Report on the financial statements and management of the European Centre for the Development of Vocational Training (CEDEFOP-Salonica) for the financial year ended 31 December 1997, together with the reply of the European Centre for the Development of Vocational Training
28. 12. 98 EN Official Journal of the European Communities C 406/1 I (Information) COURT OF AUDITORS on the financial statements and management of the European Centre for the Development of Vocational Training (CEDEFOP — Salonica) for the financial year ended 31 December 1997, together with the reply of the European Centre for the Development of Vocational Training REPORT (98/C 406/01) TABLE OF CONTENTS Paragraph reference Page THE FINANCIAL STATEMENTS OF THE EUROPEAN CENTRE FOR THE DEVELOPMENT OF VOCATIONAL TRAINING FOR THE FINANCIAL YEAR 1997. 1 — 4 MAIN OBSERVATIONS ACCOMPANYING THE AUDIT OPINION. 5 — 41 Introduction. Background. Scope of the audit. Financial data. 5 — 8 5 — 6 7 8 Main observations on the budgetary execution. 9 — 14 Separation of duties. 9 Imprest account. 10 — 11 Transfers of appropriations. 12 — 13 Carry-overs and cancellations of appropriations. 14 Main observations on the revenue and expenditure account and the balance sheet. 15 — 22 Revenue. 15 — 16 Expenditure. 17 — 19 Balance sheet. 20 — 22 Audit of the Centre’s premises and staff situation. 23 — 37 Temporary premises. 23 — 25 Permanent premises. 26 — 35 Staff. 36 — 37 Conclusion. 38 — 41 Tables 1 to 4. 2 2 2 2 2 2 3 3 3 3 3 3 3 3 4 4 4 4 5 5 7 Reply of the CEDEFOP MANAGEMENT BOARD. 10 C 406/2 EN Official Journal of the European Communities 28. 12. 98 THE FINANCIAL STATEMENTS OF THE EUROPEAN CENTRE FOR THE DEVELOPMENT OF VOCATIONAL TRAINING FOR THE FINANCIAL YEAR 1997 MAIN OBSERVATIONS ACCOMPANYING THE AUDIT OPINION 1. This report is addressed to the Council and the European Parliament in accordance with Article 12 of Council Regulation (EEC) No 337/75 (1), as amended by Regulation (EEC) No 1946/93 (2). Introduction Background 2. The Court has examined the financial statements of the European Centre for the Development of Vocational Training for the financial year ended 31 December 1997. In accordance with Article 18(1) of Council Regulation (EEC) No 1416/76 (3), as amended by Regulation (EEC) No 1948/93 (4), the budget was implemented under the responsibility of the Management Board. This responsibility included the drawing up and presentation of the financial statements (5) in accordance with the internal financial provisions provided for under Articles 65, 67 and 68 of Council Regulation (EEC) No 1948/93 amending Regulation (EEC) No 1416/76. The Court of Auditors is required under Article 188c of the Treaty establishing the European Community to examine these accounts. 3. The Court undertook its audit in accordance with its audit 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 procedures as it deemed necessary in the circumstances. Through the audit, the Court obtained sufficient basis for the opinion expressed below. 4. This examination has allowed the Court to obtain reasonable assurance that the accounts for the financial year ended 31 December 1997 are reliable and that the underlying transactions are, on the whole, legal and regular. for 5. The European Centre the Development of Vocational Training (CEDEFOP) was established by Council Regulation (EEC) No 337/75 as a satellite body of the European Community with the task of promoting vocational level. Cedefop commenced operations in Berlin in 1976 and moved to Salonica in 1995. training at Community of ‘to training’, contributing 6. The same Regulation defines its role as that of assisting ‘the Commission in encouraging, at Community level, the promotion and development of vocational and in-service the implementation of a common vocational training policy’ and, especially, encouraging ‘the exchange of information and the comparison of expertise’. Its main tasks in the compile field documentation, to contribute to the development and to disseminate useful coordination of documentation and to encourage and support likely to facilitate a coordinated approach (specifically in respect of the approximation of standards and the mutual recognition of certificates) and to provide a forum for all those concerned’. information, vocational initiatives research, training are ‘to of Scope of the Audit 7. The Court carried out a financial audit of the 1997 accounts and has reviewed the Centre’s decisions concerning its temporary and permanent premises and staff situation. Financial data (1) OJ L 39, 13. 2. 1975, p. 1. (2) OJ L 181, 23. 7. 1993, p. 11. (3) OJ L 164, 24. 6. 1976, p. 1. (4) OJ L 181, 23. 7. 1993, p. 15. (5) As required under Article 67 of Regulation (EEC) No 1948/93 amending Regulation (EEC) No 1416/76, the accounts for all the Centre’s revenue and expenditure in respect of the financial year 1997 were drawn up and approved by the Management Board on 13 March 1998 and forwarded to the Commission and the Court of Auditors. These accounts were received by the Court on 3 April 1998. A summarised version of these financial statements is presented in the tables attached to this report. 8. Tables 1 and 2 summarise the Centre’s financial statements. Table 3 of this report gives an analysis of the utilisation of the appropriations for 1997, as well as of those carried over from 1996. Available appropriations for the financial year 1997 amounted to ECU 14,5 million. Commitments entered into gave rise to ECU 9,1 million in payments and ECU 4,8 million in carry-overs to the financial year 1998, the balance of ECU 0,6 million having been cancelled. Appropriations carried over from the previous financial year gave rise to ECU 1,9 million in cancellations. in payments and ECU 0,2 million 28. 12. 98 EN Official Journal of the European Communities C 406/3 Main observations on the budgetary execution the number of staff entering and leaving the service during the financial year. Separation of duties Carry-overs and cancellations of appropriations 9. The Centre has introduced satisfactory procedures for the separation of the duties of authorising officer, accounting officer and imprest holder. In addition, the Centre intends to install an EDP accounting system specifically adapted to its needs. The Centre considers that this EDP system will be compatible with SINCOM 2, but also more flexible. It claims that SINCOM 2 on its own is unsuitable for satellite bodies, and would give rise to additional labour costs were it to be run at local level. Imprest account 10. The proportion of payments made through the imprest account, prior to approval by the Financial Controller, fell from 74 % in 1996 to 60 % in 1997. This is due to the efforts made by the Centre in response to the Court’s remarks of last year (6). 11. Payments concerning six budget headings were made through the imprest account even though these headings had not been included in the Management Board’s related decision. As these budget headings do not relate to urgent, ongoing or small expenses, where the risk of irregularities is comparatively low, it is recommended that these payments should not be made through the imprest account. Transfers of appropriations 12. The value of transfers of appropriations made between different budget headings in 1997 was ECU 758 200 (5 % of the initial budget), down from ECU 891 600 in 1996. 13. The transfers were made within Title 1 ‘Staff expenditure’, the most notable being the transfer of ECU 239 500 from budget heading 1100 ‘Basic salaries’ which was allocated mainly to the budget headings under Article 118 ‘Allowances and expenses on entering and leaving the service and on transfer’, which accounted for ECU 214 000. This reflects the considerable turnover in (6) Report on the financial statements and management of the European Centre the Development of Vocational Training for the financial year 1996 (OJ C 393, 29. 12. 1997, p. 1). for the in 1997. Nearly 63 % of 14. The volume of appropriations carried over increased final substantially appropriations for 1997 were paid out in 1997 as compared with 77 % in 1996. The percentage of commitments entered into and carried over to 1998 was 33 % (14 % in 1996). The percentage of cancellations was 4 %, compared with 9 % in 1996. Table 4 shows the carry-overs from the 1997 initial budget by Title, and their subsequent use. The increase is due mainly to an amount of ECU 1,7 million which constituted the third payment for the construction of the permanent premises, which, although foreseen for 1997, was not actually made. Main observations on the revenue and expenditure account and the balance sheet Revenue 15. The EU subsidy set aside for the Centre for 1997 was ECU 14,3 million. The Centre actually requested and received ECU 9,5 in 1997 and ECU 4 million in 1998. 16. In 1997, Norway, the only non-Member State, paid the Centre a contribution of ECU 126 282 million in respect of its participation in the work programme. Expenditure 17. The audit of payment transactions revealed certain areas of weaknesses, the most important of which are: (a) as the Court observed last year (7), the requirement to carry out tendering procedures or to obtain other offers was not always respected (b) in the case of certain types of administrative expenditure, the local tax rules regarding the type of document to be furnished by suppliers (eg. an invoice authenticated by the tax authorities) were not always respected (c) there is no clear short- and medium-term plan regarding capital expenditure and the external services provided to the Electronic Data Processing (EDP) department (d) the selection procedures in respect of study contracts are not fully transparent and, coupled with the absence of adequate controls in the monitoring of this area of expenditure, there is an increased risk of error. C 406/4 EN Official Journal of the European Communities 28. 12. 98 18. As far as the tendering procedures for administrative expenditure are concerned, it was noted that a number of these procedures were conducted half-way through the financial year. The success of these procedures in the light of the response rates, was diminished by the failure to advertise within the local market through regional newspapers. Irrespective of this, the Centre decided to proceed with the selection of contractors. lack of a clear plan regarding the EDP 19. The department’s expenditure results in contracts being awarded without the lowest price necessarily being is due primarily to contracts being obtained. This awarded in a haphazard manner. One local supplier, obtained approximately ECU 75 600 in 1997 alone following a limited tender procedure or no tender procedure at all. contracts totalling three Balance sheet 20. The fixed assets of ECU 1 501 171 recorded in the 1997 balance sheet, and for which an up-to-date inventory list existed, represent the historic cost of furniture and equipment. 21. As the Court observed last year (7), the Centre is taking responsibility for managing large cash balances. There has been a substantial improvement over the past year, with bank interest received in 1997 amounting to ECU 152 280, as compared with ECU 286 486 in 1996. Nevertheless, the Court recommends that the Centre should further improve the accuracy of amounts it draws quarterly from the Commission and should request only the funds required to cover its actual short-term cash needs. In addition, a clear credit policy should be established regarding payments to suppliers. In some cases payments were made without advantage having been taken of the credit terms available. 22. The balance sheet includes an amount of ECU 678 514 relating to ‘VAT to recover’, of which ECU 371 843 relates to Value Added Tax (VAT) due from the German tax authority, ECU 290 887 due from the Greek tax authority and ECU 15 784 due from other Member States. Officials of the German tax authority have stated that they intend to audit the claims made on the spot, prior to making any reimbursement. The amounts due from the Greek tax authority concerning financial years 1995 and 1996 were paid to the Centre in 1998. The (7) Report on the financial statements and management of the European Centre the Development of Vocational Training for the financial year 1996 (OJ C 393, 29. 12. 1997, p. 1). for Centre is requested to submit the 1997 claim to the Greek tax authority and all other claims to the other Member States as soon as possible. In future such delays in submitting claims for the reimbursement of VAT should be avoided. Audit of the Centre’s premises and staff situation Temporary premises 23. As the Court observed last year (7), the Centre had to invest an amount of GRD 44 million or approximately ECU 125 000 to fit out its premises and to render the temporary building functional and ‘ready for use’. The Centre explained that ‘these costs were incurred to improve the conditions for efficient functioning of the Centre’. 24. Owing mainly to the vagueness of the rental agreement, it is unclear as to who will eventually be liable for these costs. 25. The Centre’s management should ensure that all movable assets in which investments have been made are transferred to the new premises under construction and that, wherever there is a strong case, all necessary precautions are taken to ensure that expenditure incurred in respect of specific types of immovable assets is recovered. Permanent premises 26. On 22 June 1995 the Centre and the Greek State signed a basic agreement concerning the construction of the permanent building. Payments by the Centre to the Greek State 27. According to the abovementioned agreement, the Centre was to pay the Greek State ECU 6 879 750 in four equal instalments of ECU 1 719 937. The first two were paid in December 1995 and in September 1996 and the third payment was due on 1 September 1997. The Budget Authority agreed that this third instalment could be paid in December 1997, but, owing primarily to the current stage of progress reached in the construction work and the failure of OEK (the national Workers Housing Organisation), the organisation appointed by the Greek State to manage the project, to submit a financial report, the payment has not yet been made. The last instalment will be paid when the building has been handed over. 28. 12. 98 EN Official Journal of the European Communities C 406/5 Current stage reached in the construction work of fixed-asset purchases should be financed and whether the actual Centre or OEK should be purchasing them. 28. The building’s foundation stone was laid officially on 6 September 1997 and, following a tendering procedure, the contract was signed on 31 October 1997 for an amount of GRD 1 048 million (or approximately ECU 3,1 million at the current exchange rate of ECU 1 = GRD 345). The final version of the construction plans were approved in May 1998, following the incorporation of certain necessary amendments, the estimated financial effect of which brings the total cost to some GRD 1 720 million (or approximately ECU 5 million). It is recommended that a detailed list of the 34. purchases that are to be financed out of the above amount and details of who will be responsible for these purchases should be drawn up and agreed with the European Parliament. 35. In addition, following the recent realignement of the drachma, the exchange rate that the Greek State is to use when submitting its returns remains to be determined. 29. At present, the excavation work has almost been completed and the foundations are being laid. The first account was submitted by the contractor to OEK for payment at the end of March 1998 and amounted to GRD 73 360 000 (or approximately ECU 215 000). It should be noted that OEK will receive a 5 % commission fee for the services it provides to the Centre. 30. Taking the financial budget submitted by the contractor as a basis, the actual costs at the end of 1998 are not expected to exceed the total of the two advances paid in 1995 and 1996 by the Centre to the Greek State; they are expected to reach GRD 1 000 million (or approximately ECU 2,9 million). Staff 36. In 1997, the staff-complement table showed 81 permanent and temporary posts at the following grades: 25 A, 11 LA, 15 B, 27 C and three D. 37. There are 68 officials currently working for the Centre, 61 in Salonica, three in Brussels and four on special leave (CCP). A further 26 persons work in the capacity of national experts, local agents and auxiliary staff. Conclusion that the third It 31. instalment be paid only when: therefore is recommended (a) the actual costs reach an acceptable level in relation to the previous advances paid, (b) a detailed financial report has been submitted by OEK; this report should be based on the accounts actually submitted by the contractor, and (c) the Centre has carried out the necessary checks on the abovementioned report. Completion of the building 32. Further expenditure will be required to render the building ‘usable’. The costs involved relate mainly to the purchase of furniture and fittings and to the installation of specialised equipment. The difference that is expected to arise between the total budget available for the building of ECU 6,9 million and its estimated total cost of ECU 5 million as stated above, whilst allowing for inflation, OEK’s fees, and so on, amounts to ECU 1,9 million. 33. With regard to the above amount of ECU 1,9 million, there is currently no agreement as to what type 38. The Centre should, in all instances, respect the requirement to carry out tendering procedures or to obtain other offers. Furthermore, it should always respect the local tax rules and should improve the transparency of the selection procedures relating to study contracts (see paragraphs 17 to 19). 39. Although substantial improvements were noted with regard to the size of the cash and bank balances, the Centre should further improve the accuracy of the amounts of its quarterly drawings from the Commission and should request funds to cover only its actual short-term cash needs. It should also establish a clear credit policy regarding payments to suppliers (see paragraph 21). 40. The Centre is recommended to submit the 1997 claim for the reimbursement of VAT to the Greek tax authority and to make all other claims on the other Member States as quickly as possible (see paragraph 22). 41. The Centre is requested to monitor closely the construction work on the permanent premises. In addition, a detailed list of the fixed-asset purchases that are to be financed from the amount of ECU 1,9 million and details of who will be responsible for these purchases should be drawn up and agreed with the Budget Authority (see paragraphs 26 to 35). C 406/6 EN Official Journal of the European Communities 28. 12. 98 This report was adopted by the Court of Auditors in Luxembourg at its meeting of 26 November 1998. For the Court of Auditors Bernhard FRIEDMANN President 28. 12. 98 EN Official Journal of the European Communities C 406/7 Table 1 Balance sheet at 31 December 1997 Assets 1997 1996 Liabilities 1997 1996 (in ECU 1 000) Fixed Assets 1. Furniture and equipment 1 501 1 444 Fixed Capital 1. Own Capital 2. Balance for the financial year 1 523 0 1 450 1 623 Current Assets 1. Stocks 2. Sums to be recovered 3. Advances 4. VAT to recover 5. Expenditure to be charged from 6. Amounts due Commission the 22 26 15 679 335 3 989 7 66 8 483 294 0 Current Liabilities 1. Salary deductions 2. Other liabilities 26 755 82 654 Sums to be reused 107 133 Cash Accounts 1. Bank account 2. Imprest account Appropriations carried over 4 829 2 151 331 442 3 151 882 Payments in progress 100 242 Sums to be recovered 12 29 Sums to be recovered 12 29 7 352 6 364 7 352 6 364 Source: 1997 Annual Accounts of the Centre. C 406/8 EN Official Journal of the European Communities 28. 12. 98 Table 2 Revenue and expenditure account for the year ended 31 December 1997 Revenue 1. Subsidy received from the Commission 2. Miscellaneous revenue 3. Revenue from services rendered against payment Expenditure Staff expenditure 1. Payments for the year 2. Appropriations carried over Administrative expenditure 1. Payments for the year 2. Appropriations carried over Operating expenditure 1. Payments for the year 2. Appropriations carried over Appropriations carried over (Article 6(3) and Article 3(2)) (in ECU 1 000) 1997 1996 13 522 152 134 14 410 286 144 Total (a) 13 808 14 840 5 579 541 981 2 067 2 544 2 204 15 6 225 510 2 667 258 2 492 1 383 0 Total Expenditure (b) 13 931 13 535 Out-turn for the year (a) − (b) Balance carried over from previous year Amount refunded to the Commission Appropriations carried over from the previous year which lapse Appropriations carried over (Article 6(3) and Article 3(2)) Exchange differences for the year Cancellation of established entitlements − 123 1 623 − 1 623 199 − 1 − 61 − 14 1 305 2 013 − 2 013 616 0 − 298 0 Balance for the year 0 1 623 Source: 1997 Annual Accounts of the Centre. 28. 12. 98 EN Official Journal of the European Communities C 406/9 Table 3 Financial year 1997 — Utilisation of available appropriations Title Definitive Payments Carry-overs Cancelled Available Payments Cancelled 1997 Budget Carry-overs from 1996 (in ECU 1 000) 1. Staff expenditure 6 543 2. Administrative expenditure 3 092 3. Operational expenditure 4 891 Total 14 526 5 579 (85,3) 981 (31,7) 2 544 (52,0) 9 104 (62,7) 541 (8,3) 2 067 (66,8) 2 204 (45,1) 4 812 (33,1) 423 (6,4) 44 (1,5) 143 (2,9) 610 (4,2) 510 258 1 383 2 151 (*) 465 (91,2) 225 (87,2) 1 261 (91,2) 1 951 (90,7) 45 (8,8) 33 (12,8) 122 (8,8) 200 (9,3) The figures in brackets indicate the percentage of definitive or available appropriations. (*) All automatic carry-overs. Source: 1997 Annual Accounts of the Centre. Table 4 Financial year 1997 — Carry-overs from the 1997 initial budget (in ECU) Carry-over from 1997 Carry-over as % of initial budget Carry-overs paid out 1. 1. — 31. 3. 1998 % of 1997 carry-over used by 31. 3. 1998 541 469 2 066 951 2 203 864 8,3 66,8 45,1 92 984 184 268 927 981 17,2 8,9 42,1 Total 4 812 284 33,1 1 205 233 25,0 Staff expenditure Administrative expenditure Operational expenditure Source: 1997 Annual Accounts of the Centre. C 406/10 EN Official Journal of the European Communities 28. 12. 98 REPLY OF THE CEDEFOP MANAGEMENT BOARD The nature of the observations of the Court of Auditors makes it possible for the Management Board of the Centre to react in a direct manner. The Board will follow the structure of the Court’s observations and conclusions. The numbering of the annotated paragraphs corresponds to that used in the Court’s report. 11. The Centre understands the remarks but adds the following reflections. On account of the modification to the decision setting up an imprest account and the items covered by it, there was confusion over the items previously covered in the former regulation. In the meantime the Centre has adopted the necessary measures to ensure that this no longer reoccurs and has made provision that the new accounting system has sufficient internal checking mechanisms. 14. The Court is right in pointing out that the main reason for the increase in appropriations carried over to 1998 was the decision of the Centre not to allow for payment of the third instalment for the new building to the Greek authorities before certain key conditions (agreed with the Commission and acknowledged by the Greek government itself) had been fulfilled. The de facto progress was not substantial enough this instalment. The payment of the third instalment of the new building was made provisional to receipt from the Greek authorities of: to pay — definitive plans, — detailed financial data ensuring transparency of costs taking into consideration the improvements over the original proposals, — indications of payments already made on the basis of the progress achieved. The progress of the construction work was not delayed or disrupted. The Centre was able to maintain its tough line on the matter. In CEDEFOP’s progress report on the new building of late June 1998, requested by the European Parliament, the situation is clearly assessed. 15. According to the Court’s statement, the Centre requested throughout the year payments of the subsidy to cover spending needs. However, at the end of 1997 and on the advice of Financial Control, CEDEFOP asked for transfer of the subsidy to the amount required to cover the commitments incurred. These were received during the month of January 1998. It is from this perspective that the Centre did not request the first instalment of the 1998 subsidy. 17a. The Centre reaffirms its adherence to the principles of competition, although it has not always been possible to respect them in the past owing to the delays inherent in carrying out tendering procedures and the need of the Centre to establish itself quickly in Thessaloniki. It should be noted however that CEDEFOP attained more or less full operational activity in 1997, and issued the majority of calls for tender for administrative expenditure and a call for an expression of interest for office furniture. 17b. After two years in Greece the Centre now has experience in this area and will be more vigilant in ensuring that the few errors which did occur are avoided. 17d. Concerning the operational expenditure, the Centre made a call for an expression for interest (OJ S 107, 5. 6. 1997 and OJ C 214, 16. 7. 1997). Since ascertaining the results of the call, all the contracts signed have been based the abovementioned results. This ‘window opening’ exercise has had a positive impact on the quality of our external contractors. procedure restricted using on a While awaiting the monitoring of the contracts via the new software currently being developed in CEDEFOP, the administration, following the remarks of the Court of Auditors during their visit, has drawn up a standard check-list to accompany each contract and to ensure precise monitoring of progress in each contract. regards contracts 18. It was only when urgent staffing and organisational problems resulting from the move had been satisfactorily overcome, that it became possible to review the situation as administrative expenditure and to prepare to launch the appropriate calls for tenders. This explains why these procedures were implemented during the financial year and not before it started. Initially, publication in the special S series of the OJ seemed to be the reasonable course to relating to 28. 12. 98 EN Official Journal of the European Communities C 406/11 take, but in the light of the poor response to which the Court points, the Centre drew the conclusion that it should proceed in a different way. Therefore, the following call for tenders (OJ S 139, 19. 7. 1997), pursuant to a decision of the Management Board, was also published in the local press, and this procedure will be followed in future. 19. The remarks of the Court, which are in fact valid for 1997, reflect the fact that the Centre quickly equipped itself with IT capacities that could underpin its renewed and expanding activity. The present success of our electronic links with our clients and partners could not have been achieved without this somewhat robust approach. The Centre has, however, drawn up in the meantime a short/medium term plan for the informatics (hardware, software and training) and will soon finish tendering procedures for equipping the new building. 22. On 8 October 1998 the Centre received the reimbursement of the VAT for the years 1995-1997 from the German tax authorities. Concerning the VAT claim to the Greek tax authorities, the delay is mainly due to a lot of work, especially as a consequence of the move from Berlin to Thessaloniki. Moreover, the Greek tax authorities require lists annexed with all the original invoices. This obviously entails a heavier workload for the staff involved in preparing the files. The claim for financial year 1997 has been made on 11 June 1998, so the Centre expects to receive the money back before the end of 1998. The Centre is currently considering taking the appropriate internal organisational measures which would allow it to be able to make the claims on a more frequent basis. 21. The Centre will try to improve further the cash balance outstanding. The establishment of a clear credit policy, however, in view of the underdeveloped banking and payment system in Greece. laborious is very 28-30. The Centre follows very closely the progress of the new building and reports every half year as asked by the European Parliament. The last report (end June 1998) indicates that the building will be ready on schedule and with the budget originally foreseen. The de-facto progress can page Internet on (http://www. cedefop. gr/documents/archives. html). studied our be