APPENDIX 4: THE 2005 STATEMENT OF ASSURANCE |
The Court provides a Statement of Assurance in accordance
with Article 248 of the EC Treaty on:
- the reliability of the accounts;
- the legality and regularity of underlying transactions.
The full text of the Statement is set out below.
I. Pursuant to the provisions of Article 248
of the Treaty the Court has examined the "Final annual accounts
of the European Communities" consisting of the "Consolidated
financial statements and the consolidated reports on implementation
of the budget" for the financial year ended 31 December 2005.
II. In accordance with the Financial Regulation
of 25 June 2002, the "Consolidated financial statements"
for the financial year 2005 are prepared for the first time on
the basis of accounting rules adopted by the Commission's Accounting
Officer which adapt accruals based accounting principles to the
specific environment of the Communities, while the "Consolidated
reports on implementation of the budget" continue to be primarily
based on movements of cash. The change-over to accruals based
accounting required a restatement of the opening balance sheet
as at 1 January 2005 and important changes in the presentation
and content of the "Consolidated financial statements".
III. The "Final annual accounts of the European
Communities" are consolidated by the Commission's Accounting
Officer and approved by the Commission. The Court's responsibility
is to provide, based on its audit, 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
IV. The Court carried out its audit in accordance
with its own policies and standards which are based on international
standards that have been adapted to the Community context. Through
its audit, the Court has obtained a reasonable basis for the opinion
expressed below. In the case of revenue the scope of the Court's
audit work was limited. Firstly, VAT and GNI own resources are
based on macroeconomic statistics for which the underlying data
cannot be audited directly by the Court, and secondly, the audits
of traditional own resources cannot cover the imports hat have
not been subject to custom supervision.
Reliability of the accounts
V. In the Court's opinion, the "Final annual
accounts of the European Communities" were drawn up in accordance
with the provisions of the Financial Regulation of 25 June 2002
and accounting rules adopted by the Commission's Accounting Officer.
Except for the effects of the observations in paragraphs VI to
VIII, they present fairly, in all material respects the financial
position of the Communities as of 31 December 2005, and the results
of their operations and cash flows for the year then ended.
VI. The Court notes that, in the context of a
complex exercise (see paragraph II), the existing financial reporting
framework has not been consistently applied, in particular for
cut-off, and that accounting systems in certain Directorates-General
of the Commission were not able to ensure the quality of financial
information which led to multiple corrections after the presentation
of the provisional accounts (see paragraphs VII and VIII).
VII. The Court's audit has identified errors
in amounts registered in the accounting system as invoices/cost
statements and pre-financing which, after corrections made to
the provisional accounts, still have the following net financial
impact on the elements of the consolidated financial statements
listed below (see also paragraph VIII):
(a) The consolidated opening balance sheet as
at 1 January 2005, which adjusted the consolidated closing balance
sheet as at 31 December 2004 on the basis of the new accruals
based accounting principles, overstates the accounts payable by
some 47 million euro and overstates the total amount of long term
and short term pre financing by some 179 million euro. As a result,
the net assets are overstated by some 132 million euro.
(b) The errors identified in (a) above affected
the consolidated closing balance sheet as at 31 December 2005
which overstates the accounts payable by some 508 million euro
and the total amount of long term and short term pre-financing
by some 822 million euro. As a result the net assets are overstated
by some 314 million euro.
VIII. The Court's audit also confirmed the general
reservation of the Director-General for Education and Culture
covering the lack of assurance as regards the correctness of its
share of the total amounts, included in both the consolidated
opening balance sheet as at 1 January 2005 (assets amounting to
572,5 million euro and liabilities amounting to 198,5 million
euro) and the consolidated closing balance sheet as at 31 December
2005 (assets amounting to 382,7 million euro and liabilities amounting
to 187,3 million euro). Given the incidence of omissions and double
or wrong postings within this Directorate-General, it is not possible
to quantify the over- or understatement in its share of the assets
Legality and regularity of the underlying transactions
IX. In areas where the supervisory and control
systems are implemented in a manner which provides for an adequate
risk management, the transactions underlying the final annual
accounts of the European Communities, taken as a whole, are legal
and regular. This is the case for revenue, commitments and payments
for administrative expenditure and pre accession strategy with
the exception of the SAPARD Programme. Moreover, for Common Agriculture
Policy (CAP) expenditure the Court's audit shows that, where properly
applied, the integrated administration and control system (IACS)
is an effective system to limit the risk of irregular expenditure.
X. Without calling into question the opinion
expressed in paragraph IX, the Court emphasises that, in the area
of pre-accession strategy, significant risks still exist at the
level of the implementing organisations in the acceding and candidate
countries for all programmes and instruments.
XI. The Court notes that in the other areas,
payments are still materially affected by errors and the Commission
and the Member and other beneficiary states need to make an increased
effort to implement adequate supervisory and control systems,
so as to improve the handling of the attendant risks. These areas
are listed below, namely: Common Agricultural Policy, Structural
measures, Internal policies and External actions.
(a) In CAP expenditure, the Court found evidence
that expenditure which is not subject to IACS, or where IACS is
not properly applied or where it has only been recently introduced
poses greater risk because control systems are not as effective.
In addition, IACS inspection results are insufficiently verified
and validated by an independent body and claims for EU aid are
not usually checked on the spot by the latter. Clearance systems
and post payment checks for CAP subsidies not covered by IACS
do not provide reasonable assurance as to compliance with Community
legislation. The Court concluded that CAP expenditure, viewed
as a whole, was still materially affected by errors.
(b) In structural measures, the Court again found
that the Commission does not maintain effective supervision to
mitigate the risk that the controls delegated to Member States
fail to prevent reimbursement of overstated or ineligible expenditure.
For both programming periods (1994-1999 and 2000-2006), the Court
found that expenditure was not free of material irregularities.
Some programs for the 1994 to 1999 period were closed without
a sound basis.
(c) In internal policies, despite the progress
made in certain areas, the Court's audit revealed weaknesses in
the supervisory and control systems which led to a material incidence
of errors in payments to beneficiaries. Errors arise mainly from
complicated cost reimbursement systems and unclear procedures
and instructions governing the different programmes.
(d) In external actions, the improvements of
the Commission's supervisory and control systems have not yet
had an impact at the implementing organisation level, where a
material level of errors still exists, which can be attributed
to the lack of a comprehensive approach to the supervision, control
and audit of these organisations.