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Budget management

The EU budget life cycle

The life cycle of the EU budget, from the approval of the annual budget onwards, means that the figures for the commitment appropriations and payment appropri­ations available for a given financial year tend to vary over the course of the year. Procedures similar to the budgetary one apply to the adoption of amending budgets (in case of inevitable, exceptional or unforeseen circumstances occurring after the budget has been adopted).

The factors that influence and change the amounts over the financial year are described below.

Carry-overs

Carry-overs represent amounts from the previous year’s budget that have not been used and are carried over to the current financial year. The carry-over decisions of the Commission, taken on 13 February 2012, concerned non-differentiated appropriations, commitment appropriations and payment appropriations carried forward and Structural Funds’ commitments made available again.

Amending budgets

Amending budgets (AB) are measures which take into account political, economic and administrative needs which were not foreseen during the procedure that led to the adopted budget. They ensure more precise and economical financing of the EU budget by the Member States.

In 2012, a total of six ABs were adopted.

AB No 1/2012 concerned the financing of ITER, and incorporated into the 2012 budget the amount of EUR 650 million in commitment appropriations in accordance with the agreement reached between the Parliament and the Council in December 2011. Adopted by the Commission on 27 January 2012 (COM(2012) 31 final), it was approved by the Council on 26 March 2012 and adopted by the Parliament on 20 April 2012.

AB No 2/2012 covered the mobilisation of the EU Solidarity Fund for an amount of EUR 18 061 682 in commitment and payment appropriations relating to flooding in Italy (Liguria and Tuscany) in October 2011. Adopted by the Commission on 16 March 2012 (COM(2012) 125 final), it was amended by the Council on 15 May 2012 and approved by the Parliament on 12 June 2012.

AB No 3/2012 was intended to budget the surplus resulting from the implementation of the budget year 2011. As provided for in the financial regulation, it had to be submitted within 15 days following the submission of the provisional accounts, which took place on 31 March 2012. The implementation of the budget year 2011 showed a surplus of EUR 1 496 968 014 (not including contributions from European Free Trade Association (EFTA) and European Economic Area (EEA)), which was entered as revenue in the 2012 budget. Adopted by the Commission on 16 April 2012 (COM(2012) 181 final), it was approved by the Council on 11 June 2012 and adopted by the Parliament on 5 July 2012.

AB No 4/2012 mainly reflected the revision of the forecast of traditional own resources (TOR, i.e. customs duties and sugar sector levies), VAT and GNI bases, the budgeting of the relevant UK corrections as well as their financing and revision of financing of GNI reductions in favour of the Netherlands and Sweden in 2012, resulting in a change in the distribution between Member States of their own-resources contributions to the EU budget. Adopted by the Commission on 20 June 2012 (COM(2012) 340 final), it was approved by the Council on 24 September 2012 and adopted by the Parliament on 23 October 2012.

AB No 5/2012 mainly concerned the mobilisation of the EU Solidarity Fund for an amount of EUR 670 192 359 in commitment and payment appropriations relating to the series of earthquakes in Emilia-Romagna, Italy in May 2012. Adopted by the Commission on 19 September 2012 (COM(2012) 536 final), it was approved by the Council on 20 November 2012 and adopted by the Parliament on 21 November 2012.

AB No 6/2012 covered especially an increase of payment appropriations of EUR 6.0 bil­lion across headings 1a, 1b, 2, 3a and 4 of the MFF. Adopted by the Commission on 23 October 2012 (COM(2012) 632 final), it was amended by the Council on 6 December 2012 and approved by the Parliament on 12 December 2012.

Summary of amending budgets for the financial year 2012 1 (million EUR)

AB No

Date
of adoption

OJ Reference

Impact on payment appropiations

Main subject

1

20.4.2012

Official Journal L 184

13.7.2012

 

Financing of ITER

2

12.6.2012

Official Journal L 214

10.7.2012

1a: – 18

3b: +18

Mobilisation of the Solidarity Fund for Italy (flooding in Liguria and Tuscany)

3

5.7.2012

Official Journal L 221

17.8.2012

 

2011 surplus

4

23.10.212

Official Journal L 355

21.12.2012

 

Revision of own resources, modification of budget nomenclature

5

21.9.2012

Official Journal L 15

18.1.2013

3b: + 670

Mobilisation of the Solidarity Fund for Italy (earthquakes in Emilia-Romagna), modification of budget nomenclature

6

12.12.2012

Official Journal L 57

28.2.2013

1a: + 581

1b: + 4 387

2: +1 011

3a: +10

4: – 2

Year-end revision of revenue, reduction of commitment year end and expenditure.

1 http://ec.europa.eu/budget/biblio/documents/2012/2012_en.cfm#amending_budget

Transfers

There are two types of transfers: (1) transfers from reserves which increase the amounts of the authorised appropriations to be used; and (2) transfers between the lines of a chapter of the budget or between budget headings, which are neutral in overall budgetary terms.

As a result, the final budget represents the outcome, at the end of the financial year, of active budget management, including all measures that have an effect on the total Commission budget — carry-overs, amending budgets and transfers — which have been proposed and passed during the financial year.

Evolution of appropriations by heading in 2012 (million EUR)

Heading

Initial voted budget
without reserve)

Carry-over from 2011

Amending
budgets

Total impact
of transfers

Unused reserve

Final budget

Total

128 816

1 074

6 717

213

12

136 820

1a

Competitiveness for growth and employment

11 381

171

563

27

 

12 142

1b

Cohesion for growth and employment

43 836

15

4 387

280

 

48 519

2

Preservation and management of natural resources

56 909

78

1 058

47

2

58 092

3a

Freedom, security and justice

820

4

10

28

10

862

3b

Citizenship

641

43

688

17

 

1 389

4

The EU as a global player

6 955

52

11

– 189

 

6 829

5

Administration

8 274

711

 

3

 

8 988

From an accounting point of view, the budget out-turn is — in general terms — the difference between all revenue and expenditure, the positive difference being a surplus. Of the final budget for 2012 totalling EUR 136 892 million, EUR 135 602 million — or 99 % — has been used.

Active budget management 2000–12 (million EUR)

Financial regulation

The financial regulation lays down the rules for the establishment and implementation of the EU budget. Both the financial regulation 1 and its rules of application were updated in 2012 as part of a revision of the financial rules for EU-funded programmes. The delivery of EU funds to businesses, NGOs, researchers, students, municipalities and other recipients has been improved as of 1 January 2013 thanks to simplified proced­ures. The new legislation increases transparency and introduces higher accountability for anyone dealing with EU finances. It includes wider possibilities to use lump sums and flat rates for smaller amounts, eliminates the need to fill in the same details every time an application is made for EU funds and introduces online applications as well as many other new features.

Accounting framework

Since its introduction in January 2005, accrual-based accounting has become a key part of the Commission’s continued efforts to modernise the management of EU finances. Accrual-based accounts recognise revenue when earned, rather than when collected. Expenses are recognised when incurred rather than when paid. This contrasts with cash-based accounting that recognises transactions and other events only when cash is received or paid.

The accounting rules governing the preparation of the EU accounts are based on internationally accepted standards for the public sector — the IPSAS (i.e. International Public Sector Accounting Standards).

Annual accounts

The daily accounting is kept, and the annual accounts are drawn up, in accordance with the financial regulation and the EU accounting rules. The accounting system of the European institutions comprises two sets of accounts: the general accounts (i.e. financial statements) and the budgetary accounts. The combination of these two provides the annual accounts. The accounts are kept in euros on the basis of the calendar year. The annual financial statements aim to present, in a true and fair manner, the financial position and the performance of the EU for a given year, together with explanatory notes giving further information on the figures presented. The same accounting rules are applied in all the consolidated European bodies. The budgetary accounts provide information on the implementation of the EU budget for a given year, including the budget result for the year.

The Commission’s accounting officer prepares both the consolidated EU and the Commission annual accounts. Following audit by the European Court of Auditors (ECA), both these annual accounts are adopted by the Commission and transmitted to the Parliament and the Council for discharge. Monthly and quarterly reporting on budget implementation is also made online (Europa website).

Treasury management

The Commission has accounts with Member State treasuries, central banks and commercial banks. The source of EU finance is almost entirely own resources. These are credited twice a month to the accounts opened with Member State treasuries or central banks. The funds are used to fund payments through commercial bank accounts on the ‘just-in-time’ principle.

The Commission’s Directorate-General for the Budget establishes the cash flow forecasting, which is done for the very short term, for the month to come and for the budgetary year. Member States make their contributions to the budget in their national currencies, while most of the Commission’s payments are denominated in euros. The Commission has therefore to make foreign exchange transactions in order to have the euros necessary to make payments in those Member States that have not yet adopted the euro and to make payments in non-European Union currencies.

In 2012, 0.7 % out of a total of 1 855 119 payments made were executed through treasuries and central banks, representing 72 % of the total amount of payments. The remaining 99.3 % of payments were made through commercial banks (representing 28 % of the total amount of payments). Most of the Commission funds are kept in Member State and central bank accounts.

1 http://ec.europa.eu/budget/biblio/publications/publications_en.cfm#finreg