Ministers’ Deputies
CM Documents

CM(2010)103 31 August 20101
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1096 Meeting, 20 October 2010
11 Administration and Logistics


11.1 Consolidated Financial Statements and Budgetary Management Accounts of the Council of Europe for the year ended 31 December 2009 – Follow up to the Report of the External Auditor
Memorandum of the Secretary General

Item to be considered by the GR-PBA at its meeting on 23 September 2010

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The Secretary General is pleased to note that, as for 2007 and 2008, the External Auditor has certified that the financial statements of the Council of Europe are in full compliance with the requirements of IPSAS (International Public Sector Accounting Standards).

The Secretary General intends to take the following action to follow up the recommendations made in the External Auditor's report.

RECOMMENDATIONS FURTHER TO THE AUDIT OF THE FINANCIAL STATEMENTS

Recommendation 1: We recommend that the Council of Europe's consolidated financial statements should be presented in a specific document, different from that containing the budgetary management accounts, so as to highlight the specific characteristics of the disclosures made in each of these documents. This should enable the Committee of Ministers to deliberate on each of these documents.

As the External Auditor rightly pointed out, the financial statements are clearly identified under the current presentation. The Secretary General nonetheless takes note of this recommendation and will in future present the financial statements and the budgetary management accounts in separate documents.

Timeframe: Preparation of the 2010 accounts

Recommendation 2: We recommend that the Council of Europe introduce a framework agreement or a specific procedure for consulting several European banks to ensure that its financial investments earn a higher rate of interest, as provided for in Article 55 of its Financial Regulations, while benefiting from the same security guarantees.

The Secretary General will implement the External Auditor's recommendation by introducing procedures for consulting several banks, while continuing to comply with the principle that the capital must be safeguarded.

Timeframe: First half of 2011

Recommendation 3: We recommend that the Council of Europe renegotiate the current contract with Société Générale. The value of benefits in kind such as premises and heating could also be calculated and deducted from bank charges.

The Secretariat has already begun to renegotiate the contract with Société Générale, which dates from 2003, with a view to obtaining more favourable conditions. It must also be borne in mind that Société Générale provides cashier services for the Council of Europe at no cost to the Organisation.

Timeframe: End of 2010

Recommendation 4: We recommend that the management of the Pharmacopoeia should, firstly, identify which of its inventories of donated raw materials might be incorporated into finished products and, secondly, value them according to the weighted average cost method, as used to value finished products.

and

Recommendation 5: We recommend, firstly, that the administration should introduce a cost accounting system for all the activities of the European Directorate for the Quality of Medicines and Health Care, whether or not they are income earning, and, secondly, that inventories of reference substances and preparations should be valued at their production cost, including indirect storage costs and overheads.

The Secretariat will implement a plan to follow up the External Auditor's recommendations concerning the accounting treatment of donated raw materials and the introduction of a cost accounting system to improve assignment of production costs.

Timeframe: First quarter of 2011

Recommendation 6: We recommend that amounts receivable outstanding for more than twelve months should not automatically be written off but should be left as debtors in the Statement of Financial Position, and that the risk of non-recovery should be recognised by recording a provision for doubtful debts.

The Secretariat will review the accounting treatment of receivables deemed irrecoverable in line with the External Auditor's recommendations. This will entail a change of presentation but will not impact the accounting result.

Timeframe: Preparation of the 2010 accounts

Recommendation 7: We recommend that the administration should develop a more detailed, easy to use subsidiary ledger schedule within the FIMS system enabling the identification of the most significant suppliers by type of expenditure.

A schedule enabling the identification of the suppliers with the highest invoicing levels and the reconciliation of the corresponding amounts with year-end supplier balances will be available for the audit of the 2010 accounts.

Timescale: First quarter of 2011

Recommendation 8: We recommend that the Council of Europe prepare the layout of its new segment reporting system and rapidly calculate the corresponding figures for 2009 and subsequently 2010, for both the Statement of Financial Performance and the Statement of Financial Position, so as to ensure full comparability.

The new segment reporting layout will be based on the new presentation (2011) of the Organisation's programme and budget. The Secretariat will recalculate comparative amounts for 2009 and 2010 on this basis.

Timescale: Preparation of the 2010 accounts

Recommendation 9: We recommend that the Directorate of Internal Oversight should establish a methodology for evaluating programmes and projects as rapidly as possible.

The Council of Europe bases its evaluations on generally accepted methodologies, particularly those of the OECD. Evaluation management guidelines are currently being developed.

Timescale: End of 2010

Recommendation 10: We recommend that the Secretary General should rapidly reach a decision on the draft anti-fraud and corruption policy proposed by the Directorate of Internal Audit so that this policy, if need be amended, can be implemented as soon as possible.

The Secretary General will implement the anti-fraud policy notably by adopting a specific rule, which will supplement the instruments mentioned in the Charter on professional ethics.

Timescale: End of 2010

RECOMMENDATIONS FURTHER TO THE AUDIT OF THE BUDGETARY MANAGEMENT ACCOUNTS

Recommendation n°1: We recommend that the level of information disclosed in the budgetary management accounts should be improved. The accounts should be preceded by a note explaining the nature and objectives of the various budgets of the Council of Europe, for the general budget, the partial agreements and the special accounts. The specific features of each budget should be described, in particular as regards the calculation of its result and explanations concerning the trend in any cumulative balances. The budgetary management accounts of "Eurimages" and the "North South Centre" should be integrated in the budgetary management accounts of the Council of Europe as a whole.

The recommended changes will be taken into account in preparing the next budgetary management accounts.

Timeframe: Preparation of the 2010 budgetary management accounts

Recommendation n° 2: We recommend that the implementation of signature authority delegations should be harmonised throughout the Council of Europe. Line management should control their adequacy in particular with regard to their level of detail (regarding the nature and level of commitments and/or payment requests authorised).

The Secretary General will follow the External Auditor's recommendations, in particular with regard to commitment thresholds and replacement of the signature holder in his or her absence.

Timeframe: Issuance of signature authority delegations for 2011

Recommendation n°3: We recommend that the Committee of Ministers adapt the Financial Regulations so as to include the possibility for the Council of Europe to award grants and conclude administrative arrangements. To make their use more reliable, an instruction should be issued to set out with greater precision the procedures for implementing and monitoring grants awarded or administrative arrangements implemented.

The Secretary General considers that an amendment of the Financial Regulations is not necessary. The Secretariat will conduct a detailed review of the existing guidelines and "model" administrative arrangements, which were last updated in 2007 and 2008, so as to improve the level of control.

Timeframe: First half of 2011

Recommendation n°4: We recommend that the Council of Europe should draw up a standard scale of fees for consultants and experts, taking into account their technical expertise, and should require the express certification of the quality of the services rendered in connection with the payment request.

In view of the diversity of the experts and consultants hired by the Organisation, the Secretary General considers that the first part of this recommendation can be implemented only in the form of indicative scales of fees proposed so as to achieve greater consistency.

Regarding the second part of the recommendation concerning express certification of the quality of services rendered, this certification is implicit in the purchasing department's payment request.

Timeframe: First half of 2011

Recommendation n°5: We recommend: firstly, that the purchasing function should be subject to more frequent controls by line management in each department to remind staff of the rules applicable in such matters; secondly, that further work should be done on the good practice guide so as to clarify it in certain respects and to adopt a position on purchases from suppliers with whom framework agreements have been concluded where the purchase falls outside the scope of such agreements.

The good practice guide will be clarified with regard to the matters raised by the External Auditor, and a reminder will be issued to staff concerning the rules to be followed.

Timeframe: First half of 2011

Recommendation n° 6: We recommend that the new computer system for the calculation and settlement of official journey expenses, enabling efficiency gains in the processing of files, should be implemented as soon as possible. This system should give access to an overview of travel and accommodation expenses and fees paid per consultant or expert in a given financial year.

A project to replace the software for the reimbursement of official journeys and experts' travel expenses has already been launched. The new software will allow improvements in the information available and efficiency gains regarding reimbursements.

Timeframe: The new system will be implemented at the end of 2011.

Recommendation n°7: We recommend that reinforced checks of supporting documents for the reimbursement of official journeys, with regard to travel expenses and daily allowances, should be performed either by the Directorate of Finance or in a decentralised manner, and, if necessary, that an amendment of the Financial Regulations or of the relevant instructions should be envisaged.

This recommendation concerns reimbursements to experts (cf. §28 of the External Auditor's report). It does not seem necessary to amend the Financial Regulations. Enhanced checks will be established, and specific instructions on this subject will be issued in an office circular.

Timeframe: First half of 2011

Recommandation n° 8: we recommend that a reminder should be issued of the provisions of Article 49 of the Financial Regulations, and that, if necessary, the requirements should be set out in greater detail in a specific accounting instruction.

An office circular will remind staff and managers at different levels of their obligation to comply with Article 49 of the Financial Regulations, in particular regarding certification of the amount payable and of service delivery.

Timeframe: First half of 2011

Note 1 This document has been classified restricted until examination by the Committee of Ministers.


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