Explanatory Memorandum to COM(2005)181-1 - Amendment of Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the EC - Main contents
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| dossier | COM(2005)181-1 - Amendment of Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the EC. |
|---|---|
| source | COM(2005)181  |
| date | 03-05-2005 |
The recast Financial Regulation ('FR') was adopted by the Council, acting unanimously, in June 2002, after recourse to a successful conciliation procedure with the European Parliament and after significant input from the Court of Auditors. In December 2002 the Commission adopted the Implementing Rules ('IR') of the recast FR after extensive consultation of the institutions. Both these regulations, which apply to all institutions, entered into force on 1 January 2003.
The FR is subject to review every three years, or whenever it proves necessary to do so.
At the time of the adoption of the new FR in 2002, the Commission made a statement in the Council minutes in which it “undertakes to make a report by 1 January 2006 on the application of the provisions of the new FR and, in particular, on the discontinuation of centralised ex ante controls, and, if necessary, to submit appropriate proposals to the Council” . This report is annexed.
Contents
- 2. MAIN OBJECTIVES OF THE COMMISSION REVIEW
- 3 . GENERAL APPROACH FOR THE REVIEW
- 3.1. Scope
- 3.2. Timetable
- 4. METHOD AND CRITERIA APPLIED BY THE COMMISSION IN ITS REVIEW
- 5. AMENDMENTS CONSIDERED NECESSARY
- 5.1. Budgetary principles
- 5.2. Methods of management (Arts 53-57)
- 5.3. Financial Actors
- 5.4. Recovery of amounts receivable (Arts. 72-73b)
- 5.5. Public procurement and contracts
- 5.6. Grants
- 5.7. Accounting
- 5.8. Specific policy sectors in Part Two of the FR
- c) Title III: Research
- 5.9. Offices
- 5.10. The constitutional treaty
- To improve efficiency and transparency in the operation of the rules. In many cases, the rules do not necessarily need to be changed, but their interpretation and application need to be clarified.
- For contracts and grants, simplification of the procedural and documentation requirements, especially for those of low value, and ensuring the requirements are proportionate to the costs and risks involved. This process of simplification was initiated with the ongoing ("fast track") revision of the IR; it will be further completed with the proper revision of the implementing rules linked with the revision of the FR.
- As regards grants, simplification of the requirements for prior verification and for financial and legal guarantees: ensuring these requirements and the administrative burdens they place on beneficiaries, are proportionate to the costs and risks involved.
- Clarification and streamlining of the rules governing methods of management.
The Commission believes that these objectives can be achieved while maintaining stability as regards the basic principles, concepts and architecture of the FR, and hopes that the other institutions will share this view. Stable rules are necessary for sound financial management . Moreover, the financial rules also impose requirements on the beneficiaries of grants and contracts. Changing the rules too often, or without adequate justification, can have a negative impact on such beneficiaries and on the image of the European Union. The revision will therefore be limited in its scope.
The objective is to reach agreement on the amendments so that they can enter into force on 1 January 2007. This will coincide with the entry into force of the financial framework for the period 2007-2013. The IR will also be modified, and the new IR must also be adopted by that date. There must be adequate time following adoption of the new regulations for the institutions and services to prepare for the changes before the regulations enter into force.
The Commission has applied strict criteria in assessing which changes are absolutely necessary. In July 2004, the financial units of all the Commission services, at their own initiative, set out their difficulties with the rules in a special report. Suggestions were also given by the other institutions. The Commission intends to have appropriate consultations of 'stakeholders' in EC policies who will be affected by the rules.
The Commission took into account the following considerations:
a) Legislative changes should be reserved for those problems where there is no alternative . Wherever possible, other solutions , such as interpretative notes or administrative measures, should be used.
b) Amendments that would reverse the internal reforms or undermine any of their key elements are unacceptable .
c) Legislative changes should be proposed only where there are real difficulties . Any proposed amendment should:
- facilitate the Commission’s obligation under the Treaty to implement the budget and to accomplish its policy objectives;
- improve or ensure sound financial management;
- enhance the protection of the EU's financial interests against fraud and illegal activities;
- Contribute to the objective of a positive statement of assurance.
a) Other legislative acts concerning budget implementation need to comply with the FR. This principle should be reinforced (Art. 2 FR).
b) The principle of budget accuracy should be expanded (Art. 5 FR) to underline that existing legal commitments must be covered by an adequate allocation of appropriations in the budget.
c) Regarding the principle of unity of the budget , the rule governing interest generated by pre-financing should be simplified (Art. 5 i FR). The current rule is that pre-financing, and interest generated by it, belongs to the Community, and that interest must be recovered, at least annually. The existing scope of this rule is limited to grants subject to centralised management by the Commission services (Art. 3 IR). This places a disproportionate burden on those programmes where in-house administrative resources are required to administer recovery orders. It is therefore proposed to allow for the amount of interest to be set off against the final payment to the beneficiary. This maintains the principles of Community ownership of pre-financing and accounting for the interest generated. The limits on the scope of application of the general rule should be incorporated in the FR instead of the IR.
d) With regard to the principle of annuality , more efficiency and transparency should be introduced to respond to the following needs:
- The carry-over of non-differentiated appropriations should exceptionally be permitted in the case of expenditure on direct payments to farmers.
- Commitment of expenditure in advance , from 15 December of year n-1, should be exceptionally authorised for crisis management aid and humanitarian aid as referred to in Art. 110 FR.
- Restrictions on the maximum threshold for advance commitments against the current 'EAGGF/Guarantee' (from 15 November of year n-1) to cover routine management expenditure (charged to the budget of the year n) should be removed (Art. 150 i FR). Under the new European Agricultural Guarantee Fund (COM(2004) 489), payment requests will be concentrated overwhelmingly at the beginning of the budget year n.
- Non-differentiated appropriations for veterinary measures , charged against the current 'EAGGF/Guarantee' should be converted into differentiated appropriations, more suited to the multi-annual nature of the expenditure (Art.149 i FR).
e) Regarding the principle of universality , two items should be added to the list of assigned revenue (Art.18):
- The possibility for Member States to make ad hoc contributions for external relations programmes;
- Proceeds from the sale of vehicles, equipment, installations, etc.
f) At present, the Commission must be authorised by the budgetary authority before accepting any donations (Art. 19(2)). To avoid unnecessary and cumbersome procedures, it would be useful to limit the requirement for authorisation to donations which involve significant charges.
g) In relation to the principle of specification of the budget, the rules governing transfers of appropriations should be simplified and clarified where they have proven cumbersome or unclear:
- “ Notification procedure " (Art. 22 and 23): the text does not say when the deadline for the decision of the budgetary authority is deemed to start running, so a correction is necessary.
- For reasons of efficiency, the Commission should be allowed to decide autonomously on transfers from the reserve where no basic act exists for the action concerned when the budget is established but is adopted during the year (Art. 23 i new paragraph (d)).
- Rules on transfers of administrative appropriations should be adapted to the new Activity-Based Budgeting (ABB) structure.
a) The limitation of shared management to EAGFF and Structural funds should be removed, to reflect current practice based on existing regulations as well as proposals for future basic acts after 2006.
b) For joint management with international organisations, the definition and requirements need to be clarified and need to be completed in line with operational needs.
c) The conditions and criteria for using national public-sector bodies (" national agencies ") should be simplified in order to facilitate their use, and the scope of the provision is extended to international public bodies.
d) The specific case of special advisers/heads of mission appointed by the Council to manage certain actions in common foreign and security policy (CFSP) needs to be included as a special case of indirect centralised management.
e) The prohibition on delegating budget implementation tasks to private bodies should be modified, since experience has proved the terms of this prohibition to be unnecessarily strict.
f) Finally, taking account of the need for a common control framework , controls carried out by the Commission on decentralised or indirect centralised management, and where appropriate in shared management, are reinforced, particularly by adding provisions concerning the Member States’ responsibilities under shared management.
The relationship between the Commission's internal auditor and the agencies (FR) should be adjusted (Art. 185 FR). The latter should have their own internal audit function reporting to their own management boards, whereas the Commission's internal auditor reports to the College on the procedures and systems of the Commission.
As regards the Accounting Officer, his/her responsibility for certifying the accounts, on the basis of the financial information supplied to him/her by the authorising officers, has to be clarified.
The rules on recovery of amounts receivable should be clarified and strengthened .
a) Enforced recovery should be assisted by ensuring (in Art. 72 FR) that the Community's claims also benefit from the instruments adopted under the Treaty provisions on judicial cooperation in civil law matters having cross-border implications (Art. 65 ECT).
b) Recoveries should be treated by the Member States in the same way as they treat their own fiscal claims within their jurisdiction and should enjoy the same privileges .
c) The practical experience of the Commission services shows that, unlike state authorities in many national jurisdictions, the Community is not subject to a period of limitation under which financial claims extinguish after a certain period of time. The introduction of such a period of limitation corresponds to the principles of sound financial management and of equal treatment of operators. The same period of limitation of five years is already provided for fines and periodic penalty payments by the Council Regulation on the implementation of the rules on competition.
One of the main objectives, and achievements, of the FR adopted in 2002 was to transpose the EC Public Procurement Directives so that the Community institutions would apply the same standards as the Member States . Given the adoption of the new EC Public Procurement Directive in 2004, some further amendments to the FR are necessary:
a) Including the possibility of declaring procurement to be secret .
b) Distinguishing between the most serious grounds for exclusion and other grounds which involve a lower level of financial risk. : the most serious grounds for exclusion should be obligatory, while the rest should be applied as necessary, on the basis of a risk assessment by the contracting authority.
Experience has proved the following amendments to be necessary:
a) Possibility of sharing a common database of those candidates or tenderers in situations of exclusion according to Arts 93 and 94 FR.
b) Extension of simplified rules to govern the awarding contracts to external experts for evaluation and technical assistance (Arts 91, 97 FR).
c) Clarification of the obligations of the institutions to suspend a procurement procedure or a contract in cases of fraud, etc.
Simplification of the rules is needed: requirements for checks and guarantees need to be better adjusted to the financial risks involved.
a) The scope of the title on grants (Title VI of Part One FR) needs to be clarified (Art.108 FR) in particular as regards financing related to loan activities and shareholdings .
b) As for the public procurement, it is necessary to add the principle of proportionality .
c) The scope of the non-profit rule needs to be clarified and its articulation between FR and IR.
d) In certain situations, the nature of the action leaves no choice in the selection of beneficiaries. This category should therefore be added in Art. 110 FR.
e) The same action should not give rise to more than one grant to any one beneficiary. However, some basic acts permit Community funding to be combined since it is considered useful for example for the structural funds to be complemented by interventions from other programmes (e.g. TENs). It should also be made clear that the same costs can never be financed twice (Art. 111 FR).
f) Where grants are given for running costs , the rule that the necessary agreement may not be signed more than four months after the start of the beneficiary's financial year has proved unnecessarily rigid. Since there are strict rules on retrospective funding, this deadline could safely be fixed at six months (Art. 112 FR).
g) The use of flat-rate payments should be authorised at the level of the FR along with the more traditional method of reimbursing pro rata costs actually incurred (new Art. 113a).
h) Certain restrictions on the eligibility of beneficiaries should be removed (Art. 114 FR) in order to allow for grants to physical persons and certain types of association without legal personality .
i) The rules on exclusion from grant procedures should include the same distinction as that for procurement (see 5.6, subparagraph 1 (b) above), in relation to the level of seriousness (Art. 114 FR).
j) The case in which the implementation of an action needs to give a financial support to third parties has to be expressly provided for.
No substantial changes are proposed for Title VII of Part One (Arts 121-138 FR). Only the following clarification is required: the possibility to extend the scope of the consolidation in accordance with EC accounting rules should be specified.
a) Title I: agriculture. Some changes have already been referred to above under section 5.1 (Budgetary Principles). In addition:
- Terminology needs to be adjusted to the existence of the new European Agricultural Guarantee Fund ( EAGF ).
- Provisional commitments can be made later than the normal two-month deadline after receipt of the Member States' statements of expenditure in cases where a decision on a transfer of appropriations is expected.
- Art. 153 FR concerning transfers is inaccurate: reference should be made only to the notification procedure in Art. 23.
b) Title II: structural funds.
- Terminology needs to be adjusted in the title and in Art. 155 i and i to refer specifically to the structural funds, cohesion fund, fisheries funds and rural development fund.
- In the new basic acts proposed by the Commission for structural actions post-2006 the rule on the automatic decommitment of appropriations is suspended in cases of force majeure seriously disrupting the implementation of the actions. The making available again of appropriations is therefore no longer necessary in this case. The Commission, however, considers it justified to keep the case of 'manifest error' attributable to itself (Art. 157). This will allow commitment appropriations to be found without disrupting the overall programming of appropriations for the seven-year period.
Exceptionally, it should be possible to make decommitted commitment appropriations available again in the case of the framework research programme, under strictly defined conditions; this will enable decommitted appropriations earmarked for projects which were not implemented totally or partially to be re-used for alternative projects of sufficient quality.
The inter-institutional European Offices should be authorised to act as delegated authorising officers for appropriations corresponding to the budget of other institutions.
The Commission has presented this proposal in accordance with the state of law on the date the proposal is adopted. When the constitutional treaty is ratified, any necessary amendments of the FR will be proposed.