Report by the court of auditors

on the operational efficiency of the management of the European Monetary Institute for the financial year 1997, together with the Institute's replies

(1999/C 164/01)

CONTENTS

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INTRODUCTION

1. This is the fourth consecutive year(1) in which the Court has presented a report on the results of audits it carried out as part of its examination of the operational efficiency of the management of the European Monetary Institute (EMI)(2). The EMI's accounts for the financial year ending 31 December 1997 were approved by the Council of the EMI on 24 March 1998 and published in May 1998(3) after they had been audited and certified, without qualification, by a private audit firm.

2. The Council of the EMI, which was the budgetary authority of the Institute(4), consisted, in accordance with Article 109f of the Treaty establishing the European Community, of a President and the governors of the national central banks, one of whom was appointed Vice-President. The Institute was subject to the financial provisions contained in its Statute, a detailed interpretation of which was set out in the decisions of its Council.

THE MANAGEMENT OF THE INSTITUTE IN 1997

Administration

3. The permanent staff of the EMI rose from 217 persons on 31 December 1996 to 334 on 31 December 1997. On the latter date the staff consisted of seven senior managers, 39 managers, 161 operational staff and 127 administrative and technical support staff. During 1997, 135 people were recruited and 18 left. The average number of permanent staff over the year was 281 in 1997, as against 202 in 1996.

Budgetary management

4. Total expenditure in 1997 was ECU 74,5 million, compared with a revised budget of ECU 89,4 million, leaving ECU 14,9 million unused, i.e. 16,6 % of the budget. In 1996 the figures were, respectively, expenditure totalling ECU 38,6 million and estimates of ECU 42,1 million with ECU 3,5 million (8,3 %) unused.

5. An analysis of this under-utilisation shows that the discrepancy between the estimates and the actual expenditure is partly attributable to the delay that has occurred in recruiting staff (under-utilisation of 17,9 % in respect of expenditure on staff, which, in turn, affects the associated expenditure). This discrepancy is also due to the EMI's approach in establishing annual budgets: the margins that may exist in the various sector budgets accumulate in the overall ECB budget, with the result that their total exceeds the total margin needed for the latter. Therefore, the method that is used for consolidating sector budgets in the overall budget needs to make it possible to eliminate the surplus.

THE INSTITUTE'S ACTIVITIES IN 1997

6. In 1997, the EMI continued preparations for the third stage of Economic and Monetary Union (EMU) and the introduction of the euro, which mainly concerned monetary policy, exchange-rate policy, statistics, payment systems, the issue of banknotes and coins in euros, accounting rules and standards, information and communication systems and legal questions. All these tasks were carried out jointly, in working parties and subcommittees, by staff of the EMI and of the national central banks.

7. The Institute provided a detailed account of its activities in its Annual Report for 1997. During 1997 it also published 18 reports on specific subjects. Some of these reports were of particular significance, such as those concerning monetary policy for the single currency area during the third stage of the EMU (five reports), the report on the progress of the Target project(5) and the report on convergence in the Member States of the European Union.

8. In addition, in the course of 1997, the Institute responded to 31 requests for consultation, five from the Council of the European Union, two from the European Commission and 24 from the authorities of European Union Member States.

THE OPERATIONAL EFFICIENCY OF THE MANAGEMENT OF THE INSTITUTE IN 1997

9. The audit findings are generally satisfactory. Nevertheless, the Court considers it necessary to make the following observations.

10. During the audits, the Court placed particular emphasis on the examination of projects in progress, particularly those which formed part of the operations of the European System of Central Banks (ESCB).

11. The tendency, already noted in the past(6), of resorting to external consultants rather than recruiting specialist staff was more pronounced in 1997. The tasks to be carried out were not always entrusted to consultants because they required special technical knowledge or particular expertise, but mainly, under time pressure, in order to alleviate the lack of human resources and cope with the severe constraints imposed by the imminent launch of stage three.

12. In the case of the FCRS(7) project, the consultant was given the responsibility of heading the project without being subject to any particular scrutiny by senior management and without any of the special control tools which this exceptional situation justified having been put in place.

13. Increased recourse to consultants made coordinating, monitoring and controlling the projects more difficult. This resulted, particularly in the case of the FCRS project and, to a lesser degree, the ECB Accounting System project(8), in a poor definition of requirements, a delay in the planning of projects and inadequate control of expenditure.

14. The Institute continued to use external interpreters on a regular basis (3,7 % of administrative costs other than staff costs) for a large number of meetings. Since its creation, these interpreters have always been placed at the Institute's disposal by the same agency without any tender procedure having ever been opened or any written contract concluded.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 6 May 1999.

For the Court of Auditors

In the absence of Jan O. KARLSSON

President of the Court

Bernhard FRIEDMANN

Acting President

(1) The Court's reports on the previous financial years have been published in the Official Journal (OJ C 394, 31.12.1996 for 1994 and 1995; OJ C 42, 9.2.1998 for 1996).

(2) Report compiled pursuant to Article 17(4) of Protocol 4 annexed to the EC Treaty (on the EMI Statute).

(3) Accounts drawn up and published pursuant to Articles 11 and 17 of Protocol 4 annexed to the EC Treaty (on the EMI Statute).

(4) The European Central Bank took over from the European Monetary Institute with effect from 1 June 1998.

(5) Trans-European Automated Real-time Gross settlement Express Transfer System.

(6) See point 4.1 of the Court's report concerning the financial year 1996 (OJ C 42, 9.2.1998, p. 3).

(7) Foreign Currency Reserves Subledger.

(8) The ECB's accounting system.

ANNEX 1

Balance sheet as at 31 December 1997

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ANNEX 2

Profit and loss account for the financial year ending 31 December 1997

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REPLIES OF THE INSTITUTE

11. Almost without exception, it was necessary to use consultants owing to the difficulties experienced by the EMI in attracting and retaining suitably qualified staff. This also had a significant bearing on the problems described in points 12 and 13.

12 - 13. In 1997 the Project Manager for the FCRS project and most of the team members were consultants. This situation was not acceptable and efforts were made to remedy it as soon as practicable.

A suitable organisational framework was put in place in mid-1998; an ECB staff member has been appointed to the Project Manager position and also takes management decisions. Consultancy staff are now used only at a lower level.

Since then, a full Steering Group with regular meetings has been in charge of the FCRS project. Planning and requirement definition processes have therefore been improved.

It should be noted, however, that the inadequate definition of the requirements of this project, as well as of the Central Accounting System project, was primarily due to the fact that it was not possible to finalise the complex and specially harmonised accounting requirements of the ESCB, which were central to both projects, until autumn 1998, before which time the requirements were unstable. This uncertainty, which was highlighted several times by the project management as early as 1997 as a significant project risk, in turn had an impact on the planning procedure and hence on the budgets involved.

14. The situation has been rectified since the initiation of a tender procedure in December 1998; this will be concluded in the first half of 1999.