Report on the financial statements and management of the European Foundation for the Improvement of Living and Working Conditions (Dublin-Foundation) for the financial year ended 31 December 1997, together with the reply of the European Foundation for the Improvement of Living and Working Conditions
C 406/12 EN Official Journal of the European Communities 28. 12. 98 REPORT on the financial statements and management of the European Foundation for the Improvement of Living and Working Conditions (Dublin-Foundation) for the financial year ended 31 December 1997, together with the reply of the European Foundation for the Improvement of Living and Working Conditions (98/C 406/02) TABLE OF CONTENTS Paragraph reference Page THE FINANCIAL STATEMENTS OF THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS FOR THE FINANCIAL YEAR 1997. 1 — 4 MAIN OBSERVATIONS ACCOMPANYING THE AUDIT OPINION. 5 — 19 Introduction. 5 — 7 Background. Scope of the audit. Financial data. 5 6 7 Follow-up of previous observations. 8 — 9 Separation of duties. Imprest account. 8 9 Budgetary execution and the revenue and expenditure account. 10 — 12 Transfer of appropriations. Carry-overs and cancellations of appropriations. Revenue. 10 11 12 Mission expenditure. 13 — 14 Procedures. Cost-effectiveness. Study Contracts. 13 14 15 Conclusion. 16 — 19 Tables 1—3. Reply of the European Foundation. 13 13 13 13 13 13 13 13 14 14 14 14 14 14 14 14 14 14 16 18 28. 12. 98 EN Official Journal of the European Communities C 406/13 THE FINANCIAL STATEMENTS OF THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS 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 16 of Council Regulation (EEC) No 1365/75 (1), as amended by Article 1(4) of Council Regulation (EEC) No 1947/93 (2). 2. The Court has examined the financial statements of the European Foundation for the Improvement of Living and Working Conditions for the financial year ended 31 December 1997. In accordance with Article 1(16) of Council Regulation (EEC) No 1949/93 (3) amending Regulation (EEC) No 1417/76 (4), the budget was of implemented the Administrative Board. This included drawing up and presenting the financial statements (5) in accordance with financial provisions provided for in Article 1(52), (54) and (55) of Council Regulation (EEC) No 1949/93 amending Regulation (EEC) No 1417/76. The Court of Auditors is required under Article 188c of the Treaty establishing the European Community to examine these accounts. responsibility responsibility internal under the the 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. Introduction Background 5. The European Foundation for the Improvement of Living and Working Conditions (Dublin-Foundation) was established by Council Regulation (EEC) No 1365/75 (6) as a satellite body of the European Community with the task of contributing ‘to the planning and establishment of better living and working conditions through action designed to increase and disseminate knowledge likely to assist this development’. The Dublin-Foundation commenced operations in 1976. Scope of the audit 6. The Court of Auditors has examined the accounts and financial management of the Dublin-Foundation for the financial year 1997 in accordance with the provisions of the relevant regulations (7). Financial Data 7. Tables 1 and 2 summarise the Foundation’s financial statements. Available appropriations for the financial year 1997 amounted to ECU 14 million. Commitments entered into gave rise to ECU 10,5 million in payments and ECU 3,4 million in carry-overs to the financial year 1998, the balance of ECU 0,1 million having been cancelled. Appropriations carried over from the previous year gave rise to ECU 2,9 million in payments and ECU 0,1 million in cancellations. Table 3 of this report gives an analysis by title of the utilisation of the appropriations for the year and of those carried over from 1996. 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, taken as a whole, legal and regular. Follow-up of previous observations Separation of duties (1) OJ L 139, 30. 5. 1975, p. 1. (2) OJ L 181, 23. 7. 1993, p. 13. (3) OJ L 181, 23. 7. 1993, p. 26. (4) OJ L 164, 24. 6. 1976, p. 16. (5) As required under Article 16 of Council Regulation (EEC) No 1365/75 as amended by Regulation (EEC) No 1947/93, the accounts revenue and expenditure in respect of a financial year 1997 were drawn up and approved by the Management Board on 31 March 1998 and forwarded to the Commission, the Foundation’s management board and the Court of Auditors. These accounts were received by the Court on 31 March 1998, a summarised version of these financial statements is presented in the tables attached to this report. the Foundation’s for all 8. The introduction of SINCOM 2 at the Foundation is imminent. One of the advantages of this system is that it (6) Council Regulation (EEC) No 1365/75 of 26 May 1975, (OJ L 139, 30. 5. 1975). (7) Council Regulation (EEC) No 1365/75 of 26 May 1975, (OJ L 139, 30. 5. 1975), on the creation of the Foundation, as amended by Regulation (EEC) No 1947/93 of 30 June 1993 (OJ L 181, 23,7. 1993). Council Regulation (EEC) No 1417/76 of 1 June 1976 (OJ L 164, 24. 6. 1976), on the financial provisions applying to the Foundation, as amended by Council Regulation (EEC) No 1949/93 of 30 June 1993, (OJ L 181, 23. 7. 1993). C 406/14 EN Official Journal of the European Communities 28. 12. 98 automatically segregates the duties of the authorising and accounting officers so that this breach of Article 1(15) of Council Regulation (EEC) No 1949/93 amending Regulation (EEC) No 1417/76 at the Foundation will be eliminated (see paragraph 16). Mission expenditure Procedures Imprest account irregularities 9. In 1995 and 1996 the Court recommended that use of the imprest account be limited to covering ongoing or is minor expenses, where the risk of comparatively low. Although there existed a paper at the Foundation, an official written definition of ongoing and minor expenses had not been established in consultation with the Financial Controller at the time of the audit in April 1998. It was also noted that, in many instances, payments were made through the imprest account two to three months following receipt of invoices. Delays of this length mean it would have been possible to obtain prior approval from the Financial Controller and subsequently make the payments through the main bank account (see paragraph 17). Budgetary execution and the revenue and expenditure account Transfer of appropriations 10. The value of transfers of appropriations made between different budget lines in 1997 was ECU 979 000 (7,0 % of appropriations entered in the budget), down from ECU 1 366 000 (9,9 %) in 1996. Carry-overs and cancellations of appropriations 11. Table 3 shows that the payment rate is 75 % for the account as a whole, but only 47 % for Title 3 ‘Operating expenditure’. This is in line with previous years and is due to the fact that studies are usually paid in three instalments over the period foreseen in the related contracts. Revenue 12. The EU subsidy set aside for the Foundation in 1997 was ECU 13,8 million. The amount actually requested and received was ECU 13 451 540. The funds were requested in accordance with the Council Regulations and were in line with a cash-flow forecast. 13. Weaknesses were found in the management of the mission procedures. In several instances the guidelines for missions were not being adhered to, and agents had received payments for expenses that were either ineligible or unjustified (see paragraph 18). Cost-effectiveness 14. One hundred and thirty missions carried out in 1997, costing approximately ECU 92 000, were reviewed. Savings of up to ECU 39 000 (43 %) could have been achieved using more cost-effective routes (see paragraph 18). Study Contracts shows the 1997 15. Table 3 that 51 % of appropriations available under Title 3 ‘Operating expenditure’ were carried over to 1998. 21 % of the total appropriations, to commitments entered into in December 1997 in respect of study contracts. The earliest of these contracts was not signed until February 1998 (see paragraph 19). 1 313 378, or ECU related Conclusion 16. SINCOM 2 must be installed at the Foundation. If this is not done before the end of 1998, an additional post will have to be created in the administration department to ensure adequate segregation of duties exists (see paragraph 8). 17. Clear written procedures for the use of the imprest account must be introduced. Outstanding amounts must either be paid promptly from the imprest account or, if the credit period is longer, from the main bank account (see paragraph 9). 18. Steps must be taken to economise in the area of mission expenditure as further excesses cannot be tolerated (see paragraphs 13 and 14). It is recommended that situations where 19. large amounts are being committed in one year in respect of contracts that are not signed until several months into the next year be avoided. This could be achieved by improving the procedures for establishing the annual budget of the Foundation (see paragraph 15). 28. 12. 98 EN Official Journal of the European Communities C 406/15 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 C 406/16 EN Official Journal of the European Communities 28. 12. 98 Table 1 Balance Sheet as at 31 December 1997 Assets 1997 1996 Liabilities 1997 1996 (in ECU 1 000) Fixed Assets 1. Buildings 2. Furniture 7 106 1 705 7 106 1 551 Fixed Capital 1. Own Capital 2. Balance for the financial year 3. Balance from the previous year 8 838 − 24 − 2 328 8 695 − 288 − 2 040 Current Assets 1. Stocks 2. Sums to be recovered 3. Sundry charged Expenditure to be 4. Mission advances 5. Miscellaneous advances 6. Bank charges to be charged Cash Accounts Bank Account — ECU — Main (IEP) — Imprest (IEP) 27 331 37 — 1 — 2 393 416 168 38 337 — 3 9 2 440 794 204 Current Liabilities Salary deductions 43 24 Revenue to be collected 331 337 Sums to be reused 217 209 Appropriations carried over 3 364 3 098 Payments in progress 1 743 449 12 184 10 484 12 184 10 484 Source: 1997 Annual Accounts of the Foundation. 28. 12. 98 EN Official Journal of the European Communities C 406/17 Revenue and Expenditure account for the financial year ended 31 December 1997 Table 2 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 (in ECU 1 000) 1997 1996 13 451 146 49 12 896 171 39 Total (a) 13 646 13 106 6 617 7 898 145 2 954 3 212 5 877 23 976 178 3 653 2 897 Expenditure total (b) 13 833 13 604 Out-turn for the year (a) − (b) Appropriations carried over from the previous year which lapse Exchange differences for the year − 187 159 4 Balance for the year − 24 − 498 142 68 − 288 Source: 1997 Annual Accounts of the Foundation. Table 3 Utilisation of available appropriations for the 1997 financial year Title Definitive Payments Carry-overs Cancelled Available Payments Cancelled 1997-Budget Carry-overs from 1996 (in ECU 1 000) 1. Staff Expenditure 6 650 2. Administrative Expenditure 1 100 3. Operational Expenditure 6 250 Total 14 000 6 617 (99,5) 898 (81,6) 2 954 (47,3) 10 469 (74,8) 7 (0,1) 145 (13,2) 3 212 (51,4) 3 364 (24,0) 26 (0,4) 57 (5,2) 84 (1,3) 167 (1,2) 23 178 2 897 3 098 20 (87,0) 177 (99,4) 2 742 (94,6) 2 939 (94,9) 3 (13,0) 1 (0,6) 155 (5,4) 159 (5,1) The figures in brackets indicate the percentage of definitive or available appropriations. Source: 1997 Annual Accounts of the Foundation. C 406/18 EN Official Journal of the European Communities 28. 12. 98 REPLY OF THE EUROPEAN FOUNDATION The Foundation welcomes the observations of the Court and would ask it to take account of the following comments: achieving the projected savings, in the light of new routes and fare structures which have come into operation over the past year. Imprest Account Study contracts 9. The Court should be informed that a written definition of on-going and minor expenses in relation to the Imprest Account had already been established with Financial Control by the time of the audit on 27 June 1997. This definition limits usage of the Imprest Account to on-going (recurrent and non capital) or small expenses and payments of an urgent nature. The Financial Regulation of the Foundation does not place a time restriction on usage of the Imprest Account. It merely states ‘for the payment of certain categories of expenditure imprest accounts may be set up’. The Court notes delays in relation to payment of invoices. These reflect the time taken to fully process invoices for payment in accordance with the Financial Regulations, which can take up to two months. If the invoices had been submitted for prior visa to Financial Control in Brussels these delays could have been longer. 15. The level of appropriations carried over under Title 3 is a natural consequence of the relation of the Foundation’s annual budgeting cycle to its operational cycle (which involves programme design, programme initiation, outline project design, tender, detailed project design and implementation). Appropriations are fully committed by the end of the financial year with the relevant project being completed and fully paid for by the end of the subsequent financial year. A number of end of year contracts did not have a final signature until February because of the time taken for visad contracts to be returned from Brussels to the Foundation by the Financial Controller, despatched to the relevant contractor and then returned to the Foundation signed by the contractor. Mission expenditure procedures Conclusion 13. The Foundation’s procedures are designed to ensure (a) strict adherence to the Mission Rules, (b) the minimisation of costs incurred commensurate with the needs of each mission. The Foundation has examined those instances drawn to its attention by the Court where it is suggested that incorrect application of the rules may have occurred and, where required, has taken corrective action. 16. The Court’s comment is noted. 17. See reply to paragraph 9. 18. See reply to paragraphs 13 and 14. Cost-effectiveness of missions 14. The Foundation is evaluating the cost effectiveness of arrangements for missions and the practicalities of 19. The Foundation would welcome discussion on the procedures for establishing the annual budget of the Foundation with regard to the Foundation’s programme planning cycle (see paragraph 15)