31996Y1231(05)

Statement of Assurance concerning the activities of the sixth and seventh European Development Funds for the financial year ending on 31 December 1995

Statement of Assurance relating to the activities of the sixth and seventh European Development Funds for the financial year ending 31 December 1995

1. The Treaty establishing the European Community entrusted the Court of Auditors with the task of auditing transactions carried out under the European Development Funds. The Court of Auditors is required to provide the European Parliament and the Council with a Statement of Assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. The Special Report in support of this Statement of Assurance sets out the overall results of the work performed under that mandate in respect of operations under the sixth and seventh EDFs for the financial year 1995.

2. The Court has examined the balance sheets and accounts of the sixth and seventh EDFs for the financial year 1995, which were published as a Communication from the Commission to the Court of Auditors, the Parliament and the Council under reference SEC(96) 989 final of 31 May 1996. These accounts present, on the one hand, the transactions pertaining to the year and, on the other hand, the cumulative statements of revenue and expenditure recorded since the entry into force of the sixth and seventh EDFs.

3. The Court refers readers to its Special Report on the activities financed from the general budget for the financial year 1995 (paragraphs 1.9 - 1.14) as regards the global nature of the DAS and its limitations, in particular concerning its coverage of the quality of the management and the uncovering of deliberate acts of illegality.

4. The Court carried out its task to the best of its ability in accordance with internationally generally accepted auditing standards, insofar as they are applicable in the Community context. The Court refers readers to its Special Report on the activities financed from the general budget for the financial year 1994, as the auditing standards and general methodology followed are similar.

Reliability of the accounts

5. Despite the improvements introduced by the Commission, the accounts are still affected to a significant extent by the unsuitability of certain accounting methods and practices:

(a) the Court has estimated that the year-end value of primary commitments that remained unsettled and did not reflect the economic reality of operations was around 197 Mio ECU, which is approximately 3,6% of the 5 449 Mio ECU of commitments remaining to be settled shown in the accounts;

(b) the 29 Mio ECU shown as advances for scholarships and technical assistance constitute expenditure under verification amounting to 18,3 Mio, not assets;

(c) the accounting system does not yet provide a view of the situation with regard to other types of advance, especially those relating to structural adjustment, estimates, contracts for works, services and supplies which continue to be shown as final payments in the financial statements;

(d) the expenditure under the verification item in the balance sheet includes some amounts which are not the usual payments in progress at the year-end. These items amount to 13 Mio ECU in total, of which 8 Mio ECU was cleared after the balance-sheet date;

(e) posting errors that remained uncorrected at the closure totalled 0,17 Mio ECU and affected the valuation of the amounts unsettled against one primary commitment and one secondary commitment. The best estimate of the year's payments that are affected by such errors of classification in the accounts is approximately 17,7 Mio ECU at the end of the sampling procedure. No error of this type was found in the case of the year's commitments;

(f) the treasury accounts include 2,9 Mio ECU of doubtful accounts and 213,2 Mio ECU of securities and associated interest which are not specifically mentioned in the financial statements.

Legality/regularity of the underlying transactions

6. It was estimated that the most likely amount of substantial legality/regularity errors affecting the year's payments was 32,6 Mio ECU (2,1% of the payments). This projection was corroborated by the identification of a volume of known errors amounting to 6,5 Mio ECU (0,4% of payments);

(a) errors in the calculation of amounts paid to contractors totalled 2,5 Mio ECU;

(b) additional support for structural adjustment, to the amount of 4 Mio ECU, was committed and paid, although the beneficiary country was no longer eligible.

7. Moreover, the expenditure under verification includes transactions totalling 6 Mio ECU for which there were no supporting documents.

8. For the year's commitments, the volume of substantial known legality/regularity errors was 4 Mio ECU, which is 0,3% of total commitments for the year.

9. The known value of the year's payments affected by formal legality/regularity errors was 323,3 Mio ECU:

(a) a payment of 4 Mio ECU concerning structural adjustment was authorized without the authorization of the Commissioner concerned;

(b) the way in which the terms of the financing agreements are interpreted does not provide the basis for a positive conclusion regarding the justification for 87 Mio ECU of payments relating to structural adjustment;

(c) in the case of the 3,6 Mio ECU of interest subsidy payments examined, the supporting documents available at the Commission constitute insufficient evidence to justify the amounts calculated by the EIB and passed to the accounts by the Commission;

(d) the rules were not applied in the case of 18 Stabex payments totalling to 216 Mio ECU, 163,4 Mio ECU of which was disbursed although the beneficiary State had not submitted a report on the use of the resources transferred; 75 Mio ECU was paid without prior substantial analysis and 31,1 Mio ECU was based on insufficient substantive analysis, whilst there was insufficient justification for a further 101,5 Mio ECU in the calculation of transfer base reductions;

(e) payments amounting to 12,2 Mio ECU were made despite the fact that the rules and contractual conditions, the payment deadlines and the performance deadlines had not been observed. For one payment of 0,5 Mio ECU the Court was unable to obtain the supporting douments needed to justify the revised prices charged on invoices.

10. The known value of the year's commitments affected by formal legality/regularity errors is 87,2 Mio ECU:

(a) an amount of 9 Mio ECU by way of additional structural adjustment support financed through national indicative programmes was authorized according to a procedure which is reserved for traditional types of development project. There were a further two cases, for a total of 26,6 Mio ECU, where the EDF Committee did not have sufficient information. In another case, involving an amount of 9,2 Mio ECU, the commitment was entered into before the necessary appropriations had been made available;

(b) the supporting documents held by the Commission are insufficient evidence to justify an amount of 37 Mio ECU in commitments and interest subsidies which were calculated by the EIB and passed to the accounts by the Commission.

(c) the supporting documents did not provide the Court with positive evidence of the justification for reducing the transfer base for one Stabex commitment of 5,5 Mio ECU.

11. The Court's audit provided it with reasonable assurance that the financial statements for the year ending 31 December 1995 are accurate, subject to the facts mentioned in paragraph 5. In the light of those facts, it is clear that the presentation of the EDF's financial situation, and of the capital available for re-use in particular, must be improved.

12. The Court has also obtained reasonable assurance that, subject to the facts summarized in paragraphs 6 to 10, the transactions underlying the year's revenue, commitments and payments are legal and regular. The formal errors that were noted in the area of Stabex, structural adjustment and the operations managed by the EIB were mainly due to the nature of the legal framework, which, in part, is unsuitable for the actual circumstances under which transactions are effected and decisions taken.

28 October 1996

B. Friedmann President

European Court of Auditors 12, rue Alcide De Gasperi, L-1615 Luxembourg

The report annexed to this document contains detailed notes relating to the above Statement of Assurance.