the commission’s treasury management · special report no 5/2009 — the commission’s treasury...

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09

THE COMMISSION’S

TREASURY MANAGEMENT

EUROPEAN COURT OF AUDITORS

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THE COMMISSION’S TREASURY MANAGEMENT

Special Report No 5 2009


(pursuant to Article 248(4), second subparagraph, EC)

Special Report No 5/2009 — The Commission’s treasury management

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12, rue Alcide De Gasperi

1615 Luxembourg

LUXEMBOURG

Tel. +352 4398-45410

Fax +352 4398-46430

E-mail: [email protected]

Internet: http://www.eca.europa.eu

Special Report No 5 2009

More information on the European Union is available on the Internet (http://europa.eu).

Cataloguing data can be found at the end of this publication.

Luxembourg: Office for Official Publications of the European Communities, 2009

ISBN 978-92-9207-295-7

© European Communities, 2009

Reproduction is authorised provided the source is acknowledged.

Printed in Belgium


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CONTENTS

Paragraph

I–VI EXECUTIVE SUMMARY

1–8 INTRODUCTION

1–4 BACKGROUND

5–7 REGULATORY FRAMEWORK

8 THE EUROPEAN COMMISSION’S TREASURY MANAGEMENT ACTIVITIES

9–12 AUDIT SCOPE AND APPROACH

13–39 MAIN OBSERVATIONS

13–20 DOES THE COMMISSION COMPLY WITH THE RULES AND REGULATIONS APPLICABLE

TO TREASURY MANAGEMENT?

13–18 TREASURY MANAGEMENT AND FORECASTING

19 MANAGEMENT OF IMPREST ACCOUNTS

20 HUMAN RESOURCES — SENSITIVE POSTS

21–39 HAS THE COMMISSION ESTABLISHED INTERNAL CONTROL SYSTEMS WHICH ENSURE

SOUND TREASURY MANAGEMENT?

21–23 OVERALL SET-UP OF THE COMMISSION’S TREASURY MANAGEMENT ACTIVITIES

24–26 RISK MANAGEMENT OF TREASURY ACTIVITIES

27–29 PERFORMANCE MEASUREMENT AND BENCHMARKING

30–32 MANAGEMENT OF FIDUCIARY ACCOUNTS

33–34 MANAGEMENT OF FINES

35–38 THE PAYMENT PROCESS AND MANAGEMENT OF THE BANK ACCOUNTS

39 HUMAN RESOURCES

40–47 CONCLUSIONS AND RECOMMENDATIONS

40–43 DOES THE COMMISSION COMPLY WITH THE RULES AND REGULATIONS APPLICABLE

TO TREASURY MANAGEMENT?

44–47 HAS THE COMMISSION ESTABLISHED INTERNAL CONTROL SYSTEMS WHICH ENSURE

SOUND TREASURY MANAGEMENT?

REPLY OF THE COMMISSION



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EXECUTIVE SUMMARY

I .T r e a s u r y m a n a g e m e n t a t t h e C o m m i s s i o n i s p e r f o r m e d b y t w o D i r e c t o r a t e s - G e n e r a l (DG) : DG Budget (DG BUDG) and the DG for Economic and F inancia l Af fa i rs (DG ECFIN) . D G B U D G i s r e s p o n s i b l e f o r t r e a s u r y m a n -agement of the ent i re budget managed by the Commission and the European Develop-ment Fund. DG ECFIN is responsible for the treasury management of other non-budget-ary i tems and the investment of Community funds.

I I .The main objective of the audit was to assess t h e q u a l i t y o f t h e C o m m i s s i o n ’ s t r e a s u r y management and in part icular whether :

the Commission complied with the rules (a) a n d r e g u l a t i o n s a p p l i c a b l e t o t r e a s u r y management ; and

t h e C o m m i s s i o n h a d e s t a b l i s h e d i n t e r -(b) nal control systems which ensure sound treasury management .

I I I .T h e C o u r t e x a m i n e d t h e f o l l o w i n g m a i n t reasury management areas :

t h e o v e r a l l s e t - u p o f t h e C o m m i s s i o n ’ s (a) t reasury management act iv i t ies ;

r isk management of t reasury act iv i t ies ;(b)

p e r f o r m a n c e m e a s u r e m e n t a n d (c) benchmarking;

treasury planning and forecast ing;(d)

management of f iduciary accounts ;(e)

management of f ines ;( f )

t h e p a y m e n t p r o c e s s a n d m a n a g e m e n t (g) of bank accounts ; and

human resources .(h)

IV.The three main legal requirements are :

t h e C o m m i s s i o n s h o u l d e n s u r e t h a t i t (a ) h a s a t i t s d i s p o s a l s u f f i c i e n t f u n d s t o c o v e r c a s h n e e d s a r i s i n g f r o m b u d g e t -ary implementat ion;

the Commission should set up cash man-(b) agement systems enabl ing the drawing up of cash-f low forecasts ; and

the Commission should draw on the sums (c) credited to the own resources accounts t o t h e e x t e n t n e c e s s a r y t o c o v e r c a s h r e q u i r e m e n t s a r i s i n g f r o m t h e i m p l e -mentat ion of the budget .

V.The Court ’s main conclus ions are :

the Commission did overal l comply with —t h e m a i n p r o v i s i o n s p r e s c r i b e d b y t h e Community legis lat ion;



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the Commission has set up prudent cash —management forecast procedures ensur-ing that i t has at i ts d isposal suf f ic ient funds to cover cash requirements aris ing f rom budgetary implementat ion;

t h e C o m m i s s i o n ’ s p r o c e d u r e s t o t r a n s - —fer funds between Member States ’ own resources accounts were not suff ic iently documented;

as a result of the provis ions of the Com- —munit ies ’ own resources regulat ion, s ig-nif icant balances accumulate during the second half of the year as a consequence o f t r a n s f e r r i n g o w n r e s o u r c e s t o t h e accounts opened by the Member States i n t h e n a m e o f t h e C o m m i s s i o n o n t h e bas is of budget appropr iat ions ;

the internal control procedures in place —c o n c e r n i n g t h e e x e c u t i o n o f p a y m e n t s and bank accounts were ef fect ive over-al l . However , unl ike DG ECFIN, DG BUDG d i d n o t d o c u m e n t i t s m a n a g e m e n t o f r isks ar is ing from treasury act ivit ies , nor were its procedures established to assess a l l aspects of i ts performance;

lack of coordinat ion between the Com- —mission DGs in an area where a common approach to issues such as r isk manage-ment and control is necessary. This led to the s i tuat ion where the accounts ’ l imits for holding funds with commercial banks were establ ished by the DGs concerned w i t h o u t c o n s i d e r i n g t h e C o m m i s s i o n ’ s overal l r isk exposure with each commer-c ia l bank; and

f i n e s a r e h e l d i n s p e c i f i c b a n k c u r r e n t —accounts , thus there is an increased r isk of loss .

EXECUTIVE SUMMARY

VI.The Court ’s main recommendat ions are :

t h e C o m m i s s i o n s h o u l d i m p r o v e t h e —docu mentation of i ts cash f low forecast-ing procedures ;

t h e C o m m i s s i o n s h o u l d a n a l y s e t h e —f u n c t i o n i n g o f t h e p r e s e n t s y s t e m o f o w n r e s o u r c e s a c c o u n t s w i t h t h e a i m of reducing balances on these accounts dur ing the second hal f of the year ;

the Commission should put in place pro- —cedures which ensure coordination of its t reasury management act iv i t ies ;

DG BUDG should improve the documen- —t a t i o n o f i t s r i s k m a n a g e m e n t a n d t h e scope of i ts performance measurement ; and

t h e C o m m i s s i o n s h o u l d a s a m a t t e r o f —prior i ty reach a conclus ion in i ts search f o r a n o p t i m u m s o l u t i o n f o r t h e t r e a t -ment of provis ional ly col lected f ines .


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INTRODUCTION

BACKGROUND

1. The European Union budget provides funding for a wide range of actions in the European Union and beyond. The European Commission imple-ments the budget under its own responsibi l i ty in accordance with the F inancia l Regulat ion 1 and within the l imits of the budgetary appro-pr iat ions . In the process of budget implementat ion, the Commiss ion m a d e i n 2 0 0 7 a p p r o x i m a t e l y 1 , 5 m i l l i o n p a y m e n t s t o t h i r d p a r t i e s . Third part ies range f rom EU off ic ia ls and pensioners , Member States ’ publ ic author i t ies managing funds to pr ivate f i rms and indiv iduals d i rect ly benef i t ing f rom aid under a Community scheme. In 2007 the total payments made by the Commiss ion reached 114 bi l l ion euro.

2. Financial resources need to be readily available to fund these payments. There are two main categor ies of income: own resources and other revenue 2. The largest revenue components are own resources calcu-lated on the bas is of value added tax (VAT) and own resources based o n t h e M e m b e r S t a t e s ’ g r o s s n a t i o n a l i n c o m e ( G N I ) . A c c o u n t s a r e opened in the name of the Commiss ion by each Member State and into which their respect ive own resources contr ibut ions are paid on a monthly bas is (see B o x 1 ) .

1 Council Regulation (EC,

Euratom) No 1605/2002 of

25 June 2002 on the Financial

Regulation applicable to the

general budget of the European

Communities (OJ L 248, 16.9.2002,

p. 1), as amended by Regulation

(EC, Euratom) No 1995/2006

(OJ L 390, 30.12.2006, p. 1)

and Regulation (EC, Euratom)

No 1525/2007 (OJ L 343,

27.12.2007, p. 9).

2 For more details please refer to

Chapter 4 of the European Court of

Auditors Annual Report concerning

the financial year 2007.

CASH AND CASH EQUIVALENTS(million euro)

Balance at

31.12.2007

Balance at

31.12.2006

Accounts with Member States’

treasuries and central banks11 313 11 467

Current accounts 956 933

Imprest accounts 81 82

Cash in transit 2 3

Short-term deposits and other

cash equivalents1 367 976

Restricted cash (fi nes) 5 037 2 924

Cash and cash equivalents —

Guarantee Fund249 440

Total 19 005 16 824

Source: Annual accounts of the European Communities, financial year 2007.

T A B L E 1


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3 Commission Regulation


of 23 December 2002 laying

down detailed rules for the

implementation of Council

Regulation (EC, Euratom)

No 1605/2002 on the Financial

Regulation applicable to the

general budget of the European

Communities (OJ L 357,

31.12.2002, p. 1), as amended

by Regulation (EC, Euratom)

No 1261/2005 (OJ L 201, 2.8.2005,

p. 3), Regulation (EC, Euratom)

No 1248/2006 (OJ L 227, 19.8.2006,

p. 3) and Regulation (EC, Euratom)

No 478/2007 (OJ L 111, 28.4.2007,

p. 13).

4 Article 61(1)(f) and 61(3) of the

Financial Regulation.

5 Article 58 of the Implementing

Rules.

3. In addit ion, the Commission opens bank accounts at central and com-m e r c i a l b a n k s i n o r d e r t o e x e c u t e p a y m e n t s t o t h i r d p a r t i e s a n d col lects receipts other than Member States ’ own resources contr ibu-t i o n s t o t h e b u d g e t . F u n d s a r e t r a n s f e r r e d r e g u l a r l y f r o m t h e o w n resources accounts to the bank accounts used for payments. Suff icient funds need to be mainta ined in these payment accounts to ensure un interrupted funding of Community activit ies. On 31 December 2007 the tota l ba lance on a l l accounts amounted to 19 b i l l ion euro (see T a b l e 1 ) .

4. The Commission has set up systems to manage its treasury operations and more speci f ica l ly cash f lows ( receipts and payments) , the open-i n g a n d r u n n i n g o f b a n k a c c o u n t s , c a s h f o r e c a s t i n g a n d l i q u i d i t y management .

REGULATORY FRAMEWORK

5. According to the Financial Regulation and the implementing measures, t r e a s u r y m a n a g e m e n t i s p a r t o f t h e A c c o u n t i n g O f f i c e r ’ s d u t i e s 3. Although an overal l def init ion of treasury management or of i ts main c o m p o n e n t s i s n o t p r o v i d e d , i n d i v i d u a l t a s k s w h i c h a r e o r d i n a r i l y part of treasury management, such as management of bank accounts, payment and reconci l iat ion procedures , are descr ibed in suf f ic ient detai l .

6. The F inancia l Regulat ion states that the Accounting Off icer should, a m o n g s t o t h e r d u t i e s , b e r e s p o n s i b l e f o r t r e a s u r y m a n a g e m e n t , and only the Accounting Off icer i s empowered to manage cash and c a s h e q u i v a l e n t s 4. I n a d d i t i o n , t h e I m p l e m e n t i n g R u l e s s t a t e t h a t the Account ing Off icer shal l ensure that the Commiss ion has at i t s d i s p o s a l s u f f i c i e n t f u n d s t o c o v e r c a s h r e q u i r e m e n t s a r i s i n g f r o m budgetary implementation and shall set up cash management systems enabl ing the drawing-up of cash-f low forecasts 5.


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7. The Communities’ own resources regulation 6 includes provisions rele-vant to t reasury management . These provis ions set out the funding framework within which the Commission must operate and define the Commiss ion’s t reasury management object ives . The most important provis ions in the context of th is report are presented in B o x 1 .

THE EUROPEAN COMMISSION’S TREASURY MANAGEMENT ACTIVITIES

8. Two Directorates-General at the Commission are involved in treasury man-agement act iv i t ies : DG BUDG and DG ECFIN. DG BUDG is responsible for t reasury management of the ent i re budget managed by the Com-miss ion, and the European Development Fund. DG ECFIN is respon-s i b l e f o r t h e t r e a s u r y m a n a g e m e n t o f o t h e r n o n - b u d g e t a r y i t e m s , w h i c h a r e m a i n l y t h e E u r o p e a n C o a l a n d S t e e l C o m m u n i t y ( E C S C ) in l iquidat ion, the European Community ’s and Euratom’s loans and investments of funds and certain funds managed by f inancial inst i tu-t i o n s u n d e r a m a n d a t e f r o m t h e C o m m i s s i o n 7. D i a g r a m 1 p r e s e n t s an overview of the Commiss ion’s t reasury management system and B o x 2 summarises i ts main tasks .

6 Council Regulation (EC,

Euratom) No 1150/2000 of

22 May 2000 implementing

Decision 94/728/EC, Euratom on

the system of the Communities’

own resources (OJ L 130, 31.5.2000,

p. 1), as amended by Regulation


(OJ L 352, 27.11.2004, p. 1).

7 DG ECFIN manages a diverse

number of financial instruments

related to its off-budget activity

treasury operations. These

encompass operations relating

to the management of some

2,2 billion euro — representing the

assets of the ECSC in liquidation

and other mandated funds — and

banking operations (borrowing

and lending activities) for which

the outstanding EC/Euratom/ECSC

in liquidation borrowing/lending

position amounted to close to

1,8 billion euro as of the end

of 2007.

OWN RESOURCES REGULATION PROVISIONS

Accounts for own resources should be opened in the name of the Commission with the treasury • or the body appointed by each Member State. The Member States should credit resources to these accounts, which shall be kept free of charge8.

On the first working day of each month, one twelfth of the relevant totals in the budget should • be credited to the account for the VAT and GNI resources9.

The Commission should draw on the sums credited to the accounts to the extent necessary to • cover its cash resources requirements arising from budgetary implementation10.

B O X 1

8 Articles 6(1) and 9(1) of Regulation (EC, Euratom) No 1150/2000 as amended. 9 Article 10(3) of Regulation (EC, Euratom) No 1150/2000 as amended. 10 Article 12(1) of Regulation (EC, Euratom) No 1150/2000.


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OVERVIEW OF THE COMMISSION’S TREASURY MANAGEMENT SYSTEMD I A G R A M 1

Source: European Court of Auditors.

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SUMMARY OF THE MAIN TASKS OF THE COMMISSION’S TREASURY MANAGEMENT

Treasury planning and forecasting

Cash flow forecasts (estimates of inflows and outflows)•

Drawing from own resources accounts (treasury and central bank accounts)•

Management of receipts and payments

Maintenance and control of third-party files•

Execution and monitoring of payment transactions•

Matching the receipts to recovery orders issued by authorising officers•

Bank account reconciliations•

Foreign exchange operations•

Management of bank accounts

Opening and closing of bank accounts•

Selecting commercial banks (tender procedures)•

Checking bank interest and charges•

Management of imprest accounts•

Management of fiduciary accounts•

Management of fines•

Management of investments•

B O X 2


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9. The main object ive of the audit was to assess the qual i ty of the Com-m i s s i o n ’ s t r e a s u r y m a n a g e m e n t . T h i s w a s d o n e b y a d d r e s s i n g t w o quest ions :

D o e s t h e C o m m i s s i o n c o m p l y w i t h t h e r u l e s a n d r e g u l a t i o n s —appl ic able to t reasury management?

Has the Commiss ion establ ished internal control systems which —ensure sound treasury management?

10. The Court addressed the second question by selecting and examining the main areas of the Commiss ion’s t reasury management which i s implemented by DG BUDG and DG ECFIN. These were:

t h e o v e r a l l s e t - u p o f t h e C o m m i s s i o n ’ s t r e a s u r y m a n a g e m e n t (a) act iv i t ies ;

r isk management of t reasury act iv i t ies ;(b)

performance measurement and benchmarking;(c)

management of f iduciary accounts ;(d)

management of f ines ;(e)

the payment process and management of bank accounts ; and(f )

human resources .(g)

11. The audit d id not cover the processes establ ished for managing the funding of the other inst i tut ions and Community bodies such as the European agencies , or the investment decis ions made by DG ECFIN in managing the other non-budgetary i tems, inc luding the borrow-i n g a c t i v i t i e s t o f i n a n c e C o m m u n i t y l o a n s . T h e C o u r t r e p o r t s i n i t s Annual Report on the Commiss ion’s management of the Guarantee Fund for external act ions and on the compl iance with the re levant legis lat ion of the f inancial operat ions of the European Coal and Steel Community (ECSC) in l iquidat ion. The audit focused on the f inancia l years 2006 and 2007. Developments in Commiss ion pract ices in the f i rst hal f of 2008 were a lso considered.

12. The audit included visits to both DG BUDG and DG ECFIN. Audit evidence was col lected through examinat ion and assessment of ex ist ing rules and procedures , rev iews of documentat ion, test ing of controls and transact ions, and interviews. For comparison purposes treasury man-agement pract ices in other publ ic bodies were a lso considered and a review of the re levant academic l i terature was undertaken.

AUDIT SCOPE AND APPROACH


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DOES THE COMMISSION COMPLY WITH THE RULES AND REGULATIONS APPLICABLE TO TREASURY MANAGEMENT?

TREASURY MANAGEMENT AND FORECASTING

13. The three main legal provis ions which def ine the nature of t reasury management to be exerc ised by the Commiss ion are :

t h e C o m m i s s i o n s h o u l d e n s u r e t h a t i t h a s a t i t s d i s p o s a l s u f -(a) f i c i e n t f u n d s t o c o v e r c a s h n e e d s a r i s i n g f r o m b u d g e t a r y implementat ion;

the Commission should set up cash management systems enabling (b) the drawing-up of cash-f low forecasts 11;

t h e C o m m i s s i o n s h o u l d d r a w o n t h e s u m s c r e d i t e d t o t h e o w n (c) resources accounts to the extent necessary to cover cash require-ments ar is ing f rom the implementat ion of the budget 12.

14. The Court tested whether the Commission’s systems and procedures in p lace and the act ions taken for paragraph 13(a) and (c ) adhered to these provis ions . The Court ’ s test ing did not reveal any s igni f icant instances of non-compl iance with the abovementioned provis ions .

15. As mentioned in paragraph 2, VAT and GNI own resources are the lar-gest revenue components of the Community budget. These resources a r e c r e d i t e d t o t h e a c c o u n t s o p e n e d b y e a c h M e m b e r S t a t e i n t h e name of the Commiss ion in monthly twelf ths of their re levant total o f t h e b u d g e t . T h e r e f o r e , w i t h t h e e x c e p t i o n o f t h e n e e d t o p r o -v i d e e a r l i e r f u n d i n g t o t h e E u r o p e a n A g r i c u l t u r a l G u a r a n t e e F u n d (see paragraph 16) in the f i rs t months of the year , the credit ing of resources to the aforementioned Commiss ion accounts is not based o n a c t u a l t r e a s u r y n e e d s b u t o n t h e M e m b e r S t a t e s ’ s h a r e o f t h e annual budget . Consider ing that the budget is in equi l ibr ium, there is therefore a low r isk that the Commiss ion wi l l not have at i ts d is -p o s a l s u f f i c i e n t f u n d s t o c o v e r c a s h n e e d s a r i s i n g f r o m b u d g e t a r y implementat ion. As a consequence of the above method for provid-ing own resources la id out by the Communit ies ’ regulat ion, together with the effect of a level of budgetary execution lower than planned, s igni f icant balances are accumulated dur ing the second hal f of the year on these own resources accounts (see T a b l e 1 ) . Budgetary own r e s o u r c e s a r e a m e n d e d o n l y a s a c o n s e q u e n c e o f a r e v i s i o n o f t h e Community budget 13. S ince this procedure takes considerable t ime, excess funds are not re leased back to the Member States as quickly as they could be.

MAIN OBSERVATIONS

11 Article 58 of the Implementing

Rules.

12 Article 12(1) of Regulation (EC,

Euratom) No 1150/2000.

13 In the case of the 2007 budget,

a substantial repayment was made

at the beginning of 2008.


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16. The Regulation stipulates that the VAT and GNI resources can be called up in advance, with in certa in l imits , dur ing the f i rs t months of the year for the purpose of f inancing the EAGF payments. The Commission prepares a monthly cash forecast with the purpose of determining whether advanced cal ls of own resources are needed to cover pay-ments . The Court noted that the documentat ion in place was neither recent ly updated nor provided suff ic ient detai ls of the method ology used for the preparation of these cash f low forecasts. Moreover, f inan-c ia l information on cash requirements , cover ing approximately 85 % o f b u d g e t a r y e x p e n d i t u r e , i s p r o v i d e d b y t h r e e D G s o n l y 1 4, t w o o f which provide this information on an informal bas is only to the unit in DG BUDG responsible for t reasury management .

17. The Commission has also put in place another cash management forecast procedure. I ts main a im is to ensure that there are suff ic ient funds in each commercia l bank account for the execut ion of payments . This i s an ef fect ive automated tool which enables the Commiss ion both to monitor bank balances and to ensure avai labi l i ty of funds 15.

18. Finally, the Commission has put in place a third cash forecast procedure which a ims to transfer funds between Member States ’ own resources accounts in order to a l ign the balances on these accounts with their respect ive budgetary contr ibut ions . The ca lculat ions underpinning the amounts t ransferred are part ly based on est imates of future cash f lows. The Court noted that the methodology used for the preparation of the forecast was not sufficiently documented and that the estimates made were not subsequent ly checked for their accuracy . This has a t e m p o r a r y e f f e c t o n t h e b a l a n c e s o f t h e a c c o u n t s o p e n e d b y e a c h Member State in the name of the Commiss ion (see paragraph 2) .

14 DG Agriculture and Rural

Development, DG Regional Policy

and DG Employment, Social Affairs

and Equal Opportunities.

15 DG BUDG managed 33 bank

accounts in total with 30 banks in

26 Member States.


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MANAGEMENT OF IMPREST ACCOUNTS

19. Imprest accounts can be set up for the col lect ion of revenue and for the payment of smal l sums of money. However , in certa in s i tuat ions , e .g . external a id operat ions , such accounts may be used without any l imitation on the amounts of the payment transactions 16. The require-ments set out in the Implementing Rules and in the internal guidelines establ ished for tender procedures for the select ion of the banks were not fo l lowed in most of the cases the Court examined. In addit ion, the se lect ion procedure was not appropr iate ly documented in one third of the cases examined.

HUMAN RESOURCES — SENSITIVE POSTS

20. Applying the internal control standards of the Commission, DG ECFIN c a r r i e d o u t a r i s k a s s e s s m e n t ( s e e p a r a g r a p h 2 6 ) , o n t h e b a s i s o f which in 2004 a number of posts were l i s ted as sensit ive . As this l i s t i s rather old , i t needs to be reassessed in the context of the DG’s r isk assessment, the completion of which is imminent. The 2008 DG BUDG r i s k a s s e s s m e n t e x e r c i s e c o n c l u d e d t h a t o n l y o n e p o s t i n t h e u n i t responsible for treasury management has been assessed as sensit ive. This i s despite the high volumes, va lues and nature of t ransact ions processed dai ly by this unit .

HAS THE COMMISSION ESTABLISHED INTERNAL CONTROL SYSTEMS WHICH ENSURE SOUND TREASURY MANAGEMENT?

OVERALL SET-UP OF THE COMMISSION’S TREASURY MANAGEMENT ACTIVITIES

21. Large commercial organisations have established treasury management departments whose ult imate a im is to contr ibute to maximis ing cor-porate prof i tabi l i ty and ensur ing at the same t ime an ef fect ive man-agement of r isks and the avai labil ity of suff icient cash reserves for the f inancing of operat ions . L ikewise , many publ ic sector organisat ions have establ ished treasury management structures aimed at providing support to the atta inment of their organisat ional object ives 17. What-ever the nature of the organisat ion, ef fect ive t reasury management s igni f icant ly contr ibutes to corporate success .

16 Article 63(1) of the Financial

Regulation as amended.

17 Depending on the nature of the

public sector organisation, the

treasury management structures

can embrace a wide range of

activities. A definition of treasury

management provided by the

Chartered Institute of Public

Finance and Accountancy (UK) is

as follows: ‘Treasury management

includes the management of cash

flows, banking, money-market

and capital-market transactions;

the effective control of the risk

associated with those activities;

and the pursuit of optimum

performance consistent with those

risks’ (Management in the public

services, code of practice and

cross-sectoral guidance notes,

2001, the Chartered Institute of

Public Finance and Accountancy,

United Kingdom).


15

22. With a view to achieving effective treasury management whilst remain-ing within the boundaries of the regulatory framework of Community legis lat ion (see paragraph 7) , the Commiss ion ass igned the t reasury management of the Community budget to DG BUDG and the t reas-u r y m a n a g e m e n t o f t h e n o n - b u d g e t a r y i t e m s 1 8 a n d t h e a c t i v i t y o f i n v e s t i n g C o m m u n i t y f u n d s t o D G E C F I N 1 9 ( s e e p a r a g r a p h s 6 a n d 8) . Consider ing their respect ive areas of expert ise and the role and responsibi l i t ies of these two DGs in the implementat ion of the Com-miss ion’s annual work programme and in the execut ion of the Com-munity budget , th is spl i t of responsibi l i t ies ref lects the day-to-day real ity of treasury operations 20. Notwithstanding the aforementioned, i t was noted that each DG operates entirely independently in manag-ing and control l ing its treasury activit ies. As a result of this spl it there was in ef fect no unit with overal l responsibi l i ty for the Commission’s treasury management operations and there was no coordination in an area where a common approach to issues such as r isk management and control i s necessary .

23. For instance, in order to control the r isk of loss generated by holding f u n d s i n a c c o u n t s w i t h c o m m e r c i a l b a n k s , D G B U D G a n d D G E C F I N h a v e e a c h e s t a b l i s h e d t h e i r o w n l i m i t s f o r t h e m a x i m u m a m o u n t s o f f u n d s t o b e h e l d a t s p e c i f i c b a n k s . T h e t w o D G s u s e d d i f f e r e n t methodologies to establ ish the l imits without consider ing the Com-miss ion’s overal l r i sk exposure with each commercia l bank. This was due to a lack of communicat ion and coordinat ion between the two D G s i n t h e t r e a s u r y m a n a g e m e n t a r e a . T h e C o m m i s s i o n ’ s t r e a s u r y management pract ices are not a imed at reducing the Commiss ion’s overal l exposure to f inancia l losses .

RISK MANAGEMENT OF TREASURY ACTIVITIES

24. Entit ies should carry out r isk assessments for each signif icant business process in order to ident i fy and analyse the key r isks to the achieve-ment of their objectives. On the basis of these assessments, the appro-pr iate measures to be taken for the management and monitor ing of the ident i f ied r isks should be decided.

18 Except for the treasury

management of the European

Development Fund, which is

managed by DG BUDG.

19 The Accounting Officer gives

his/her agreement for the opening

and closing of accounts with

financial institutions and his/

her opinion on internal rules

established for the DG’s treasury

operations.

20 DG ECFIN processes a smaller

number of high-value payment

transactions in comparison to

DG BUDG. For DG ECFIN, the

timeliness of the execution of

payments is a major issue. The DG

often needs to make payments

within very strict deadlines

following an investment decision.

Payments commonly have to be

executed at the latest within two

days and there are instances where

payments have to be made on the

day the instruction is issued.


16

25. No specif ic r isk assessment was carried out by DG BUDG for its treasury management operat ions . In the 2007 and 2008 genera l r i sk assess-ment exerc ises undertaken by DG BUDG, only two r isks perta ining to treasury management operations were identif ied: the shortage of staff in the ‘third party’ section (see paragraph 36) and the r isk of loss con-cerning deposits with commercial banks of provis ional ly cashed f ines (see paragraph 33) . Notwithstanding this , the Commission publ ished for the f i rst t ime an overview of the r isks in i ts t reasury operat ions i n t h e 2 0 0 7 a n n u a l a c c o u n t s o f t h e E u r o p e a n C o m m u n i t i e s 2 1. T h i s overview includes r isks ar is ing f rom the Commiss ion’s management of the day-to-day operat ions, operat ional , currency, credit and inter-est rate r isks , and r isks ar is ing from the management of provis ional ly c a s h e d f i n e s ( s e e p a r a g r a p h 3 3 ) . N o d o c u m e n t a t i o n w a s i d e n t i f i e d p r o v i d i n g e v i d e n c e o f a c t i v e m a n a g e m e n t a n d m o n i t o r i n g o f t h e abovementioned r isks .

26. A l though r isk assessments were performed for f inancia l instruments where major changes had occurred, DG ECFIN’s last overal l r isk assess-ment was carr ied out in 2004. This assessment contained an evalua-t ion of the impact and l ikel ihood of potent ia l r i sks for the t reasury a n d f i n a n c i a l m a r k e t o p e r a t i o n s . I n a d d i t i o n , i n 2 0 0 4 , a r i s k m a n -agement funct ion was establ ished by DG ECFIN contr ibut ing to the ef fect ive management of r i sk and monitor ing at ent i ty and act iv i ty levels . For the r isks ident i f ied in the abovementioned assessments , r isk reports are produced regularly and meetings are held throughout the year to monitor r i sk exposure (see B o x 3 ) . The Court examined t h e s e r e p o r t s a n d n o t e d t h a t t h e p r i n c i p a l r i s k s l i s t e d b e l o w w e r e m o n i t o r e d a n d t h a t l i m i t s s e t p e r i n v e s t m e n t c a t e g o r y w e r e r e g u -lar ly checked by the DG, which took correct ive act ions when this was deemed necessary :

market r isk: this is the potential loss that could result from adverse (a) m a r k e t m o v e m e n t s ; i t i n c l u d e s i n t e r e s t r a t e r i s k , w h i c h i s t h e f luctuat ion of a f inancia l instrument ’s future cash f lows because o f c h a n g e s i n m a r k e t i n t e r e s t r a t e s , a n d f o r e i g n e x c h a n g e r i s k , namely the currency exposures result ing f rom a f inancia l instru-ment being denominated in a currency other than the euro;

c r e d i t r i s k : t h i s i s t h e p o t e n t i a l l o s s t o a p o r t f o l i o t h a t c o u l d (b) r e s u l t f r o m t h e d e f a u l t o f a c o u n t e r p a r t y o r t h e d e t e r i o r a t i o n of i ts creditworthiness , such as , for instance, downgrading by a rat ing agency;

operat ional r i sk : th is i s the r isk of loss result ing f rom inadequate (c ) o r f a i l e d i n t e r n a l p r o c e s s e s , p e o p l e a n d s y s t e m s a n d e x t e r n a l events .

21 Annual accounts of the

European Communities

financial year 2007, Volume I

(Consolidated financial

statements and consolidated

reports on implementation of the

budget), Section 7 (Financial risk

management).


17

PERFORMANCE MEASUREMENT AND BENCHMARKING

27. Management should monitor performance by establishing systems which gather information on the implementat ion of the selected act iv i t ies . T h e s e s y s t e m s s h o u l d m a k e u s e o f i n d i c a t o r s i n o r d e r t o e v a l u a t e performance in relat ion to the set goals and object ives 22. In addit ion, benchmarking is a process used in management by which organisa-t ions evaluate var ious aspects of their processes and performance in re lat ion to best pract ice and take correct ive act ion.

28. DG BUDG establ ished a number of ‘h igh level ’ indicators l inked to i ts t reasury operat ions . These were included in the DG’s monthly ‘ tab-leau de bord’ (scoreboard system). They refer to payment operat ions (at least one payment run per day) , the bank reconci l iat ion process (number of unreconci led i tems older than 30 days) , and to the man-agement of third-party f i les. These ‘high level ’ indicators do not cover al l the areas of the treasury management operations and no evidence of appropr iate benchmarks was found.

EXAMPLE OF RISK MONITORING ACTIVITIES BY DG ECFIN

Quarterly risk report on financial activities of a DG ECFIN unit for the quarter ending on 31 December 2007 (extracts)

The financial market turmoil, also known as the sub-prime crisis, continued over the report-• ing period. The operational unit concerned and the risk management unit continued the close monitoring of the development of the sub-prime crisis over the past months in order to assess its possible impact on the treasury management portfolio of bonds and bank deposits. From a credit risk perspective, an updated analysis of the bond portfolio and the bank counterparties was prepared.

Concentration risk is also monitored. This is the risk arising from too high a proportion of bonds • or deposits being allocated to a specific country, sector, instrument or type of transaction.

Operational risk for treasury transactions is also monitored. Compliance with in-house procedures • and standard regulations was tested and results for the quarter were reported and analysed. This was based on the examination of a sample of securities transactions and deposits placed during the period.

B O X 3

22 These notions are documented

in the Commission’s internal

control standard number 5

‘objectives and performance

indicators’.


18

29. DG ECFIN uses a market index 23 as the benchmark for i ts performance review of the port fo l io of secur i t ies and cash of the European Coal a n d S t e e l C o m m u n i t y ( E C S C ) a n d t h e G u a r a n t e e F u n d f o r e x t e r n a l act ions . In this respect , to lerance ranges were establ ished and when the portfol io ’s actual monthly performance was found to fa l l outs ide the range, the DG undertook actions to correct the portfolio. However, the benchmark to be used for the performance review of the other portfol ios, namely money market products, such as deposits managed by the DG, was under preparat ion at the t ime of the audit .

MANAGEMENT OF FIDUCIARY ACCOUNTS

30. Fiduciary accounts are established for certain EU spending programmes in the context of speci f ic agreements entered into by the Commis-s i o n , w h e r e a f i n a n c i a l i n s t i t u t i o n a c t s a s a n a u t h o r i s e d a g e n t o f the Commiss ion. In other words , these are accounts opened with a f inancia l inst i tut ion for i t to manage funds direct ly and to make pay-ments on behal f of the Commiss ion. Funds are t ransferred f rom the C o m m i s s i o n t o t h e s e f i d u c i a r y a c c o u n t s t o c o v e r f u t u r e p a y m e n t s . The total amount of funds held in such accounts at the end of 2007 was approximately 970 mil l ion euro 24; the largest part , approximately 900 mi l l ion euro, i s c lass i f ied as short-term deposits and the rest as current accounts (see T a b l e 1 ) .

31. The Court ’s audit showed that there are no c lear rules for the sett ing up of these f iduciary accounts . In addit ion, there is a lso no expl ic i t strategy a imed at the optimisat ion of the interest produced by these accounts. The Court ’s audit revealed that the terms of the contractual agreements entered into with f inancial intermediaries dif fer . This can result in s igni f icant var iat ions as to the return obtained f rom these accounts 25. I t should be noted, however , that these var iat ions can be part ly expla ined by the d i f ferent legal bases , payment f requencies and matur i ty patterns .

32. There is no overall supervision of the management of the funds held by t h e s e f i n a n c i a l i n s t i t u t i o n s . D G E C F I N h a s t h e n e c e s s a r y e x p e r t i s e and systems in p lace to ensure an ef fect ive overv iew. In Ju ly 2007, DG ECFIN of fered i ts asset management serv ices to the s ix DGs con-c e r n e d 2 6. A s a r e s u l t , a g r e e m e n t s b e t w e e n D G E C F I N a n d t w o D G s have been s igned.

23 The iboxx index is published

by ‘Deutsche Börse AG’ on the

basis of prices from multiple

providers. According to DG ECFIN

it constitutes a market standard.

24 720 million euro of this amount

relates to specific agreements

entered into by Commission DGs

with the European Investment

Bank (EIB) and the European

Investment Fund (EIF).

25 For instance, different rules

apply for the interest calculation

in the conventions entered into

between the Commission and the

EIB on the accounts for risk capital

and interest rebates from the

ones used for the Facility for Euro-

Mediterranean Investment (FEMIP).

The Court calculated that interest

generated up to the end of 2006

on the FEMIP accounts would have

been approximately 0,8 million

euro higher, if the interest method

of the accounts for risk capital and

interest rebates had been used.

26 EuropeAid, DG Enlargement,

DG Research, DG Regional Policy,

DG External Relations and DG

Development.


19

SELECTED PAYMENT PROCESS STATISTICS

2007 2006

Number of payments processed by

DG BUDG1 570 576 1 508 983

Number of payments processed by

DG ECFIN1 485 1 577

Bank account fi le validations 71 879 60 637

Bank account fi le modifi cations 31 703 18 227

Third-party fi le validations 56 864 14 551

Third-party fi le modifi cation volume 17 598 18 796

Source: European Court of Auditors, on the basis of data provided by the Commission.

T A B L E 2

MANAGEMENT OF FINES

33. Fines are imposed by the Commission for infr ingement of competit ion r u l e s b y M e m b e r S t a t e s o r c o m p a n i e s . F i n e s p a i d t o t h e C o m m i s -s ion in cases of ongoing l i t igat ion are provis ional ly held in speci f ic deposit accounts with commercia l banks and they cannot be used to f inance any other Community act iv i t ies 27. The volume of f ines held a s r e s t r i c t e d c a s h h a s g r o w n s i g n i f i c a n t l y f r o m 2 , 9 b i l l i o n e u r o o n 31 December 2006 to 5 bi l l ion euro on 31 December 2007.

34. A lthough some informal guidel ines have been devised and are being fol lowed, a c lear pol icy on the t reatment of these f ines has not been established. In these guidel ines, DG BUDG addressed r isk exposure by def in ing a speci f ic minimum Moody’s or equivalent rat ing required a n d b y l i m i t i n g i t s e x p o s u r e t o e a c h c o m m e r c i a l b a n k ( s e e p a r a -g r a p h 2 3 ) . N o t w i t h s t a n d i n g t h e a b o v e , t h e r i s k o f s u c h l a r g e s u m s o f m o n e y b e i n g h e l d i n s p e c i f i c c u r r e n t a c c o u n t s w i t h c o m m e r c i a l banks st i l l needs to be effect ively addressed. At the t ime of the audit DG BUDG and DG ECFIN were in the process of searching for an opt i -mum solut ion to the problem of the t reasury management of these substantial funds, a iming to minimise the r isk of loss and at the same t ime to y ie ld a fa i r return.

27 Accounts are held with the

following six banks: Fortis, BBVA,

ING Belgium, KBC, ING NL and

Citibank.


20

THE PAYMENT PROCESS AND MANAGEMENT OF THE BANK ACCOUNTS

35. A significant number of treasury transactions are executed and processed each year by both DGs (see T a b l e 2 ) . The Court examined key internal c o n t r o l s o v e r t h e p a y m e n t e x e c u t i o n p r o c e s s , s u c h a s s e g r e g a t i o n of dut ies , th i rd-party val idat ion, access r ights and except ion report-ing, in the units concerned. No s igni f icant weaknesses were noted. Internal controls were overal l operat ing effect ively in both DG BUDG and DG ECFIN.

36. Before a payment can be processed, a third-party fi le has to be created in the Commiss ion’s computer ised accounting system containing bank detai ls and information on the identity of the recipient . In 2006 there was a s ignif icant delay of approximately four to six weeks for process-ing creat ion and modif icat ion requests for thi rd-party f i les . This was overcome by DG BUDG in 2007 by increas ing human resources in the unit concerned.

37. The Commission also established procedures with the aim of ensuring that :

the transact ions processed by the commercia l banks on the Com-(a) m i s s i o n ’ s a c c o u n t s a r e r e c o n c i l e d o n a r e g u l a r b a s i s w i t h t h e i r corresponding entr ies in the Commiss ion’s accounting system in order to ident i fy and resolve any di f ferences ;

b a n k i n t e r e s t a n d c h a r g e s a r e c h e c k e d r e g u l a r l y t o e n s u r e c o r -(b) rectness of the amounts received and paid ;

foreign exchange operat ions are accurately processed(c) 28.

38. The Court examined the implementation of the above procedures. No s i g n i f i c a n t w e a k n e s s e s w e r e n o t e d a n d t h e p r o c e d u r e s i n p l a c e were adequate and, overal l , operat ing ef fect ively at both DG BUDG and DG ECFIN. A foreign exchange pol icy was nevertheless formal ly adopted by DG BUDG only in February 2008.

28 Examples of foreign currency

transactions: (i) bank accounts are

held in currencies other than the

euro for the purpose of executing

payments denominated in these

same currencies; depending on

the needs, funds are transferred to

these accounts from euro accounts

and (ii) own resources paid by

Member States in currencies other

than the euro are converted into

euro depending on the treasury

needs.


21

HUMAN RESOURCES

39. Both DG BUDG and DG ECFIN apply standard Commission procedures i n t h e a r e a o f h u m a n r e s o u r c e s m a n a g e m e n t . T h e s e p r o c e d u r e s inc lude the recrui tment , appra isa l and career mobi l i ty of members o f s t a f f i n v o l v e d i n t r e a s u r y m a n a g e m e n t . T h e C o u r t ’ s a u d i t c o n -f irmed that appropriate job descriptions had been drawn up and staff e m p l o y e d p o s s e s s a d e q u a t e q u a l i f i c a t i o n s a n d s u f f i c i e n t p r e v i o u s exper ience re levant to the dut ies attached to their posts . DG BUDG’s unit responsible for t reasury management operates with a smal l and highly ex perienced number of staff . The low staff turnover over recent y e a r s h a s c r e a t e d a r e l a t i v e l y s t a b l e w o r k i n g e n v i r o n m e n t . I n t h e event , though, of key members of staf f leaving at short not ice , and c o n s i d e r i n g t h e l a c k o f d o c u m e n t a t i o n i n s o m e o f t h e p r o c e d u r e s (see paragraphs 16 and 18) , there is a considerable r isk to business cont inuity , potent ia l ly impact ing on the management and control of the Commiss ion’s t reasury act iv i t ies .


22

CONCLUSIONS AND RECOMMENDATIONS

DOES THE COMMISSION COMPLY WITH THE RULES AND REGULATIONS APPLICABLE TO TREASURY MANAGEMENT?

40. The Commission complied overall with the main legal provisions prescribed by the Communities’ own resources regulation and in the Implement-ing Rules of the Financial Regulation (paragraphs 13 and 14) .

41. The Commission has set up reliable and effective cash management fore-cast procedures ensur ing that i t has at i ts d isposal suf f ic ient funds to cover cash requirements ar is ing f rom budgetary implementat ion (paragraph 17) .

42. One consequence of the requirement of the Communities’ own resources regulat ion of t ransferr ing own resources to the accounts opened by t h e M e m b e r S t a t e s i n t h e n a m e o f t h e C o m m i s s i o n o n t h e b a s i s o f budget appropr iat ions is that s igni f icant balances are accumulated dur ing the second hal f of the year . S ince the amending budget pro-cedure takes considerable t ime, excess funds are not re leased back to the Member States as quickly as they could be (paragraph 15) .

43. The appl icat ion of the Commiss ion’s procedures which a im to :

t ransfer funds between Member States ’ own resources accounts ; (a ) and

determine the need in the f i rst months of the year for advanced (b) ca l l -ups of own resources to cover payments ,

were not sufficiently documented or recently updated. Estimates used for the transfer of funds between Member States’ own resources accounts were not subsequently checked for their accuracy (paragraphs 15 to 18).

R E C O M M E N D A T I O N S

The Commission should analyse the functioning of the present sys-•

tem of own resources accounts , with the a im of reducing balances

on these accounts dur ing the second hal f of the year .

The Commission should improve the documentation of its cash f low •

forecast ing procedures , and check the accuracy of the est imates

used for the t ransfers of the Member States ’ own resources .


23

HAS THE COMMISSION ESTABLISHED INTERNAL CONTROL SYSTEMS WHICH ENSURE SOUND TREASURY MANAGEMENT?

44. Overall, the internal control procedures in place concerning the execution of payments and the bank accounts were ef fect ive . However , unl ike DG ECFIN, no documentat ion was ident i f ied at DG BUDG provid ing evidence of act ive management and monitor ing of the r isks ar is ing f rom treasury act iv i t ies , nor were procedures establ ished to assess a l l aspects of i ts performance (paragraphs 24 to 29 and 35 to 38) .

45. As a result of the Commission’s decision to split treasury management operat ions between DG ECFIN and DG BUDG, there was no unit with o v e r a l l r e s p o n s i b i l i t y f o r t h e C o m m i s s i o n ’ s t r e a s u r y m a n a g e m e n t . There was a lack of coordination between the two Commission DGs in an area where a common approach to issues such as r isk management and control is necessary. This led to the situation where the accounts’ l imits for holding funds with commercia l banks were establ ished by these DGs without considering the Commission’s overal l r isk exposure with each commercia l bank (paragraphs 21 to 23) .

46. No clear rules for sett ing up f iduciary accounts were establ ished, and n e i t h e r w a s t h e r e a n o v e r a l l o v e r v i e w o f a l l t h e f u n d s h e l d b y t h e f inancia l inst i tut ions . Opt imisat ion of interest generated was there-fore not assured (paragraphs 30 to 32) .

47. The value of the provisionally col lected f ines held in commercial bank current accounts has more than doubled over recent years , to 5 bi l -l i o n e u r o . T h i s a p p r o a c h e x p o s e s t h e C o m m i s s i o n t o r i s k o f l o s s i n the event of banking fa i lure . An opt imum approach to better man-aging the r isks relat ing to the holding of these amounts has not been establ ished (paragraphs 33 and 34) .


24

R E C O M M E N D A T I O N S

T h e C o m m i s s i o n s h o u l d p u t i n p l a c e p r o c e d u r e s t o i m p r o v e t h e •

o v e r s i g h t o f i t s t r e a s u r y m a n a g e m e n t a c t i v i t i e s a n d e n h a n c e

co ordinat ion between the two DGs concerned.

In the area of t reasury management DG BUDG should improve the •

d o c u m e n t a t i o n o f i t s r i s k m a n a g e m e n t a n d t h e s c o p e o f i t s p e r -

formance measurement .

A uni form pol icy and adequate guidel ines should be put in place •

for the opening of f iduciary accounts and for the management of

Commiss ion funds held in these accounts .

The Commiss ion should as a matter of pr ior i ty reach a conclus ion •

in i ts search for an opt imum solut ion for the t reatment of provi -

s ional ly col lected f ines .

This report was adopted by the Court of Auditors in Luxembourg at its meet ing of 30 Apr i l 2009.

F o r t h e C o u r t o f A u d i t o r sF o r t h e C o u r t o f A u d i t o r s

Vítor Manuel da S i lva CaldeiraP r e s i d e n t



25


EXECUTIVE SUMMARY

V.Third indent

The procedure for t ransfers between Mem-b e r S t a t e s ’ o w n r e s o u r c e s a c c o u n t s i s f o r -mal ly documented and is complemented by detai led step-by-step instruct ions .

Fourth indent

T h e C o m m i s s i o n i s b o u n d t o r e s p e c t t h e provis ions of the Counci l regulat ion imple-ment ing the decis ion on the system of the C o m m u n i t i e s ’ o w n r e s o u r c e s , w h i c h f o r e -see, namely , that Member States credit own resources to the account opened in the name o f t h e C o m m i s s i o n b y m e a n s o f m o n t h l y t w e l f t h s . S e e a l s o t h e C o m m i s s i o n ’ s r e p l y to paragraph 15.

Fifth indent

T h e C o m m i s s i o n ’ s o v e r v i e w o f t h e r i s k s related to its treasury operations (DG BUDG), which is part of its annual accounts, provides a clear and comprehensive summary the risks it is exposed to, how such risks are managed, and which measures have been put in place t o c o n t r o l , m i n i m i s e o r n e u t r a l i s e t h e m . I t a l s o m a k e s r e f e r e n c e t o p r o c e d u r e s t h a t contain measures to control or l imit opera-t i o n a l a n d f i n a n c i a l r i s k s . T h e s e e x i s t i n g p r o c e d u r e s w i l l b e c r o s s - r e f e r e n c e d i n t o a s ingle formal document of DG BUDG.

T h e i n d i c a t o r s i n c l u d e d i n t h e D G B U D G ’ s ‘ tableau de bord’ are the most re levant for i t s t r e a s u r y o p e r a t i o n s a n d a r e s i g n i f i c a n t indicators of i ts per formance. Such indica-tors are regular ly t racked and performance a g a i n s t t h e m i s a s s e s s e d . I n c a s e o f p o o r performance appropr iate measures are put in place to correct i t .

See a lso the Commiss ion ’s repl ies to para-graphs 25 and 28.



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Sixth indent

The Commiss ion wi l l improve i ts overs ight on the different treasury management activ-i t i e s p e r f o r m e d . T h e s e p a r a t i o n o f t a s k s between the two Directorates-General con-cerned serves to l imit the need for extensive coordinat ion.

T h e d i f f e r e n t m e t h o d o l o g i e s t o l i m i t r i s k s are due to the di f ferent nature of the tasks performed. Limits for nostro accounts, which cater for dai ly cash movements but normally d o n o t h o l d s u b s t a n t i a l f u n d s f o r a l o n g e r p e r i o d , h a v e t o b e c o n s i d e r e d d i f f e r e n t l y f r o m l i m i t s f o r c o u n t e r p a r t i e s w i t h w h o m money is p laced for a longer per iod.

See a lso the Commiss ion ’s repl ies to para-graphs 22 and 23.

Seventh indent

The current system for the management of provis ional ly cashed f ines was subject to a rev iew in 2008, wi th the main object ive of increasing its security. A proposal for a Com-m i s s i o n d e c i s i o n o n t h i s m a t t e r h a s b e e n issued in ear ly 2009 by DG BUDG.

VI.First indent

The Commiss ion has redrafted i ts cash f low report ing and forecast ing procedures at the e n d o f 2 0 0 8 , i n t h e c o n t e x t o f a r e v i e w o f the related reporting tools. The updated ver-s ion of the procedure , which a lso contains more detai ls on the forecast ing part , wi l l be adopted as f rom the end of March 2009.

Second indent

T h e p r e s e n t s y s t e m o f o w n r e s o u r c e s a c c o u n t s , p r i m a r i l y d e s i g n a t e d t o r e c e i v e t h e o w n r e s o u r c e s p a y m e n t s , i s l i n k e d t o t h e o w n r e s o u r c e s s y s t e m , a s e s t a b l i s h e d by Counci l Decis ion 2000/597/EC, Euratom a n d i t s i m p l e m e n t i n g r e g u l a t i o n , C o u n c i l R e g u l a t i o n ( E C , E u r a t o m ) N o 1 1 5 0 / 2 0 0 0 , that the Commission is bound to implement. T h e C o u n c i l a d o p t e d i n 2 0 0 7 t h e n e w o w n resources decis ion (2007/436/EC, Euratom), a n d v e r y r e c e n t l y a r e v i s i o n o f R e g u l a t i o n 1 1 5 0 / 2 0 0 0 1, w h i c h d o n o t i n t r o d u c e a n y s i g n i f i c a n t c h a n g e s i n t h e s y s t e m o f o w n resources accounts and payments . This sug-gests that the Counci l i s sat is f ied with the funct ioning of the present system.

Third indent

Meetings wi l l be establ ished more regular ly b e t w e e n t h e t w o D i r e c t o r a t e s - G e n e r a l t o share information on r isks , and to exchange e x p e r i e n c e s a n d b e s t p r a c t i c e s r e g a r d i n g t r e a s u r y a n d a s s e t m a n a g e m e n t a c t i v i t i e s on a Commiss ion-wide level .

Fourth indent

T h e C o m m i s s i o n ’ s o v e r v i e w o f t h e r i s k s related to its treasury operations (DG BUDG), which is part of its annual accounts, provides a c lear and comprehensive summary of the risks it is exposed to, how such risks are man-a g e d , a n d w h i c h m e a s u r e s h a v e b e e n p u t i n p l a c e t o c o n t r o l , m i n i m i s e o r n e u t r a l i s e them. I t a lso makes reference to procedures t h a t c o n t a i n m e a s u r e s t o c o n t r o l o r l i m i t operat ional and f inancia l r i sks . These exist -ing procedures wil l be cross-referenced into a s ingle formal document of DG BUDG.

1 Council Regulation (EC, Euratom) No 105/2009,

OJ L 36, p. 1, 5.2.2009.



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T h e i n d i c a t o r s i n c l u d e d i n t h e D G B U D G ’ s ‘ tableau de bord’ are the most re levant for i t s t r e a s u r y o p e r a t i o n s a n d a r e s i g n i f i c a n t indicators of i ts per formance. Such indica-tors are regular ly t racked and performance a g a i n s t t h e m i s a s s e s s e d . I n c a s e o f p o o r performance appropr iate measures are put in place to correct i t .

Fifth indent

Under the present system for the manage-ment of provis ional ly cashed f ines the Com-m i s s i o n e n s u r e s r i s k s a r e m i n i m i s e d , v i a a s e t o f m e a s u r e s i n c l u d i n g m i n i m u m c r e d i t rat ing requirements for commercia l banks , l i m i t s t o e x p o s u r e p e r b a n k , a n d t h e p o s -s i b i l i t y t o t r a n s f e r f u n d s a t a n y t i m e w i t h immediate ef fect . Monitor ing and review of the s i tuat ion is ensured regular ly and on a dai ly bas is in the current f inancia l context .

In addit ion the current system for the man-a g e m e n t o f p r o v i s i o n a l l y c a s h e d f i n e s w a s s u b j e c t t o a r e v i e w i n 2 0 0 8 , w i t h t h e m a i n o b j e c t i v e o f i n c r e a s i n g i t s s e c u r i t y . A p r o -p o s a l f o r a C o m m i s s i o n d e c i s i o n o n t h i s matter has been issued in ear ly 2009 by DG BUDG.

INTRODUCTION

3.

T h e b a l a n c e o n b a n k a c c o u n t s o f 1 9 b i l -l i o n e u r o a t 3 1 D e c e m b e r 2 0 0 7 i n c l u d e d 5 , 9 b i l l i o n e u r o 2 w h i c h w a s r e f u n d e d t o M e m b e r S t a t e s o n t h e f i r s t w o r k i n g d a y o f the fo l lowing year , together with amounts r e c e i v e d f r o m p r o v i s i o n a l p a y m e n t o f c o m p e t i t i o n f i n e s ( 5 , 0 b i l l i o n e u r o 3) , f r o m a s s i g n e d r e v e n u e ( 3 , 4 b i l l i o n e u r o 4) a n d f rom other sources (1 ,6 b i l l ion) which can-n o t b e r e f u n d e d t o M e m b e r S t a t e s . O f t h e remainder , 1 ,2 bi l l ion euro 5 was withheld to cover payment appropr iat ions carr ied over to 2008, and 1 ,5 bi l l ion euro 6 was repaid to Member States through deduction from their amounts due for 2008.

5.

T h e C o m m i s s i o n t a k e s t h e v i e w t h a t t h e d e f i n i t i o n o f t r e a s u r y m a n a g e m e n t i n t h e F i n a n c i a l R e g u l a t i o n i s o r i e n t e d t o w a r d s the normal budgetary cash management and does not comprise asset management, which is dealt with separately .

8.

T h e r e l e v a n t C o m m i s s i o n d e c i s i o n o n o f f -budget act iv it ies states that DG ECFIN ‘shal l be responsible for conduct ing the borrow-ing/lending operat ions of the Communit ies , for the act iv i t ies of invest ing funds and for the management of the non-budgetary treas-ury ….’ . DG BUDG Treasury is in charge of the t reasury and payment operat ions re lated to the implementat ion of the EU budget .

2 Note 2.11.1 of the 2007 EC consolidated accounts.3 Note 2.11.2 of the 2007 EC consolidated accounts.4 Volume 1, Part II, Table 7, column 9 of the 2007 accounts.5 Volume 1, Part II, Table 7 of the 2007 accounts, columns 7

and 8.6 Volume 1, Part II, Table 1 of the 2007 accounts.



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A d i s t i n c t i o n m u s t b e m a d e b e t w e e n t h e t r e a s u r y ( a n d p a y m e n t ) f u n c t i o n s c o v e r e d by DG BUDG on the one hand and the asset management funct ion ensured by DG ECFIN o n t h e o t h e r h a n d , i n a c c o r d a n c e w i t h t h e decis ion taken by the Commiss ion. Each of these funct ions has a responsibi l i ty c lear ly a l located to one centra l serv ice .

MAIN OBSERVATIONS

15.

T h e C o m m i s s i o n i s b o u n d t o r e s p e c t t h e provis ions of the Counci l regulat ion imple-ment ing the decis ion on the system of the C o m m u n i t i e s ’ o w n r e s o u r c e s , w h i c h f o r e -see, namely , that Member States credit own resources to the account opened in the name o f t h e C o m m i s s i o n b y m e a n s o f m o n t h l y twelf ths . However , s ince 2005 the Commis-sion has proposed a preliminary draft amend-ing budget to the budgetary authority at the end of October updating the budget relative to the forecast of revenue and expenditure . This has typica l ly ant ic ipated the year-end s u r p l u s a n d l e d t o a r e d u c t i o n i n M e m b e r States’ own resources contributions. Indeed, the Commiss ion’s good budgetary manage-ment has been acknowledged by the Court of Auditors : in i ts annual report concerning the f inancial year 2007 (point 3 .4) the Court states that the reduction of payment appro-pr iat ions ref lects good budgetary manage-ment as i t demonstrates the abi l i ty to react to changes and reduces the budgetary sur-plus , a l lowing own resources to be returned to Member States .

16.

Cash flow forecasting carried out by the Com-mission (DG BUDG) is effective. I ts objective, as stated in Art ic le 58 of the Implementing Rules of the Financial Regulation, has always b e e n a c h i e v e d , i n s t a n c e s o f i n s u f f i c i e n t f u n d s r e s u l t i n g f r o m i n c o r r e c t f o r e c a s t i n g having never occurred.

The exist ing procedures for both cash f low report ing and forecast ing were redrafted in the end of 2008 in the context of a review of the related reporting tools. An updated, uni-f ied, version of the procedure, also including more detai ls on the forecast ing part , wi l l be adopted as f rom the end of the f i rst quarter of 2009.

18.

T h e C o m m i s s i o n p o i n t s o u t t h a t t h e c a s h forecast procedure is formal ly documented, i s publ ished, and is a lso complemented by a set of step-by-step instruct ions . For what concerns the est imates i t uses in this exer-c i s e , t h e y a r e m a d e w i t h t h e b e s t p o s s i b l e a c c u r a c y , a n d t h e C o m m i s s i o n c o n s i d e r s that the current procedures have no s ignif i -c a n t i m p a c t o n e i t h e r t h e o v e r a l l t r e a s u r y operat ions or the respect of the appl icable regulat ion.

19.

The Commission selects a l l i ts ‘house banks’ through a publ ic ca l l for tender procedure. House banks are located in the EU and used for the execution of payments authorised by the Commiss ion’s centra l serv ices .

I t i s mater ia l ly impossible , and i t would be ineff ic ient , to apply the same procedure in order to open a single current bank account in each of the +/- 150 countries where imprests have been set up. These accounts are used to pay smal l amounts , whi le balances kept on these accounts are very low and they are per iodica l ly re funded up to the amount of the payments ef fect ively made only .



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Whenever it is possible and appropriate — in view of the local banking environment — the b a n k w h e r e s u c h a n a c c o u n t w i l l b e h e l d i s s e l e c t e d o n t h e b a s i s o f a b a n k s u r v e y undertaken local ly under the supervis ion of the imprest account holder .

The Commission wil l fol low up on the Court’s observat ion and better document the spe-c i f i c s e l e c t i o n p r o c e d u r e f o l l o w e d i n e a c h case.

20.

A proper segregation of duties exists within t h e D G B U D G u n i t c o n c e r n e d b e t w e e n t h e treasury management and the bank reconcil-iat ion and is ref lected in the organisat ional s t ructure of the unit . There are three team leaders in this unit C01:

one for reconciliation/imprest accounts; —one for t reasury ; —and one for thi rd-party f i les . —

Al l delegat ions are g iven in wr i t ing by the A c c o u n t i n g O f f i c e r a n d a r e k e p t u p d a t e d . Those delegat ions deta i l the speci f ic tasks delegated.

The delegat ions respect the job descr ipt ion of each person and the tasks of the unit . Seg-regations of duties are in place in the unit as demonstrated by the organisat ion chart .

The IT system itself is the main control tool as segregat ion of tasks is guaranteed (not ably b e t w e e n p a y m e n t r u n a n d r e c o n c i l i a t i o n ) and checks are ef fected by the system.

Risk management is in place as are effect ive supervisory measures .

On the basis of the above, i t has been con-c l u d e d t h a t o n l y t h e h e a d o f t h e u n i t i n c h a r g e o f t r e a s u r y m a n a g e m e n t s h o u l d b e designated as holding a sensit ive funct ion.

21.

Large publ ic sector organisat ions l ike Mem-b e r S t a t e s a l s o h a v e d i f f e r e n t e n t i t i e s f o r d e b t a n d a s s e t m a n a g e m e n t f r o m t h o s e handl ing budgetary receipts and payments . In the same way the Commiss ion has found an eff icient distr ibution of tasks between DG BUDG and DG ECFIN.

22.

The tasks carr ied out by the t reasury in DG BUDG (budgetary payments) and DG ECFIN (off-budget asset management, and borrow-ings) are di f ferent f rom each other and so a di f ferent approach to r isk management and c o n t r o l i s j u s t i f i e d b a s e d o n t h e d i f f e r e n t nature of the tasks .

23.

T h e d i f f e r e n t m e t h o d o l o g i e s t o l i m i t r i s k s are due to the di f ferent nature of the tasks performed. Limits for nostro accounts, which cater for dai ly cash movements but normally d o n o t h o l d s u b s t a n t i a l f u n d s f o r a l o n g e r p e r i o d , h a v e t o b e c o n s i d e r e d d i f f e r e n t l y f r o m l i m i t s f o r c o u n t e r p a r t i e s w i t h w h o m money is p laced for a longer per iod.

I n a d d i t i o n , w i t h t h e e x c e p t i o n o f t h e a c c o u n t s w h e r e p r o v i s i o n a l l y c a s h e d f i n e s are held (on this subject see Commiss ion’s r e p l y t o p a r a g r a p h 3 4 ) , f u n d s h e l d b y D G B U D G o n c u r r e n t a c c o u n t s w i t h i n d i v i d -u a l c o m m e r c i a l b a n k s a r e f o r s u c h l i m i t e d a m o u n t s t h a t , e v e n i f D G E C F I N u s e d t h e s a m e b a n k s , t h i s w o u l d n o t r e p r e s e n t a mater ia l increase of i ts r i sk .



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25.

T h e C o m m i s s i o n ’ s o v e r v i e w o f t h e r i s k s related to its treasury operations (DG BUDG), t o w h i c h t h e C o u r t m a k e s r e f e r e n c e i n i t s observation, clearly explains to which risks it is exposed, how such r isks are managed, and w h i c h m e a s u r e s h a v e b e e n p u t i n p l a c e t o control , minimise or neutral ise them. I t a lso makes reference to procedures that contain measures to control or l imit operational and f i n a n c i a l r i s k s . T h e s e e x i s t i n g p r o c e d u r e s wi l l be cross-referenced into a s ingle formal document of DG BUDG.

26.

A r isk assessment of a l l areas of DG ECFIN’s a c t i v i t i e s w a s d o n e i n 2 0 0 4 . S i n c e t h e n , s u p p l e m e n t a l r i s k a s s e s s m e n t s w e r e p e r -formed for act iv i t ies where a major change had occurred. This r isk assessment process is deemed adequate taking into account the quite stable character of DG ECFIN activ it ies. Another fu l l r i sk assessment of a l l DG ECFIN a c t i v i t i e s h a s b e e n c a r r i e d o u t a t t h e e n d of 2008.

T h e i m p o r t a n t f i n a n c i a l r i s k s a r e c l o s e l y monitored through the course of the year . See the Court ’s statement in Box 3 .

28.

T h e i n d i c a t o r s i n c l u d e d i n t h e D G B U D G ’ s ‘ tableau de bord’ are the most re levant for t h e D G B U D G t r e a s u r y o p e r a t i o n s a n d a r e s i g n i f i c a n t i n d i c a t o r s o f i t s p e r f o r m a n c e . S u c h i n d i c a t o r s a r e r e g u l a r l y t r a c k e d a n d p e r f o r m a n c e a g a i n s t t h e m i s a s s e s s e d . I n case of poor performance appropriate meas-ures are put in place to correct i t .

Within the t reasury , speci f ic object ives are d e f i n e d f o r t h e i n d i v i d u a l t e a m m e m b e r s , which are used to assess their performance. M o s t o f t h e m a r e i n t h e f o r m o f p e r f o r m -a n c e i n d i c a t o r s . T h e y e n a b l e m a n a g e m e n t t o o b j e c t i v e l y a s s e s s / m e a s u r e i n d i v i d u a l performances and the overa l l per formance of the t reasury .

29.

T h e c a l c u l a t i o n o f a b e n c h m a r k f o r p e r -formance review for the other port fol ios i s under preparation. At the beginning of 2009 t h e m e t h o d o l o g y i s e s t a b l i s h e d a n d t h e I T implementat ion is in the test ing phase.

30.

T h e m e n t i o n e d f i d u c i a r y a c c o u n t s o p e n e d by the author is ing of f icers for the require-ments of the execut ion of speci f ic budget-ary programmes have a different nature than the bank accounts opened by the Account-ing Off icer for the requirements of t reasury management according to Art ic le 59 of the Implementing Rules .

A s m e n t i o n e d b y t h e C o u r t , f i d u c i a r y a c c o u n t s a r e e s t a b l i s h e d f o r c e r t a i n p r o -g r a m m e s i n t h e c o n t e x t o f s p e c i f i c a g r e e -ments where the f inancial organisat ion acts as the f inancial intermediary of the Commis-s ion (e .g . f iduciary agreements between DG ECFIN and f inancia l organisat ions) .

Payments to f inancial organisations, such as the European Investment Bank (E IB) or the Kreditanstalt für Wiederaufbau (KFW), should n o t a l w a y s b e s e e n a s a n d a u t o m a t i c a l l y t r e a t e d a s f i d u c i a r y t r a n s a c t i o n s . F i n a n -c ia l organisat ions could a lso act as project coordinators , as benefic iary or as addit ional d o n o r f o r a t r u s t f u n d ; r e l a t e d p a y m e n t s have to be then normal ly considered as pre-f inancing. Thus, the correct c lass i f icat ion of such payments requires a detai led analys is of the under ly ing contracts .



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31 — 32.

Fol lowing a remark of the Court , DG BUDG m a d e t w o i n v e n t o r y e x e r c i s e s i n 2 0 0 7 (30.9.2007 and 31.12.2007) in order to ensure the completeness in the annual accounts of f inancia l assets held by f inancia l organisa-t ions . Al l Directorates-General have repl ied t o t h e s e t w o r e q u e s t s a n d c o n t r o l s w e r e made to veri fy the coherence of the answers with the annual accounts for 2007.

T h e i n v e n t o r y e x e r c i s e i s n o w p a r t o f t h e standardised year ly c losure procedure.

To further improve the s i tuat ion, the Com-mission has already proposed to and agreed w i t h t h e C o u r t t h a t a s f r o m t h e 2 0 0 8 c l o -sure an of f ic ia l c i rcular letter i s sent to the f inancia l organisat ions concerned in order to get accurate , complete and standardised informat ion f rom them regarding the f idu-c iary accounts .

As a l ready ment ioned in the reply to para-graph 30 the f iduciary accounts are different from the bank accounts opened by the Com-m i s s i o n ’ s A c c o u n t i n g O f f i c e r a c c o r d i n g t o Article 59 of the Implementing Rules. For the l a t t e r a u n i f o r m p o l i c y i s a l r e a d y i n p l a c e . For the f iduciary accounts the Commiss ion wi l l analyse the s i tuat ion further in order to respond to the Court ’s remarks .

34.

The current system employed for the manage-ment of provis ional ly cashed f ines is c lear ly def ined and is based on a Commiss ion deci -s ion of 1999. The re lated guidel ines , which are a l igned to this decis ion, are a standard and integral part of each contract concluded with banks used for this purpose.

The current system for the management of provis ional ly cashed f ines was subject to a rev iew in 2008, wi th the main object ive of increasing its security. A proposal for a Com-m i s s i o n d e c i s i o n o n t h i s m a t t e r h a s b e e n issued in ear ly 2009 by DG BUDG.

39.

The Commiss ion points out that , f i rst of a l l , a l l t r e a s u r y p r o c e d u r e s i n a l l s i g n i f i c a n t a s p e c t s a r e f o r m a l l y d o c u m e n t e d , a n d i n many cases complemented by detai led step-by-step work instruct ions .

In addit ion, for a l l key tasks with in the DG BUDG treasury there are one or more back-u p s i n o r d e r t o e n s u r e c o n t i n u i t y o f t h e operat ions in case of p lanned and/or unex-pected absences .

T h e C o m m i s s i o n t h e r e f o r e c o n s i d e r s t h a t the r isk to business continuity in case of key m e m b e r s o f s t a f f l e a v i n g t h e u n i t a t s h o r t not ice is very low.



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CONCLUSIONS AND RECOMMENDATIONS

42.

T h e C o m m i s s i o n i s b o u n d t o r e s p e c t t h e provis ions of the Counci l regulat ion imple-ment ing the decis ion on the system of the C o m m u n i t i e s ’ o w n r e s o u r c e s , w h i c h f o r e -see, namely , that Member States credit own resources to the account opened in the name o f t h e C o m m i s s i o n b y m e a n s o f m o n t h l y twelf ths . However , s ince 2005 the Commis-sion has proposed a preliminary draft amend-ing budget to the budgetary authority at the end of October updating the budget relative to the forecast of revenue and expenditure . This has typica l ly ant ic ipated the year-end s u r p l u s a n d l e d t o a r e d u c t i o n i n M e m b e r States’ own resources contributions. Indeed, the Commiss ion’s good budgetary manage-ment has been acknowledged by the Court of Auditors — in i ts annual report concern-i n g t h e f i n a n c i a l y e a r 2 0 0 7 ( p o i n t 3 . 4 ) t h e Court states that the reduct ion of payment a p p r o p r i a t i o n s r e f l e c t s g o o d b u d g e t a r y management as i t demonstrates the abi l i ty to react to changes and reduces the budg-etary surplus , a l lowing own resources to be returned to Member States .

43.

W i t h r e s p e c t t o t h e C o u r t ’ s o b s e r v a t i o n under paragraph (a) , the Commission points o u t t h a t t h e p r o c e d u r e t h e C o u r t r e f e r s t o ( t r a n s f e r s b e t w e e n M e m b e r S t a t e s o w n resources accounts) is formally documented and is complemented by detai led ‘step-by-step’ instruct ions .

W i t h r e s p e c t t o t h e C o u r t ’ s o b s e r v a t i o n under paragraph (b) , the Commission points out that the cash forecasting procedure used f o r a d v a n c e d c a l l - u p s o f o w n r e s o u r c e s a s w e l l a s i t s a p p l i c a t i o n i s d o c u m e n t e d . I t i s t h e f o r m a l b a s i s f o r r e q u e s t i n g M e m b e r States to pay own resources in advance.

In the context of a recent review of the cash r e p o r t i n g t o o l s , t h e e x i s t i n g p r o c e d u r e s f o r b o t h c a s h f l o w r e p o r t i n g a n d f o r e c a s t -i n g w e r e r e d r a f t e d i n t h e e n d o f 2 0 0 8 . A n updated, uni f ied vers ion of the procedure , a lso including more detai ls on the forecast-ing part , wi l l be adopted as f rom the end of f i rst quarter of 2009.

For what concerns the estimates used for the t r a n s f e r o f f u n d s b e t w e e n M e m b e r S t a t e s ’ own resources accounts, they are made with the best possible accuracy and the Commis-s ion considers that the current procedures h a v e n o s i g n i f i c a n t i m p a c t o n e i t h e r t h e o v e r a l l t r e a s u r y o p e r a t i o n s o r t h e r e s p e c t of the appl icable regulat ion.

Recommendations

First indent

T h e p r e s e n t s y s t e m o f o w n r e s o u r c e s a c c o u n t s , p r i m a r i l y d e s i g n a t e d t o r e c e i v e t h e o w n r e s o u r c e s p a y m e n t s , i s l i n k e d t o t h e o w n r e s o u r c e s s y s t e m , a s e s t a b l i s h e d by Counci l Decis ion 2000/597/EC, Euratom a n d i t s i m p l e m e n t i n g r e g u l a t i o n , C o u n c i l R e g u l a t i o n ( E C , E u r a t o m ) N o 1 1 5 0 / 2 0 0 0 , that the Commission is bound to implement. T h e C o u n c i l a d o p t e d i n 2 0 0 7 t h e n e w o w n resources decis ion (2007/436/EC, Euratom), a n d v e r y r e c e n t l y a r e v i s i o n o f R e g u l a t i o n 1 1 5 0 / 2 0 0 0 7, w h i c h d o n o t i n t r o d u c e a n y s i g n i f i c a n t c h a n g e s i n t h e s y s t e m o f o w n resources accounts and payments . This sug-gests that the Counci l i s sat is f ied with the funct ioning of the present system.

7 Council Regulation (EC, Euratom) No 105/2009,

OJ L 36, p. 1, 5.2.2009.



33

Second indent

The Commiss ion wi l l endeavour to improve t h e d o c u m e n t a t i o n i n t h i s a r e a . I t h a s redrafted i ts cash f low report ing and fore-casting procedures at the end of 2008, in the context of a review of the re lated report ing tools . The updated version of the procedure, which also contains more details on the fore-casting part , wil l be adopted as from the end of March 2009. However, it does not consider that checking the accuracy of estimates used wi l l have a mater ia l impact .

44.

T h e C o m m i s s i o n ’ s o v e r v i e w o f t h e r i s k s related to its treasury operations (DG BUDG), w h i c h i s p a r t o f i t s A n n u a l A c c o u n t s , p r o -v i d e s a c l e a r a n d c o m p r e h e n s i v e s u m m a r y of the r isks i t i s exposed to , how such r isks are managed, and which measures have been put in place to control , minimise or neutral -ise them. I t a lso makes reference to proce-d u r e s t h a t c o n t a i n m e a s u r e s t o c o n t r o l o r l imit operat ional and f inancia l r i sks .

T h e s e e x i s t i n g p r o c e d u r e s w i l l b e c r o s s -r e f e r e n c e d i n t o a s i n g l e f o r m a l d o c u m e n t of DG BUDG.


45.

One has to make a dist inct ion between the t r e a s u r y ( a n d p a y m e n t ) f u n c t i o n s c o v e r e d by DG BUDG on the one hand and the asset management funct ion ensured by DG ECFIN o n t h e o t h e r h a n d , i n a c c o r d a n c e w i t h t h e decis ion taken by the Commiss ion. Each of these funct ions has a responsibi l i ty c lear ly al located to one central service. See also the Commiss ion’s reply to paragraph 23.

46.

Given the very var ied purpose of the funds held on trust accounts , which results in di f -ferent cash f low patterns and holding per i -ods, i t i s operat ional ly very di f f icult to even o p t i m i s e i n t e r e s t o f f u n d s h e l d w i t h o n e f inancia l inst i tut ion. See a lso the repl ies to points 31 and 32 above.

47.

The current system for the management of provis ional ly cashed f ines was subject to a rev iew in 2008, wi th the main object ive of increasing its security. A proposal for a Com-m i s s i o n d e c i s i o n o n t h i s m a t t e r h a s b e e n i ssued in ear ly 2009 by DG BUDG. See a lso the Commiss ion’s reply to paragraph 34.

Recommendations

First indent

The Commiss ion wi l l improve i ts overs ight on the different treasury management activ-i t i e s p e r f o r m e d . T h e s e p a r a t i o n o f t a s k s b e t w e e n t h e t w o D G s c o n c e r n e d s e r v e s t o l i m i t t h e n e e d f o r e x t e n s i v e c o o r d i n a t i o n . Meetings wi l l be establ ished more regular ly between the two DGs to share informat ion on r i sks , and to exchange exper iences and best pract ices regarding treasury and asset m a n a g e m e n t a c t i v i t i e s o n a C o m m i s s i o n -wide level .



34

Second indent

T h e C o m m i s s i o n ’ s o v e r v i e w o f t h e r i s k s related to its treasury operations (DG BUDG), w h i c h i s p a r t o f i t s A n n u a l A c c o u n t s , p r o -v i d e s a c l e a r a n d c o m p r e h e n s i v e s u m m a r y of the r isks i t i s exposed to , how such r isks are managed, and which measures have been put in place to control , minimise or neutral -ise them. I t a lso makes reference to proce-d u r e s t h a t c o n t a i n m e a s u r e s t o c o n t r o l o r l imit operat ional and f inancia l r i sks .

T h e s e e x i s t i n g p r o c e d u r e s w i l l b e c r o s s -r e f e r e n c e d i n t o a s i n g l e f o r m a l d o c u m e n t of DG BUDG.


Fourth indent

The current system for the management of provis ional ly cashed f ines was subject to a rev iew in 2008, wi th the main object ive of increasing its security. A proposal for a Com-m i s s i o n d e c i s i o n o n t h i s m a t t e r h a s b e e n i ssued in ear ly 2009 by DG BUDG. See a lso the Commiss ion’s reply to paragraph 34.



35

European Court of Auditors

Special Report No 5/2009

The Commission’s treasury management

Luxembourg: Office for Official Publications of the European Communities

2009 — 34 pp. — 21 x 29.7 cm

ISBN 978-92-9207-295-7

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IN THIS SPECIAL REPORT THE COURT AUDITED THE QUALITY OF THE

COMMISSION’S TREASURY MANAGEMENT, ASSESSING WHETHER THE

COMMISSION COMPLIED WITH THE RELEVANT RULES AND REGULATIONS,

AND WHE THER THE COMMISSION HAD ESTABLISHED INTERNAL

CONTROL SYSTEMS WHICH ENSURE A SOUND TREASURY MANAGEMENT.

THE COURT CONCLUDED THAT OVERALL THE COMMISSION COMPLIED

WITH THE APPLICABLE COMMUNITY LEGISLATION, THAT IT HAD SET UP

PRUDENT CASH MANAGEMENT FORECAST PROCEDURES, AND THAT

IN GENERAL ITS INTERNAL CONTROL PROCEDURES WERE EFFECTIVE.

HOWEVER, THE COURT ALSO FOUND A LACK OF COORDINATION

BETWEEN THE RELEVANT COMMISSION DGS IN AREAS SUCH AS RISK

MANAGEMENT AND CONTROL. THIS LED TO A SITUATION WHERE THE

COMMISSION DID NOT SUFFICIENTLY CONSIDER ITS OVERALL RISK

EXPOSURE WITH EACH COMMERCIAL BANK. FURTHERMORE THE COURT

FOUND THAT THERE IS AN INCREASED RISK OF LOSS OF PROVISIONALLY

COLLECTED FINES HELD IN SPECIFIC BANK CURRENT ACCOUNTS.


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ISBN 978-92-9207-295-7

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