 424.1

5 081.3

74 659.1

6.8

4 862.4

82 302.5

J.9

6 625-8

85 422.2

7.6

0.9

11.5

14.1

7.8

9.7

Total crop and animal products

10 438.1

131 818.5

7.9

11512.3

148 050.7

7.8

14 961.1

153 466.3

Products

1988

1989

1990

CBE (')

value (2)

%Q)

CBE (')

value (2)

%(')

CBE (')

value (')

m

56

Arable crops

Sugar
Fruit and vegetables
Wine sector

Total plant products

Beef and veal

1'igmeat
Sheep- and goatmeat
Milk

Total animal products

7 708.0

2 081.9

708.1

27 175.2

4 509.1
28 228.7

ISA
46.2

2.5

1 545.5

8 273.0

18.7

6 250.4
1 9798
1 018,6

1 147.7

27 141.6

23.0

4 759-3

41.6

29 631.7

11 633.4

3.4
99

7 834.5

1 388.3
1 244.6

745.2

11 504.8

5 069.2

32 715.6

12 732.9

28.5

27.4

3.8

5.9

14 757.8

91 846.9

16.1

14 014.8

98 670.4

14.2

14 668.9

103 508.3

14.2

2 475.9
215.6

1 293.6
5 915.0

23 512.5

10.5

17 535.9

3 991.0

32 725.7

1.2

32.4

18.1

2 428.5
261.0

1 452.8

4 987.1

25 501.2

21 570.1

4 076.2

34 952.1

10 141.8

94 096.5

10.8

9 388.1

103 100.0

9.5

1.2
356
H.3

9.1

2 833.2

24 9512

11.4

246.9

1 452.3

4 955.9

21 629.6
4 0310

1.1

36.0

35 759.9

13.9

9 690.8

104 092.0

9-3

Total crop and animal products

24 899-6 185 943.4 13.4

23 402.9 201770.4 11.6

24 359-7 207 600.3 117

Notes
0) Communiry budgetary expenditure (CBE), expenditure on appropriations for current financial year.
(J) Value of the individual product in final agricultural production (the final production of agriculture is valued a!
(3) Community budgetary expenditure as a percentage of the value of the individual product in final agricultural production.
General note: The table above compares Community expenditure with the value of individual products in final agricultural production. It does not take other market factors into consideration like the
producers' revenue. Producers' aggregate gross returns are the sum of CBE and value of rhe individual product. No direct comparison can he drawn with the PSE model of the OECD.
Source: European Commission, DG VI, Eurostat, New Cronos.

'ex-farm' prices, subsidies are not included).

SOUND FINANCIAL MANAGEMENT

1984

1985

1986

1987

CBE (')

value (2)

%0

CBE (')

value (2)

%(*)

CBE (')

value (2)

%£)

CBE (')

value (2)

%(')

2 430.1

1 631.5

1 454.6

1 222.6

24 986.8

9.7

3 810.8

42.8

20 763.0

6 838.7

7.0

17.9

3 662.5

1 804.6

1 230.7

921.4

22 485.4

3 993.9

21 229.1
" 685.7

16.3

45.2

5.8

12.0

5 664.8

1 725.6

986.0

630.7

25 762.7
4 537.0

26 523.8

9 811.0

22.0

38.0

3.7

6.4

7 245.1

2 035.6

967.0

800.3

25 758.6

28.1

4 380.4

46.5

26 484.1

9 322.7

3.7

8.6

8 894.3

74 121.7

12.0

9 636.4

73 040.7

132

11 229.7

87 323.6

12.9

13 606.6

88 609.9

15.4

2 546.8

22 782.1

1959

433.5

5 224.7

17 573.8

2 746.0

30 039.2

11.2

1.1

15.8

17.4

2 745.8

165.3

502.4

22 813.3

17 872.5

2 821.1

5 759.9

30 385.6

12.0

0.9

17.8

19.0

3 481.7

151.8

616.9

5 232.9

23 496.8

19 524.2

3 832.3

33 515.0

8 487.0

87 420.5

9-7

9 252.6

87 837.5

10.5

9 600.2

96 521.7

14.8

0.8

16.1

15.6

9.9

2 148.6

158.6

573.8

5 0131

22 540.9

17 548.4

3 878.8

31 858.4

8 064.5

92 137.3

9.5

0.9

14.8

15.7

8.8

17 381.3

161 542.1

10.8

18 889.0

160 878.2

11.7

20 829-9

183 845.2

11.3

21 671.1

180 747.2

12.0

1991

1992

1993

1994

1995

CBE (')

value (2)

%o

CBE (')

value (2)

U)

CBE (')

value (2)

%(?)

CBE (')

value (2)

%£)

CBE (')

value (2)

%(>)

9 259.0

1 814.9

1 088.7

1 047.7

29 332.2

31.6

10 218.3

4 790.5

37.9

34 474.5

10 824.4

3.2

9.7

1 937.4

1 253.5

1 087.2

24 002.1

5 134.0

.32 996.3

11660.7

42.6

37.7

3.8

9.3

10 610.7

2 188.6

1 6639
1 509.6

20 910.2

5 062.9

29 130.8

9 410.5

50.7

43.2

5.7

16.0

12 652.3

2 061.5

1 556.8

1 176.2

19 301.9
4 802.4

65.5

42.9

30 796.3

5.1

10 437.0

11.3

15 018.3

1 831.0

1 833.4

857.5

20819.1

5 206.5

30 769.2

11946.6

72.1

35.2

6.0

7.2

17 537.2

109 099.6

16.1

19 033.6

100 557.0

18.9

21 257.9

90 567.1

23.5

21 852.7

94 267.5

23.2

22 959.4

99 044.1

23.2

57

4 295.0

23 357.7

18.1

4 413.8

24 421.0

18.1

252.2

22 609.8

1.1

141.6

24 230.0

0.6

1 790.4

5 636.5

3 701.5

48.4

34 294. 1

16.4

1 749.2

4 006.8

3 860.6

45.3

34 353.8

11.7

3 986.3

200.9
1 800.4

5211.2

24 327.8

16.4

19 570.5

1.0

3 737.1

34 568.1

48.2

151

3 466.6

416.3

1 279.8

4 248.8

24 645.4
20 217.3

3 830.1

34 691.6

14.1

2.1

33.4

12.2

4021.1

1433

1 780.9
4 028.7

24 604.4

23 113.5

3 759.9
38 194.4

12 169.5

102 183.6

11.9

10 542.5

104 701.4

10.1

11656.9

99 784.1

11.7

9 803.9

101 190.5

9.7

10 328.6

107 891.9

29 706.7

211 283.2

14.1

29 576.1

205 258.4

14.4

32 914.8

190 351.2

17.3

31 656.6

195 458.0

16.2

33 288.0

206 936.0

16.3

0.6

17.4

10.5

1A
16.1

Graph 3
Community expenditure in relation to the output value of certain agricultural products

Arable crops

Total plant products

Beef and veal

Total animal products

Total crop and animal
products

*

*

-\ (cid:9)

1(cid:9)

1-

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

SOUND FINANCIAL MANAGEMENT

STRUCTURAL MEASURES

INTRODUCTION

Structural measures include the three Structural Funds (the European Regional
Development Fund (ERDF), the European Social Fund (ESF), and the 'Guidance'
Section of the European Agricultural Guidance and Guarantee Fund (EAGGF)),
the Financial Instrument for Fisheries Guidance (FIFG), the European Cohesion
Fund and a number of other measures, some temporary (integrated Mediterranean
programmes (IMPs), the specific programme for the development of Portuguese
agriculture (PEDAP), the specific industrial development programme for Portugal
(PEDIP)), and some with a more specific objective (transport, tourism).

Most operations are covered by the three funds, which differ in their origins. The
ESF was established by the Treaty of Rome, the EAGGF was set up in 1962 and
the ERDF in 1975, whilst the FIFG is of recent origin, set up in 1993. Initially,
most of the assistance provided by the funds took the form of reimbursement of
expenditure for the co-financing of individual projects, and programmes were
financed only in exceptional cases.

The situation was radically changed by the 1988 reform. With the aim of gradually
the 1986 Single European Act
bringing about economic and monetary union,
in
sought
particular, to reduce the difference in the level of development between the various
regions and the backwardness of the least favoured ones.

to strengthen the Community's economic and social cohesion and,

,

The Single Act made provision for support in the achievement of these objectives
in the form of measures conducted through the Structural Funds, the structure and
operational rules of which were to be changed to define and rationalise their objec¬
tives, make them more efficient and coordinate their activities.

60

THE EUROPEAN COURT OF AUDITORS 1977-1997

REFORM OF THE STRUCTURAL FUNDS

The funds' planning and management were
therefore reformed in 1988 (') and their
resources appreciably increased, from ECU 6 800
million in 1987 to ECU 20 700 million in 1993
and then to ECU 147 000 million (at 1994
prices) for the six-year period 1994 to 1999. The
growth in payments for the financial years 1987
to 1996 is set out in the table below.

The reform was based on a number of major
principles. It sought first a better concentration
of measures on a smaller number of priority
objectives (2) and eligible areas. For each of the
areas in question, a Community support frame¬
work was to encourage coordination between the
various funds and other financial instruments so
as to permit an overall approach. The resulting

Community payments for structural measures 1987 to 1996

(million ECU)

Field

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

EAGGF, Guidance
Section

ERDF

ESF

863.2

1142.3

1349-0

1825.3

18810

2 661.8

2 747.1

2 553.7

2 572.7

3 404.6

2 525.0

3 092.8

3 920.0

4 554.1

5 180.9

7 656.9

8 292.9

6 599.2

8 455.9

10 713.2

2 715.3

2 298.4

2 676.1

3 212.0

3 869.2

4 072.6

5180.8

4 214.7

4 589.3

6084.9

Cohesion Fund

730.6

916.0

1699-3

1872.2

Fisheries, subsequently

FIFG

58.2

67.8

91.2

99.4

159-6

212.5

335.8

401.3

260.8

430.4

Community initiatives

1379-6

1362.3

1511.6

849.2

1320.1

1691.4

Other measures
(CIMPs, transport,...)

278.9

500.0

465.1

677.2

1 387.4

2 500.2

I 5.38.9

432.0

320.9

434.9

Total structural measures

6 440.6

7 101.3

8 501.4 10 368.0 13 857.7 18 466.3 20 337.7 15 966.1 19 219.0 24 631.6

Source: Commission revenue and expenditure accounts.

(') Council Regulation (EEC) No 2052/88 of 24
June 1988 (OJ L 185, 15.7.1988, p. 10) and Council
Regulations (EEC) Nos 4253/88 to 4256/88 of 19
December 1988 (OJ L 374, 31.12.1988, p. 1).

(2) The following priority objectives are defined by the
Structural Funds' regulations:

Objective 1: promoting the development and
structural adjustment of regions whose development is
lagging behind;

Objective 2: converting the regions,

frontier
regions or parts of regions (including employment
areas and urban communities) seriously affected by
industrial decline;

Objective 3: combating long-term unemployment
and facilitating the integration into working life of
young people and persons exposed to exclusion from
the labour marker;

Objective 4: facilitating the adaptation of workers
of either sex to industrial changes and to changes in
production systems;

Objective 5a: promoting rural development by
speeding up the adjustment of agricultural structures
in the framework of the reform of the common
agricultural policy; measures for the adjustment of
fisheries structures;

Objective 5b: promoting rural development by
facilitating the development and structural adjust¬
ment of rural areas;

Objective 6: promoting the development and
structural adjustment of regions with a population
density of eight inhabitants or less per km2.
The ERDF contributes to Objectives 1 , 2, 5b and 6,
the EAGGF-Guidance to
the ESF to all except 5a,
Objectives 1, 5a, 5b and 6 and the FIFG to Objectives
1, 5a and 6.

SOUND FINANCIAL MANAGEMENT

those services use are different, and there are few
partnership was to involve the various parties
affected and encourage the exchange of informa-
coherent data available for the funds as a whole,
tion, while additionality was
In the programmes for Objective 1 areas in
to prevent
Community aid taking the place of national aid. particular, the existence of measures of the same
kind as defined for Objectives 3 and 4 often
A special place was given to the financing of maintains in fact multiple objectives for one and
programmes instead of the financing of projects:
the same area. Where separate programmes exist
this was a key element of the reform. Such an
funds,
side by side,
approach was intended to permit the financing different monitoring committees operate in the
of sets of multi-annual measures, which would same region,
have a greater impact by virtue of their volume
and duration. Programme financing also enabled Moreover, little has been achieved in the search
for greater complementarity between the
the Community to focus its activities in partic-
ular on the monitoring and appraisal of the granting of loans, by the European Investment
in particular, and the granting of
measures undertaken,
individual project level more to the national and subsidies, even in the case of projects generating
regional authorities.

leaving management at Bank (EIB)

financed by different

revenue.

The reform certainly made it possible to process Programme planning has been one of the major
and implement a much greater volume of appro- difficulties in implementing reform. The regula-
tions in force require the majority of activities to
priations and support measures with more or less
the same human resources. The Commission take the form of operational programmes (') An
was therefore able to mobilise a significantly operational programme is defined as a coherent
set of multi-annual measures for the irnplemen-
higher amount of aid with services and adminis-
tation of which recourse may be had to one or
relatively unchanged by
trative structures
more Structural Eunds and to one or more other
comparison.
existing financial
instruments, as well as to the

it

this did not go far enough towards EIB.

However,
fulfilling the actual principles of the reform. A
general management framework and administra- This definition is of little practical use, since it
can be interpreted in too many ways. It has in
tive procedures were put in place during the first
generation of programmes, that is between 1989 particular allowed the implementation of
that are not a succession of
'programmes'
and 1993. Since then, the situation has changed
measures projected into the future that
little.
is
proposed to undertake in order
to achieve a
It has not proved possible to concentrate aid on
specific objective, but rather measures that are
a small number of eligible areas, the trend having normally adopted and undertaken by the
been rather to grant aid to a growing number of national and regional authorities in the course of
geographical areas. The inclusion of the new their usual activities,
the cost of which is then
German Lander,
Objective 6, at
the flexibility of the limits taken into Even if they allow preference to be given to
ment,
consideration for Community initiatives, and certain types of measures, such as transfers,
the use of new criteria such as areas included by which are currently made by most Member
it undermines the very concept of
way of exception and regions included for special States,
reasons, have not been offset by a reduction in 'programme'. This is
replaced by a formula
the number of areas assisted previously. As a aimed primarily at getting the funds to pay part
result, over 50 % of
the
Community is currently covered by one or other
of the regional objectives, that is Objectives 1, 2,
5b and 6.

the definition of a new transferred to the programme.

the time of the 1995 enlarge¬

the population of

(') Article 12 of Council Regulation (EEC) No
_...,...
4253/88 (op. cit.). Following the amendment made
There has been little progress in coordination by Council Regulation (EEC) No 2082/93 of 20 July
between funds. Notw.thstanding a single set of m3 (QJ L m> 31 7 1993> p 23)> the article currendy
the approaches and administrative reads as follows: 'Assistance covered by a Community
regulations,
procedures used for each fund by the manage-
support framework shall be provided predominantly
ment services, both in the Commission and in in the form of a
limited number of operational
the Member States, are different. The forms

programmes.'

..

.

ol

THE EUROPEAN COURT OF AUDITORS 1977-1997

of the cost of actions currently, or previously,
undertaken by the recipient authorities, who are
therefore using Community co-financing to
replace part of national
financing, with little
Community control over the activities.

This situation is further exacerbated by the extent
of the changes made to programmes that are
already in progress. These may be such that sight
is lost of the initial objectives in favour of the most
common types of activity, these being the easiest
to implement. Changes also make monitoring
more difficult. The available documentation
rarely shows the effects of successive changes on
the initial programme, and the lack of rigour with
which changes are adopted says little for the
quality of the initial programming or for that of
the subsequent reprogramming.

The regulations require the effectiveness of
support measures to be evaluated and measured
at three levels: at that of their overall
impact, in

in strengthening the Community's
particular
that of
economic and social cohesion, at
measures undertaken in the context of each
Community support programme, and at that of
operational activities such as programmes.
Despite major research work undertaken and the
preparation of manuals seeking to promote a
common approach, an appropriate methodology
has still not been found. The appraisals made are
concerned mainly with the financial and physical
progress of activities or changes in procedure,
but not with the use made of the investments
that have been financed. It is much more diffi¬
cult to assess the impact of operations on devel¬
opment and to identify the optimal and sustain¬
impact, again for want of
able nature of that
suitable statistical data. What is more, the total
amount of public sector aid going to a particular
region is not generally known, any more than
are, a fortiori, the net transfers from one region
to another.

62

TRANSPARENCY AND EFFECTIVENESS

OF SUPPORT MEASURES

The chief problem confronting Community
structural measures is that of transparency and
the effectiveness of the use made of the funds.

The Community effort has concentrated first
and foremost on absorbing budget grants. The
results obtained are not
insignificant, even
considering that on 31 December 1996 just over
6 % of the Structural Funds' total budget for the
period 1991 to 1993 had been committed but
the rate of
not disbursed. On the same date,
utilisation for
the period 1994 to 1999 was
around 45 % for commitments and 32 % for

payments.

it

is primarily in the monitoring of
However,
operations that progress needs to be made.
Knowledge of co-financed activities has become
regards both individual
more remote,
financing decisions and the assessment of their
impact. The problem has been repeatedly under-
lined in the Court of Auditors' annual reports.

as

financing is decided at national or
Project
regional level. It is carried out within the frame

work of, and in accordance with,
the national
and regional systems and provisions in force. The
Commission has no systematic information,
even ex postfacto, on decisions taken. Only when
checks are made on the spot or in connection
with particular problems are individual decisions
the only Community
examined.
standards existing at
this level are compliance
with the programme guidelines and any criteria
that may have been drawn up by the monitoring
committees. Community objectives and proce¬
dures have little effect on the actions of local
management.

In practice,

As to impact assessment, the lack of statistical
data and detailed information on measures
the difficulty in seriously
already referred to,
establishing relationships of cause and effect,
and in particular the absence of specific prede¬
termined objectives and of quantifiable
forecasts in terms of economic and social
effects make it difficult
to assess whether
measures have been properly carried out or to
make a sound judgment about any disparities.
It is thus all the more difficult to identify alter-

SOUND FINANCIAL MANAGEMENT

if

no

far

that

lasting purpose or

to ascertain whether

is therefore important

concern of
as

required by the labour market, or

It
mental
effectiveness.

to achieve a funda-
improvement in both transparency and

native solutions to remedy the deficiencies
found in the future.

has been interpreted with increasing laxity and it
from
continues to be measured in a
convincing manner, chiefly because of the lack of
suitable data about all the measures contributing
to structural development and how they are
progressing. There is hardly any Community
monitoring of the use to which investments are
Systematic information should be provided pUt, either to check that they serve a real and
about fund financing both to the public and to
the
the Commission and the national and regional operating conditions are appropriate. Only
information is occasionally is the Commission able to check,
authorities concerned. Better
needed about the types of operation that may
for example, that structures that have been built
be financed by the funds and about the proce-
are operating properly, are regularly maintained
dures to be followed by parties interested in ar_d that the utilisation rate is as anticipated, that
training given is indeed that
such financing. Projects must be selected on the the professional
basis of precise comparable criteria using proce-
the
dures that can be monitored. The aim is to production processes satisfy the requirements of
ensure that the projects selected are the most Community legislation,
effective and have a lasting impact in terms of
structural development. This can be achieved A simple view of the principle of subsidiarity
only if those responsible have available, in good might suggest that project management was the
time, the information they need for their own exclusive responsibility of national and regional
decision-making,
the procedures to be authorities and was
the
followed are clearly defined and if the reasons Community authorities, except
regards
for the selection or non-selection of projects are examining the overall effects of the financing
true that
known.
regards the
If operations are to be effective, the programmes
is essentially a
defining the proposed measures, their scope, the matter for national and regional authorities, the
results to be Community authorities need to be aware of how
links envisaged and the overall
achieved must be precise, specific and structured,
these powers are exercised and to supervise
It must of course be possible to modify things better,
programmes, especially if
technological or economic reasons opening up Without
represented by the
new directions for development. They should Community contribution will
remain too
not, however, be a kind of funding package uneven, and both its transparency and its effec-
tiveness will depend entirely on the good
whose contents can always be distributed at will,
depending on the difficulties encounteted along organisation and initiative of the authorities
and services responsible for deploying the
the way.
funding in
the Member States. Better
The effectiveness of operations of course Community supervision would not only make
depends in the first instance on the physical and for greater consistency between the operations
financial progress made in their execution. It also
financed and Community objectives, but
the would also enable such perverse effects to be
depends on the aid being additional
measures already undertaken by the national and avoided as enterprises being encouraged by
regional authorities for structural development competing public aid to migrate between States
and regions or the risks of conflict between the
purposes. Over and above these factors, however,
effectiveness depends on the real and specific use general objective of aid for structural develop-
of the investments made, which must comply ment and the use of the funds as instruments
both with the objectives for which they were
financed and the provisions of Community
policies.

provided.
programme implementation,
individual decisions to grant aid,

Given also the theoretical and practical difficul¬
ties of creating an overall system for monitoring
As far as physical and financial progress is performance, providing for a satisfactory follow-
up and an appraisal based on the effectiveness of
concerned,
albeit with variable results. Nevertheless, signifi- operations will always be a problem without
in the more accurate information on the projects
cant progress needs to be made above all
other two areas. The principle of additionality financed. Such was indeed the Community's

In reality, while it
as

the Commission is always active,

for various sectoral policies,

there are precise

the 'plus'

to all

that,

is

65

fi

THE EUROPEAN COURT OF AUDITORS 1977-1997

initial conception of programme financing,
system was put in place and the principle was
especially in the integrated Mediterranean subsequently abandoned,
thus depriving the
included a Community of the essential feedback required in
programmes,
system for monitoring the projects financed and order to be aware of and able to evaluate the
the use made of them, but no such monitoring results.

a conception that

COORDINATION, SIMPLIFICATION

AND DIVERSIFICATION

OF SUPPORT MEASURES

MEASURING

THE EFFECTS ON EMPLOYMENT

set of measures.

(A) Coordination aims to combine the use of practices still vary greatly, and exchanges of
information between managers of the various
instruments so that they make the best possible
contribution to the achievement of objectives. It
instruments are not enough to take maximum
requires an extensive exchange of information advantage of the opportunities for complemen-
tariry. A more harmonised and unitary approach
between managing services and the harmonisa-
tion of the procedures and criteria followed so as
should at least allow similar data and documen-
to increase the impact of the various measures
ration to be obtained for the various instruments
and integrate them. It is therefore essential for and provide a basis for an overall assessment of a
achieving the objectives of the Structural Funds,
It is necessary both at Community and national
(B) The concept of management simplification
or regional
level, between the funds and other
instruments, and even within covers several aspects that must be clearly distin-
similar financial
the same fund, in order to avoid incompatible or guished. The procedure for drawing up and
implementing an operational programme is not
even inconsistent approaches.
in some respects it is actually too
complicated;
The regulations require the Commission to simple. The authorities concerned may present
ensure coordination of the various measures and
in the form of a single program-
the Community support frameworks to include ming document which, once approved, estab-
financing divided into
an indicative financing plan showing the amount
of the financial allocations planned for
instalments and sub-programmes. Most
various instruments where they contribute payments are made in advance and the
directly to the financing plan concerned. The documentation that must be produced to justify
the payment of instalments is limited to an attes-
programmes presented are a succession or juxta-
position of proposals of a sectoral nature with no
tation that
the advance has been used and an
real coordination or integration of the proposed annual report,
operations, which can in most cases be consid¬
ered as simple applications for particular The first complicating factor results from the
categoties of aid. The existence of separate accumulation of procedures where a number of
programmes for different funds in one and the programmes exist side by side for the same area,
In view of the diversity of funds, the overlap in
same region, with separate monitoring arrange-
programming periods and the-diversification of
ments, encourages differences in approach.
programmes for Community initiatives, it is not
Coordination at
uncommon for more than 20 programmes to
national or regional levels is difficult. Even in the have to be managed simultaneously in the same
area or region. The number of programming
Community

administration, management

the different Community,

lishes a timetable for

their proposal

the annual

SOUND FINANCIAL MANAGEMENT

documents current on 31 December 1996, for
the period 1994 to 1999, was over 700 but, on
the same date, an even larger number of
programmes were still awaiting closure for earlier
periods. Such a proliferation of programmes is all
the less justified because the sums involved are
often small and could usefully be combined to
form a larger measure, which would simplify
procedures and documentation and allow opera¬
tions to be monitored better.

determining the precise content of services to be
their quality and hence their value,
provided,
and in making an appropriate choice between
financing that will boost demand for services
and that which will
increase their supply. The
precise contribution made by projects,
their
long-term effects and the risks of combining
them also need to be examined in their own way,
since the conventional methods of assessing
projects are often inadequate.

that

(D) One fundamental aspect of what is expected
from a structural measure is that it should have
direct and indirect effects on employment. The
is the number of persons
direct effects,
employed in putting an investment in place and
then on operational tasks are less significant. It
does not in fact take very long to put an invest¬
ment in place and as regards operation, it must
the initiative receiving
be remembered that
support will have negative effects, albeit of
in competing enterprises or
varying intensity,
regions, resulting in job losses in the short or
long term.

thing is in particular the net
The significant
result and the overall knock-on effect,
the
capacity of the productive investment or infra¬
structure or of both together to contribute to the
general development of the activity. Too many
projects are under-used or have the effect chiefly
of increasing the stock of physical capital with no
lasting impact on development or employment.

65

that

In any case,
the direct and indirect effects on
employment are difficult
to measure. The
process of information and assessment as regards
is very inadequate and most often
this subject
confined to recording the immediate direct
effect. It is important, as much in order to hone
selection criteria and priorities as for any other
investments on
reason,
employment should be better known and
taking into account
the general
measured,
background and all relationships of cause and
effect. Tighter control over these matters is also
essential for limiting the distorting effects that
may occur between competing activities and
areas and which are detrimental to the effective¬
ness of the support measures.

the impact of

It is also important that the procedures followed
should really be useful. This is not always the
case with the content of most programmes,
which include a great deal of a descriptive or
indicative nature or contain large numbers of
tables that are of little use in carrying out the
work and are subsequently changed with scant
the adoption of better
formality. Moreover,
harmonised procedures, forms and terminology
by the Community administrations in charge of
the various funds could also make management
work simpler.

(C) The growth in support measures under the
Structural Funds has been accompanied by a
major diversification in the types of operation
In addition to traditional
financed.
infrastruc¬
ture projects, productive investments and
there are now promotional
training activities,
and advisory activities, network creation,
exchanges of experience,
financial engineering,
cultural activities, etc. There are also a number of
projects seeking to familiarise enterprises with
new information and communications tech¬
nologies.

The aim is to explore new types of support
measure and much effort has been made in this
direction. However, examination of the projects
financed reveals that they are often vague and
that there has frequently been scant preparation
as regards defining the operations to be carried
Implementation may be accompanied by
out.
sometimes far-reaching changes to the original
in order to qualify for
plans that were essential
Community finance;
the changes generally
innovatory and
involve abandoning the most
most difficult aspects of the projects in favour of
those of more limited interest in terms of the
acquisition or development of knowledge.

While non-physical activities are growing in
influence and scope and must
increasingly be
taken into consideration, it must nevertheless be
observed that the management of such projects
makes demands of its own and also calls for new
techniques being inappro¬
methods,
priate. Special precautions have to be taken in

the usual

THE EUROPEAN COURT OF AUDITORS 1977-1997

CONCLUSION

There is a great temptation to treat Community The structural effort
the
in law and in fact, increas- Community s future. In a context of budgetary
structural measures,
ingly as primarily budget support for national or discipline and increased economic and social
regional measures. Such an approach entails the cohesion, the role of the Structural Funds needs
risk that the funds may not be properly used in to develop under optimum conditions of trans-
accordance with Community objectives.

parency and effectiveness.

is essential

for

In order to ensure that the principles of the If the use made of financing is to be better
the advantages of the known and structural policies are to have a
reform are carried out,
programme approach need to be further recon- greater
to be better
impact,
ciled with the need for appropriate information Community control and closer supervision of
on the operations implemented and their
results.

the various management levels,

there needs

It is not enough to rely increasingly on the local
to be an active
there also needs
levels,
Community presence at those levels.

66

SOUND FINANCIAL MANAGEMENT

Annex

67

THE EUROPEAN COURT OF AUDITORS 1977-1997

Graph 1
Expenditure by Structural Funds objective: Budgetary payments in 1996

(million ECU and %)

I Objective 1: 14 699.5

Objective 2: 1 636

I Objectives 3 and 4: 2 321.7

I Objective 5a: 818.2

I Objective 5b: 901.6

Objective 6: 51.5

EAGGF-Guidance

ERDF

ESF

Cohesion Fund

Fisheries-FIFG

Community
initiatives

Other expenditure

8%

68

Source: Commission (Sincom sysrem).

Graph 2
Structural Funds: Annual payments from 1987 to 1996

(million ECU and %)

Source: The Commission's revenue and expenditure account.

SOUND FINANCIAL MANAGEMENT

MEASURES OUTSIDE
THE EUROPEAN COMMUNITY

INTRODUCTION

Community external aid has increased greatly in the last 20 years.
This increase in volume has been accompanied by a geographical diversification of
aid (i.e. aid to the countries of central and eastern Europe and to the countries of
the former Soviet Union) and a diversification of the instruments used (i.e. decen¬
tralised aid in the PHARE and MED programmes). There has also been a large
increase in humanitarian aid and aid to NGOs active in non-member countries.
The Court of Auditors has followed this increase closely since its inception, as
shown by its annual reports, special reports and opinions devoted to the manage¬
ment of external aid and the associated regulations.

The successive Lome Conventions (European Development Funds
EDFs), the
decisions relating to the enlargement or the Union to include the countries of
central and eastern Europe (PHARE), the importance given to supporting change
in the countries of the former Soviet Union (TACIS), the agreements concerning
the renewed Mediterranean policy (MED), the aid provided in respect of major
humanitarian crises (Great Lakes, the former Yugoslavia), and the initiation of a
common foreign and security policy (CFSP) are all milestones in the aid given by
the Union to the development and reform efforts of non-member countries.

There are two kinds of Community aid, each with its own source of financing,
legal basis, rules and particular targets.

The first consists of the EDFs, which exist outside the Community budget, for
the African, Caribbean and Pacific countries;
they are financed by separate
contributions from the Member States of the Union; the conventions signed by
the Union and the ACP countries form the legal basis;
the rules are based on
those conventions and on internal agreements of the Member States, and the
funds are not subject to the budgetary principle of annuality. Moreover, even
though each EDf is approved for a period of five years,
the funds may be
expended until they are exhausted.

The second kind consists of budget expenditure and covers aid to Latin America,
Asia and Mediterranean non-member countries, specific measures in central and
eastern Europe and the countries of the former Soviet Union and, at world level,
food aid, humanitarian aid, aid to NGOs and aid to democratisation processes.

Expenditure under the EDFs amounted to ECU 1 317.4 million in 1996, whereas
in 1982 it was only ECU 718.7 million (see Annex 1.1).

As far as the Community budget is concerned, commitment appropriations for aid
to non-member countries increased fivefold between 1983 and 1996, when they
amounted to ECU 5 132 million; one of the most important factors in this growth
is that of aid to the countries of central and eastern Europe (CCEE), which, in
terms of appropriations, increased from zero in 1 989 to ECU 1 773 million in

69

THE EUROPEAN COURT OF AUDITORS 1977-1997

1996. A similar trend can be seen in annual commitments, which amounted to
ECU 5 591.8 million in 1996, in terms of financing decisions, though ECU 685
million could not be covered from the year's budget for lack of sufficient appro¬
priations (mainly MEDA programmes). Community payments in the field have
increased threefold, rising from ECU 1 010.5 million in 1983 to ECU 3 476
million in 1996, including ECU 1 208 million for central and eastern Europe (see
Annexes 2.1 to 2.4).

Within these two kinds of aid
the types of aid are
very diverse: balance of payments or budget support for non-member countries,
aid for specific infrastructure projects or risk capital operations, and technical
assistance programmes.

EDF and general budget

This diversity in the aid has resulted in specific problems in each field. However,
as the Court of Auditors noted in 1992 (paragraph 17.2 of the 1991 Annual
Report), there is some similarity between the problems of administering develop¬
ment aid in most of the recipient countries and in the Commission's management
of the aid, regardless of the source of financing.

While recognising the many positive aspects of the Union's policy as a whole,
which has become the largest source of finance and an essential reference point at
world level for the development of the least developed countries and for the trans¬
formation of the countries of eastern Europe into market economies, the purpose
of the following paragraphs is to highlight some of these problems and to
contribute to a discussion that will help to improve the management of the actions
undertaken.

70

SOUND FINANCIAL MANAGEMENT

THE QUESTION OF RESOURCES

resulting from the lack of resources by making
use of technical assistance and service contracts
to increase the management capacity of
the
Commission central services and the delegations
to the
or
national administrations benefiting under
decentralised programmes.

to provide administrative support

if

This is not without its problems, however. On
the one hand (see the 1991 Annual Report,
'Observations on cooperation with the countries
of America and Asia'),
the Commission
encourages competition between experts, it risks
producing a high turnover, which is conducive
neither to the experts contracted having a grasp
of the situations in question nor to making best
use of them, since no sooner have they gained
such a grasp than they have to leave their posts.
On the other hand, if the Commission favours
continuity,
risks seeing experts appointed
under contract as temporary staff eirher to the
administrations of the beneficiary countries or to
itself. In such cases, the service contracts with the
technical assistance bureaux (TABs) and experts
are successively extended at the risk of bringing
about dependence, with no assurance that the
Commission has the best experts.

it

Some examples have been found of a return to
mini-budgets (a device for charging administra¬
tive expenditure to operational expenditure
lines) and of third parties performing
budget
public-sector functions. Such situations may give
rise to conflicts of interest, as in the case of the
MED programmes.

timely

and adequate

The increase in the aid was not accompanied by
in the
a
Commission's management resources, either in
terms of personnel or in terms of their command
of the new instruments being used.

increase

the Court of Auditors has drawn
Since 1990,
attention in its reports to the imbalance between
the volume of external aid the Commission is
called upon to manage and the resources
provided for it to do so.

'Observations on the
As early as 1991 (i.e.
management of development aid programmes in
Latin America and Asia',
'Special report on the
first Mediterranean protocols'), the Court noted
the effect of the lack of resources in the
in management and
weaknesses observed
monitoring, in the lack of realism in the defini¬
tion of objectives and in the inadequacy of the
evaluations. It also found delays in implementa¬
tion, which made aid less effective. The Court
made a similar analysis in 1 995 both in this field
and in that of
the PHARE and TACIS
programmes (see the 1995 Annual Report).

Specific comments have been made about the
lack of resources made available to Commission
countries,
delegations
especially in the financial field (see 'The role of
in this section).
the delegations'

non-member

in

Not being in a position to adjust the priorities in
the allocation of its internal resources to meet
the growing needs in the field of external aid, the
Commission has often tried to bridge the gaps

THE MANAGEMENT SYSTEM

As far as the management of external aid is
concerned, a clear choice has still not been made
of the system to be used in the light of the
characteristics of the aid and the resources that
the Commission can reasonably allocate to it.

the geographical spread,

The decentralised execution appropriate to
systems of aid,
the
diversity of instruments used and of manage¬
ment systems in the various beneficiary countries
all argue in favour of a decentralised system of

as

the Commission itself has
management,
recognised in connection with the efforts made
for SEM 2000.

Such decentralisation may be to other specialist
the governments of beneficiary
agencies,
countries or, in the form of delegated powers, to
local Commission delegations.

According to the Treaty on European Union and
the successive Lome Conventions, such decen¬
tralisation must not involve a loss of decision-

71

THE EUROPEAN COURT OF AUDITORS

1977-1997

or

power

relaxation of

making
the
a
Commission's responsibilities as chief auth¬
orising officer, whether it is the implementation
of the Community budget or of that of the EDF
that is being decentralised.

72

the system of management
In general, however,
adopted by the Commission is often a centralised
one, and even where decentralisation is envisaged,
it
is never complete. Key points concerning
decision-making, auditing and related accounting
are still always centralised, which increases the
management burden, causes delays and causes
operations to be less effectively executed.

In the EDF, contract management is the respon¬
sibility of
the ACP States. However, such
contracts must be endorsed by the delegation and
in some cases
formally authorised by the
Commission itself, which also keep accounts of
the relevant commitments. Payment orders are in
most cases issued at local level after authorisation
by the delegation, in agreement with the author¬
ities of the beneficiary State (national authorising
officer). These payments are then settled ex post
facto by the Commission Accounting Officer and
Financial Controller in Brussels.

In the case of the PHARE programme,
the
delegations supervising the operation of the
in theory, full
decentralised system (DIS) have,
responsibility for the implementation of projects
and programmes in the beneficiary countries.
However, work programmes under
financing
agreements must be approved by the Commission
itself before going to the Financial Controller.
Likewise, contracts in excess of ECU 500 000
must be endorsed by the Commission in three
for tenders, evaluation of tenders,
stages (call
contract). This practice, which runs counter to
the idea of decentralisation, has helped to make
in decentralised project
the delays inherent
than those of
management even greater
the
PHARE centralised management system.

PROGRAMMING OF AID

cases

(MED programmes),

In other
the
Commission's lack of resources has resulted in
Commission functions being subcontracted to
private enterprises, which may have resulted in a
conflict of
improving
interests, while not
management.

In cases where there is real decentralisation, the
Commission is prevented by weaknesses in
monitoring, supervision and auditing on the
part both of delegations and the Commission
itself
from discharging its responsibility as
ultimate guarantor of the implementation of the
Community budget and the EDF.
One specific case involves the management of
operations involving risk capital and interest-rate
subsidies financed by the Community budget and
the EDFs, which is contracted out to the EIB.
Even though the Commission is not involved in
the implementation of measures, either at central
or at delegation level, it retains ultimate responsi¬
bility for their implementation and ought, there¬
fore, to define clearly how it exercises this respon¬
sibility with regard to the EIB's work.
Consideration of these questions should help to
solve the problems of control, supervision and
accounting which arise in decentralised manage¬
ment and which have resulted in inaccuracies in
the presentation of financial statements and in
appropriations remaining poindessly frozen (in
this connection, see the observations by the Court
of Auditors concerning the presentation of the
balance sheet and dormant commitments in the
reports in support of the DAS-EDF (Statement of
Assurance), and the opinion of the Court on the
financial regulation applicable to the eighth EDF).

is

on

the

spot

In general, decentralisation to Commission
delegations
inadequate.
Delegations always have a responsibility for
in practice their decision¬
monitoring, but
making powers are too limited. Any significant
decision is referred back to the Commission
itself, running the risk of overloading it.

For some time now, the trend has been towards
an increase in programme aid. The instruments
used for aid to the countries of central and
eastern Europe, and to Mediterranean non-
member countries, are of the programme type.
in the case of humanitarian aid,
Even
programmes (overall plans) are used for large-

scale and extended crises. A growing proportion
of the aid financed by the EDF is also granted in
the form of programmes.

In principle, a programme is launched in
response to an assessment of the needs in a
particular field. It normally sets out the general

SOUND FINANCIAL MANAGEMENT

objectives in the light of
those needs and
includes a set of measures to be translated into
specific projects, which are organised according
to lines of action serving the various objectives.
It must contain a timetable for the measures and
specify the various sources of financing for the
programme and the limits of, and terms for,
Community financing.

Management must
focus on the overall objec¬
tives of each programme. This has not always
in
been done by the Commission, which,
practice, often continues to put more emphasis
on each of the different projects making up the
programme than on those projects as a whole
and the interplay between them.
Both the planning and the implementation of
the programmes give rise to particular problems
require different solutions from those
that
demanded by the management of individual
projects. A programme is not simply a set of
projects: the important thing is how the various
projects interrelate in order
to achieve the
programme's objectives.

In addition, where development aid or humani¬
tarian aid are concerned,
there may always be
several donors for the same programme, and
these need to be coordinated to avoid duplica¬
loss of effectiveness. The Court of
tion or
Auditors' observations on humanitarian aid and
on aid for certain items of budget expenditure of
the Palestinian Authority (see the 1995 Annual
the dangers of an
Report)
approach that gives priority to projects over
programmes and that has failed to take adequate
account of other donors' contributions.
Sometimes, the needs of and constraints on ACP
countries are not clearly defined. As a result, there
are problems of
implementation and major
changes have to be made to the way the aid is
oriented. Difficulties generally arise in drawing

illustrate well

up an implementation timetable that can be
agreed between the ACP State and the
Community. The same is true of the drawing up
of comparative statements of estimates and
performance with explanations of the reasons for
delays and of the follow-up meetings (ACP State-
delegation) provided for in the conventions.

Other similar problems (unsuitable resources,
inadequate absorption of the aid, vagueness of
programmes) have also slowed down the pace of
implementation of
the PHARE programme,
while in the case of the TAOS programme
(technical assistance to the independent States of
the former Soviet Union and Mongolia), failure
to take into account
the constraints on and
the lack of
priorities of the recipient country,
resources and organisational difficulties have led
to low implementation rates.

Implementation is also slow in cooperation
programmes with Latin America and Asia (LAA)
and with Mediterranean non-member countries
(MED), where the implementation periods of a
growing number of projects are increasing as a
result of an accumulation of commitments in the
last months of the year, but also because of ineffi¬
cient procedures and a lack of resources.

All
the signs are that the aim is to achieve the
objective of very high rates of implementation of
commitment appropriations. However, these rates
conceal a different reality: there is often an 80 %
ceiling on the implementation of payment appro¬
priations, the origin of which lies in the choice of
unsuitable projects and inadequate preparation
and monitoring of the activities that make up the
programmes (see the difference between commit¬
ments and payments in Table 1.1, Annex 1, and
Tables 2.3 and 2.4, Annex 2, and the ever¬
growing amount of commitments awaiting clear¬
ance in Table 2.1, Annex 2).

73

CONTROL, MONITORING
AND EVALUATION

Programme implementation needs to be suffi¬
ciently flexible to allow aid and/or projects to be
reorientated as circumstances change. The
programme evaluation and feedback that must
follow are valuable tools for ensuring the aid
given is appropriate in the medium term.
Control and close monitoring of programmes
and projects are also always necessary.

The Commission's lack of resources and the
mainly financial and centralising approach to
monitoring and control do not allow it to react
and direct programmes.
the
culture of evaluation has only recently become
generally accepted for this type of aid, so that
even when evaluation reports existed, too little
account was taken of them in determining the

is more,

"What

74

THE EUROPEAN COURT OF AUDITORS 1977-1997

direction to be taken by new programmes or
operations.

The Court of Auditors' reports on the last few
financial years often note weaknesses in the
control, monitoring and evaluation of external
aid, normally resulting from the problems of
lack of resources already mentioned. Thus, the
Commission had five officials for the manage¬
ment of TACTS projects (centralised manage¬
in Ukraine, who were also responsible
ment)
for managing projects in Belarus and Moldova;
in the field of nuclear safety in Ukraine, project
monitoring was the responsibility of just one
local agent of the delegation. In the EDF's case,

the centralisation of key decisions, of control
and of the resources deployed have not allowed
adequate supervision to be put in place. Just
one staff member was responsible at central
level for supervising the structural adjustment
support programmes in Morocco, Tunisia and
Algeria, whilst supervision and monitoring at
delegation and technical assistance levels were
inadequate.

The problems of inadequate monitoring also
affect the evaluation of aid; units responsible for
evaluation have been in general existence for
only a short time.

THE ROLE OF THE DELEGATIONS

The Court noted in 1991 that the economic and
social problems of many non-member countries
have grown, despite the increase in resources
allocated to development aid and the introduc¬
tion of new aid instruments. This situation is
due in part to the increase in those countries'
foreign debt burden, which has led to them
devoting a growing proportion of their budget to
servicing it and, in consequence, the danger that
the initial destination of foreign aid might be
changed in net
terms (including the recipient
country's budget contribution to the financing
of expenditure on the target sectors). Under
these conditions, better monitoring and better
evaluation of programmes and projects are essen¬
tial if aid is to be more fairly and more effectively
allocated.

It would therefore be necessary to redefine the
role of the Commission itself and its delegations
in order to achieve these objectives.

In the light of the number of aid programmes
and the hundreds of operations they have to
monitor, the resources available to a delegation
in any given country are small. A delegation in
the ACP countries (EDF) most often consists of
the delegate, four or five advisers specialising in
different fields of development, an attache and
local personnel for administrative matters. In the
countries of central and eastern Europe
(PHARE), delegations consist on average of four
officials and seven local staff, and the situation is
no better in the countries of the former Soviet

Union (TACIS) or in Asia, Latin America and
In view of the many tasks
the Mediterranean.
delegations are called upon to perform and the
lack of financial specialisation, it tends to be the
financial tasks that suffer.

The delegation is, however, the point of contact
with reality on the ground and should be
the successive stages of the aid
involved in all
identification of needs,
management process:
setting of objectives, choice of the most suitable
instruments, possibly also the drawing-up of
programmes, selection of projects and contrac¬
tors, monitoring and auditing of operations,
scrutiny and authorisation of payments, and
evaluation. Very often, it has to make good with
the failings of local administrations and play a
political role in relations with the authorities of
the recipient State and local representatives of
other States and donor organisations.

With this in mind, fresh instructions concerning
the respective roles of the Commission itself and
its delegations in the PHARE countries were
issued in December 1995. The external service
of
In
the Commission is being developed.
addition, the Commission's proposal for the new
financial
regulations applicable to the eighth
EDF provides for the decentralisation of the
authorising and accounting officers' powers to
delegations.

The same proposal envisages a change to the
system of financial control towards ex post facto
audits of payments authorised by the delega¬
tions.

SOUND FINANCIAL MANAGEMENT

However, because of the links that exist between
aspects are not themselves changed (i.e. a change
to or decentralisation of the system of autho-
the various parts of the present system of
rising expenditure would be likely to affect
management and control, an isolated change to
one aspect may either cause problems for the financial control and accounting; a change to the
smooth running of other aspects or prevent the system of financial control also alters the system
intended objectives being achieved if those other of responsibilities, etc.).

CONCLUSION

In the quest to make aid more effective, it would This should include the adoption of a clear
be desirable to conduct a general review of the position on decentralisation, a better definition
the different of programmes and the continuation of efforts to
role to be played by each of
improve coordinarion with other donors,
elements
monitoring, evaluation and feedback.
managing external aid.

in the Community system for

The SEM 2000 initiative recommended by the Without consistency between the aims and
Commission with a view to improving financial
resources, between the new responsibilities and the
in the Commission and in the number of staff, especially in delegations, and their
management
Member States could provide the framework for expertise, such a review is likely to lead to
improvements that are little more than theoretical.
such a review.

yc

SOUND FINANCIAL MANAGEMENT

Annex 1

EDF DEVELOPMENT AID

1.1. Implementation by year
1 .2. The seven EDFs

Development of annual payments

77

THE EUROPEAN COURT OF AUDITORS 1977-1997

Table 1.1

Implementation by year

(million ECU)

Total aid
allocated

Programmable
aid

Non-program¬
mable aid

Commitments
for the year

Payments

Unsettled
commitments

Available
funds

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

7 958

7 958

7 958

7 958

12 374

12 399

12 649

12 880

12 824

19 045

19 074

19 593

19 654

19 667

19 736

5 617

5 658

5 663

5 664

8 177

8 195

8 215

7 952

8 072

11410

11 388

11473

11396

11463

11485

2 341

2 300

2 295

2 294

4197

4 204

4 434

4 928

4 752

7 635

7 686

8 120

8 258

8 204

8 251

647.2

718.7

703.0

698.0

846.7

837.9

1 196.3

1 297.1

3 919

2 650

2 382

1661

797

1 256.5

7 371

2 111

2 121

3 121

1794

965

1 1912

1 941.5

1 353.6

1 781.6

1 563.7

1 317.4

1838

3 435

4 737

5 878

5 743

5 145

7 518

6 846

6 575

5 492

5 449

5 096

1297

8 455

5 830

3 698

2 268

1415

11674

9 592

7 990

4 930

3 149

2 792

78

Graph 1.1

Implementation for the year

(million ECU)

Total aid allocated

Programmable aid

Non-programmable aid

Commitments

Payments

Unsettled
commitments

Available funds

SOUND FINANCIAL MANAGEMENT

Table 1.2

The seven EDFs

Development of annual payments

(million ECU)

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1st EDF (')

2nd EDF

0.4

0.1

0.1

3rd EDF

11.2

14.2

8.2

6.0

3.6

2.2

4th EDF

305.5

285.2

185.2

105.7

108.5

70.2

38.4

32.2

22.1

5th EDF

330.1

419.2

509.5

586.3

617.9

412.9

350.2

240.7

194.0

136.4

137.9

76.4

6th EDF

7th EDF

Total

116.7

352.6

807.7

1024.2

1040.4

8593

914.8

571.6

449.2

268.2

199.1

647.2

718.7

703.0

698.0

846.7

837.9 1 196.3 1 297.1 1 256.5 1 191.2 1 941.5 1 3536 1 781.6 1 5637 1 317.4

195.5

888.8

705.6

1332.4

1295.5

1118.3

(') There are no data available lor payments concerning the first EDF

79

I 2nd EDF

I 3rd EDF

4th EDF

I 5th EDF

I 6th EDF

I 7th EDF

Graph 1.2

The seven EDFs

Development of annual payments

(million ECU)

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

(cid:9)
SOUND FINANCIAL

MANAGEMENT

Annex 2

DEVELOPMENT AID IN THE BUDGET

OF THE UNION

2. 1 . Budgetary implementation

2.2. Available appropriations
2.3. Annual commitments
2.4. Annual expenditure

2.5. Unsettled commitments

81

THE EUROPEAN COURT OF AUDITORS

1977-1997

Table 2.1

Budgetary implementation

(million ECU)

Total aid
allocated

Commitments
of the year

Payments

Unsettled
commitments

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1243

1291

1427

1495

1344

1284

1436

1954

3 540

3 749

4 070

4 014

4 960

5 143

1 Oil

1 142

1 076

1 186

1 122

1 167

1323

1880

2 944

3 657

4 005

3 733

4 787

4906

757.7

1 094.6

1 026.6

792.5

714.7

1 036.3

1 0191

1 217.7

2 208.2

2 024.2

2 410.2

2 918.3

3 158.9

3 476.0

927.0

1 118.5

1 256.5

1 6129

1 907.8

2 088.6

2 394.4

3 014.5

3 682.0

5 669.2

7 275.5

8110.4

9 881.8

1 1 306.0

82

Graph 2.1

Budgetary implementation

(million ECU)

Total aid allocated

Commitments of the year

Payments

Unsettled commitments

___

-*
-

SOUND FINANCIAL MANAGEMENT

Table 2.2

Available appropriations

(million ECU)

Food
aid
(B7-20)

Humanitarian
aid
(B7-21)

DCLAAs
(B7-3)

MED
(B7-4)

NGOs and
democracy
(B7-6 + B7-7)

PHARE
(B7-50)

TACIS
(B7-52)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

537.950

501.000

685.500

689.600

600.100

563.291

675.727

556.572

684.900

800.650

574.000

589.100

646.300

57.3.370

21.500

371.655

223.414

138.500

363.860

180.242

23.730

23.500

20.782

49.000

36.880

379.184

475.316

399.894

319048

262.433

205.421

197.755

193107

347.300

210.114

98.800

.323.989

261.804

172.515

428.391

815.970

88.065

107.069

76.529

101.402

125.025

159165

166.307

213.179

265.900

500.000

775.000

396.500

244.819

581.400

570.159

702.500

717.392

508.281

416.730

342.299

1 015.500

569.000

578.700

399.905

439850

460.300

1 010.275

540.702

835.000

460.000

420.000

475.000

757.553

562.800

636.903

1 152.290

669.500

656.400

769.133

1 228.500

501.190

528.000

83

Graph 2.2

Total allocation

(million ECU)

Food aid (B7-20)

Humanitarian aid (B7-21)

-*

DCLAAs (B7-3)

MED (B7-4)

-9K

-

H(cid:9)

NGOs and democracy
(B7-6 + B7-7)

PHARE (B7-50)

TACIS (B7-52)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

THE EUROPEAN COURT OF AUDITORS 1977-1997

Table 2.3

Annual commitments

(million ECU)

Food
aid
(B7-20)

Humanitarian
aid
(B7-21)

DCLAAs
(B7-3)

MED
(B7-4)

NGOs and
democracy
(B7-6 + B7-7)

PHARE
(B7-50)

TACIS
(B7-52)

537.150

500.932

685.500

664.644

499.990

475.725

571.944

536.031

619.021

771.429

533.074

541.911

598.144

479.204

19.708

241.308

131.930

138.250

266.733

137.365

23.130

10.268

19113

48.200

36.174

165.744

154.675

283.382

155.824

378.089

307.789

346.149

107.448

179457

204.557

97.942

298.164

239-964

80.421

98.722

46.619

71.117

117.539

155.643

163.923

207.911

500.000

170.924

425.071

693.927

260.362

775.000

244.792

492.237

377.624

337.154

1 015.277

418.915

581.371

561.233

396.705

451.939

1 008.894

472.088

550.647

427.034

419.702

515.996

818.325

459.682

628.413

739.782

554.597

618.526

1 146.382

501.186

689.052

652.006

591.495

741.484

1 228.368

525.000

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

84

Graph 2.3

Commitments

(million ECU)

Food aid (B7-20)

Humanitarian aid (B7-21)

DCLAAs (B7-3)

MED (B7-4)

NGOs and democracy
(B7-6 + B7-7)

PHARE (B7-50)

TACIS (B7-52)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

SOUND FINANCIAL MANAGEMENT

Table 2.4

Annual expenditure

(million ECU)

Food
aid
(B7-20)

Humanitarian
aid
(B7-21)

DCLAAs
(B7-3)

MED
(B7-4)

NGOs and
democracy
(B7-6 + B7-7)

PHARE
(B7-50)

TACIS
(B7-52)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

364.620

705.182

540.258

408.070

300.833

576.985

560.260

484.880

645.190

619.208

430.468

445.276

497.488

430.411

49.018

138.128

180.806

29.275

122.077

153.348

128.418

156.494

148.324

20.190

180.369

125.990

9.670

18.692

45.475

46.909

172.205

132.146

187.734

126.172

202.198

76.581

214.404

159.642

211.037

25.168

78.348

59.402

57.853

99.823

126.697

134.543

128.183

692.912

172.328

170.968

213163

286.353

176.982

268.853

235.652

256.668

434.024

32.726

326.039

291.604

363.656

297.029

521.049

180.321

526.748

303.487

306.656

331.153

704.989

496.806

371.878

286.805

368.874

767.024

575.783

436.273

357.499

468.218

838.413

299999

369.999

369.449

85

Graph 2.4

Payments

(million ECU)

Food aid (B7-20)

- Humanitarian aid (B7-21)

DCLAAs (B7-3)

MED (B7-4)

NGOs and democracy
(B7-6 + B7-7)

PHARE (B7-50)

TACIS (B7-52)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

THE EUROPEAN COURT OF AUDITORS

1977-1997

Table 2.5

Unsettled commitments

(million ECU)

Food
aid
(B7-20)

Humanitarian
aid
(B7-21)

DCLAAs
(B7-3)

MED
(B7-4)

NGOs and
democracy
(B7-6 + B7-7)

PHARE
(B7-50)

TACIS
(B7-52)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

132.642

350.328

446.578

427.276

434.977

480.374

462.177

611.830

622.335

718.970

819.626

870.505

516.419

629.357

638.709

741.857

383.830

393.420

399.744

429.584

947.016

400.753

2.728

4.966

6.786

9-567

18.990

1 067.859

22.803

1 209.826

456.123

580.632

26.841

93.048

80.508

84.310 .

103.813

118.294

146.200

48.537

1 292.726

682.923

181.043

329.031

49.933

1 502.698

628.891

220.592

817.677

74.166

1 723.051

421.599

1 963.292

445.498

2 086.839

785.217

824.518

945.944

293.059

1 398.929

782.873

483.692

1 885.767

1 074.294

693.157

1 986.048

1 233.972

577.105

2 454.743

1 218.103

955.932

2 493.878

1 362.506

690.374

2 670.476

1 438.813

1 227.835

2 890.368

1 517.484

86

Graph 2.5

Balance outstanding

(million ECU)

Food aid (B7-20)

W Humanitarian aid (B7-21)

-k DCLAAs (B7-3)

MED (B7-4)

-* NGOs and democracy

(B7-6 + B7-7)

-PHARE
-i

TACIS (B7-52)

(B7-50)

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

SOUND FINANCIAL MANAGEMENT

OWN RESOURCES

INTRODUCTION

Background

The Community's own resources were created by
the Council Decision of 21 April 1970 to replace
financial contributions from the Member States.

Initially,
the Community's own resources
comprised traditional own resources (agricul¬
tural and sugar levies and customs duties) and a
rate levied on the uniform VAT base. The latter
came into effect only in 1979,
following the
adoption on 17 May 1977 of the sixth directive
(No 77/388) 'on the harmonisation of the laws
of the Member States relating to turnover taxes
common system of value added tax: uniform
basis of assessment'. Although the VAT resource
was originally limited to 1.0 % of the uniform
VAT base, on 7 May 1985 the rate was raised
from 1 .0 to 1 .4 % as a temporary solution to the
inadequacy of own resources to finance the
Community budget, which had become evident
in 1984.

Nevertheless, the outlook for the financial situa¬
the adoption of
tion remained uncertain until
Decision 88/376, which was the outcome of the
'Delors package' and which instituted a new
system of own resources. The new system
confirms the traditional own resources and the
the uniform base of which may
VAT resource,

not now exceed 55 % of GNP. It created a fourth
resource based on the GNP of the Member
States and adapts the correction mechanism for
the United Kingdom to the new system. At the
same time, it sets a ceiling to own resources as a
whole of 1 .20 % of GNP in payment appropria¬
tions and 1.30 % in commitment appropriations.

Council Decision 94/728 of 31 October 1994
on the system of own resources of the European
Communities gradually reduces (until 1 999) the
capping of the uniform VAT base to 50 % of
GNP, provided that per capita GNP is less than
90 % of the Community average, at
the same
time reducing the rate of the uniform VAT base
in stages to 1.0%. The ceiling on payment
appropriations will be raised to 1 .27 % in 1 999,
and the limit for commitment appropriations
will be increased to 1.335 % of the Member
States' total GNP in 1999.

Change in the amounts
of own resources

Graph 1 shows the changes in the amounts of
own resources available to the Communities
since 1977.

OWN RESOURCES

The philosophy behind the creation of the
Community's own resources was that of a
Community tax levied on a Community taxpayer
to the Communities.
who settles a fiscal debt
This philosophy has gradually changed into a
contributions approach (VAT and GNP 'own
the amount of which is determined
resources'),
essentially by each Member State's ability to pay.
All the adjustments made to the original system

of own resources (United Kingdom correction,
GNP own resource, capping of the VAT base)
were aimed at a fairer distribution of the burden
of financing the Community budget, GNP being
indicator available for the
considered the best
purpose. That is why all the decisions since the
new system of own resources was introduced have
moved towards having a growing proportion of
the finance based on GNP.

87

88

THE EUROPEAN COURT OF AUDITORS 1977-1997

All the own resources are made available to the
Commission by the Member States. The tradi¬
tional own resources are assessed and collected
by the national governments in the Member
States after deducting a flat rate of 10 % to cover
collection costs. The VAT resource is calculated
indirectly from the net receipts collected. The
weighted average rate of the VAT rates actually
applied in each Member State individually is
used to construct the VAT base. This is corrected
and adjusted to arrive at the uniform base. The
rate that determines the amount of the own
resource to be made available to the Commission
is applied to the uniform base. The GNP own
resource is arrived at by calculating a rate to be
applied to the GNP of each Member State.

Traditional own resources

are

are

collected

differences

in
provisions

The traditional own resources,
the only own
resources that can be considered a Community
accordance with
tax,
Community
that
largely
harmonised. However, on-the-spot checks still
in the application of
reveal
Community rules. The discrepancies between
Member States are made all the greater by the
number of developments that have taken place
in administrative and management techniques.
The Customs 2000 programme proposed by the
Commission and approved by the European
Parliament and the Council aims to bring about
greater convergence in management. The coordi¬
nation of the physical organisation of national
in such
services, such as computerisation or

national procedures as risk analysis and commu¬
nication between national administrations,
too
often still contains weak points that can be
exploited by unscrupulous operators.

The VAT resource

Although adopted in 1977,
the common VAT
system for establishing a uniform base has still
not been completely implemented in the
result of which the
Member States,
a
Commission has entered and maintains a
number of reservations about the calculation of
the VAT resource.

as

joint management units at
The lack of
Community level and the fact that administra¬
tive cooperation between national governments
can be both cumbersome and slow encourage
certain types of transaction aimed at avoiding
in intra-
VAT and other national
Community trade.

taxes

The GNP resource

Although the macroeconomic aggregate GNP is
indicator available for
considered the best
sharing the burden of financing the Community
budget among the Member States,
there are
nonetheless some uncertainties and inaccuracies
in the calculation, such as how to value and take
account of the black economy. These uncertain¬
ties and inaccuracies limit its reliability and its
comparability between Member States.

COMMON CHARACTERISTICS

Traditional own
resources and VAT

The tax avoidance, evasion and irregularities
found at Community level depend on a small
number of simple, not to say elementary princi¬
ples that involve working faster than the cooper¬
ation machinery between national administra¬
tions and exploiting inconsistencies in the trans¬
position or application of Community rules. The

major frauds discovered in transit have essen¬
tially exploited the slowness in cooperation
between national administrations. The more
recent tax evasions that seem to be growing in
the area of VAT on intra-Community trade
follow a similar pattern, namely, the conclusion
of a transaction by a person liable for VAT who
then disappears before the national administra¬
tion is informed of the irregularities by its
opposite number in another Member State.

SOUND FINANCIAL

MANAGEMENT

Own resources based
on VAT and GNP

The imperfections in the calculation of the GNP
resource are in part the result of difficulties experi¬
enced in the Member States in bringing the
parallel economic flows of the hidden economy

into the recorded circuits. Thus, national
tax
evasion affects the national VAT base in the first
instance regardless of whethet the transactions take
intra-Communiry trade.
place in national or
Undervaluation of the VAT base has a direct effect
on the VAT resource and may also affect
the
comprehensiveness of the GNP aggregate.

CONCLUSION

Many of the things discovered during audits are
the result of a lack or absence of harmonisation
and coordination in the way the rules are applied
in the Member States. The Commission has set
the SEM 2000 initiative in motion with the aim
of improving the management of Community

finances. However, in the field of own resources,
there is a need for greater rigour and consistency
in both the design and application of the specific
Community rules if the infringements, evasions
and irregularities found during audits are to be
avoided.

89

SOUND FINANCIAL MANAGEMENT

Annex

91

THE EUROPEAN COURT OF AUDITORS 1977-1997

Graph 1
Growth of own resources made available to the Communities (1978 to 1997)

(million ECU)

92

Graph 2
Growth of own resources made available to the Communities (1978 to 1997)

II

Breakdown in °/o

TWi u

I

I

I

I

I

1978

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

ANNEXES

:JROPX!$CHES PARLAMENT

*t\

**

tat

****

*n«u»

lsv*»»l «i»t

fcdmmttitMi

»H.»ll»>

MlkH

Facsimile of the first page of the draft
report of the European Parliament
on the draft treaty establishing a Court of
Auditors of the European Communities.

The rapporteur: Mr Heinrich Aigner,
President of the Committee
on Budgetary Control.

THE TREATY OF BRUSSELS

Treaty
amending certain financial provisions of the Treaties
establishing the European Economic Communities
and of the Treaty establishing
a single Council and a single Commission
of the European Communities

Official Journal
of the
European Communities

Volume 20 No L 359

31 December 1977

English Edition

Legislation

Contents

*

Treaty amending certain financial provisions of
the Treaties establishing the
European Economic Communities and of the Treaty establishing a single Council
of the European Communities (cid:9)

Chapter I: Provisions amending the Treaty establishing the European Coal and Steel

Community (cid:9)

Chapter II: Provisions amending the Treaty establishing the European Economic Com¬

munity (cid:9)

Chapter III: Provisions amending the Treaty establishing the European Atomic Energy

Community

Chapter IV: Provisions amending the Treaty establishing a single Council and a single

Commission of the European Communities (cid:9)

Chapter V: Final provisions (cid:9)

* Notice regarding the entry into force of the Treaty amending certain financial
provisions of
the
Treaty establishing a single Council and a single Commission of the European
Communities, signed in Brussels on 22 July 1975 (cid:9)

the Treaties establishing the European Communities and of

1

4

8

12

16

17

20

Acts whose titles are printed in light type are those relating to day-to-day management of agricultural matters, and are generally
valid for a limited period.
The titles of all odier Acts are printed in bold type and preceded by an asterisk.

(cid:9)
31.12.77

Official Journal of the European Communities

No L 359/1

TREATY

AMENDING CERTAIN FINANCIAL PROVISIONS OF THE TREATIES

ESTABLISHING THE EUROPEAN ECONOMIC COMMUNITIES

AND OF THE TREATY ESTABLISHING

A SINGLE COUNCIL AND A SINGLE COMMISSION

OF THE EUROPEAN COMMUNITIES

No L 359/2

Official Journal of the Furopcan Communities

il. 12.77

HIS MAJESTY THE KING OF THF Bl M.IANS,

HER MAJESTY THF QUFEN OF DFNMARK.

THE PRESIDENT OF THF. FtDFRAl RFPUBLIC OF GFRMANY.

THE PRESIDENT OF THE FRENCH RFPUBI K.,

THE PRESIDENT OF IRELAND,

THE PRESIDENT OF THE ITALIAN RFPUBLIC,

HIS ROYAL HIGHNESS THE GRAND DUKE OF I UXI'MROURG,

HER MAJESTY THE QUEEN OF T HE NFT HI RLANDS,

HER MAJESTY THE QUEEN OF THE UNITED KINGDOM OF GREAT BRITAIN' AND
NORTHERN IRELAND,

HAVING regard to Article 96 of
Community,

the Treaty establishing the European Coal ami Srrcl

HAVING regard to Article 236 of the Treaty establishing the Furopcan F.conomic Community,

HAVING regard to Article 204 of
Community,

the Treaty establishing the European Atomic Fncrgv

WHEREAS, as of 1 January 1975, the budget of the Communities is finnmcd entirely from rbe
Communities' own resources;

WHEREAS the complete replacement of
financial contribution'; of Member States by the
Communities' own resources requires a strengthening of the budgetary powers of the Assembly;

WHEREAS, for the same reasons,
supervised,

the implementation of the budget should be more closely

HAVE DECIDED to amend certain financial provisions of
the Treaties establishing the
European Communities and of the Treaty establishing a single Council and a single Commission
of the European Communities, and to this end have designated .is their Plenipotentiaries:

His Majesty the King of the Belgians:

R. VAN ELSLANDE,

Minister for Foreign Affairs and for Cooperation with the Developing Couniries;

Her Majesty the Queen of Denmark:

Niels ERSB0LL,

Ambassador Extraordinary and Plenipotentiary,
Permanent Representative to the European Communities;

31.12.77

Official Journal of the European Communities

No L 359/3

The President of the Federal Republic of Germany:

Hans-Dietrich GENSCHER,

Federal Minister for Foreign Affairs;

The President of the French Republic:

Jean-Marie SOUTOU,

Ambassador of France,
Permanent Representative to the European Communities;

The President of Ireland:

Garret FITZGERALD,

Minister for Foreign Affairs;

The President of the Italian Republic:

Mariano RUMOR,

Minister for Foreign Affairs,
President-in-Officc of the Council of the European Communities;

His Royal Highness the Grand Duke of Luxembourg:

Jean DONDELINGER,

Ambassador Extraordinary and Plenipotentiary,
Permanent Representative to the European Communities;

Her Majesty the Queen of the Netherlands:

L. J. BRINKHORST,

State Secretary for Foreign Affairs;

Her Majesty the Queen of the United Kingdom of Great Britain and Northern Ireland:

Sir Michael PALLISER, KCMG,

Ambassador Extraordinary and Plenipotentiary,
Permanent Representative to the European Communities;

WHO, having exchanged their Full Powers, found in good and due form,

HAVE AGREED AS FOLLOWS:

No L 359/4

Official Journal of the European Communities

31.12.77

CHAPTER I

PROVISIONS AMENDING THE TREATY ESTABLISHING THE EUROPEAN COAL AND
STEEL COMMUNITY

Article 1

After Article 7 of
the Treaty establishing the
European Coal and Steel Community the following
subparagraph is added:

'T he audit shall be carried out by a Court of
Auditors acting within the limits of the powers
conferred upon it by this Treaty.'

Article 2

Article 78 of
Coal and Steel Community is
following:

the Treaty establishing the European
replaced by the

'Article 78

The financial year shall run from 1 January

1.
to 31 December.

expenditure

administrative

The
the
Community shall comprise the expenditure of the
High Authority,
relating to the
including that
functioning of the Consultative Committee, and
the Council, and of the
that of
Court of Justice.

the Assembly,

of

1

Each institution of
July,

the Community shall,
2.
estimates of
draw up
its
before
administrative expenditure. The High Authority
shall consolidate these estimates in a preliminary
draft administrative budget. It shall attach thereto
an opinion which may contain different estimates.

The preliminary draft budget shall contain an
of
of
estimate
expenditure.

estimate

revenue

and

an

The High Authority

the
3.
preliminary draft administrative budget before the
Council not later than 1 September of the year
is to be
preceding that
implemented.

in which the budget

place

shall

the High Authority
The Council shall consult
institutions
and, where appropriate,
concerned whenever it intends to depart from the
preliminary draft budget.

the other

The Council shall, acting by a qualified majority,
establish the draft administrative budget and
forward it to the Assembly.

The draft administrative budget shall be
4.
placed before the Assembly not
than 5
October of the year preceding that in which the
budget is to be implemented.

later

The Assembly shall have the right to amend the
draft administrative budget, acting by a majority
of its members and to propose to the Council,
acting by an absolute majority of the votes cast,
modifications to the draft budget
relating to
expenditure necessarily resulting from this Treaty
or from acts adopted in accordance therewith.

If, within 45 days of
the draft administrative
budget being placed before it, the Assembly has
given its approval,
the administrative budget
If within this
finally adopted.
shall stand as
period the Assembly has not amended the draft
administrative
any
the administrative budget
modifications thereto,
shall be deemed to be finally adopted.

proposed

budget

nor

If within this period the Assembly has adopted
amendments or proposed modifications, the draft
administrative
the
amendments or proposed modifications shall be
forwarded to the Council.

together with

budget

After discussing the draft administrative
5.
budget with the High Authority and, where
appropriate, with the other institutions concerned,
following
the Council
conditions:

act under

shall

the

(a)

the Council may, acting by
majority, modify any of
adopted by the Assembly;

a qualified
the amendments

(b) with regard to the proposed modifications:

the
of

total
an

amount of

where a modification proposed by the
Assembly does not have the effect of
increasing
the
institution, owing
expenditure
in particular to the fact that the increase
in expenditure which it would involve
would be expressly compensated by one
or
modifications
proposed
correspondingly reducing expenditure, the
a qualified
Council may, acting by
majotity,
the proposed modifica¬
reject
tion. In the absence of a decision to reject
it, the proposed modification shall stand
as accepted,

more

31.12.77

Official Journal of the European Communities

No L 359/5

where a modification proposed by the
Assembly has the effect of increasing the
total amount of
the expenditure of an
institution, the Council may, acting by a
qualified majority, accept
this proposed
modification. In the absence of a decision
it,
the proposed modification
to accept
shall stand as rejected,

in pursuance of one of
the two
where,
preceding subparagraphs, the Council has
rejected a proposed modification, it may,
acting by a qualified majority, either
tetain the amount shown in the draft
fix another
administrative budget or
amount.

The draft administrative budget shall be modified
on the basis of
the proposed modifications
accepted by the Council.

If, within 15 days of
the draft administrative
budget being placed before it, the Council has not
modified any of the amendments adopted by the
Assembly and if the modifications proposed by
the latter have been accepted, the administrative
budget shall be deemed to be finally adopted. The
Council shall inform the Assembly that it has not
modified any of
the
proposed modifications have been accepted.

the amendments and that

If within this period the Council has modified one
or more of
the amendments adopted by the
Assembly or if the modifications proposed by the
latter
the
modified draft administrative budget shall again
be forwarded to the Assembly. The Council shall
inform the Assembly of
its
deliberations.

rejected or modified,

the results of

have

been

6. Within 15 days of the draft administrative
budget being placed before it,
the Assembly,
which shall have been notified of the action taken
on its proposed modification, may, acting by a
majority of its members and three-fifths of the
votes cast, amend or reject the modifications to its
amendments made by the Council and shall adopt
the administrative budget accordingly. If within
this period the Assembly has not acted,
the
administrative budget shall be deemed to be
finally adopted.

7. When the procedure provided for in this
Article has been completed, the President of the
Assembly shall declare that
the administrative
budget has been finally adopted.

However,

8.
majority of
votes cast, may,

the Assembly,

by
its members and two-thirds of

a
the
if there are important reasons,

acting

reject the draft administrative budget and ask for
a new draft to be submitted to it.

A maximum rate of increase in relation to
9.
the expenditure of the same type to be incurred
during the current year shall be fixed annually for
the total expenditure other than that necessarily
resulting from this Treaty or from acts adopted in
accordance therewith.

The High Authority shall, after consulting the
Economic Policy Committee, declare what
this
maximum is as it results from:

the trend,
national product within the Community,

in terms of volume, of the gross

the average variation in the budgets of
Member States,

the

and

the trend of
preceding financial year.

the cost of

living during the

be

to all

The maximum rate shall
communicated,
before 1 May,
the
Community. The latter shall be required to
conform to this during the budgetary procedure,
subject to the provisions of the fourth and fifth
subparagraphs of this paragraph.

the institutions of

in respect of expenditure other

If,
than that
necessarily resulting from this Treaty or from acts
adopted in accordance therewith, the actual rate
of
increase in the draft administrative budget
established by the Council
the
maximum rate, the Assembly may, exercising its
right of amendment,
increase the total
limit not
amount of
exceeding half the maximum rate.

further
that expenditure to a

is over half

the Council or the High
Where the Assembly,
the activities of
Authority considers that
the
Communities require that
the rate determined
according to the procedure laid down in this
paragraph should be exceeded, another rate may
be fixed by agreement between the Council,
acting by a qualified majority, and the Assembly,
a majority of
acting by
and
three-fifths of the votes cast.

its members

Each institution shall exercise the powers
10.
conferred upon it by this Afticle, with due regard
for the provisions of
this Treaty and for acts
in particular
adopted in accordance therewith,
those relating to the Communities' own resources
and
and
expenditure.

between

to the

balance

revenue

Final adoption of the administrative budget
11.
shall have the effect of authorizing and requiring
the High Authority to collect
the cotresponding
revenue in accordance with the provisions of
Article 49.*

No L 359/6

Official Journal of the European Communities

31. 12. 77

Article 3

Article S

In Article 78a of the Treaty establishing the European
Coal and Steel Community, '78P is replaced by '78h'.

In Article 78c of the Treaty establishing the European
Coal and Steel Community, '78f is replaced by '78h\

Article 4

Article 78b of the Treaty establishing the European
Coal and Steel Community is
replaced by the
following:

Article 6

Article 78d of the Treaty establishing the European
Coal and Steel Community is
replaced by the
following:

'Article 78d

'Article 78b

for

If, at

the beginning of a financial year,

the
1.
administrative budget has not yet been voted, a
to not more than one-twelfth of
sum equivalent
the budget appropriations
the preceding
financial year may be spent each month in respect
of any chapter or other subdivision of
the
in accordance with the
administrative budget
provisions of the Regulations made pursuant
to
Article 78h; this arrangement shall not, however,
have the effect of placing at
the disposal of the
High Authority appropriations in excess of one
those provided for
in the draft
twelfth of
administrative budget in course of preparation.

The High Autority is authorized and required to
impose the levies up to the amount of
the
appropriations for the preceding financial year,
but shall not thereby exceed the amount which
would have resulted from the adoption of
the
draft administrative budget.

The Council may, acting by a qualified
2.
majority, provided that the other conditions laid
clown in paragraph 1 are observed, authorize
excess of
one-twelfth. The
expenditure
authorization and requirement
to impose the
levies may be adjusted accordingly.

in

forward it

If the decision relates to expenditure which does
from this Treaty or from
not necessarily result
acts adopted in accordance therewith, the Council
immediately to the Assembly;
shall
within 30 days the Assembly, acting by a majority
of its members and three-fifths of the votes cast,
may adopt a different decision on the expenditure
in excess of
the one-twelfth referred to in
paragraph 1. This part of
the
Council shall be suspended until the Assembly has
taken its decision. If within the said period the
Assembly has not taken a decision which differs
from the decision of the Council, the latter shall
be deemed to be finally adopted.'

the decision of

financial

The High Authority shall submit annually to the
Council and to the Assembly the accounts of the
preceding
the
implementation of the administrative budget. The
High Authority shall also forward to them a
financial statement of the assets and liabilities of
the Community in the field covered by that
budget.'

relating

year

to

Article 7

Article 78e of the Treaty establishing the European
Coal and Steel Community is
replaced by the
following:

'Article 78e

1.

A Court of Auditors is hereby established.

The Court of Auditors shall consist of nine

2.
members.

The members of the Court of Auditors shall
3.
be chosen from among persons who belong or
have belonged in their
respective countries to
external audit bodies or who are especially
qualified for this office. Their independence must
be beyond doubt.

The members of the Court of Auditors shall
4.
be appointed for a term of six yc?rs by the
Council, acting unanimously after consulting the
Assembly.

However, when the first appointments are made,
four members of the Court of Auditors, chosen
by lot, shall be appointed for a tetm of office of
four years only.

The members of the Court of Auditors shall be
eligible for reappointment.

the Court of
They shall elect
Auditors from among their number for a term of
three years. The President may be re-elected.

the President of

The members of the Court of Auditors shall,
the Community, be
in the performance of

5.
in the general
completely independent
their duties.

interest of

31.12.77

Official Journal of the European Communities

No L 359/7

seek nor

these duties,

In the performance of
they shall
take instructions from any
neither
government or from any other body. They shall
refrain from any action incompatible with their
duties.

The members of the Court of Auditors may
6.
not, during their term of office, engage in any
other occupation, whether gainful or not. When
entering upon their duties they shall give a solemn
undertaking that, both during and after their term
of office, they will respect the obligations arising
therefrom and in particular their duty to behave
with integrity and discretion as
the
acceptance, after they have ceased to hold office,
of certain appointments or benefits.

regards

Apart

from normal

replacement, or death,
7.
the duties of a member of the Court of Auditors
is compulsorily
shall end when he resigns, or
retired by a ruling of the Court of Justice pursuant
to paragraph 8.

The vacancy thus caused shall be filled for the
remainder of the member's term of office.

of

revenue

the Community,
administrative
including the revenue from the tax for the benefit
of the Community levied on the salaries, wages
and emoluments of officials and other servants of
the latter. It shall also examine the accounts of all
revenue and expenditure of all bodies set up by
the Community
relevant
instrument does not preclude such
constituent
examination.

in so

far

the

as

shall

The Court of Auditors

examine
2.
whether all revenue referred to in paragraph 1 has
been received and all expenditure referred to in
that paragraph has been incurred in a lawful and
financial
regular manner
management has been sound.

and whether

the

The audit of revenue shall be carried out on the
basis both of the amounts established as due and
the amounts actually paid to the Community.

The audit of expenditure shall be carried out on
the basis both of commitments undertaken and
payments made.

in the case of compulsory

retirement,
Save
members of the Court of Auditors shall remain in
office until they have been replaced.

These audits may be carried out before the
closure of accounts for
in
question.

the financial year

A member of the Court of Auditors may be
8.
deprived of his office or of his right to a pension
or other benefits in its stead- only if the Court of
the request of the Court of Auditors,
Justice, at
finds that he no longer
fulfils the requisite
conditions or meets the obligations arising from
his office.

The Council, acting by a qualified majority,
9.
shall determine the conditions of employment of
the President and the members of the Court of
Auditors
salaries,
and
It shall also, by the
allowances and pensions.
same majority, determine any payment
to be
made instead of remuneration.

particular

their

in

and

The provisions of

the Protocol on the
10.
privileges
the European
Communities applicable to the Judges of
the
Court of Justice shall also apply to the members
of the Court of Auditors.'

immunities of

Article 8

Article 78f of the Treaty establishing the European
Coal and Steel Community is
replaced by the
following:

Article 78f

The audit shall be based on records and, if
3.
necessary, performed on the spot in the institutions
of the Community and in the Member States. In
the Member States the audit shall be carried out
if
in liaison with the national audit bodies or,
these do not have the necessary powers, with the
competent national departments. These bodies or
inform the Court of Auditors
departments shall
whether they intend to take part in the audit.

The institutions of
the Community and the
national audit bodies or, if these do not have the
national
powers,
the
necessary
forward to the Court of
departments, shall
any document or
Auditors, at
request,
information necessary to carry out its task.

competent

its

report after

The Court of Auditors shall draw up an
4.
the close of each financial
annual
year. It shall be forwarded to the institutions of
the Community and shall be published, together
with the replies of
these institutions to the
observations of
in the
Official Journal of the European Communities.

the Court of Auditors,

The Court of Auditors may also, at any time,
submit observations on specific questions and
deliver opinions at
the
intitutions of the Community.

the request of one of

The Court of Auditors shall examine the
1.
account of all administrative expenditure and

It shall adopt its annual reports or opinions by a
majority of its members.

No L 359/8

Official Journal of the European Communities

31.12.77

the Assembly and the Council

It shall assist
exercising their powers of control over
implemention of the budget.

in
the

report stating whether

The Court of Auditors shall also draw up
5.
a separate annual
the
for the expenditure
accounting other than that
and revenue referred to in paragraph 1 and the
financial management by the High Authority
relating thereto have been effected in a regular
manner. It shall draw up this report within six
months of the end of the financial year to which
the accounts refer and shall submit it to the High
Authority and the Council. The High Authority
shall forward it to the Assembly.'

Article 9

The following provisions shall be added to the
Treaty establishing the European Coal and Steel
Community:

'Article 78g

The Assembly, acting on a recommendation from
the Council . which shall act by a qualified
majority, shall give a discharge to the High
Authority in respect of the implementation of the
administrative budget. To this end,
the Council

and the Assembly in turn shall examine the
accounts and the financial statement referred to in
Article 78d, and the annual report by the Court
of Auditors together with the replies of
the
institutions under audit to the observations of the
Court of Auditors.'

Article 10

The following provisions shall be added to the
Treaty establishing the European Coal and Steel
Community:

'Article 78h

The Council, acting unanimously on a proposal
from the High Authority and after consulting the
Assembly and obtaining the opinion of the Court
of Auditors, shall:

(a) make Financial Regulations

specifying in
particular the procedure to be adopted for
establishing and implementing the administra¬
tive budget and for presenting and auditing
accounts;

(b)

lay down rules concerning the responsibility
of authorizing officers and accounting officers
and concerning appropriate arrangements for
inspection.'

CHAPTER II

PROVISIONS AMENDING THE TREATY ESTABLISHING THE EUROPEAN ECONOMIC
COMMUNITY

Article 1 1

'Article 203

After Article 4 of
European Economic Community
paragraph is added:

the Treaty establishing the
following

the

The audit shall be carried out by a Court of
'3.
Auditors acting within the limits of the powers
conferred upon it by this Treaty.'

Article 12

The financial year shall run from 1 January

1.
to 31 December.

1

Each institution of
July,

the Community shall,
2.
draw up
before
its
expenditure. The Commission shall consolidate
these estimates in a preliminary draft budget. It
shall attach thereto an opinion which may contain
different estimates.

estimates

of

The preliminary draft budget shall contain an
of
of
estimate
expenditure.

estimate

revenue

and

an

Article 203 of the Treaty establishing the European
Economic Community is replaced by the following:

The Commission shall place the preliminary
3.
draft budget before the Council not later than 1
September of the year preceding that in which the
budget is to be implemented.

31.12.77

Official Journal of the European Communities

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The Council shall consult
the Commission and,
institutions
where
the
concerned whenever it intends to depart from the
preliminary draft budget.

appropriate,

other

The Council acting by a qualified majority,
establish the draft budget and forward it to the
Assembly.

The draft budget shall be placed before the
later than 5 October of the year
is to be

in which the budget

4.
Assembly not
preceding that
implemented.

The Assembly shall have the right to amend the
draft budget, acting by a majority of its members,
and to propose to the Council, acting by an
absolute majority of the votes cast, modifications
to the draft budget
relating to expenditure
necessarily resulting from this Treaty or from acts
adopted in accordance therewith.

If, within 45 days of the draft budget being placed
before it, the Assembly has given its approval, the
budget shall stand as finally adopted. If within
this period the Assembly has not amended the
draft budget nor proposed any modifications
thereto, the budget shall be deemed to be finally
adopted.

If within this period the Assembly has adopted
amendments or proposed modifications, the draft
or
budget
proposed modifications shall be forwarded to the
Council.

together with the

amendments

After discussing the draft budget with the
5.
Commission and, where appropriate, with the
other institutions concerned, the Council shall act
under the following conditions:

(a)

the Council may, acting by
majority, modify any of
adopted by the Assembly;

a qualified
the amendments

(b) with regard to the proposed modifications:

the

total amount of

where a modification proposed by the
Assembly does not have the effect of
increasing
the
expenditure of an institution, owing in
particular to the fact that the increase in
expenditure which it would involve would
be expressly compensated by one or more
proposed modifications correspondingly
the Council may,
reducing expenditure,
acting by a qualified majority, reject the
proposed modification. In the absence of
a decision to reject
the proposed
modification shall stand as accepted,

it,

where a modification proposed by the
Assembly has the effect of increasing the
the expenditure of an
total amount of
institution, the Council may, acting by a
qualified majority, accept
this proposed
modification. In the absence of a decision
it,
to accept
the proposed modification
shall stand as rejected,

in pursuance of one of
the two
where,
the Council
preceding
subparagraphs,
it
has rejected a proposed modification,
may, acting by a qualified majority, either
retain the amount shown in the draft
budget or fix another amount.

The draft budget shall be modified on the basis of
the proposed modifications accepted by
the
Council.

If, within 15 days of the draft budget being placed
before it, the Council has not modified any of the
amendments adopted by the Assembly and if the
modifications proposed by the latter have been
accepted, the budget shall be deemed to be finally
inform the Assembly
adopted. The Council shall
that it has not modified any of the amendments
the proposed modifications have been
and that
accepted.

If within this period the Council has modified one
or more of
the amendments adopted by the
Assembly or if the modifications proposed by the
latter
the
modified draft budget shall again be forwarded to
inform the
the Assembly. The Council shall
Assembly of the results of its deliberations.

rejected or modified,

been

have

6. Within 15 days of the dtaft budget being
placed before it, the Assembly, which shall have
been notified of the action taken on its proposed
modifications, may, acting by a majority of
its
members and three-fifths of the votes cast, amend
or
the modifications to its amendments
made by the Council and shall adopt the budget
If within this period the Assembly
accordingly.
has not acted, the budget shall be deemed to be
finally adopted.

reject

7. When the procedure provided for
in this
the President of the
Atticle has been completed,
Assembly shall declare that the budget has been
finally adopted.

However,

the Assembly,

by
8.
a
majority of its members and two-thirds of
the
votes cast, may if
reasons
reject the draft budget and ask for a new draft to
be submitted to it.

there arc important

acting

. No L 359/10

Official Journal of the European Communities

31.12.77

A maximum rate of increase in relation to
9.
the expenditure of the same t)pc to be incurred
during the current year shall be fixed annually for
the total expenditure other than that necessarily
resulting from this Treaty or from acts adopted in
accordance therewith.

The Commission
Economic Policy Committee, declare what
maximum rate is as it results from:

consulting the
this

shall, after

the trend,
national product within the Community,

in terms of volume, of the gross

the average variation in the budgets of
Member States,

the

the trend of
preceding financial year.

the cost of

living during the

be

to all

The maximum rate shall
communicated,
before 1 May,
the
Community. The latter shall
required to
conform to this during the budgetary procedure,
subject to the provisions of the fourth and fifth
subparagraphs of this paragraph.

the institutions of
be

in respect of expenditure other

If,
than that
necessarily resulting from this Treaty or from acts
adopted in accordance therewith, the actual rate
of increase in the draft budget established by the
Council
the
Assembly may, exercising its right of amendment,
that
further
expenditure to a limit not exceeding half
the
maximum rate.

the maximum rate,

is over half

amount of

increase

total

the

the Assembly,

the Council or
Where
the
the activities of
that
Commission consider
the
Communities require that
the rate determined
according to the procedure laid down in this
paragraph should be exceeded, another rate may
be fixed by agreement between the Council,
acting by a qualified majority, and the Assembly,
a majority of
acting by
and
three-fifths of the votes cast.

its members

Each institution shall exercise the powers
10.
conferred upon it by this Article, with due regard
for the provisions of
the Treary and for acts
in particular
adopted in accordance therewith,
those relating to the Communities' own resources
to
and
the
and
expenditure.'

between

revenue

balance

'Article 204

of

the

than

one-twelfth

If at the beginning of a financial year, the budget
has not yet been voted, a sum equivalent to not
budget
more
appropriations for
the preceding financial year
may be spent each month in respect of any
chapter or other subdivision of
in
accordance with the provisions of the Regulations
to Article 209;
made pursuant
this arrangement
shall not, however, have the effect of placing at
the disposal of the Commission appropriations in
excess of one-twelfth of those provided for in the
draft budget in course of preparation.

the budget

The Council may, acting by a qualified majority,
provided that the other conditions laid down in
the first subparagraph are observed, authorize
expenditure in excess of one-twelfth.

forward it

If the decision relates to expenditure which does
from this Treaty or from
not necessarily result
acts adopted in accordance therewith, the Council
immediately to the Assembly;
shall
within 30 days the Assembly, acting by a majority
of its members and three-fifths of the votes cast,
may adopt a different decision on the expenditure
in excess of the one-twelfth referred to in the first
the decision of the
subparagraph. This part of
Council shall be suspended until
the Assembly
If within the period the
has taken its decision.
Assembly has not taken a decision which differs
from the decision of the Council, the latter shall
be deemed to be finally adopted.

The decisions referred to in the second and third
lay down the necessary
subparagraphs
to
ensure
measures
application of this Article.'

resources

relating

shall

to

Article 14

The following provisions shall be added to the
Treaty
Economic
the
Community:

establishing

European

'Article 205a

The Commission shall submit annually to the
Council and to the Assembly the accounts of the
preceding
year
the
implementation of the budget. The Commission
shall also foryvard to them a financial statement
of the assets and liabilities of the Community.'

financial

relating

to

Article 13

Article 15

Article 204 of the Treaty establishing the European
Economic Community is replaced by the following:

Article 206 of the Treaty establishing the European
Economic Community shall be replaced by the
following:

31.12.77

Official Journal of the European Communities

No L 359/11

'Article 206

1.

A Court of Auditors is hereby established.

The Court of Auditors shall consist of nine

2.
members.

The members of the Court of Auditors shall
3.
be chosen from among persons who belong or
respective countries to
have belonged in their
external audit bodies or who are especially
qualified for this office. Their independence must
be beyond doubt.

The members of the Court of Auditors shall
4.
be appointed for a term of six years by the
Council, acting unanimously after consulting the
Assembly.

However, when the first appointments are made,
four members of
the Court of Auditors,
chosen by lot, shall be appointed for a term of
office of four years only..

The members of the Court of Auditors shall be
eligible for reapointment.

the Court of
They shall elect
Auditors from among their number for a term of
three years. The President may be re-elected.

the President of

The members of the Court of Auditors shall,
the Community, be
in the performance of

5.
in the general
completely independent
their duties.

interest of

seek nor

these duties,

In the performance of
they shall
take instructions from any
neither
government or from any other body. They shall
refrain from any action incompatible with their
duties.

The members of the Court of Auditors may
6.
not, during their term of office, engage in any
other occupation, whether gainful or not. When
entering upon their duties they shall give a solemn
undertaking that, both during and after their term
of office, they will respect the obligations arising
therefrom and in particular their duty to behave
with integrity and discretion as
the
acceptance, after they have ceased to hold office,
of certain appointments or benefits.

regards

Apart from normal

replacement, or death,
7.
the duties of a member of the Court of Auditors
is compulsorily
shall end when he resigns, or
retired by a ruling of the Court of Justice pur¬
suant to paragraph 8.

The vacancy thus caused shall be filled for the
remainder of the member's term of office.

in the case of compulsory retirement,
Save
members of the Court of Auditors shall remain in
office until they have been replaced.

A member of the Court of Auditors may be
8.
deprived of his office or of his right to a pension

or other benefits in its stead only if the Court of
Justice, at the request of the Court of Auditors
fulfils the requisite
finds that he no longer
conditions or meets the obligations arising from
his office.

The Council, acting by a qualified majority,
9.
shall determine the conditions of employment of
the President and the members of the Court of
Auditors
salaries,
and
It shall also, by the
allowances and pensions.
same majority, determine any payment
to be
made instead of remuneration.

particular

their

in

and

The provisions of

the Protocol on the
10.
the European
privileges
Communities applicable to the Judges of
the
Court of Justice shall also apply to the members
of the Court of Auditors.'

immunities of

Article 16

The following provisions shall be added to the
Treaty
Economic
the
Community:

establishing

European

'Article 206a

revenue and expenditure of

The Court of Auditors shall examine the
1.
accounts of all
the
Community. It shall also examine the accounts of
all revenue and expenditure of all bodies set up
by the Community in so far as the relevant
instrument does not preclude such
constituent
examination.

The Court of Auditors

shall examine
2.
revenue has been received and all
whether all
expenditure incurred in a lawful and regular
manner and whether the financial management
has been sound.

The audit of revenue shall be carried out on the
basis both of the amounts established as due and
the amounts actually paid to the Community.

The audit of expenditure shall be carried out on
the basis both of commitments undertaken and
payments made.

These audits may be carried out before the
closure of accounts for
in
question.

the financial year

in

on

the

spot

performed

The audit shall be based on records and, if
3.
the
necessary,
institutions of the Community and in the Member
In the Member States the audit shall be
States.
in liaison with the national audit
carried out
if
these do not have the necessary
bodies or,
powers, with the competent national departments.
inform the
These bodies or departments shall
Court of Auditors whether they intend to take
part in the audit.

No L 359/12

Official Journal of the European Communities

31. 12. 77

The institutions of
the Community and the
national audit bodies or, if these do not have the
national
powers,
the
necessary
forward to the Court of
departments, shall
any document or
Auditors, at
request,
information necessary to carry out its task.

competent

its

The Court of Auditors shall draw up an
4.
report after the close of each financial
annual
year. It shall be forwarded to the institutions of
the Community and shall be published, together
with the replies of
these institutions to the
observations of
in the
Official Journal of the European Communities.

the Court of Auditors,

THc Court of Auditors may also, at any time,
submit observations on specific questions and
deliver opinions at
the
institutions of the Community.

the request of one of

It shall adopt its annual reports or opinions by a
majority of its members.

the Assembly and the Council

It shall assist
exercising their powers of control over
implementation of the budget.'

in
the

Article 17

The following provisions shall be added to the
Treaty
Economic
the
Community:

establishing

European

a

to

give

shall

discharge

majotity,
the
Commission in respect of the implementation of
the budget. To this end,
the Council and the
Assembly in turn shall examine the accounts and
the financial statement referred to in Article 205
and the annual report by the Court of Auditors
together with the replies of the institutions under
the Court of
audit
Auditors.'

to the observations of

Article 18

Article 209 of the Treaty establishing the European
Community shall be replaced by the following:

'Article 209

The Council, acting unanimously on a proposal
from the Commission and after consulting the
Assembly and obtaining the opinion of the Court
of Auditors, shall:

(a) make Financial Regulations specifying in
particular the procedure to be adopted for
establishing and implementing the budget and
for presenting and auditing accounts;

(b) determine

and

the methods

procedure
whereby the budget revenue provided under
the arrangements relating to the Communi¬
ties' own resources shall be made available to
the Commission, and detetmine the measures
if need be,
to be applied,
to meet cash
requirements;

'Article 206b

The Assembly, acting on a recommendation from
the Council which shall act by a qualified

(c)

lay down rules concerning the responsiblility
of authorizing officers and accounting officers
and concerning appropriate arrangements for
inspection.'

CHAPTER HI

PROVISIONS AMENDING THE TREATY ESTABLISHING THE EUROPEAN ATOMIC
ENERGY COMMUNITY

Article 19

Article 20

After Article 3 of
the Treaty establishing the
European Atomic Energy Community the following
paragraph is added:

The audit shall be carried out by a Court of
'3.
Auditors acting within the limits of the powers
conferred upon it by this Treaty.'

Article 177 of the Treaty establishing the European
Atomic Energy Community is
replaced by the
following:

'Article 177

The financial year shall run from 1 January

1.
to 31 December.

31.12.77

Official Journal of the European Communities

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Within the meaning of this Article, "budget" shall
include the operating budget and the research and
investment budget.

1

July, draw up

Each institution of

the Community shall,
2.
estimates of
its
before
expenditure. The Commission shall consolidate
these estimates in a preliminary draft budget. It
shall attach thereto an opinion which may
contain different estimates.

The preliminary draft budget shall
of
estimate
revenue
expenditure.

and

an

include an
of

estimate

The Commission shall place the preliminary
3.
draft budget before the Council not
later than
1 September of the year preceding that in which
the budget is to be implemented.

The Council shall consult the Commission and,
institutions
where
the
concerned whenever it intends to depart from the
preliminary draft budget.

appropriate,

other

The Council shall, acting by a qualified majority,
establish the draft budget and forward it to the
Assembly.

The draft budget shall be placed before the
later than 5 October of the year
to be

in which the budget

is

4.
Assembly not
preceding that
implemented.

The Assembly shall have the right to amend the
draft budget acting by a majority of its members,
and to propose to the Council, acting by an
absolute majority of the votes cast, modifications
to the draft budget
relating to expenditure
necessarily resulting from this Treaty or from acts
adopted in accordance therewith.

If, within 45 days of the draft budget being placed
before it, the Assembly has given its approval, the
budget shall stand as finally adopted. If within
this period the Assembly has not amended the
draft budget or proposed any modifications
thereto, the budget shall be deemed to be finally
adopted.

If within this period the Assembly has adopted
amendments or proposed modifications, the draft
amendments or
budget
proposed modifications shall be forwarded to the
Council.

together with the

After discussing the draft budget with the
5.
Commission and, where appropriate, with the
other institutions concerned, the Council shall act
under the following conditions:

(a)

the Council may, acting by a qualified
majority, modify any of
the amendments
adopted by the Assembly;

(b) with regard to the proposed modifications:

the

amount of

where a modification proposed by the
Assembly does not have the effect of
total
the
increasing
expenditure of an institution, owing in
particular to the fact that the increase in
expenditure which it would involve would
be expressly compensated by one or more
proposed modifications correspondingly
the Council may,
reducing expenditure,
acting by a qualified majority, reject
the
proposed modification. In the absence of
a decision to reject
the proposed
modification shall stand as accepted,

it,

where a modification proposed by the
Assembly has the effect of increasing the
total amount of
the expenditure on an
institution, the Council may, acting by a
qualified majority, accept
this proposed
modification. In the absence of a decision
it,
to accept
the proposed modification
shall stand as rejected,

the two
in pursuance of one of
where,
preceding subparagraphs, the Council has
rejected a proposed modification, it may,
acting by a qualified majority, either
retain the amount shown in the draft
budget or fix another amount.

The draft budget shall be modified on the basis of
the proposed modifications accepted by
the
Council.

If, within 15 days of the draft budget being placed
before it, the Council has not modified any of the
amendments adopted by the Assembly and if the
modifications proposed by the latter have been
accepted, the budget shall be deemed to be finally
inform the Assembly
adopted. The Council shall
that it has not modified any of the amendements
and that
the proposed modifications have been
accepted.

If within this period the Council has modified one
or more of
the amendements adopted by the
Assembly or if the modifications proposed by the
latter have
the
modified draft budget shall again be forwarded to
inform the
the Assembly. The Council shall
Assembly of the results of its deliberations.

rejected or modified,

been

6. Within 15 days of the draft budget being
placed before it, the Assembly, which shall have
been notified of the action taken on its proposed
modifications may, acting by a majority of
its
members and three-fifths of the votes cast, amend
or
the modifications to its amendments
made by the Council and shall adopt the budget

reject

No L 359/14

Official Journal of the European Communities

31.12.77

If within this period the Assembly
accordingly.
has not acted, the budget shall be deemed to be
finally adopted.

7. When the procedure provided for in this
the President of the
Article has been completed,
Assembly shall declare that the budget has been
finally adopted.

However,

the Assembly,

8.
a
its members and two-thirds of the
majority of
votes cast may,
reasons,
reject the draft budget and ask for a new draft to
be submitted to it.

if there are important

acting

by

A maximum rate of increase in relation to
9.
the expenditure of the same type to be incurred
during the current jc.ir shall be fixed annually for
the total expenditure other than that necessarily
resulting from this Treaty or from acts adopted in
accordance therewith.

The Commission shall, after
Economic Policy Committee, declare what
maximum rate is, as it results from:

consulting the
this

the trend,
national product within the Community,

in terms of volume, of the gross

the average variation in the budgets of
Member States,

the

and

the trend of
preceding financial year.

the cost of

living during the

to all

I he maximum rate shall
be communicated,
before 1 May,
the
required to
Community. The latter shall be
conform to this during the budgetary procedure,
subject to the provisions of the fourth and fifth
subparagraphs of this paragraph.

the institutions of

in respect of expenditure other

If,
than that
necessarily resulting from this Treaty or from acts
adopted in accordance therewith, the actual rate
of increase in the draft budget established by the
Council
the
Assembly may, exercising its right of amendment,
further
that
expenditure to a limit not exceeding half
the
maximum rate.

the maximum rate,

total amount of

is over half

increase

the

the Assembly,

the Council or
Where
the
the activities of
Commission considers that
the
Communities require that
the rate determined
according to the procedure laid down in this
paragraph should be exceeded, another rate may
be fixed by agreement between the Council,
acting by a qualified majority, and the Assembly,
acting by a majority of its members and three-
fifths of the votes cast.

Each institution shall exercise the powers
10.
conferred upon it by this Article, with due regard
this Treaty and for acts
for the provisions of
in particular
adopted in accordance therewith,
those relating to the Communities' own resources
to the
and
and
expenditure.'

between

balance

revenue

Article 21

Article 178 of the Treaty establishing the European
Atomic Energy Community is
the
following:

replaced by

'Article 178

If, at the beginning of a financial year, the budget
has not yet been voted, a sum equivalent to not
more than one-twelfth of
the budget appropri¬
ations for the preceding financial year may be
spent each month in respect of any chapter or
other subdivision of the budget in accordance with
the provisions of the Regulations made pursuant
to Article 183;
this arrangement shall not, how¬
ever, have the effect of placing at the disposal of
the Commission appropriations in excess of one-
twelfth of those provided for in the draft budget
in the course of preparation.

The Council may, acting by a qualified majority,
provided that the other conditions laid down in
the first subparagraph are observed, authorize
expenditure in excess of one-twelfth.

forward it

If the decision relates to expenditure which does
from this Treaty or from
not necessarily result
acts adopted in accordance therewith, the Council
immediately to the Assembly;
shall
within 30 days the Assembly, acting by a majority
of its members and three-fifths of the votes cast,
may adopt a different decision on the expenditure
in excess of the one-twelfth referred to in the first
subparagraph. This part of
the
Council shall be suspended until the Assembly has
taken its decision.
the
Assembly has not taken a decision which differs
from the decision of the Council, the latter shall
be deemed to be finally adopted.

If, within this period,

the decision of

The decisions referred to in the second and third
lay down the necessary
subparagraphs
measures relating to resources to ensure ap¬
plication of this Article.'

shall

Article 22

The following provisions shall be added to the
Treaty establishing the European Atomic Energy
Community:

31.12.77

Official Journal of the European Communities

No L 359/15

'Article 179a

The Commission shall submit annually to the
Council and to the Assembly the accounts of the
year
the
preceding
implementation of the budget. The Commission
shall also forward to them a financial statement
of the assets and liabilities of the Community.'

financial

relating

to

Article 23

Article 180 of the Treaty establishing the European
Atomic Energy Community is
replaced by the
following:

'Article 180

1.

A Court of Auditors is hereby established.

The Court of Auditors shall consist of nine

2.
members.

The members of the Court of Auditors shall
3.
be chosen from among persons who belong or
have belonged in their
respective countries to
external audit bodies or who are especially
qualified for this office. Their independence must
be beyond doubt.

The members of the Court of Auditors shall
4.
be appointed for a term of six years by the
Council, acting unanimously after consulting the
Assembly.

However, when the first appointments are made,
four members of the Court of Auditors, chosen
by lot, shall be appointed for a term of office of
four years only.

The members of the Court of Auditots shall be
eligible for reappointment.

the Court of
They shall elect
Auditors from among their number for a term of
three years. The President may be re-elected.

the President of

The members of the Court of Auditors shall,
the Community, be
in the performance of

5.
in the general
completely independent
their duties.

interest of

seek nor

these duties,

In the performance of
they shall
take instructions from any
neither
government, or from any other body. They shall
refrain from any action incompatible with their
duties.

The members of the Court of Auditors may
6.
not, during their term of office, engage in any
other occupation, whether gainful or not. When
entering upon their duties they shall give a solemn
undertaking that, both during and after their term
of office, they will respect the obligations arising

therefrom and in particular their duty to behave
with integrity and discretion as
regards the
acceptance, after they have ceased to hold office,
of certain appointments or benefits.

Apart

from normal

replacement, or death,
7.
the duties of a member of the Court of Auditors
is compulsorily
shall end when he resigns, or
retired by a ruling of
the Court of Justice
pursuant to paragraph 8.

The vacancy thus caused shall be filled for the
remainder of the member's term of office.

Save in the case of compulsory retirement under
the provisions of paragraph 8, members of the
Court of Auditors shall remain in office until they
have been replaced.

A member of the Court of Auditors may be
8.
deprived of his office or of his right to a pension
or other benefits in its stead only if the Court of
the request of the Coutt of Auditors
Justice, at
fulfils the requisite
finds that he no longer
conditions or meets the obligations arising from
his office.

The Council, acting by a qualified marjority,
9.
shall determine the conditions of employment of
the President and the members of the Court of
Auditors
salaries,
and
It shall also, by the
allowances and pensions.
to be
same majority, determine any payment
made instead of remuneration.

particular

their

in

and

The provisions of

the Protocol on the
10.
the European
privileges
Communities applicable to the Judges of
the
Court of Justice shall also apply to the members
of the Court of Auditors.'

immunities of

Article 24

The following provisions shall be added to the
Treaty establishing the European Atomic Energy
Community:

'Article 180a

The Court of Auditors shall examine the
1.
accounts of all revenue and expenditure of
the
Community. It shall also examine the accounts of
all revenue and expenditure of all bodies set up
by the Community in so far as the relevant
instrument does not preclude such
constituent
examination.

The Coutt of Auditors

examine
2.
whether all
revenue has been received and all
expenditure incurred in a lawful and regular
manner and whether the financial management
has been sound.

shall

No L 359/16

Official Journal of the European Communities

31.12.77

The audit of revenue shall be carried out on the
basis both of the amounts established as due and
the amounts actually paid to the Communities.

The audit of expenditure shall be carried out on
the basis both of commitments undertaken and
payments made.

These audits may be carried out before the
closure of accounts for
in
question.

the financial year

in

on

the

spot

performed

The audit shall be based on records and, if
3.
the
necessary,
institutions of the Community and in the Member
In the Member States the audit shall be
States.
in liaison with the national audit
carried out
if
these do not have the necessary
bodies or,
powers, with the competent national departments.
inform the
These bodies or departments shall
Court of Auditors whether they intend to take
part in the audit.

The institutions of
the Community and the
national audit bodies or, if the latter do not have
the competent national
the necessary powers,
forward to the Court of
departments, shall
any document or
Auditors,
request,
information necessary to carry out its task.

its

at

report after

The Court of Auditors shall draw up an
4.
the close of each financial
annual
year. It shall be forwarded to the institutions of
the Community and shall be published, together
these institutions ' to the
with the replies of
observations of
in the
Official Journal of the European Communities.

the Court of Auditors,

The Court of Auditors may also, at any time,
submit observations on specific questions and
delivet opinions at
the
institutions of the Community.

the request of one of

It shall adopt its annual reports or opinions by a
majority of its members.

the Assembly and the Council

It shall assist
exercising their powers of control over
implementation of the budget.'

in
the

Article 25

The following provisions shall be added to the
Treaty establishing the European Atomic Energy
Community:

'Article 180b

a

to

give

shall

discharge

The Assembly, acting on a recommendation from
the Council which shall act by a qualified
majority,
the
Commission in respect of the implementation of
the budget. To this end,
the Council and the
Assembly in turn shall examine the accounts and
the financial statement referred to in Article 179a,
and the annual report by the Court of Auditors
together with the replies of the institutions under
the Court of
audit
Auditors.'

to the observations of

Article 26

The following provisions shall be substituted for
Article 183 of the Treaty establishing the European
Atomic Energy Community:

'Article 183

The Council, acting unanimously on a proposal
from the Commission and after consulting the
Assembly and obtaining the opinion of the Court
of Auditors, shall:

(a) make Financial Regulations

specifying in
particular the procedure to be adopted for
establishing and implementing the budget and
for presenting and auditing accounts;

(b) determine

the

and

arrangements

the methods

procedure
revenue provided for
whereby the budget
relating to the
under
Communities' own resources, shall be made
available to the Commission, and determine
the measures to be applied,
to
meet cash requirements;

if need be,

(c)

lay down rules concerning the responsiblity
of authorizing officers and accounting officers
and concerning appropriate arrangements for
inspection.'

CHAPTER IV

PROVISIONS AMENDING THE TREATY ESTABLISHING A SINGLE COUNCIL AND A
SINGLE COMMISSION OF THE EUROPEAN COMMUNITIES

Article 27

Article 22

Article 22 of the Treaty establishing a single Council
single Commission of
the European
and
Communities shall be replaced by the following:

a

The powers and jurisdiction conferred upon
1.
the Court of Auditors established by Article 78e
of the Treaty establishing the European Coal and
Steel Community, by Article 206 of the Treaty

31.12.77

Official Journal of the European Communities

No L 359/17

establishing the European Economic Community,
and by Article 180 of the Treaty establishing the
European Atomic Energy Community shall be
exercised in accordance with those Treaties by a
single Court of Auditors of
the European
Communities constituted as provided in these
Articles.

2. Without prejudice to the powers
and
jurisdiction referred to in paragraph 1, the Court

upon

the Auditor

of Auditors of the European Communities shall
exercise the powers and jurisdiction conferred,
before the entry into force of this Treaty, upon
the Audit Board of
the European Communities
the European
and
Coal and Steel Community under the conditions
laid down in the various instruments referring to
the Audit Board and to the Auditor. In all
these
"Audit Board"
instruments
and
"Auditor" shall be replaced by the words "Court
of Auditors".'

the words

of

CHAPTER V

FINAL PROVISIONS

Article 28

Article 30

The members of the Court of Auditors shall be

1.
appointed upon the entry into force of this Treaty.

their

The terms of office of the members of the Audit
2.
Board and that of the auditor shall expire on the day
report on the financial year
they submit
preceding that in which the members of the Court of
their powers of audit shall
Auditors are appointed;
be confined to operations relating to that
financial
year.

Article 29

This Treaty shall be ratified by the High Contracting
Parties in accordance with their
respective consti¬
tutional requirements. The instruments of ratification
shall be deposited with the Government of the Italian
Republic.

This Treaty shall enter into force on the first day of
the month following the deposit of the instrument of
ratification by the last signatory State to take this
step.

If this Treaty enters into force during the budgetary
the Council shall, after consulting the
procedure,
Assembly and the Commission, adopt
the measures
required in order to facilitate the application of this
Treaty to the remainder of the budgetary procedure.

Article 31

in the
This Treaty, drawn up in a single original
Irish and
Danish, Dutch, English, French, German,
Italian languages, all seven texts being authentic,
shall be deposited in the archives of the Government
of
a
certified copy to each of
the
other signatory States.

the Italian Republic, which shall

the Governments of

transmit

Til bekrjeftelse heraf har undertegnede befuldmsegtigede underskrevet denne traktat.

Zu Urkund dessen haben die unterzeichneten Bevollmachtigten ihre Unterschriften unter
diesen Vertrag gcsetzt.

In witness whereof, the undersigned Plenipotentiaries have affixed their signatures below
this Treaty.

En foi de quoi, les ptenipotentiaires soussign^s ont appose leurs signatures au bas du
present traite\

Da fhianii sin, chuir na Lanchumhachtaigh thfos-sinithe a ldmh leis an gConradh seo.

In fede di che,
presente trattato.

i plenipotenziari sottoscritti hanno apposto le loro firme in calce al

Ten blijke waarvan de ondergetekende gevolmachtigden hun handtekening onder deze
Verdrag hebben gesteld.

No L 359/18

Official Journal of the European Communities

31.12.77

Udfaerdiget i Bruxelles, den toogtyvende juli nitten hundrede og femoghalvfjerds.

Geschehen zu Briissel am zweiundzwanzigsten Juli neunzehnhundertfunfundsiebzig.

Done at Brussels on the twenty-second day of July in the year one thousand nine
hundred and seventy-five.

Fait a Bruxelles, le vingt-deux juillet mil neuf cent soixante-quinze.

Arna dhdanamh sa Bhruis&l, an d6u Id is fiche de mhf Iriil, mile naoi gcead seacht6
a ciiig.

Fatto a Bruxelles, addl ventidue luglio millenovecentosettantacinque.

Gedaan te Brussel, de tweeentwintigste juli negentienhonderd vijfenzeventig.

Pour Sa Majeste1 le roi des Beiges
Voor Zijne Majesteit de Koning der Belgen

For Hendes Majestset Danmarks Dronning

Fur den Prasidenten der Bundesrepublik Dcutschland

MlM/i-Ovi WWVMT

31. 12.77

Official Journal of the European Communities

No L 359/19

Pour 1c president de la Republique francaisc

Thar ccann Uachtaran na hEireann

Per il prcsidente della Repubblica italiana

(UA/WA)

Pour Son Altcsse Royalc le grand-due de Luxembourg

/-- > r~

> »-l^>

Voor Hare Majesteit de Konigin der Nederlanden

For Her Majesty the Queen of the United Kingdom of Great Britain
and Northern Ireland

f\

i^e-4.

fAjwV

No L 359/20

Official Journal of the European Communities

31.12.77

NOTICE

regarding the entry into force of the Treaty amending certain financial provisions of the
Treaties establishing the European Communities and of the Treaty establishing a single
Council and a single Commission of the European Communities, signed in Brussels on
22 July 1975

The necessary conditions for the entry into force of
the Treaty amending certain
financial provisions of the Treaties establishing the European Communities and of the
Treaty establishing a single Council and a single Commission of
the European
Communities, signed in Brussels on 22 July 1975, were fulfilled on 23 May 1977 and
in accordance with Article 30 thereof, on
the Treaty therefore entered into force,
1 June 1977.

EXTRACTS FROM THE BROCHURE

'THE EUROPEAN COURT OF AUDITORS

AUDITING THE FINANCES
OF THE EUROPEAN UNION'

THE EUROPEAN COURT OF AUDITORS

1977-1997

Auditing the management of public funds

'(...) the specific objectives ofauditing [are] the proper and effective use ofpublic funds; the development
ofsoundfinancial management; the orderly execution of administrative activities; and the communica¬
tion of information to public authorities and the public through the publication of objective
reports (..)'(').

The above definition sums up the function of auditing very well, namely to examine the acts of
those responsible for management, with the double aim of improving results and accounting to the
taxpayer for the managing authorities' use of public funds.

Under the constitutional systems of modern States the auditing function is generally considered to
be one of the elements which ensure that the activities of the public sector are conducted democra¬
tically. Within the organisational framework of public-sector financial management,
it normally
takes two separate but complementary forms, known respectively as internal control and external
auditing.

Internal control and external auditing

(i) In the context of the separation of powers that normally characterises the implementation of
national budgets (the management of funds is kept separate from the monitoring of their utilisa¬
is carried out independently, ex ante or ex post, within the body responsible
tion), internal control
for management. When it is carried out ex ante, as is generally the case in the Community system,
its role is to verify in advance the legality of each item of revenue or expenditure and provide the
management authority with an assurance that measures concerning, in particular, the safeguarding
of the assets and the regularity of the accounting are adequate. The fact that such controls have been
carried out is usually indicated by some form of signature and the check itself is normally the final
stage provided for in the management systems before the operations in question are carried out (2).

(ii) External auditing, on the other hand, implies the existence of a body which is entirely separate
from, and independent of, the authority responsible for management. The institution in question is
usually responsible for the whole public sector and its activities include comprehensive audits, which
usually combine auditing the accounts and examining the legality of revenue and expenditure with
consideration of the soundness of the management. This type of auditing may be termed 'global',
because its ultimate aim is, firstly, to provide an assurance as to the transparency and reliability of
public accounts and the legality of the operations carried out and, secondly, to evaluate the results
achieved in relation to the objectives targeted and the resources employed.

In principle, these two types of control are complementary: the external audit looks at the results of
internal control checks and carries out a broad evaluation, using this as a starting point for more
is found to be
thorough checks and thus avoiding unnecessary duplication,
functioning satisfactorily.

if internal control

This type of public finance review gives the external auditors an overview of the situation, enabling
them to situate the various failings and shortcomings found in a global context and to identify the
underlying management system weaknesses that give rise to them.

It is not the function of an external auditor to make judgments of a political nature on the policies
that managing authorities intend to pursue. His task is to comment on the implementation and
concrete results of these policies and to call
for any changes that may be deemed necessary by
indicating where and why they should be made. In accordance with the principle of the separation
of powers, the external auditor will then leave it to the authorities responsible for management of
public funds to establish how to make them.

In conclusion, auditing in its broadest sense does not only involve uncovering shortcomings or
is primarily an efficient way of improving management and hence of
devising sanctions:
improving the results it is intended to achieve.

it

123

THE EUROPEAN COURT OF AUDITORS 1977-1997

Why is a European Court of Auditors needed?

The observations made in the preceding chapter point to the conclusion that external auditing is a
necessary corollary of the management of public funds, especially where the amounts involved are
very high.

The existence of an autonomous European Union budget, separate from that of the Member States,
is managed independently by the European institutions, are two
and the fact
arguments in favour of the creation of a specific external institution with specific responsibility for
the audit of Community revenue and expenditure.

this budget

that

124

The development of the European Union's public finances

The creation of a European Court of Auditors (3) coincided with two particularly important
the extension of the European Parliament's powers in the field of budgetary control and
events
the use of own resources to finance the whole of the European Union budget.

With regard to the first of these points, it should be noted that the Treaty which created the Court
of Auditors also invested the European Parliament with the power of granting discharge to the
Commission in respect of the implementation of the budget, which is the latter's responsibility (4).

A further resource, the VAT own resource, based on the application of a uniform rate to the Member
States' VAT assessment bases, was added to the existing own resources (customs duties and agricul¬
tural levies). The VAT resource was planned for 1975, but did not actually make its appearance until
several years later, and was then followed by a fourth own resource based on GNP.

A fuller and broader form of control

In parallel with the increase in own resources and the granting to the European Parliament of the
power to grant discharge for the implementation of the budget, it became essential to make a quali¬
tative change in the external audit of the latter, which had hitherto been carried out by an audit
board (for the general budget) and an auditor-general (for the budget of the European Coal and
Steel Community (ECSC)).

the initiative of Mr H. Aigner,

levels it became necessary to create an independent organisation
At the functional and structural
the President of the European
with adequate resources. At
Parliament's Budgetary Control Committee, who since 1973 had strongly argued the case for a
the European Court of Auditors was established by the Treaty of
Community-level audit body,
the European Court of
Brussels of 22 July 1975. Having become operational
in October 1977,
Auditors was promoted to the rank of an institution on 1 November 1 993 with the entry into force
of the Maastricht Treaty. As regards audit powers, this body was granted the right to organise its own
audits independently and to extend them explicitly to include the field of sound financial manage¬
ment (which is not yet the case for some of the national audit institutions (NAIs)).

The object of all these provisions was to ensure that the ever-growing Community resources would
be subjected to a level of control that was at least the equivalent of that provided by the NAIs with
regard to the budgets of their countries. At the same time, there was a need for the body in question
to be able to use its audit work as the basis for proposals to encourage the institution responsible for
management (the Commission), and, to a similar extent, the legislative authority (the Council of
the European Union and the European Parliament) (5) to make the necessary improvements.

In short, the creation of the European Court of Auditors illustrated the Community's need for a
'financial conscience', as Mr H. Kutscher, the then President of the Court of Justice of the European
Communities, defined it at the time of its inauguration in October 1977.

THE EUROPEAN COURT OF AUDITORS 1977-1997

The role of the European Court of Auditors in the institutional
framework of the European Union

The European Court of Auditors carries out its control and consultative functions independently
and autonomously. It is free to organise its own work, and, in particular, to plan its own auditing
activities, to decide when and how to present its observations and to establish the extent of publicity
to be given to its special reports and opinions.

The Treaty on European Union, which came into force on 1 November 1993, enhanced the Court's
authority and strengthened its position of independence by raising it to the rank of an institution.
The Court's new status gives it access to the various forms of legal redress that are available to all the
institutions and has thus reinforced the safeguards which ensure that it is able to perform effectively.

The European Union's 'financial conscience'

The Court of Auditors' main task is to monitor the European Union's finances and point out areas
where the management needs to be improved.

The EC Treaty stipulates that the Court of Auditors is to assist the European Parliament and the
Council of the European Union in exercising their powers of control over the implementation of
the budget and, more generally, that it may, at any time, submit observations on specific questions
and deliver opinions at the request of one of the European institutions ('')

The Court's task of assisting the European Parliament and the Council of the European Union is
carried out mainly within the procedure for the discharge in respect of the implementation of the
budget, which provides the Court with the most appropriate opportunity to present the observa¬
tions contained in its annual report (7) for the previous financial year to the competent authorities.
the President of the Court of Auditors
Immediately after its adoption,
presents the report to the European Parliament. It is a key factor in the Parliament's decision on
whether to grant discharge to the Commission (8).

in November each year,

to the European Court of
The Treaty on European Union has added a new and vital element
Auditors' tasks. It is now required to provide the Council of the European Union and the European
Parliament with a Statement of Assurance (SoA) as to the reliability of the accounts and the legality
and regularity of the underlying transactions (9). It is designed to give a general assurance on
whether European taxpayers' money has been used as intended. The Court gave the first Statement
of Assurance on the 1 994 accounts which was published together with a special report which
explained the work undertaken and the results obtained (ln). The Statement of Assurance as well as
the annual report constitutes an important element in the discharge procedure.

The Court normally exercises its right to submit observations on specific questions by way of special
reports (n), which record the audit results obtained, usually over several financial years, in specific
management areas. These reports are also taken into consideration as part of the discharge procedure.

The other Community institutions may also request the Court to deliver opinions (12) on particular
questions. The opinion of the European Court of Auditors is also an obligatory requirement for the
adoption of any legislation that is financial
in nature, especially legislation concerning financial
regulations and the making available of own resources (13).

A procedure which takes account of the auditee's replies

The observations which the Court of Auditors publishes in its annual and special reports are accom¬
panied by the replies to them that it has received from the Commission and the other institutions
concerned. As soon as the initial findings are known, the institutions that have been audited are
given the opportunity to justify their management and formulate such counter-arguments as they
feel to be necessary. The Court then takes them into account before it adopts the final observations.

175

THE EUROPEAN COURT OF AUDITORS 1977-1997

The audit of the accounts and the examination of legality and
regularity and the soundness of the financial management

The European Court of Auditors' auditing powers

In accordance with the provisions of the EC Treaty, the audits carried out by the European Court
of Auditors are based on records and may,
in the other
European institutions and the Member States. The documents and information which the Court
needs to carry out its task are forwarded to it, at its request, by the other European institutions, the
NAIs and the competent national departments (14). This includes, in particular, access to accounting
including data held on the computer systems of the Commission
and administrative documents
and the Member States

in connection with operations under the Union budget (15).

if necessary, be performed on the spot

126

The nature of the Court's auditing responsibilities

In accordance with the provisions of the EC Treaty, the European Court of Auditors examines the
accounts of Community revenue and expenditure and considers whether the revenue has been
received and the expenditure incurred in a lawful and regular manner and whether the financial
management has been sound (16).

The purpose of the examination of the accounts is to check that the amounts due to and owed by
the Union have been duly established, recorded, entered in the accounts and, respectively, recovered
the operations carried out have been backed up with supporting
or paid, and to verify that
documents and that the available information is sufficient to enable the management and control
authorities to carry out their respective tasks to the full.

The accounting system must conform to generally accepted standards and, in particular, must incor¬
porate measures and procedures which ensure that all
the assets are
safeguarded and there is provision for preventing and detecting fraud.

transactions are recorded,

legal provisions (sectoral

The Court's examination as to legality and regularity, on the other hand, is based first and foremost
on checking whether individual acts of assessment and payment of revenue and, in parallel with
these, individual commitment and payment operations, have been carried out in compliance with
regulations, conventions, mandates, agreements and
the relevant
which is one of the fundamental elements of the Court's remit
contracts). The audit of legality
also includes a review of the management as a whole. It therefore includes not only an assessment
of the extent to which revenue and expenditure conform to the underlying legislation, but also
checks as to their legality in relation to the Treaty and secondary legislation (the budget and the
budget nomenclature, the Financial Regulation and internal management rules).

As for the question of establishing whether the financial management is sound,
it is possible to
identify certain general aspects of the question; traditionally it seeks to establish whether, to what
extent and at what cost management objectives have been attained. For example,
the European
Court of Auditors has already had occasion to explain that the mere availability of commitments
under a budget heading can never constitute proper justification for the use of those commitments
if the principles of sound financial management have not been taken into account (17).

An analysis of this type must be based on a thorough investigation and evaluation of the internal
mechanisms and systems that govern the revenue and expenditure in question and must also take
their nature and individual characteristics into account. This implies an analysis of various types of
data and information, according to the sector under investigation, data that are both internal and
external to the administration or organisation in question, macroeconomic data and comparative
studies of other management systems.

Rather than seeking to impose judgmental criteria, the auditor must try to ascertain the extent to
which the managing authority has equipped itself with resources and taken steps which are appro¬
priate to the attainment of the predefined objectives.

THE EUROPEAN COURT OF AUDITORS 1977-1997

In practice, the auditor must examine a significant number of operations and gradually arrive at a
judgment, which must be as objective as possible, which will enable him to express an opinion as to
whether the system that has been implemented is likely to lead to the results that it was meant to
achieve. It is also part of his task to uncover any shortcomings and obstacles that stand in the way
of the achievement of the best possible result, by pointing out, for example, the inadequacy of the
resources with respect to the objectives, the existence of systems weaknesses and any conflict with
the objectives of other policies. In this way, the management authority is able to acquire informa¬
tion which will enable it to make the necessary corrections.

127

(') From the 'Lima Declaration', a document on the fundamental principles of auditing adopted by the
International Organisation of Supreme Audit Institutions (Intosai) at the Lima congress, which was held in
October 1977.

(2) Under the Community system, internal control
includes compliance with the principles of sound financial management.

is not confined to checks as to legality/regularity but also

(3) The Treaty of Brussels was signed on 22 July 1975 and the Court of Auditors took up its duties at the end
of 1977.

(4) See Articles 205 and 206 of the Treaty establishing the European Community (EC).

(5) The Treaty on European Union, which entered into force on 1 November 1993, granted legislative powers
to the European Parliament.

(6) See Article 188c(4) of the EC Treaty.

(7) The report is published in the Officialjournal of the European Communities. It also contains, for the record,
a list of the reports and opinions adopted by the Court during the previous five years.

(8) See Article 206 of the EC Treaty and Article 89 of the Financial Regulation.

(') See Article 188c(l) of the EC Treaty.

(,0) See OJC 352, 30.12.1995.

(

) These documents are normally published in the Officialjournal of the European Communities.

C2) See Article 188c(4) of the EC Treaty. The Court's opinion is communicated only to the institution which
requested it. The Court does not publish these opinions.

(") See Article 209 of the EC Treaty. These opinions are published in the Official journal of the European
Communities.

(14) See Article 188c(3) of the EC Treaty.

(15) As regards the making available to the Court of documents held by the institutions, see Article 87, fifth
paragraph, ot the Financial Regulation of 21 December 1977, which states that the grant of Community funds
to beneficiaries outside the institutions is subject to the agreement in writing by the beneficiaries to an audit of
the utilisation of the amounts granted being carried out by the Court of Auditors.

(,6) See Article 188c(l) and (2) of the EC Treaty.

(17) See paragraph 0.8 of the Annual Report concerning the financial year 1990 (OJ C 324, 13.12.1991, p. 6).
Article 2 of the Financial Regulation of 21 December 1977 states that the budget appropriations must be used
in accordance with the principles of sound financial management, and in particular those of economy and cost-
effectiveness. Quantified objectives must be identified and the progress of their realisation monitored.

THE MEMBERS
OF THE EUROPEAN COURT OF AUDITORS
1977-1997

1. From 18 October 1977
to 31 December 1980

Mr Paul GAUDY (Belgium)

Mr Arne K. JOHANSEN (Denmark)

Mr Albert LEICHT (Germany)

Mr Pierre LELONG (France)

Mr Michael N. MURPHY (Ireland, President from 1 1 November 1977)

Mr Aldo ANGIOI (Italy)

Mr Marcel MART (Luxembourg)

Mr Andre J. MIDDELHOEK (Netherlands)

Sir Norman PRICE (United Kingdom)

2. From 1 January 1981
to 17 October 1983

Mr Paul GAUDY (Belgium)

Mr Arne K. JOHANSEN (Denmark, until 17 April 1983)

Mr Keld BRIXTOFTE (Denmark, from 18 April 1983)

Mr Albert LEICHT (Germany)

Mr Georges VITALIS (Greece)

Mr Pierre LELONG (France, President from 18 October 1981)

Mr Michael N. MURPHY (Ireland, President until 17 October 1981)

Mr Aldo ANGIOI (Italy)

Mr Marcel MART (Luxembourg)

Mr Andre J. MIDDELHOEK (Netherlands)

Sir Norman PRICE (United Kingdom)

3. From 18 October 1983
to 26 January 1986

Mr Paul GAUDY (Belgium)

Mr Keld BRIXTOFTE (Denmark)

Mr Lothar HAASE (Germany)

Mr Stergios VALLAS (Greece)

Mr Pierre LELONG (France, President until 17 October 1984)

Mr Michael N. MURPHY (Ireland)

Mr Aldo ANGIOI (Italy)

Mr Marcel MART (Luxembourg, President from 18 October 1984)

Mr Andre J. MIDDELHOEK (Netherlands)

Mr Charles J. CAREY (United Kingdom)

4. From 27 January 1986
to 20 December 1989

Mr Paul GAUDY (Belgium, until 17 October 1987)

Mr Fernand HEBETTE (Belgium, from 18 October 1987)

Mr Keld BRIXTOFTE (Denmark, until 17 April 1989)

Mr Ole WARBERG (Denmark, from 18 April 1989)

Mr Lothar HAASE (Germany)

Mr Stergios VALLAS (Greece)

Mr Josep SUBIRATS (Spain)

Mr Pierre LELONG (France)

Mr Michael N. MURPHY (Ireland, until 17 May 1986)

Mr Richie RYAN (Ireland, from 18 May 1986)

Mr Aldo ANGIOI (Italy)

Mr Marcel MART (Luxembourg, President)

Mr Andre' J. MIDDELHOEK (Netherlands)

Mr Carlos MORENO (Portugal)

Mr Charles J. CAREY (United Kingdom)

5. From 21 December 1989
to 31 December 1992

Mr Fernand HEBETTE (Belgium, until 20 December 1992)

Mr Roger CAMUS (Belgium, from 21 December 1992)

Mr Ole WARBERG (Denmark)

Mr Bernhard FRIEDMANN (Germany)

Mr Constantinos ANDROUTSOPOULOS (Greece)

Mr Josep SUBIRATS (Spain)

Mr Daniel STRASSER (France)

Mr Richie RYAN (Ireland)

Mr Aldo ANGIOI (Italy, President from 9 January 1990)

Mr Maurice THOSS (Luxembourg)

Mr Andrd J. MIDDELHOEK (Netherlands)

Mr Carlos MORENO (Portugal)

Mr Charles J. CAREY (United Kingdom)

6. From 1 January 1993
to 9 February 1994

Mr Roger CAMUS (Belgium)

Mr Ole WARBERG (Denmark)

Mr Bernhard FRIEDMANN (Germany)

Mr Constantinos ANDROUTSOPOULOS (Greece)

Mr Josep SUBIRATS (Spain)

Mr Daniel STRASSER (France)

Mr Richie RYAN (Ireland)

Mr Giorgio CLEMENTE (Italy)

Mr Maurice THOSS (Luxembourg)

Mr Andre J. MIDDELHOEK (Netherlands, President from 12 January 1993)

Mr Carlos MORENO (Portugal)

Mr John WIGGINS (United Kingdom)

7. From 10 February 1994
to 28 February 1995

Mr Patrick EVERARD (Belgium)

Mr Ole WARBERG (Denmark)

Mr Bernhard FRIEDMANN (Germany)

Mr Constantinos ANDROUTSOPOULOS (Greece)

Mr Antoni CASTELLS (Spain)

Mr Daniel STRASSER (France)

Mr Barry DESMOND (Ireland)

Mr Giorgio CLEMENTE (Italy)

Mr Maurice THOSS (Luxembourg)

Mr Andre J. MIDDELHOEK (Netherlands, President)

Mr Armindo de Jesus de SOUSA RIBEIRO (Portugal)

Mr John WIGGINS (United Kingdom)

8. From 1 March 1995

to 31 December 1995

Mr Patrick EVERARD (Belgium)

Mr Ole WARBERG (Denmark, until 30 June 1995)

Mr Jorgen MOHR (Denmark, from 1 July 1995)

Mr Bernhard FRIEDMANN (Germany)

Mr Constantinos ANDROUTSOPOULOS (Greece)

Mr Antoni CASTELLS (Spain)

Mr Daniel STRASSER (France)

Mr Barry DESMOND (Ireland)

Mr Giorgio CLEMENTE (Italy)

Mr Maurice THOSS (Luxembourg)

Mr Andre J. MIDDELHOEK (Netherlands, President)

Mr Hubert WEBER (Austria)

Mr Armindo de Jesus de SOUSA RIBEIRO (Portugal)

Mr Aunus SALMI (Finland)

Mr Jan O. KARLSSON (Sweden)

Mr John WIGGINS (United Kingdom)

9. As from 1 January 1996

Mr Patrick EVERARD (Belgium)

Mr Jorgen MOHR (Denmark)

Mr Bernhard FRIEDMANN (Germany, President since 18 January 1996)

Mrs Kalliopi NIKOLAOU (Greece)

Mr Antoni CASTELLS (Spain)

Mr Jean-Francois BERNICOT (France)

Mr Barry DESMOND (Ireland)

Mr Giorgio CLEMENTE (Italy)

Mr Fran$ois COLLING (Luxembourg)

Mr Maarten B. ENGWIRDA (Netherlands)

Mr Hubert WEBER (Austria)

Mr Armindo de Jesus de SOUSA RIBEIRO (Portugal)

Mr Aunus SALMI (Finland)

Mr Jan O. KARLSSON (Sweden)

Mr John WIGGINS (United Kingdom)