PURPOSE : to give discharge to the Commission in respect of the implementation of the budget of the sixth, seventh, eighth and ninth European Development Funds for the financial year 2003.

LEGISLATIVE ACT : Decision 2005/552/EC of the European Parliament concerning the discharge to the Commission for implementing the budget of the sixth, seventh, eighth and ninth European Development Funds for the financial year 2003.

CONTENT : with this present Decision, the European Parliament gives discharge to the Commission in respect of the implementation of the budget of the sixth, seventh, eighth and ninth European Development Funds for the financial year 2003. This Decision is accompanied by a series of comments which complete the discharge decision. These comments are included in the Parliament’s opinion (please refer to the summary of the European Parliament’s resolution dated 12/04/2005).

The European Parliament adopted the report by Marilisa XENOGIANNAKOPOULOU (PES, EL) by 556 votes for, 70 against and 10 abstentions, giving discharge to the Commission for the budget of the 6th, 7th, 8th and 9th European Development Funds for the 2003 financial year.

The Parliament takes the view that development policy is an essential component of the Union's external action, the aim of which is to eradicate poverty by bolstering social, educational and health-related infrastructure, increasing the production capacity of poor populations and granting support to the countries concerned to enable them to increase growth and local potential. It stresses that the achievement of the Millennium Development Goals (MDGs) would be a major step towards reaching this objective. It states that the EDF is an important tool for carrying out this policy in the ACP countries and that it must be made more effective through a greater focus on actions aimed at poverty eradication and through faster implementation in tandem with greater transparency, greater accountability and compliance with the principles of sound financial management.

Equally, it recognises the Commission's efforts to focus its development operations on the achievement of the MDGs including the identification of ten key indicators and welcomes the use of these key indicators in the EDF mid-term reviews for assessing the progress towards poverty eradication; calls on the Commission to step up its efforts to that end and recommends that 35% of European Union development cooperation spending be given over to achieving the MDGs.

Moreover, Parliament welcomes the fact that in 2003 out of a total financing for ACP countries (EDF and EU general budget) of EUR 4 079 million, 33% (EUR 1 346 million) was committed for social infrastructure and services. It deplores the fact that only EUR 62 million (1.5 %) was earmarked for basic education and EUR 212 million (5.2%) for basic health. The Commission is urged to increase funding for these sectors and calls for 20% of European Union development cooperation spending to be earmarked for basic education and health in the developing countries.

On other issues, the Parliament makes the following recommendations:

Accounts : it notes that the balance sheets and accounts were forwarded late. It asks to be kept informed of progress with modernisation of the new integrated IT system (ABAC-FED). It believes that transparency would be enhanced if information on these funds were provided to the discharge authority which is responsible for signing off the EDF accounts.

Statement of Assurance : the Commission is urged to address the following weaknesses noted by the Court of Auditors concerning supervisory systems and controls.

Financial Management Report : the Commission is asked to further enhance this report in future, in particular to allow comparison of the sums channelled into projects.

Accountability : Parliament n otes that while the Commissioner for Development and Humanitarian Aid is responsible for EDF policy, the Commissioner for External Relations and European Neighbourhood Policy is responsible for all general policy and management matters concerning the functioning of EuropeAid, which implements the EDF. Parliament remains concerned that the lack of clarity over responsibility may create ambiguities with regard to accountability for the EDF.

Implementation and the RAL : with the introduction of the ninth EDF and the rapid commitment of new funds, the level of unspent resources (RAL - reste à liquider) rose by over EUR 1 000 million from EUR 8 385 million at the end of 2002 to EUR 9 410 million at the end of 2003 which is unacceptably high. It urges the Commission to speed up disbursement of EDF aid.

Budgetary support : Parliament n otes the increasing significance of budget support with EUR 390 million disbursed in 19 ACP countries in 2003. It urges the Commission to improve its instruments to assess economic reforms and the quality of public financial management as conditions for the eligibility for budget support. It recalls the request made in the 2002 discharge report for an assessment of the extent to which all three conditions set out in Article 61(2) of the Cotonou Agreement have been met.

Budgetisation : Parliament considers that budgetisation of the EDF would remove many of the complications and difficulties of implementing successive EDFs, help speed up disbursement and eliminate the current democratic deficit. It considers that this issue should be addressed in the framework of the discussion on the new Financial Perspectives.

Devolution of management of aid and support : supporting the Commission's devolution of resources and decision-making powers to the Delegations of the Commission, Parliament expects that this new organisational structure will contribute to even higher implementation levels for commitments and payments than those achieved by the Commission in 2003. Parliament seeks reassurance that appropriate controls are accompanying the devolution of resources and decision-making powers to delegations. It asks for a report in time for the next discharge exercise outlining the state of play of the devolution process, describing the expected benefits with quantifiable indicators and setting out the benefits so far achieved, and detailing the control structures in place in delegations, including the state of implementation of the internal control standards.

Stabex Funds : noting that the Commission made an inventory of Stabex funds in 2003 which indicated that around EUR 700 million remains to be committed in the local accounts of beneficiary countries, Parliament urges the Commission to work with the beneficiary countries to enhance monitoring and ensure that the outstanding funds are committed as rapidly as possible.

Evaluation : Parliament invites the Commission to report on how it intends to ensure that evaluation is properly carried out and followed up and to advise as to when it feels it will be able to meet the standard.

The European Parliament adopted the report by Marilisa XENOGIANNAKOPOULOU (PES, EL) by 556 votes for, 70 against and 10 abstentions, giving discharge to the Commission for the budget of the 6th, 7th, 8th and 9th European Development Funds for the 2003 financial year.

The Parliament takes the view that development policy is an essential component of the Union's external action, the aim of which is to eradicate poverty by bolstering social, educational and health-related infrastructure, increasing the production capacity of poor populations and granting support to the countries concerned to enable them to increase growth and local potential. It stresses that the achievement of the Millennium Development Goals (MDGs) would be a major step towards reaching this objective. It states that the EDF is an important tool for carrying out this policy in the ACP countries and that it must be made more effective through a greater focus on actions aimed at poverty eradication and through faster implementation in tandem with greater transparency, greater accountability and compliance with the principles of sound financial management.

Equally, it recognises the Commission's efforts to focus its development operations on the achievement of the MDGs including the identification of ten key indicators and welcomes the use of these key indicators in the EDF mid-term reviews for assessing the progress towards poverty eradication; calls on the Commission to step up its efforts to that end and recommends that 35% of European Union development cooperation spending be given over to achieving the MDGs.

Moreover, Parliament welcomes the fact that in 2003 out of a total financing for ACP countries (EDF and EU general budget) of EUR 4 079 million, 33% (EUR 1 346 million) was committed for social infrastructure and services. It deplores the fact that only EUR 62 million (1.5 %) was earmarked for basic education and EUR 212 million (5.2%) for basic health. The Commission is urged to increase funding for these sectors and calls for 20% of European Union development cooperation spending to be earmarked for basic education and health in the developing countries.

On other issues, the Parliament makes the following recommendations:

Accounts : it notes that the balance sheets and accounts were forwarded late. It asks to be kept informed of progress with modernisation of the new integrated IT system (ABAC-FED). It believes that transparency would be enhanced if information on these funds were provided to the discharge authority which is responsible for signing off the EDF accounts.

Statement of Assurance : the Commission is urged to address the following weaknesses noted by the Court of Auditors concerning supervisory systems and controls.

Financial Management Report : the Commission is asked to further enhance this report in future, in particular to allow comparison of the sums channelled into projects.

Accountability : Parliament n otes that while the Commissioner for Development and Humanitarian Aid is responsible for EDF policy, the Commissioner for External Relations and European Neighbourhood Policy is responsible for all general policy and management matters concerning the functioning of EuropeAid, which implements the EDF. Parliament remains concerned that the lack of clarity over responsibility may create ambiguities with regard to accountability for the EDF.

Implementation and the RAL : with the introduction of the ninth EDF and the rapid commitment of new funds, the level of unspent resources (RAL - reste à liquider) rose by over EUR 1 000 million from EUR 8 385 million at the end of 2002 to EUR 9 410 million at the end of 2003 which is unacceptably high. It urges the Commission to speed up disbursement of EDF aid.

Budgetary support : Parliament n otes the increasing significance of budget support with EUR 390 million disbursed in 19 ACP countries in 2003. It urges the Commission to improve its instruments to assess economic reforms and the quality of public financial management as conditions for the eligibility for budget support. It recalls the request made in the 2002 discharge report for an assessment of the extent to which all three conditions set out in Article 61(2) of the Cotonou Agreement have been met.

Budgetisation : Parliament considers that budgetisation of the EDF would remove many of the complications and difficulties of implementing successive EDFs, help speed up disbursement and eliminate the current democratic deficit. It considers that this issue should be addressed in the framework of the discussion on the new Financial Perspectives.

Devolution of management of aid and support : supporting the Commission's devolution of resources and decision-making powers to the Delegations of the Commission, Parliament expects that this new organisational structure will contribute to even higher implementation levels for commitments and payments than those achieved by the Commission in 2003. Parliament seeks reassurance that appropriate controls are accompanying the devolution of resources and decision-making powers to delegations. It asks for a report in time for the next discharge exercise outlining the state of play of the devolution process, describing the expected benefits with quantifiable indicators and setting out the benefits so far achieved, and detailing the control structures in place in delegations, including the state of implementation of the internal control standards.

Stabex Funds : noting that the Commission made an inventory of Stabex funds in 2003 which indicated that around EUR 700 million remains to be committed in the local accounts of beneficiary countries, Parliament urges the Commission to work with the beneficiary countries to enhance monitoring and ensure that the outstanding funds are committed as rapidly as possible.

Evaluation : Parliament invites the Commission to report on how it intends to ensure that evaluation is properly carried out and followed up and to advise as to when it feels it will be able to meet the standard.

The committee adopted the report by Marilisa XENOGIANNAKOPOULOU (PES, EL) giving discharge to the Commission for the budget of the 6th, 7th, 8th and 9th European Development Funds for the 2003 financial year. The discharge decision was accompanied by a number of comments from the committee:

- development policy was "an essential component of the Union 's external action". As an important tool for carrying out this policy in the ACP countries, the EDF must be made more effective through a greater focus on poverty eradication. There was also a need for greater transparency, greater accountability and compliance with the principles of sound financial management;

- MEPs deplored the fact that, in 2003, only 1.5% of total financing for ACP countries (EDF and EU general budget) was earmarked for basic education and only 5.2% for basic health. The Commission was urged to increase funding for these sectors;

- the lack of clarity over responsibility for the EDF within the Commission "may create ambiguities with regard to accountability";

- MEPs acknowledged that budget support could be effective in helping to reduce poverty and improve management of public finances in recipient countries by giving them a greater sense of 'ownership' . However, they stressed that macroeconomic indicators should not be the only criteria for granting such support and that public expenditure management and public procurement should also be assessed, as provided for in the Cotonou Agreement;

- it was important that the ACP States' Supreme Audit Institutions ( SAIs ) should be involved in EDF control;

- MEPs supported the Commission's devolution of resources and decision-making powers to its delegations, while acknowledging that this involved risks as well as benefits. The Commission should report in time for the next discharge exercise on the state of play of the devolution process. They added that the Commission was "at the bottom end of the range" in terms of the ratio of staff managing EUR 10 million compared with the other main donors.

Lastly, the committee repeated Parliament's longstanding call for budgetisation of the EDF to help simplify matters, speed up disbursement and eliminate the current "democratic deficit". It called for this issue to be addressed when discussing the new Financial Perspective.

Having examined the revenue and expenditure account and the balance sheet relating to the Sixth EDF as at 31 December 2003 and the Court of Auditors' report concerning the financial year 2003, the Council recommends that the European Parliament give the Commission a discharge in respect of the implementation of the operations of the Sixth EDF for the financial year 2003.

Having examined the revenue and expenditure account and the balance sheet relating to the Seventh EDF as at 31 December 2003 and the Court of Auditors' report concerning the financial year 2003, the Council recommends that the European Parliament give the Commission a discharge in respect of the implementation of the operations of the Seventh EDF for the financial year 2003.

Having examined the revenue and expenditure account and the balance sheet relating to the Eighth EDF as at 31 December 2003 and the Court of Auditors' report concerning the financial year 2003, the Council recommends that the European Parliament give the Commission a discharge in respect of the implementation of the operations of the Eighth EDF for the financial year 2003.

Having examined the revenue and expenditure account and the balance sheet relating to the Ninth EDF as at 31 December 2003 and the Court of Auditors' report concerning the financial year 2003, the Council recommends that the European Parliament give the Commission a discharge in respect of the implementation of the operations of the Ninth EDF for the financial year 2003.

PURPOSE : to present the Court of Auditors’ report on the budget implementation of the 6 th , 7 th , 8 th and 9 th EDFs (European Development Funds) for the financial year 2003.

CONTENT : the Court of Auditors has published its 27 th Annual Report concerning the financial year 2003. Pursuant to the financial regulations the Court is required to provide the European Parliament and the Council with a Statement of Assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions in respect of the part of the EDF resources for whose financial management the Commission is responsible.

- As regards the reliability of the accounts : the Court highlights the amounts payable to the EDFs and not included as assets in the balance sheet at 31 December 2003 (27,5 million euro in recovery orders issued); in the absence of effective internal control procedures the Court cannot give assurance that these amounts are complete; advances (EUR 400 million); as the Commission has not indicated the total value of the amounts to be recovered, the Court cannot ascertain what fraction is to be added when establishing the debt; Stabex funds; the Commission can only very partially establish the ACP States’ use of the funds (this information was still incomplete at the end of 2003); the lack of an entry in the balance sheet for the funds transferred to the EIB and not utilised (EUR 209 million);

- On the legality and regularity of the underlying transactions : the supervisory systems and controls still seem to be causing problems. As in the case of the 2002 financial year, when the Court drew attention to deficiencies regarding audits of EDF projects and the insufficiency of key controls on compliance with contracts and the reality of the works, supplies and services invoiced, the Court

was not able to rely fully on the Commission’s supervisory systems and controls in 2003 for the following reasons: in 2003, the Commission continued with the implementation in its central services of the internal control standards adopted in 2001. However, their effect is limited because their implementation at Delegation level is tied to the devolution process, which will not be complete until the end of 2004, and there is a lack of coordination in the measures implemented; the action plans that were introduced at the time of the 2002 annual activity report or adopted in 2003 have been effective as regards the structure of external audits, follow-up of audit conclusions, analysis of the risks linked to external aid and processing of recoveries. By continuing with these action plans and implementing them fully, the Commission should obtain an effective future framework, particularly at the level of the Delegations; in the Delegations and ACP States the supervisory systems and controls covering contracts and payments are generally well designed. However, their implementation could be further improved.

As regards the audit of transactions, this was based on the documentation available at the Commission in Brussels and, where appropriate, in the Delegations in ACP States, and was also based on on-the-spot audits carried out in six ACP States in order to verify the reality of works, supplies and services. It should be noted that the Court’s audit of the legality and regularity of budget support expenditure stopped at the stage where the aid was paid to the beneficiary countries’. The audit did not

bring any major problems to light.

In conclusion, the Court is of the opinion that the problems encountered are not material and that the revenue entered in the accounts, the EDF allocations, the commitments and the payments of the financial year are, taken as a whole, legal and regular.

PURPOSE : to present the balance sheets and accounts of the 6th, 7th, 8th, and 9th European Development Funds for the financial year 2003.

CONTENT : the balance sheets and income and expenditure accounts were drawn up in accordance with the Financial Regulations applicable to the 6th, 7th, 8th and 9th European Development Funds (EDFs). The relevant documents must be presented to the European Parliament, the Council and the Court of Auditors as provided for in Article 71 of the financial Regulation applicable to the 7th EDF, Articles 66, 67 and 68 of the Financial Regulation applicable to the 8th EDF and Articles 102 and 103 of the Financial Regulation applicable to the 9th EDF.

The Consolidated Balance Sheet of the 4 EDFs at 31 December 2003 amount to EUR 20.371.866,74 compared to EUR 12.075.303,10 at the end of 2002.

The balance sheets of the different EDFs at 31.12.2003 are set out as follows:

- 6th EDF : EUR 2.462.506,330.

- 7th EDF : EUR 2.310.624,080.

- 8th EDF : EUR 9.235.191,720.

- 9th EDF : EUR 13.346.823,940. (First year this EDF has been used).

The accounts presented respect the following accounting principles and standards :

- Principle of unit of account : EDF resources are established and implemented in euro and the accounts are presented in euro. However, for the treasury management purposes referred to in Article 26, the accounting officer may carry out operations in euro, in other currencies and in national currencies.

- Principle of specification : The resources of the EDF are earmarked for specific purposes according to the main instruments of cooperation, as described in the Financial Protocol of the ACP-EC Agreement and the Overseas Association Decision.

- Principle of sound financial management : EDF resources are used in accordance with the principles of sound financial management, that is to say, in accordance with the principles of economy, efficiency and effectiveness.

- Principle of transparency : The resources of the EDF are established and implemented and the accounts presented in compliance with the principle of transparency.

- Revenue : The Financial contributions are paid in euro. The Commission makes transfers from the above accounts to operational accounts held in euro or a Member State's currency to meet the cash requirements of projects and programmes. In addition, the Member States' contributions for an EDF must be used up before the contributions relating to the following EDF are called in.

- Expenditure : Expenditure takes into account all payment orders executed by the banks up to 31 December 2003. However, in the case of local expenditure in the ACP States and for those payments for which information was not communicated to the Commission's accounting departments before the end of the financial year, payments are based on the information received for the latest period prior to 31 December. The total amount of payments in question, which are not included in the 2003 accounts, are not considered to be material.

Expenditure by delegations is not finally entered in to the EDF accounts until validated by the authorising officer and the accounting officer. Expenditure not yet validated is shown under the heading "transactions to be finalised".

- Payment of account/advances : Payments on account (any amount paid on the basis of supporting documents pending final payment) and advances paid within the framework of the implementation of the contracts are included in the expenditure of the year and do not appear under assets in the balance sheet. However, advances for study awards and advances for technical assistance are regarded as a receivable and consequently appear under assets in the balance sheet.

- Recording of operations : EDF appropriations are not subject to any time limit. Once granted, they are available until they are used up or reassigned. The obligation to present a balance sheet of the EDF's assets and liabilities means that the entitlements due from the Member States (mainly contributions for which payment has been deferred or interest on late payment) must be entered in the accounts. These headings are contained in the balance sheets for the various EDFs.

In accordance with the principles of accrual-based accounting, the financial statements show the financial charges and income for the financial year regardless of the date of payment or collection, however, operational payments are at present still accounted for on a cash basis.

- Other generally accepted accounting principles : The financial statements have been drawn up in accordance with generally accepted accounting principles, namely: going concern basis; prudence; consistent accounting methods; comparability of information; materiality; no netting off; reality over appearance; accrual-based accounting. This last principle represents a change from prior years whereby expenditure and revenue had been registered according to the value date on the bank statement, except for operational payments which continue to be accounted for on a cash basis.

PURPOSE : to present the Commission report on the financial management report on the 6th, 7th, 8th and 9th European Development Funds for the year 2003.

CONTENT : this report fulfils the Commission's obligations under Articles 96, 102 and 135 of the 27 March 2003 Financial Regulation applicable to the 9th European Development Fund. Article 96 paragraph 2 states that the EDF accounts shall be accompanied by a report on financial management during the preceding year containing an accurate description of the achievement of the objectives for the financial year, in accordance with the principle of sound financial management and the financial situation and the events that had a significant influence on the activities carried out during the financial year.

In particular, this report deals with the following issues :

1) the achievement of the EDF objectives for the year 2003 : the report states that the Commission has set out three broad development policy goals:

- to promote sustainable economic and social development in developing countries;

- to foster peace and stability; and

- to help to develop democracy and respect for human rights.

To achieve these goals, the Commission had a 2003 target for new global commitments of EUR 2 500m (including a European Investment Bank target of EUR 345m). By end December 2003, EUR 3 761m gross had been committed in terms of formal Commission decisions.

In addition to the Commission's EUR 3 761m of global commitments, the EIB - which manages (in an entirely autonomous way) the funds of the 9th EDF for the new Investment Facility - committed EUR 366m. This brings total EDF global commitments in 2003 to EUR 4 127m. These amounts relate to new global commitments and are 'gross'. Taking into account the Commission's global de-commitments (EUR 365m), the amount of the 'net' global commitments realised by the Commission in 2003 was EUR 3 396m.

The amounts committed by the Commission on the 6th, 7th and 8th EDFs are relatively limited: EUR 25m, EUR 102m and EUR 447m respectively, i.e. EUR 574m in total. In fact, with the entry into force of the Cotonou agreement, no global commitments on these old EDFs could bemade (with the single exception that the EIB was authorised to extend the period of global commitment of risk capital operations under the previous EDFs). Those allocations which were still available under the previous EDFs were transferred to the 9th EDF. Thus the major part of the 2003 global commitments (namely EUR 3 186m) was committed on the 9th EDF.

The target for new EDF disbursements (before recoveries) in 2003 was EUR 2 500m including the EIB's disbursements and a transfer of funds to a special Stabex account for Sudan (EUR 191m). The final amount paid by the Commission was EUR 2 236m. In addition, a Stabex transfer to Sudan was made, bringing the total executed by the Commission to EUR 2 427m. Taking into account the EUR 4m paid by the EIB on the Investment Facility, total disbursements reached EUR 2 431m.

The reason that the 2003 payments were not higher is partly due to the low level of EIB payments on the Investment Facility (forecast at EUR 70m although only EUR 4m was paid) and partly due to the fact that the full amount of treasury resources required by the Commission in 2003 was not available. Payments for which funds were not available included a potential payment of EUR 106m (to the EIB) for the Democratic Republic of Congo and of EUR 100m to the World Bank under the HIPC (debt relief) initiative. These payments were held over to the beginning of 2004.

The level of disbursements achieved in 2003 represents a record for the EDFs. It is 14 % higher than the expenditure level reached in 2001 (EUR 2 124m, the then highest in the history of the EDF), and 28 % higher than the level reached in 2002 (EUR 1 902m). Whereas the major part of 2003 global commitments was made on the 9th EDF, the major part of disbursements was realised on the old EDFs (EUR 68m, EUR 396m and EUR 1 494m on the 6th, 7th and 8th EDF respectively, against EUR 278m on the 9th EDF). This follows the usual pattern in that new global commitments do not lead to high levels of disbursements during the first year of implementation.

The consolidated financial situation shows that out of a total amount of EUR 43 409m allocated under the 6th, 7th, 8th and 9 th EDF for ACP and OCT countries (with the exception of the 9th EDF Investment Facility and interest subsidies managed by the EIB), EUR 33 317m (77% of allocations) were committed (and EUR 23.7bn spent). EUR 10 092m (23%) are thus still available for new global commitments under grants managed by the European Commission (and a further EUR 9.6bn on committed moneys are available for payments).

Taking into consideration global commitments realised by the EIB – EUR 366m out of a total amount of EUR 2 245m (Investment Facility EUR 2 057m and interest subsidies EUR 188m), funds available for global commitments by the EIB stand at EUR 1 878m. The total amount available for global commitments for the period 2004-2007 is thus EUR 11 970m or EUR 2 992m per year.

Lastly, it should be noted that this Commission working document also highlights the events that had a significant influence on the activities carried out during the financial year 2003.

PURPOSE : to present the balance sheets and accounts of the 6th, 7th, 8th, and 9th European Development Funds for the financial year 2003.

CONTENT : the balance sheets and income and expenditure accounts were drawn up in accordance with the Financial Regulations applicable to the 6th, 7th, 8th and 9th European Development Funds (EDFs). The relevant documents must be presented to the European Parliament, the Council and the Court of Auditors as provided for in Article 71 of the financial Regulation applicable to the 7th EDF, Articles 66, 67 and 68 of the Financial Regulation applicable to the 8th EDF and Articles 102 and 103 of the Financial Regulation applicable to the 9th EDF.

The Consolidated Balance Sheet of the 4 EDFs at 31 December 2003 amount to EUR 20.371.866,74 compared to EUR 12.075.303,10 at the end of 2002.

The balance sheets of the different EDFs at 31.12.2003 are set out as follows:

- 6th EDF : EUR 2.462.506,330.

- 7th EDF : EUR 2.310.624,080.

- 8th EDF : EUR 9.235.191,720.

- 9th EDF : EUR 13.346.823,940. (First year this EDF has been used).

The accounts presented respect the following accounting principles and standards :

- Principle of unit of account : EDF resources are established and implemented in euro and the accounts are presented in euro. However, for the treasury management purposes referred to in Article 26, the accounting officer may carry out operations in euro, in other currencies and in national currencies.

- Principle of specification : The resources of the EDF are earmarked for specific purposes according to the main instruments of cooperation, as described in the Financial Protocol of the ACP-EC Agreement and the Overseas Association Decision.

- Principle of sound financial management : EDF resources are used in accordance with the principles of sound financial management, that is to say, in accordance with the principles of economy, efficiency and effectiveness.

- Principle of transparency : The resources of the EDF are established and implemented and the accounts presented in compliance with the principle of transparency.

- Revenue : The Financial contributions are paid in euro. The Commission makes transfers from the above accounts to operational accounts held in euro or a Member State's currency to meet the cash requirements of projects and programmes. In addition, the Member States' contributions for an EDF must be used up before the contributions relating to the following EDF are called in.

- Expenditure : Expenditure takes into account all payment orders executed by the banks up to 31 December 2003. However, in the case of local expenditure in the ACP States and for those payments for which information was not communicated to the Commission's accounting departments before the end of the financial year, payments are based on the information received for the latest period prior to 31 December. The total amount of payments in question, which are not included in the 2003 accounts, are not considered to be material.

Expenditure by delegations is not finally entered in to the EDF accounts until validated by the authorising officer and the accounting officer. Expenditure not yet validated is shown under the heading "transactions to be finalised".

- Payment of account/advances : Payments on account (any amount paid on the basis of supporting documents pending final payment) and advances paid within the framework of the implementation of the contracts are included in the expenditure of the year and do not appear under assets in the balance sheet. However, advances for study awards and advances for technical assistance are regarded as a receivable and consequently appear under assets in the balance sheet.

- Recording of operations : EDF appropriations are not subject to any time limit. Once granted, they are available until they are used up or reassigned. The obligation to present a balance sheet of the EDF's assets and liabilities means that the entitlements due from the Member States (mainly contributions for which payment has been deferred or interest on late payment) must be entered in the accounts. These headings are contained in the balance sheets for the various EDFs.

In accordance with the principles of accrual-based accounting, the financial statements show the financial charges and income for the financial year regardless of the date of payment or collection, however, operational payments are at present still accounted for on a cash basis.

- Other generally accepted accounting principles : The financial statements have been drawn up in accordance with generally accepted accounting principles, namely: going concern basis; prudence; consistent accounting methods; comparability of information; materiality; no netting off; reality over appearance; accrual-based accounting. This last principle represents a change from prior years whereby expenditure and revenue had been registered according to the value date on the bank statement, except for operational payments which continue to be accounted for on a cash basis.

PURPOSE : to present the Commission’s report on the follow-up to 2002 discharges.

CONTENT : according to Article 276 of the EC Treaty and Article 180b of the EAEC, the Commission shall take all appropriate steps to act on the observations in the decisions giving discharge. This is the aim of this paper. Moreover, the Commission shall report on the measures taken in the light of these observations and comments and in particular on the instructions given to the departments which are responsible for the implementation of the budget. These reports shall also be forwarded to the Court of Auditors.

The Commission accepts the Parliament’s recommendations and already has or is currently taking the necessary action. Furthermore, the Commission welcomes the Parliament’s support to the proposal of budgetising the EDF, i.e. integrating the EDF into the general budget of the European Union. The proposal is currently under discussion in Council.

Among the recommendations made by Parliament, the Commission would like to highlight the following:

- Budgetary support : the Commission agrees that budgetary support funds, after having been released to an ACP State once the conditions set out in the financing agreement have been fulfilled, become part of the beneficiary State’s budget, and therefore are managed and spent according to national (and not EDF) financial management procedures. The Commission has changed its supervision and control systems in order to take account of the particular challenges arising from increased use of the budgetary support instrument. Inter alia delegations in ACP States receiving budgetary support have been instructed to extensively report every six months on the quality of public finance management, using standards developed by the Commission Headquarters;

- Audit and evaluation strategy : Parliament has highlighted the need for the Commission to ensure coordination and cooperation between Delegations and Headquarters. The Commission supports this objective and has inter alia taken the necessary steps to ensure better coverage and quality of audits conducted by external auditors;

- Financial Management Report : Parliament has asked for several new issues to be included in the Financial Management Report. The Commission has taken all these recommendations on board in the Financial Management Report for 2003 on the 6 th , 7 th , 8 th and 9 th European Development Funds which was transmitted to the European Parliament on 22 June 2004.