17.2.2005   

EN

Official Journal of the European Union

C 41/35

1

2-6

3

4-6

7-16

1.

The European Agency for Reconstruction (hereinafter called ‘the Agency’) was set up pursuant to Council Regulation (EC) No 1628/96 (1). This regulation was replaced by Council Regulation (EC) No 2667/2000 (2). The Agency, which was set up in February 2000, was initially responsible for managing the EU's aid programmes in Kosovo. Following two extensions to its mandate in 2001 and 2002, its operations now also cover Serbia-and-Montenegro and the Former Yugoslav Republic of Macedonia. The Agency’s head office is in Thessaloniki and it has operational centres in Belgrade, Podgorica, Pristina and Skopje. It implements programmes to foster institution-building and good governance, to promote the development of a market economy and essential infrastructure and to consolidate civil society. Table 1 summarises the Agency's powers and activities based on information provided by the Agency itself.

2.

The Court of Auditors has examined the Agency's annual accounts for the financial year ended 31 December 2003 and the underlying transactions. The Court performed its audit in accordance with its auditing policies and standards. These are based on international standards adapted to the Community context. The Court has thus obtained a reasonable assurance in support of the following opinions.

3.

In the Court's opinion, the Agency's accounts do not present a true and fair view of the Agency's actual economic and financial situation (see paragraphs 8 and 10).

4.

Owing to the lack of the requisite information on the final use of funds entrusted by the Agency to external bodies (both national and international), the Court is unable to express an opinion on the legality and regularity of the underlying transactions for payments of 21,4 million euros made in 2003 (see paragraph 15). For the remainder and except for the qualifications set out in paragraphs 5 and 6 below, the Court is of the opinion that the transactions underlying the Agency's annual accounts were legal and regular.

5.

As far as payments are concerned, the Court noted errors relating to the validity of supporting documents, the observance of contractual provisions and delegations of public authority powers (see paragraph 13).

6.

With regard to procurement, the Court noted, for one out of five of the operations it has examined, procedural anomalies that call into question the respect of the principle of equality of opportunity between tenderers (see paragraph 14).

7.

The implementation of the appropriations for the financial year 2003 and of the appropriations carried over from the previous financial year is shown in Table 2. The Agency's revenue and expenditure account and balance sheet for the financial year 2003 are presented in summary form in Tables 3 and 4  (3).

8.

Article 1 of the Agency's Financial Regulation stipulates that its budget should be authorised according to the principle of differentiated appropriations, which distinguishes between commitment appropriations and payment appropriations. Article 3 of this same regulation lays down that total revenue should cover total payments, which implies that the budget should be shown to balance and that implementation should be as close as possible to equilibrium. In practice, however, the Agency's budget as adopted by the Governing Board does not observe the principle of differentiated appropriations, as a result of which the Agency presents as expenditure not only payments for the period charged to the appropriations for the financial year but also all the outstanding payments in respect of commitments for the financial year (4), irrespective of the extent to which these commitments have been implemented. The accounting out-turn for the financial year therefore bears no relation to the economic reality of the Agency's operations. The cumulative deficit as at 31 December 2003, i.e. 140,95 million euro, is thus largely artificial since it is due to outstanding commitments concerning economic transactions which have not yet been implemented.

9.

In 2003 the Agency's accounting system still exhibited serious weaknesses. For example, the general accounts were still being kept on a single-entry basis despite all the risks of error that involves for the integrity of the data and in spite of the fact that Article 55 of the Agency's Financial Regulation lays down that the accounts should be kept on a double-entry basis.

10.

Despite the observation made by the Court in its report concerning the financial year 2002 (5), funds paid out to financial intermediaries under loan programmes have not been entered on the assets side of the balance sheet. The use made of these funds is merely the subject of an information note in the report annexed to the accounts (6). Since its creation, the Agency has paid out 52,4 million euro (7) under these programmes. Moreover, various programmes which were still being implemented in 2003 provide for the management of funds by contractors to the Agency. The funds thus paid out, which have been identified by the Court, amounted to 43,38 million euro. In both cases, the balances still available at the end of the financial year 2003 should have appeared on the assets side of the Agency's balance sheet.

11.

The efforts made by the Agency to improve its budgetary, financial and accounting management should be stepped up with a view to the consolidation of the Agency's accounts with those of the Community institutions, which will take place as from the financial year 2005 (8). The Agency's budget must in fact be adopted in the form provided for by its Financial Regulation (see paragraph 8) and the accounting rules governing the revenue and expenditure must be brought into line with the principles governing accruals-based accounting.

12.

The management of one financial body which the Agency had set up in Kosovo, the management of which had been entrusted to an external consultant, was characterised by significant shortcomings (e.g. defective accounts, inadequate analysis of borrower-related risk, inadequate documentation provided in support of loan applications). The Agency's supervision was not sufficient to identify these shortcomings and take the necessary corrective action as swiftly as possible.

13.

Anomalies were noted in respect of payments made in 2003. In some cases they arise from failure to observe either contractual provisions or payment conditions (invalid, even inadequate, supporting documents). In other cases, most of the anomalies are due to the fact that the acts against which the payments were made do not comply with the rules governing the delegation of public authority powers and/or those governing the amendments of contracts already concluded. These anomalies show that the Agency should improve its supervision of procedures relating to the commitment and validation of expenditure.

14.

Anomalies likely to affect decisions to award contracts were also noted. For example, some tenderers were sidelined for administrative or technical reasons which were disputable or were inadequately substantiated. In other cases, project managers were replaced shortly after the start of the implementation of the contract by persons who did not have the same qualifications as those which enabled the tenderer to win the contract. In order to reduce the risk of errors, the Agency should strengthen its system of internal control by rigorously selecting the staff responsible for evaluating tenders and by checking that the evaluation committees clearly substantiate their decisions.

15.

In several cases, the Agency concluded agreements with public or semi-public, national or international, third parties. In all these cases, it should ensure a more rigorous application of the existing mechanisms in order to ensure that these bodies provide it with the requisite information to assess the legality and regularity of the underlying transactions.

16.

In its report concerning the financial year 2002 (9), the Court stressed the excessive number of authorising officers by delegation and sub-delegation. At the end of 2003, there were 45 for Title III and 11 for Titles I and II, i.e. 56 as compared with 67 in June 2003. Moreover, no limit is placed on the number and length of delegations. The Agency should continue its efforts to reduce the number of delegations.