CM(2008)96 6 June 20081
1032 Meeting, 9 July 2008
11 Administration and logistics
11.1 Logistical support for Externally Financed Projects
Secretariat memorandum prepared by the Directorate General of Administration and Logistics
For consideration at the meeting of the GR-PBA on 17 June 2008
1. At their 915th meeting (Item 11.4.), the Deputies approved a levy of 1% on voluntary contributions, to be used to provide the additional resources in the Finance Directorate necessary to process the increased volume of payments and other financial transactions engendered by the voluntary contributions, in particular the Joint Programmes with the European Commission.
2. The levy of 1% was based on an assessment by the Finance Directorate of the increase in transaction volumes in the circumstances prevailing at the time and the resources necessary to process them. This assessment was endorsed by the Budget Committee at its meeting of October 2004 (CM(2004)192 paragraph 79).
3. However, since the levy was approved, circumstances have changed significantly. In his reports on the 2004 and 2005 financial statements, the External Auditor recommended that the bank accounts opened by field and information offices to process payments under Joint Programmes be incorporated into the official accounting records of the Organisation and be subject by the Finance Directorate to the same checks and controls as all other accounts. Furthermore, he recommended that internal controls and separation of duties in the payment authorisation and execution process be brought into line with best practice.
4. These recommendations have been implemented by the Finance Directorate in the course of 2007. Their implementation has had a significant impact on the work of the directorate, most notably:
· an increase in the volume of payments to be processed as all payments are now processed in the Finance Directorate rather than directly by the field and information offices;
· this has led to an increase in the number of supplier accounts to be created in the financial management system (FIMS) system to enable transactions to be processed in Strasbourg;
· the complexity of these transactions, in terms of currencies and banking systems, not to mention languages, is significantly higher than those carried out for the Organisation’s standard activities, making them more time consuming;
· where it is not possible to effect bank transfers to pay invoices directly from Strasbourg, for currency reasons or banking regulations in the country of residence of the suppliers, it has been necessary to open local bank accounts in the countries concerned. This exercise has proven to be much more complex and time consuming than expected. In many cases the Finance Directorate has had to rely on the invaluable assistance of the Permanent Representations of the countries concerned, and the process of opening all the necessary accounts has not yet been completed;
· the number of bank accounts which the Finance Directorate has to control and reconcile has increased from 8 to 29, many of which are in non-official languages and subject to an array of different national banking regulations.
5. This situation has been an important factor creating an overload of the Payments and Accounting Divisions, slowing down the payment process to the detriment of all of the Organisation’s suppliers. The number of supplier payments processed by the Finance Directorate increased from 30 100 in 2006 to 36 200 in 2007, an increase of 20.3%, principally due to the implementation of the recommendations of the External Auditor. The complexity of these additional payments was also such that the increase in staff time taken to process them was proportionately greater than the increase in volume.
6. In the light of this situation, which, given the volume of Joint Programmes under way and foreseen, will not let up in the future, the Finance Directorate has been obliged to reassess the level of resources which are necessary to meet it.
7. A significant sample of payments made under Joint Programmes in 2007 was examined. The time taken to process them under the new arrangements recommended by the External Auditor, and the subsequent cost, was assessed and compared with the cost assessed under the previous arrangements.
8. The conclusion of this assessment was that the cost of processing payments, together with the management of the new bank accounts, in 2007 represented 1.42% of the value of the transactions, compared with 0.92% in 2004.
9. The Committee of Ministers is invited to approve the proposal that the levy to be made on voluntary contributions to cover the cost of processing financial transactions be raised from 1% to 1.5%.
Extract from the meeting report of the Budget Committee – May 2008 session (CM(2008)88)
“VIII. ADMINISTRATIVE CHARGES ON VOLUNTARY CONTRIBUTIONS
The Committee took note of document: [CM(2008)96]: Logistical support for Externally Financed Projects. The Committee recommended approval of the proposal to increase the percentage levy in relation to the additional costs incurred within the Finance Directorate for the processing of payments in respect of joint programmes and voluntary contributions from the current 1.0% to 1.5%. This would take into account, amongst other factors, implementation of the recommendations of the External Auditor in respect of the regularisation of the situation concerning bank accounts held in the name of the Organisation in member states other than the host country and the internal controls covering payment procedures. This had led to significant increases in the volume and complexity of payments being made by the Finance Directorate and the number of bank accounts under management.
Furthermore, given the fact that income from voluntary contributions and joint programmes now represented 24% of the Programme of Activities financed by the Ordinary Budget, the Committee also recommended that the Committee of Ministers should instruct the Secretariat to carry out a detailed study of the way in which voluntary contributions and joint programmes are managed by the Organisation, including use of special accounts. The Committee underlined that the study should identify all of the additional costs – both direct and indirect – incurred by the Organisation as a result of the acceptance of such income in order that the financial impact on the Organisation of voluntary contributions and joint programmes could be assessed more accurately. The levies which were currently in place to meet this financial impact (1.0%, to be increased to 1.5%, of the value of the voluntary contributions plus €16 100 in respect of each staff member financed by voluntary contributions) should then be adjusted accordingly. It is desirable that the results be known before the 2009 budget vote for implementation from 2009.”
Note 1 This document has been classified restricted until examination by the Committee of Ministers.