5.12.2008   

EN

Official Journal of the European Union

C 311/107

REPORT

on the annual accounts of the European GNSS Supervisory Authority for the financial year 2007 together with the Authority's replies

(2008/C 311/16)

CONTENTS

1-5

 INTRODUCTION

6-9

 STATEMENT OF ASSURANCE

10-18

 OBSERVATIONS

Tables 1 to 4

The Authority's replies

INTRODUCTION

1.

The Supervisory Authority for the European Global Navigation Satellite System (GNSS) (hereinafter the Authority) was set up as a Community Agency by Council Regulation (EC) No 1321/2004 (1) of 12 July 2004 to manage the public interests relating to the European GNSS programmes and to act as the regulatory authority for the programme during the deployment and operational phases of the Galileo Programme. The Authority took over responsibility for its financial operations in September 2006 and 2007 is its first full year of activity. Table 1 summarises the Authority's objectives and activities.

2.

Council Regulation (EC) No 1942/2006 (2) of 12 December 2006 extended the mandate of the Authority to cover the activities of the development phase (first phase of the Galileo Programme (3)) which the Galileo Joint Undertaking (GJU) had not been able to finalise before its winding-up on 31 December 2006. The Regulation assigned ownership of the tangible and intangible assets acquired during the development phase to the Authority. In 2007, the Galileo Joint Undertaking transferred 80,5 million euro to the Authority in addition to the 70 million euro already transferred at the end of 2006.

3.

Although the Authority had been set up to monitor the deployment phase of the Galileo project (4), which should have been entrusted to a concession holder under a private-public partnership, this approach was abandoned due to a dispute on the issue of the risks relating to the project. In November 2007, after receiving its opinion from the European Parliament, the Council decided to relinquish the concession-contract option and to fund construction (deployment) from the EU budget. The entire architecture of the project had thus to be redesigned and the Commission lodged a proposal to amend Regulation No 1321/2004 on 19 September 2007. This proposal does not clarify the Authority's new role and refers, without any further detail, to delegation agreements to be concluded by the Authority and the ESA (5) regarding the management of the programme's funds and the ownership of its assets.

4.

It was in this fragile legal environment that the Authority's accounts were prepared at the end of 2007.

5.

Key data taken from the financial statements drawn up by the Authority for the financial year 2007 are presented in Tables 2, 3 and 4.

STATEMENT OF ASSURANCE

6.

This Statement is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (6); it was drawn up following an examination of the Authority's accounts, as required by Article 248 of the Treaty establishing the European Community.

7.

The Authority's accounts for the financial year ended 31 December 2007 were drawn up by its Executive Director, pursuant to Article 12 of Council Regulation (EC) No 1321/2004, and sent to the Court, which is required to give a Statement of Assurance on their reliability and on the legality and regularity of the underlying transactions.

8.

The Court conducted its audit in accordance with the IFAC and ISSAI (7) International Auditing Standards and Codes of Ethics, insofar as these are applicable in the European Community context. The audit was planned and performed to obtain reasonable assurance that the accounts are reliable and that the underlying transactions are legal and regular.

9.

The Court has thus obtained a reasonable basis for the Statement expressed below:

Reliability of the accountsDue to the situations described in paragraphs 3 and 4, and 13 to 18, the Court is unable to form an opinion as to the reliability of the Authority's accounts for the financial year ended 31 December 2007.Legality and regularity of the underlying transactionsThe transactions underlying the Authority's annual accounts for the financial year ended 31 December 2007 are, taken as a whole, legal and regular.

OBSERVATIONS

10.

The Authority's final 2007 budget was 436,5 million euro. The main expenses concern the two European satellite navigation programmes, Galileo and EGNOS (8). The budget was mainly financed from Commission subsidies (9), transfers from the Galileo Joint Undertaking (GJU) and third countries contributions (10). The appropriations actually made available to the Authority (210 million euro) were substantially lower than the 436,5 million euro initially foreseen due to the delays incurred by the Galileo programme.

11.

Even with a de facto 50 % budget reduction, the consumption level of commitment and payment appropriations for operational activities was low: 63 % for commitments and 51 % for payments.

12.

Furthermore, there were weaknesses in the management of the budget, such as an absence of a clear link between the Authority's work programme and the budget, transfers neither adequately justified nor documented, repeated late booking of recovery orders (11) in the budgetary accounts and inconsistent presentation of the budget's implementation.

13.

Under the In Orbit Validation (IOV) phase of the Galileo programme, assets are being created which will be largely integrated into the infrastructure installed under the deployment phase (12). The funds invested in this infrastructure can therefore not be considered as research expenditure. This is particularly pertinent as the Galileo system is meant to be operated on a commercial basis from 2013 onwards (13). At the end of 2007, the process of ownership transfer of the Galileo project's assets was far from complete. Despite the signature of transfer agreements between the interested parties (GJU, ESA and the Authority), no list of the Galileo project's assets held by the ESA had been established at the end of 2007, so the Authority was unable to disclose their existence in its accounts.

14.

In December 2006, the assets developed under the EGNOS project had been devolved to the Authority due to an amendment to Regulation No 1321/2004 (14). These assets will be integral elements of the Galileo system (back-up signal necessary for Galileo's official approval for air transport safety). The modalities for the transfer of these assets are subject to an agreement being reached with the original EGNOS investors. These negotiations were not complete at the end of 2007. There is no up to date accurate inventory of the EGNOS assets and no indication of their value in the Authority's accounts.

15.

According to the GalileoSat declaration (15), the cost of the IOV phase should be equally shared between the ESA and the European Union. At the end of 2007, the Union's contribution exceeded the ESA's own contribution by some 114 million euro. This prefinancing should have been shown in the Authority's accounts.

16.

According to its founding Regulation, the Authority received the GJU assets. These include the unsettled prefinancings paid to the ESA. In its 2007 accounts, the Authority only included the GJU cash assets remaining at the end of 2006 which had been transferred to it in 2006 and 2007 (70,1 and 80,4 million euro respectively). Although an amount of some 558 million euro had been received by the ESA for the IOV phase, only 53,7 million euro paid in 2007 by the Authority had been recorded as prefinancing. The Authority had not checked the earlier prefinancings paid by the GJU to determine which amounts should still be shown on the assets side of its balance sheet. There is therefore a serious uncertainty as to the real amount of outstanding prefinancings forming part of the Authority's assets (16) as at the end of 2007.

17.

In 2006 and 2007, 150,5 million euro were transferred in several instalments by the GJU to the Authority which recorded these cash transfers as prefinancing received among short-term liabilities for 121,2 million euro (liability side of the balance sheet) and as revenue for 29,3 million euro. Most of these funds represent the remaining part of the GJU capital subscribed at the time by the Commission and the ESA. These postings raise the following issues:

(a)

As there is no clear schedule for when the funds received by the Authority shall be used, it is unclear whether the liabilities should be considered as short term liabilities;

(b)

While it relates to an exceptional transfer of net equity carried forward from the GJU, the amount of 29,3 million euro was recorded as ‘own resources’. This is the only reason for the large surplus for the year (27,1 million euro). In order not to distort the image of the operations of the year, as this amount is revenue from previous years, it should not have been posted again to the economic outturn account. It should instead have been considered as a simple transfer of equity. The real economic outturn should have been a deficit of 2,3 million euro.

In order to improve the quality of its financial management, the Authority should adopt clear rules for recording revenue under an accruals accounting system.

18.

The GJU had received 15 million euro from third parties (17). The status of these sums is unclear and no specific disclosure was made in the Authority's 2007 accounts.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 24 and 25 September 2008.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President

(1)  OJ L 246, 20.7.2004, p. 1.

(2)  OJ L 367, 22.12.2006, p. 18.

(3)  The Galileo programme is divided into three phases: development and validation (2001-2008); deployment (2009-2012); and commercial operations (2013 onwards).

(4)  30 satellites to be set in orbit and related ground stations.

(5)  European Space Agency.

(6)  OJ L 248, 16.9.2002, p. 1.

(7)  International Federation of Accountants (IFAC) and International Standards of Supreme Audit Institutions (ISSAI).

(8)  European Geostationary Navigation Overlay System.

(9)  Operating subsidy of 7,6 million euro and operational funds of 194,5 million euro.

(10)  MATIMOP (Israeli Industry Centre for Research and Development), National Remote Sensing Centre of China (NRSCC — People's Republic of China) and Belgium.

(11)  Recovery orders are established after the receipt of the corresponding funds and then booked, often with delays, in the budgetary accounts.

(12)  Ground stations, signal protocols and even satellites (tangible and intangible assets).

(13)  It is intended that the EGNOS signal will be commercialised before Galileo becomes operational.

(14)  This was repeated in article 3 of the agreement between the European GNSS supervisory Authority and the European Space Agency on the integration of EGNOS into Galileo (16 May 2007). The total cost of the EGNOS programme is around 660 million euro.

(15)  The GalileoSat declaration is the project masterplan established by the ESA which specifies its overall technical and financial set up.

(16)  This question is further complicated by the fact that the ESA itself pays prefinancing to its industrial partners to an extent which is not known by the Authority.

(17)  MATIMOP, NRSCC and Belgium (5 million euro each).

 

Table 1

European GNSS Supervisory Authority (Brussels)

Areas of Community competence deriving from the Treaty

The Authority's powers as defined in Council regulation (EC) No 1321/04 and as amended by Council regulation (EC) No 1942/06

Governance

Resources made available to the Authority in 2007

(2006)

Products and services 2007

Competitivity for growth and employment

Objectives

—

To manage the public interests relating to the European GNSS programmes;

—

To be the regulatory authority for the European GNSS programmes.

Tasks

—

To conclude the concession contract with the private concession holder responsible for implementing and managing the Galileo deployment and operating phases;

—

To ensure that the concession holder complies with the concession contract;

—

To ensure the continuity of services in case of default of the concession holder;

—

To manage the funds allocated to the European GNSS programmes;

—

To take over the management of the agreement with the economic operator charged with operating EGNOS;

—

To present a framework on the future policy options concerning EGNOS;

—

To coordinate Member States' actions in respect of the frequencies necessary to ensure the operation of the system;

—

To assist the Commission in preparing proposals for the European GNSS programmes;

—

To modernize the system and develop new generations thereof;

—

To accomplish budgetary implementation tasks entrusted by the Commission;

—

To ensure that the components of the system are duly certified;

—

To manage all aspects relating to the system safety and security;

—

To take over the completion of the development phase of the Galileo programme;

—

To carry out all research of benefit to the European GNSS programmes.

1.   Administrative Board

Composition

—

one representative per MemberState;

—

one representative from the Commission.

Tasks

—

Appoints the Director;

—

Adopts the annual work programme;

—

Adopts the budget;

—

Adopts the annual report on the activities and prospects of the Authority.

2.   Executive Director

Appointed by the Administrative Board.

3.   Scientific and Technical Committee

Composed of acknowledged experts from Member States and the Commission.

4.   System Safety and Security Committee

Composed of one representative per MemberState and one representative from the Commission.

5.   External audit

European Court of Auditors.

6.   Discharge authority

European Parliament on a recommendation from the Council.

Final budget

210,0 million euro (7,0) of which Community subsidy 4 % (100 %):

Staff as of 31 December 2007

46 (39) establishment plan posts,

of which filled: 39 (18),

+10 (5) other servants (contract agents and seconded national experts and interim staff)

Number of staff: 49 (23) of which assuming:

—

operational tasks: 30 (9)

—

administrative tasks: 11 (9)

—

mixed tasks: 8 (5)

Galileo system:

—

Support to the Commission regarding the alternatives for Galileo after termination of the Concession negotiations and regarding preparation of the Full-Operational-Capability deployment phase;

—

Restart of the formal Mission Requirements Document Change Control Board;

—

Launch of Galileo Performance Monitoring and Analysis Facility;

—

Contribution to task forces and work groups for frequencies;

—

Certification requirements and certification plan for the Committee on Galileo Certification;

—

Draft standards for Galileo in aviation and maritime sectors.

European Geostationary Navigation Overlay System (EGNOS):

—

Structuring of the EGNOS operational phase through agreement of a baseline for the EGNOS framework agreement between the Authority, the Commission, the ESA and the Egnos Operator and Infrastructure Group;

—

Assistance to the Commission for the EGNOS master-plan;

—

Update of the EGNOS System Safety Case (issuance of the EGNOS certification plan and new versions of the Design Safety Case and Operations Safety Case);

—

Modification to EGNOS Mission Requirements Document;

—

Monitoring of the EGNOS operations qualification;

—

Production of a statement of work for the contract with the future EGNOS service provider.

Systems security:

—

Establishment of the System Safety and Security Committee and participation in the Galileo Security Board;

—

Technical management of the System specific Security Requirements Statement for Galileo;

—

Production, validation and application of security documents for EGNOS;

—

Definition of the Galileo Security Monitoring Centre.

Market development:

—

Definition of market development tools;

—

Support to EGNOS market entry.

Research and development:

—

Management of 61 projects under the 6th framework program for research transferred by the Galileo Joint Undertaking;

—

Preparation and launch of the 1st call for GNSS R&D under the 7th framework programme for research;

—

Implementation of a web-based knowledge management and dissemination tool.

Source: Information supplied by the Authority.


Table 2

European GNSS Supervisory Authority (Brussels) — Implementation of the budget for the financial year 2007

(1000 euro)

Revenue

Expenditure

Origin of revenue

Revenue entered in the final budget for the financial year

Revenue received

Allocation of expenditure

Final budget appropriations for the financial year

Appropriations carried over from the previous financial year

entered

available

committed

paid

carried over

cancelled

entered

committed

paid

cancelled

Community subsidy

7 599

7 599

Title I

Staff (NDA)

4 437

4 437

4 050

3 996

54

387

398

0

164

234

Title II

Administration (NDA)

1 364

1 364

1 322

526

796

42

878

0

648

230

Operational funds from the Commission (R0)

194 500

24 950

Title III

Operating activities (DA)

 

 

 

 

 

 

 

 

 

 

Transfers from Galileo Joint Undertaking (R0)

234 368

150 487

— CA

1 798

1 798

1 653

0

0

145

198

198

0

0

— PA

1 798

1 798

0

1 042

0

756

0

0

0

0

Other revenue

0

396

Assigned revenue

 

 

 

 

 

 

 

 

 

 

— CA

428 868

202 436

128 176

0

113 475

0

0

0

0

0

— PA

428 868

175 436

0

88 961

86 475

0

0

0

0

0

Total

436 467

183 432

Total CA

436 467

210 035

135 201

0

114 325

574

1 474

198

812

464

Total PA

436 467

183 035

0

94 525

87 325

1 185

1 276

0

812

464

NDA

:

non differentiated appropriations (commitment appropriations equal payment appropriations).

DA

:

differentiated appropriations (commitment and payment appropriations may differ).

CA

:

commitment appropriations in a system of differentiated appropriations.

PA

:

payment appropriations in a system of differentiated appropriations.

The difference of 226,4 million euro between ‘entered’ and ‘available’ commitments appropriations concerns 50 million euro for the ‘In Orbit Validation’ phase which was to be financed by a TEN T grant, 100 million euro for the Galileo deployment phase, 11,3 million euro to be received from Matimop and 65 million to be contributed by the NRSCC. These amounts were not made available in 2007 due to the delays incurred by the Galileo programme.

The difference of 253,4 million euro between ‘entered’ and ‘available’ payment appropriations concerns 50 million euro for the ‘In Orbit Validation’ phase which was to be financed by a TEN T grant, 100 million euro for the Galileo deployment phase, 11,3 million euro to be received from Matimop, 65 million euro to be contributed by the NRSCC, a balance of 2 million euro to be received through the Sixth Framework Programme for Research, a balance of 20 million euro to be received through the Seventh Framework Programme for Research and a balance of 5 million euro concerning a grant for EGNOS. These amounts were not made available in 2007 due to the delays incurred by the Galileo programme.

Source: Data supplied by the Authority. This table summarises the data provided by the Authority in its annual accounts. Revenue collected and payments are estimated on a cash basis.


Table 3

European GNSS Supervisory Authority (Brussels) — Economic outturnn account for the financial years 2007 and 2006

(1000 euro)

 

2007

2006

Operating revenue

Own resources

31 746

0

Community subsidies

51 360

1 981

Other revenues

44

60

Total (a)

83 150

2 041

Operating expenditure

Staff expenditure

3 740

564

Fixed asset related expenditure

77

4

Other administrative expenditure

2 028

595

Operational expenditure

50 872

53

Total (b)

56 717

1 216

Surplus/(deficit) from operating activities (c = a – b)

26 433

825

Financial operations revenue (e)

643

0

Financial operations expenditure (f)

0

0

Surplus/(deficit) from non-operating activities (g = e – f)

643

0

Economic result for the year (h = c + g)

27 076

825

Source: Data supplied by the Authority. This table summarises the data supplied by the Authority in its annual accounts: these accounts are drawn up on an accrual basis.


Table 4

European GNSS Supervisory Authority (Brussels) — Balance sheet at 31 December 2007 and 2006

(1000 euro)

 

2007

2006

Non-current assets

Intangible fixed assets

111

0

Tangible fixed assets

228

65

Current assets

Short-term pre-financing

28

0

Short-term receivables

68 931

59

Cash and cash equivalents

91 942

76 485

Total assets

161 240

76 609

Current liabilities

Provisions for risks and charges

68

29

Accounts payable

133 271

75 755

Total liabilities

133 339

75 784

Net assets

27 901

825

Reserve

Accumulated surplus/deficit

825

0

Economic result of the year

27 076

825

Net capital

27 901

825

Source: Data supplied by the Authority. This table summarises the data supplied by the Authority in its annual accounts: these accounts are drawn up on an accrual basis.

THE AUTHORITY'S REPLIES

12.

The Authority is taking the necessary action to improve its performance in respect of its budget reporting. In 2007 the Authority had to perform a high number of transfers due to an exceptional budgetary situation (50 % reserve on operating budget) which made it extremely difficult to keep a clear link between work programme and budget.

13.

The Court is correct in pointing out that, as at 31 December 2007, the Authority was not controlling the assets of the IOV Phase. These assets were at that time under the control of ESA. This was due to the legal uncertainties surrounding the project at that date, with ESA claiming that, as an international organisation, it was not bound by Regulation (EC) No 1942/2006. The Authority shares the view that an inventory of the project assets is desirable. This is one of the deliverables of the GalileoSat Programme, which shall be made available by ESA to the Commission, as new programme manager.

14.

The Court is right in pointing out that no agreement had been reached by 31 December 2007 on the transfer of assets of EGNOS by ESA, and that, as a consequence, the Authority was not controlling these assets.

15.

The Authority only recognised advance payments of 53,2 million euro in respect of the costs of the IOV phase as these 53,2 million euro were the total of the sums paid by the Authority to ESA for the IOV Phase.

16.

All payments made by GJU were treated as expenditure in the GJU's annual accounts and therefore are not recorded in the Autority's accounts. The accounts of GJU for the year 2006 were discharged by its Administrative Board in September 2007 after receiving a positive audit opinion. From the point of view of the Commission, the net position registered in the accounts of GJU at the end of 2006 (i.e. neither a payable position towards the Commission, nor a receivable position towards third parties) reflected the situation of the grants.

17.

 

(a)

Taking into account the uncertainty over the Authority's role on the Galileo & EGNOS projects, those settlements are classified as a current liability. The Authority recognises that it could perform a more detailed analysis of the liabilities in the future.

(b)

The Authority considers that the amount of 29,3 million euro is related to the activities of the GJU in the previous years, not to the activities of the Authority in the previous years. The Authority considers it therefore as extraordinary revenue in the reporting year.

18.

According to the information received by the Authority, the Administrative Board of the GJU in the liquidation plan decided that there would be no redistribution of the unused amounts to the shareholders of the GJU.

The Liquidator of GJU has informed the GSA that all unused funds (except for an amount of 200 000 euro) had been transferred to the Authority.