Report on the financial statements of the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA- Lisbon) for the financial year ended 31 December 1997, together with the Monitoring Centre's reply
28. 12. 98 EN Official Journal of the European Communities C 406/43 on the financial statements of the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA — Lisbon) for the financial year ended 31 December 1997, together with the Monitoring Centre’s reply REPORT (98/C 406/08) 1. 1. This report is addressed to the Management Board of the European Monitoring Centre for Drugs and Drug Addiction in conformity with Article 11(11), of Council Regulation (EEC) No 302/93 (1). reasonable assurance that the annual accounts for the financial year which ended on 31 December 1997 are reliable and that the underlying transactions, taken as a whole, are legal and regular. 1. 2. The Court has examined the financial statements of the European Monitoring Centre for Drugs and Drug Addiction for the financial year ended 31 December 1997. In accordance with Article 11(8), of Regulation (EEC) No 302/93, the budget was implemented on the responsibility of the Director. This responsibility included the drawing-up and presentation of financial statements (2) in accordance with the internal financial provisions, as provided in Article 11(12), of for Regulation (EEC) No 302/93, as modified by Article 1 of Regulation (EC) No 3294/94 (3). The Court of Auditors is required under Article 188c of the Treaty establishing the European Community to examine these accounts. the 1. 3. The Court performed its audit in accordance with its auditing policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. Accordingly, the Court carried out such tests of the accounting records and other audit procedures as it deemed necessary in the circumstances. By means of this audit, the Court obtained a reasonable basis for the opinion expressed below. 1. 4. The observations set out in paragraphs 1. 6, 1. 7, 1. 8 and 1. 11 below reveal the application of practices that do not comply with the provisions of the Regulations. MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN MONITORING CENTRE FOR DRUGS AND DRUG ADDICTION FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1997 Budgetary and general accounts 1. 6. The budgetary accounts are still being kept using an (Excel) table and not a software package. The use of a table has already been criticised in previous financial years and amendments could be made without leaving any trace (audit trail). As a result, the presentation of the implementation of the budget as at 30 September 1997, as shown to the Court on the occasion of its on-the-spot visit in December 1997, underwent changes in the year-end financial statements. Rather than entering corrections of any errors at a later date, amounts were directly amended, added or cancelled. This practice infringes the fundamental principle of the inviolability of accounting entries. In addition, the EDMC has still not submitted the supporting documents relating to the amendments concerned. 1. 5. Subject to the facts set out in paragraph 1. 4 above, this examination has enabled the Court to obtain (1) OJ L 36, 12. 2. 1993, p. 6. (2) As required under Article 11(10), of Council Regulation (EEC) No 302/93, the accounts for all the Monitoring Centre’s revenue and expenditure for the financial year 1997 were drawn up on 16 April 1998 and forwarded to the Centre’s Management Board, the Commission and the Court of Auditors. These accounts were received by the Court on 17 April 1998. A summarised version of these accounts is presented in the tables attached to this report. (3) OJ L 341, 30. 12. 1994, p. 7. the financial 1. 7. The Court’s Report concerning statements of the Monitoring Centre for the financial year 1996 (4) contained a reservation concerning the fitting-out of the Monitoring Centre’s premises, which was funded outside the budget, and another reservation regarding ECU 0,04 million charged to the budget and ECU 0,1 million divided up among various items on the balance sheet. As the Monitoring Centre has not yet supplied satisfactory supporting documents for all these balances, the Court still cannot withdraw its reservation on the financial statements for the financial year 1996. (4) OJ C 393, 29. 12. 1997, p. 35. C 406/44 EN Official Journal of the European Communities 28. 12. 98 1. 8. At the end of the financial year, an amount of ECU 1,82 million was shown under the account ‘transfers in progress’. The bank’s debit notes for some of these payments, for a total of ECU 0,36 million (of which ECU 0,05 million was already pending in January 1997), were not presented by the Monitoring Centre during the Court’s audit. Reconciliations of the bank balances were not carried out in a satisfactory manner. Contracts and the ACPC 1. 9. A significant number of the contracts audited were awarded by private treaty and following a restricted invitation to tender. The EDMC should make more extensive use of open tendering procedures. Imprest account 1. 10. In spite of the efforts it has made during previous years the EDMC is still making many payments via an imprest account. The amount of payments carried out by means of the imprest account amounted to 36 % (ECU 2,4 million) of the payments for the financial year (ECU 6,7 million). The regularisation of payments made by the imprest account should be accompanied by a summary (approved by the Authorising Officer and Financial Controller) of what is to be charged to each budget item. fitting-out work on its headquarters. This subsidy, together with the bank interest earned on it, was spent entirely outside the budget. This practice, which is not in line with the provisions of the Financial Regulation, had already been criticised in the Court’s previous Reports. Furthermore, given the fact that the subsidy was insufficient to cover the total cost of the work carried out, the Monitoring Centre financed part of it from its own funds (ECU 0,2 million in 1996 and ECU 0,1 million in 1997), also outside the budget. The Centre thus carried out ECU 0,3 million of expenditure outside the budget, which was only submitted for the approval of the Financial Controller at final regularisation. The ACPC only gave an opinion on the choice of contractors in 1995, when work began. time of the Other observations 1. 12. Article 16 of the Financial Regulation enshrines the principle of the separation of duties of the authorising officers and the accounting officers. At the Monitoring Centre, the accounting department is responsible for preparing commitment proposals and payment orders. The internal control procedures are inadequate and should be strengthened, in particular so as to ensure that the duplication of payments observed during the audit ceases. Article 13 of the Monitoring Centre’s Financial Regulation provides for publication of the budget in the Official Journal of the European Communities. This was not done. Headquarters In 1995, the Portuguese Government paid the 1. 11. Monitoring Centre a subsidy of ECU 0,61 million for The balances of the VAT accounts in the balance sheet are not correct. The monitoring of the accounts is not effective. This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 5 November 1998. For the Court of Auditors Bernhard FRIEDMANN President 28. 12. 98 EN Official Journal of the European Communities C 406/45 Table 1 Balance sheet for the financial years 1996 and 1997 Assets 1997 1996 Liabilities 1997 1996 (ECU 1 000) Fixed assets Fixed assets Stocks Office equipment Sub-total Sub-total Current assets Commission subsidy Balance sundry accounts receivable Portuguese Government advance VAT to be recovered Cash accounts Bank Imprest accounts Transfers in progress Cash Sub-total Sub-total 3 409 3 409 12 12 2 668 207 172 3 047 1 209 800 (1 820) 1 190 3 345 3 345 1 1 160 371 298 213 1 042 2 977 534 (629) 1 2 883 Fixed capital Own capital (1) Balance for the financial year Sub-total 3 421 (1 569) 1 852 3 346 885 4 231 Current liabilities Appropriations carried over by Budgetary Authority Automatic carry-overs of appropriations Sundry accounts due Portuguese Government VAT to be recovered Re-use accounts Counterpart Commission subsidy Sub-total 135 1 930 2 429 21 172 15 2 668 4 806 119 93 213 51 3 040 Total assets 6 658 7 271 Total liabilities 6 658 7 271 (1) The amount corresponds to total fixed assets and stocks excluding the fitting-out work carried out (approximately ECU 1 million). Source: Prepared by the Court on the basis of the Monitoring Centre’s data. C 406/46 EN Official Journal of the European Communities 28. 12. 98 Table 2 Balance for the financial years 1996 and 1997 (ECU 1 000) 1997 1996 Revenue Commission Subsidy Subsidy to be recovered from the Commission Miscellaneous revenue 3 632 90 Total revenue 3 722 Expenditure Staff — Title I Payments Appropriations carried forward Buildings, equipment, etc. — Title II Payments Appropriations carried forward Operating — Title III Payments Appropriations carried forward 2 517 6 884 43 829 1 881 Out-turn for the financial year Out-turn carried over from previous year Adjustment to out-turn from previous year (1) Appropriations carried forward and cancelled Exchange-rate differences Total expenditure 6 160 (2 438) 885 (81) 92 (27) Balance for financial year (1 569) 5 848 160 131 6 139 1 764 128 497 540 781 1 896 5 606 533 369 (17) 885 (1) Amount included in the subsidies to be received under the financial year 1996 but not subsequently collected. Source: Prepared by the Court of Auditors on the basis of the Monitoring Centre’s data. 28. 12. 98 EN Official Journal of the European Communities C 406/47 CENTRE’S REPLY Paragraphs 1. 1 to 1. 5 Court’s disposal should the latter feel it necessary to examine the remaining transactions. in greater depth any of The EMCDDA takes note of the Court of Auditors’ observations; it has taken or will take all the necessary steps to correct the specific anomalies the Court has brought to our attention (see detailed replies below to each of the points raised) and welcomes the finding that the accounts for 1997 are reliable and that the underlying transactions, taken as a whole, are legal and regular. Paragraph 1. 8 Paragraph 1. 6 The decision to use the Excel computer program up to now is explained by the fact that there has been no viable alternative whatsoever. This program is a very practical, tool. The inexpensive and widely used computer EMCDDA has been working with the European Commission and other agencies on the finalisation of a program which would meet its needs, and hopes that this initiative, on which it depends, will enable it eventually to operate as desired. Given the configuration of the Excel system, it is true that in 1997 there were seven factual errors (out of a total of several thousand budget transactions) in the accounting entries which were then manually corrected before the end of the financial year. These errors were identified at source by the EMCDDA, and all the corresponding explanations and supporting documents will be made available to the Court of Auditors. It should however be explained that general accounting transactions are recorded on the special CUBIC program, in which it is impossible to make the kind of amendments or corrections which the Court of Auditors refers to. The inviolability of the accounting entries is thus guaranteed. Debit notes cannot exist if the corresponding requests for payment have not yet been submitted by the creditors. It is true that on 31 December 1997 a total of 89 transfers in progress had not yet been regularised (69 of which were from the Imprest Account), amounting to ECU 362 736. Most of these transactions had already been settled by 30 September 1998, and the EMCDDA undertakes to regularise all of them by 31 December 1998. The bank balances are reconciled on a monthly basis and duly checked. The supporting documents will be made available to the Court of Auditors. Paragraph 1. 9 During 1997, the EMCDDA awarded 47 contracts in total, 28 of which (60 % of the total) by invitation to tender, 17 by direct negotiation (36 % of the total), and two by means of an order sent to the OPOCE (4 % of the total), under the latter’s framework agreement. While these figures still offer room for improvement, it should be noted that the EMCDDA has since taken a number of steps (calls for expressions of interest, advertising, etc. ) to try to broaden a market which is itself extremely restricted, in particular because of its highly technical and specialised nature which prevents comparison with a traditional commercial market. Paragraph 1. 7 Paragraph 1. 10 This paragraph of the Court of Auditors’ report relates to transactions which were regularised at the end of 1996. The supporting documents were made available to the Court in 1997 and 1998. The Court itself recognised that this analysis had enabled it to clarify some of the balances in question. The EMCDDA remains at the it The Court of Auditors rightly observes that payments made from the Imprest Account amounted to 36 % of total payments in 1997. Although this might still seem excessive, is nonetheless a significant reduction compared with the previous year, since, for example, while salaries may, according to the regulations, be paid from the Imprest Account, this practice ceased as from 1997. The EMCDDA will endeavour to continue this trend in the years to come. C 406/48 EN Official Journal of the European Communities 28. 12. 98 Paragraph 1. 11 Here the Court of Auditors repeats an observation made in its report for the 1996 financial year. The EMCDDA has already recognised, in its replies to the Court of Auditors’ report for the previous year, that it would have been more correct to have incorporated this expenditure into its budget. At its meeting on 29 and 30 June 1995, the EMCDDA’s Management Board accepted the subsidy offered by the Portuguese Government and adopted the procedure for utilising these appropriations. The Financial Controller gave agreement ex ante on the placing of this expenditure outside the budget and ex post on its regularisation. It is true that the ACPC gave a favourable opinion on the choice of contractors for carrying out the work. The EMCDDA has accepted and adopted the Court of Auditors’ recommendation that, from now on, all transactions, including transactions of an exceptional nature such as that mentioned above, should be entered under headings specifically opened to this effect in the budget. Paragraph 1. 12 Following the observations made on this point by the Court of Auditors in its previous report, the EMCDDA has taken all the necessary steps, as from the beginning of 1997, to ensure the separation of duties; it now has a transparent and effective internal budgetary and financial procedure in place. This overall arrangement has finally been approved by the Management Board and is working well. It should be noted that its implementation, which required additional duties and further recruitment, has been subject to the corresponding decisions of their implementation (time needed for recruitment). the Management Board and therefore The Court of Auditors noted a small number of cases of payment duplication, notably in favour of the Focal Points. These cases, which resulted from a change in the submission of payment requests on the instigation of the Financial Controller, were immediately identified by the EMCDDA’s internal audit team and corrected by making deductions from subsequent payments due to the national Focal Points. At the time of audit, this situation had already been fully resolved. The publication of the EMCDDA’s budget in the Official Journal of the European Communities is a coordinated effort involving six other agencies, the aim being to find a way of reducing the disproportionately high costs of such a publication. The problem with the balances of the VAT accounts results from a charging error. This was corrected the moment it was identified and therefore no longer affects the accuracy of the balance of the VAT accounts in the 1997 balance sheet