galvin report pt3

8/6/2019 Galvin Report Pt3

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Internal Audit Service .Internal Audit Report no. 06/02 to the Ins titutionPart 3 : Key Findings and Detailed Action Plans

Findings & Issues (continued)- In one case, a service provider contract was /or research and commu nication work but

also included paying agent services. A single monthly Jump sum in excess of 6 600covered all of these items - including the transfer to cover em ploy ers' liability for tax andsocial security - but was not itemised among them.- A besr practice was noted on the website of one M ember for which a parliamentaryallowance payment was included in the audit sample13 . The site made available acertification by ex ternal aud itors on rhe use of the Member's parliamentary assistanceallowance, in 2004, in accordance with the PEAM rules.Internal Audit notes that these anomalies were identified from a representative sample ofservice provider contracts. T here i s a reasonable likelihood of similar cases occu rringelsewhere in the total population r>f such contracts. Interna! Audit also considers that thesecases - especially those described under the second and third indents ab ove - raise issues ofpotential non-compliance with the principle of sound financial management.In his riole of 20 December 2007 on the third draft of this report, the aulliorising officer bydelegation sjatetj; lha I "further retroactiv e clarification t^f thejenno_m alj'es)j'srio*supporlcd bya Icgatbasis in the'rules". Nevertheless; he acknowledged tha['suchproblems'r'err(ain as a , ;'management risk arid confirmed lhat, wherever possible i n ih e fulure, his service s w ill addressthese in a better way. He nlso_ noted thai the Bu reau's rec ent decision to "reopen theregularisation procedures fqr_2004-2005 (isjj^priority for the management service".

ImplicationsLack of assurance that the salaries or fees covered by the parliamentary assistance a I Iowa n ccrepresent an appropriate level of remuneration for the tasks performed.Potential breach of the provisions of Ihe Financial Regulation (Article 27) on the use ofbudget appropriations in accordance with the principle of sound financial m anagem ent.Inconsistency between Ihe procedu res lhat app ly to contracting by the Parliament andcontracting by Members whereas the cost of all those contracts is financed from the generalbudget of the European Union to which a single Financial Regulation applies.In the case of conta ctin g by the Parliament:- Th e Staff Regulations determine the grading and corresponding rem uneration of Staffemployed by the Parliament.

Contracts with service providers are, as a general ru le, awarded by the Parliament underprocedures conducted in accordance with public procuremen t rules (Finan cial Regulation,Directives) and with the principles of soun d financial managementBy contrast, the PEAM rules foresee no limits to the remuneration that can be p aid b y aMember to a single assistant or service provider, other/than the annua) ceiling o f theparliamentary assistance allowance (150 912 for the transaction s wh en initially exam ined,now 6185 952).Lack of transparency on the use of funds when a single contract covers both provision ofparliamentary assistance services and (hose of a paying age nt.

'' The auclilots do noi exclude lhat similar besi pracnccS :re being implemented by other Members who were nolm ihe sample. 5 0


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In terna l Audi t Serv iceInternal Audit Report no. 06/02 to the Inst i tut ionPa rt 3 : Key Fin din gs and Deta iled Act ion Pl an s

Action flansi Preamble:. As explained under action plan C-A.l:

parliameniary assistants should, as a rule, be contracted as em ploy ees;- contracts with service providers should only be used to cove; pay ing agent services or ihe

purchasing of specific services under short-term contracts.R-2,1 A framework forthc financial co nditions o f employment of assis tants , aimed atadequate and consistent levels of remuneiau'on, needs lo be established, Internal Audit nolesthat the CODEX for thejaarliaincniary assistants adopted by the Bu reau on 25/09/200 6introduces, in its Ar ticl e?, the possibility for ihe Quacslors lo recom men d sa lary scales.White acknowledging that this provision of the CODEX constitutes prog ress, Internal Audit ishowever also of the opinion lhat ihe purely indicative nature of these scal es is unlikely to .i solve ihe issue in a consistent way.

In the opinion of Internal Aud it, in a first step, the framework for the-financial con ditio nsshould be provided by the PEAM rules. It should include:The.definition of professional funcliun groups reflecting the assistants' different levels ofqualification . " ''A Scale of maximum allowable, monthly remuncralions per function grou p. Amou nts inthis scale would constitute the ceilings up to which a-single assistant's salary could becovered by the parliamentary a ssistance allowance

i (Sec also action plan 11-1.2 relating to "one OIT'-KIKI -of-year p aym ents .)Function groups and levels of remu neration could be based on the condition s of employmentfor contract staff of ihe European Communities. (It is recalled lhat these conditions providefor ihe remuneration of contract staff to be weighted depending on the liv ing con ditio ns in theplace of employment. They would therefore reflect thediiferent employment conditionsprevailing in Brussels and in the constituen cy of a Member.)DG Finance should draft, for discussion in the Mem bers'Slatute W ork ing Parry and forsubsequent submission to the Bureau for adoption, the proposal for a co rresp on din gamendment of the PEAM rules which would confirm the principles mentioned above.A second stage could consist in a fundamental revision of the legal framework forparliamentary assistance as described in action plan A-3. This action plan foresees thai theConditions of employment oPother servants of the European Communities would apply toparliamentary assistants.

"B-2.2 As already mentioned (see action plan A-3), with the exception of p ay ing agentservices, contracts for the provision of services covered by the parliam entary assistan ceallowa nce should only be used to purc has e, within budgetary limits, specific serv ices fromexternal service providers when c orrespo nding tasks cannot be performed by th e Member'sparliamentary assistants). DG Finance should draw up, for discussion in Ihe Members'Statute Working Party and for subsequent subm ission to the Bureau for ado ptio n, Ihe proposalfor an amendment to the C.ODEX that wou ld provide a new legal framework for thesecontracts. Under these amended ru les, the following general principles sh ould apply tocontracts for the provision of servic es as from the 7th parliamentary ter m :

The y should only be concluded for short term assignments and to cover ta sks requiringspecific expertise. The cumulative duration of the services provided under such a contractshould not exceed a duration-to be specified in ihe CODEX (one yea r w ould seem to bean appropriate.maximum).They should foresee the provision of clearly identified contractual deliverables thai willcondition the payment (see also findings reported under point B -l ). (continued)5 1


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Infernal Audit ServiceInternal Audit Report no. 06/02 to the InstitutionPar t 3 : Key Findings and Detailed Action PlansAction Plans (continued)

Contracts for ihe provision of services that foresee, as the principal contractual task, iheplacing of staff ai Ihe Mem ber's disposal should explicilly be excluded by ihe CO DE X" .(Only employment contracts should be used.)- Th e total cost should not exceed the amount foreseen in the Financial Regulation'sImplementing Rules (Artic le 129.3) for coniracis lhat may be awarded on ihe basis of asingle tender (currently 5 OOP).

The CODEX shou ld allow for exccpiions lo the restrictions on Ihe duration and amount, Anysuch exccpiions should, however, be based on a reasoned request from the Member and thesubject of a formal ag reement by the authorising officer responsible. The se would, inparticular, confirm com pliance of (he proposed contracting of services wilh the purpose of theparliamentary assistance allowance and with the principle of sound financial management,Exceptions that could lead to a circumvention of the principle that assistants ought to becontracted as emp loyees sho uld not be allowed,(For both actions, DG Finance confirmed that the Mem bers' Statute Working Party iscurrently considering a number of proposals in relation to the status find the workingconditions of Mem bers' assistants and that its work is likely to cover the options raised byInternal Audit. DG Finance therefore considers it appropriate to wait or the outcome ofthose deliberations.)

"The only exccpiion to Ihis general rule would be where ihe applicable lubour law or a Member Stoic would no iallow a naiural person die Member -10 act es zw employer,52


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In te rna l Aud i t Serv iceInternal Audi t Repor t no . 06/02 to the Ins t i tu t ionPa r t 3 : Key Findings and Detailed Act ion P lans

I!-3 CLAinEYfNnTm NaNClPIJ'lS^ " LAY-OFF"| PAYMENTSFindings di issuesUnrfer Article 15.3 of the PEAM rules, it is foreseen thai the parliamentary assistanceallowance:"... shall be eligible for reimbursement for a period of three months following the month inwhich a M ember's term of office com es to an end, unless:(a) the Mem ber is immed iately re-elected to the subsequen t Parliamen t;(b) the Member has served for less than six months before the end of the cur renti parliamentary term;(c) the assistant concern ed is in receipt of other remuneration from any Communityinstitution, or

I (d) the assistant is employed by another Member during the per iod in question."| It is also foreseen lhat additional expenses can be reimbursed, should a Mem ber w ho has| terminafed the contract before the expiry of his or her man date "...be legally bound tinder thei rdevuut emphymrni legislation to pay supplementary expenses above the am ount'' ,corresponding.to three months" (Internal Aud it un derlining),i These payments made after ihe end of term of a.Mcrub crare Known as "lay -off pay me nts,

I The audited lay-off p ay men Is were made under a regulatory framework which:| - did not include an explana tion of the objectives of ihe, "lay-off" payments,

- did not indicate the types of assistance contracts which can (or cann ot) benefit from "layof f payments, and,- did not require the submission of a formal request by the Member justifying the "lay-off"payment.For assistants' Employment contracts, "lay-off paymen ts can b e considered io be co nsistentwilh ihe piovisions of labour legislation foreseeing indemnities for employe es wh osecontracts are terminated. (Article 15.3 ol the PEAM rules contain s explicit references to theemployment of assistants nnd.to the relevant employment legislation,)However, the mo tivation for ihe automatic entitlement of a service provider to a "lay-off"payment was less clear. Such an entitlement m ay well be justified on spe cific groun ds, torexample when paying agents continue to manage assistant's employmeni contracts duringtheir three mon ths "lay-o ff period.But an automatic payment of three monlh's additional fees or indemnities to service providersafter the normal termination dale of their contract would not app ear to be justified by norm albusiness practice. This appears to have been acknowledged in the CODEX for parliamentaryassistants adopted on 25 Seplembcr 2006 which specifics (Article 8.3) thai these payments"shall effectively be used by the Mem ber to cover paymen ts id be made to assistants under theapplicable national labour law". It is Iniern.tl Aud it's understanding tha t these new provisio nsdo not allow Jay-olf payjnenls to be made to service prov iders. In order to make thatrequirement more explicit, DG Finance has meanwhile obtained a legal opinion of the LegalService wilh a view to proposing, to the Quaestors, ihe implem enting prov isions for thisarticle of the COD EX . (Internal Audit has taken that legal opin ion into accoun t in the presen treport.)

(continued)

5 3


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Internal Audit ServiceInternal Audit Report no. 06/02 to the InstitutionPar t 3 : Key Findings and Detailed Action PlansC. SERVICE CONTRACTS FOR TH E PROVISION OFPARLIAMENTARY ASSISTANCEC-l COMPLIANCE OFSEKVICK PROVIDERS WITH TH E APPLICABLE NATIONAL LAWS

I Preamble - The legal framewor kI Service providers have an obligation to comply with applicable narional legislation. ThePEAM rules (Aiticle 14,5) foresee an explicit mention of thai requirement in contracts withI service providers. Th e model service and paying ag ent contracts provided b y DG Financesimilarly confirm the need for the service provider "...to comply with all the social security,taxation an d other obligations".

On 21 July 2004, the Secretary-General commissioned the Legal Service to conduct a studyI into the requirements governing the provision of services in ihe Member States and, inparticular, (i) the rules by which the status of service provider is determined and (ii) the VATrequirement's applicable to service providers. The report on the study (for which the Legal': Service.could" Call qn external expertise) was to be made available by the end of November2004. This siutly w as later aban doned dinyio Hie com plexity ul ilia matter and the regular |' changes b'f legislation in that area. However, on 6 March 2006, Ihe'-Lcpal Service provided an! opinion (SJ-.0i:rVU6) on the treatment of VA T jruh c framework of the reimbu rsemen t of .parliamentary assistance costs. Th is legal opinion confirmed ihefo llow ins.po ints:

Any invoice which docs not mention the applicable VAT rate or the |CgaJ groun ds for anexemption from VAT does not constitute a valid supporting document under the PEAMrules.U\ accordance with the sixth Directive o n V AT, this requirement also applies lo invoicesdrawn up by legal persons (including foundations or "asbl") thai pin staff at ihe disposalof Members to perform parliamentary assistance tasks.The Protocol on privileges and immun ities of the, European Com munities2" do es not grantMembers a VAT exemption.

- The "intra-Communiry" character of the provision of services does not justify exemp tion. from VA T.Following o reasonable transition period (the Legal Service suggests three months),anyinvoice that does not comply with ihe above-mentioned requirements sh ould be refusedand payments already m ade should be recovered.It flows from the Legal Service's opinion that under the sixth VAT Directiv e, a trader o rperson who provides parliamentary assistance as a service provider is, as a g eneral rule, liable

to VAT and has to register for if. Nalional legislations may foresee a num ber of ex cep tions tothis general principle. How ever, a service provider w ho claims, because of such an excep tion,not lo be liable to V AT, should then be able to provide a precise and valid leyal reference forthis exemption.Internal Audit also notes the new requirement on VA T identification introduced through theBureau's adoption of ihe COD EX on 26/09/2006 . It requires, am ont; Ihe essential .detailsrequired in a service contract (Article 7) "...where provided for by the national legislation towhich the service provider is. subject, the VA T registration n umber and the businessregistration number".(continued)

"' Protocol on ihd'ptivileges anit inviv.iniiicsordie European Comrnuniiics annexed to Ihe TVeJKTo* cs iabl ish ingdir European Community and the Eiuopcan Alomic Energy Communily59


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Jntenntl Aud i! ServiceInternal Audit Report no. 06/02 to the InstitutionPart 3 : Key Findings and Detailed Action P lans

Preamble' - The legal framewor k (continued)Whilst il is not Ihe European Parliament's role tosubstifuie for national fiscal aulhon'ties, ilshould however:- have reasonable assurance that the service provider complies with VA T legislation, and ,- avoid provisions in contracls financed by the HU budget (in particular paymentconditions), which could b e interpreted as being impediments to th e application oftaxation legislation. For the parliamentary assistance allowance, this could be the caseespecially when the remuneration of a service provider is not paid on a banJc accountwhich is localed in ihe coun try of the registered office (or, in the ca se of an employedassistant, on a bank account located in the country of his/her residence).

Article 23-2 of the PEA.V* rules opens the possibility of pay men ts to bank account locatedin other countries under certain cond itions, as follows: "Sums due in r espect of theparliamentary assistance allowance shall be paid in accordance with Article 14(7)'' byway of bank transfer on the fifteenth day of the month in q uestion to a bank account (orbank accounts) specified by the Member in the Member-State in which the assistantconcerned mainly carries out his/her work or in the Member State in which the socialsecurity contributions must be paid or in the Member State to w hose law'the contract issubject."

The following general requirements applicable to service providers can also be idemificd:A service provider who claims to be established as a legal person should be able lospecify in the contract the legal form that is an integral part of his name.A self-empIoyKd person has to be registered under a social security regim e forindependent workers and be able 10 provide evidence for this.Wherhcr mandatory or no l und er ihe applicable law , a service pro vider en trusted wildparliamentary assistance tasks should a lso be required to contract a professional lliird-party liability insurance which covers possibln damage c aused . (Such damage cou ld alsooccur in the premises of llic Parliament.)

Internal Audit also draws attention lo the fact lhat a useful sum mary of the pro ceduresrequired to register a business in a selection of countries is made available, by the WorldBank, on its "Doing Business" w ebs ite". This website covers 24 of ihe 27 Member States''1.'

21 Ii should be noted ihai, until die Bureau decision of 13 December 200-1, Ariicl- 14(7) covered all paymelsmade under Ihe parliamentary assisiaiice allowance. Since ih.n decision, Article 1-1(7) only relates trt payments \for occasional resea/ch, assistance, documentation orconsullancy wrjrk connected wilh a Member's officialduties which may be reimbursed without submission ofa copy ofa wrtuen conuact.,:Jitlp.7/www.doingbusiness.arg'Main/A0oul.aspX11 Luxembourg, Malta and Cypws are nol covered.

GO
http://www.doingbusiness.arg%27main/A0oul.aspXhttp://www.doingbusiness.arg%27main/A0oul.aspX


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In terna l Audi t Serv iceIn te rna l A udi t Re port no . 06 /02 to the Ins t i tu t ionPart 3 : Key Findings and Deta i led Act ion Plans

Findings & IssuesTh e audited sample of service conlraets gave rise :o the fo l lowing I'iridings

I " In 12 2(7 9% ) of the 155 sampled payments where V A T should apply (based on Ihegeneral principles o f the sixth VA T D irective), the available documentation did not showthat the service provider was registered foi VAT^iior did il provide a valid explanationfor a possible exemp tion:

Fo r 111 of those 155 cases, no V A T number was provided either in the fi le, or i n ihespecific field fo r the VA T number foreseen on the application f orm , which w as leflblank.For Ihe other 44 cases where a VA T number was provided, its validity was checkedthrough Ihe European Com mission's Ta xatio n ;ind Customs U nion website2* ' "V IES"(wh ich enables the V A T numbers issued by any Member State la.be vahdaled). In IIOf those cases (25 % ), the va lidity of the V A T number indicated by :he service p roviderwas, not confirmed .

Seven payments of fees lo .service providers were made to hank accounts loca ted in acountry j jher than The one 'of the registered offic e. Those seven payments co uld allfacili tate nonco mpliance w ilh ihe relevant n ational legislation on taxation and soc ialsecurity, even though two of them were com pliant with.the formal requirements o f Article23.2 of the PEAM rules (payment was made in ihe country of ihe law of the coiitraci). FprIhe other five cases, there was no evidence w hic h might have jus tifie d p ayme ni to b:inkaccounts in another country. (T wo such cases were also found -lor em ploye d assistants.)- Ten ( 11% o l Ihe sample) of the contracts conclude d wit h legal^ persons did not Ide ntifythe lep.alj'oiiii of Ihe contractor. (It is acknowledged lhat lour of those tiles did includeolhei documentation related to the legal form.)

For 44 contracts concluded with se lf-ejnployed.persons (representing 90% of the .49 suchcontracts in the sample) ih iiie was nu evidenc e of ihe mandatory coverage by a soc i a Isecurity scheme fur .self-employed persons.Neither the PE AM rules nor the model conlraets foresee an exp licit requiremen t fo rservice provjdeis to establish lhat theii professional civil liability is covered by n specificinsurance policy. (There is only a general obligation to comply w ith applicablelegislation.) None o f the audited files provided an indication of such cover.

The examples thai follow also illustrate ihe lack of assurance on the legality of serviceprovider's activity lhat results fiom relatively simple checks:A contracted company provided its fu l l details ( V A T number, legal fo rm , address, etc.),but the following findings raised doubts aboul the existence of that company:

. the val idi ty of the V A T number was not confirmed by "V IE S" ,the company's name could not be matched to a record in l l ic national companyregister,the telephone number indicated in Ihe application form corresponded lo a companywilh another name located at another address (checked wilh a telephone directory),the legal representative o f the company was resident in a city that is situate d aconsiderable distance from ihe city where the contracted company was supposed lobe located.

(continued)

''' Includes the services provid ed by pay ing agents.; i h((p://curop^.i:u.iiii/comri/ta>;aiir)n_CL'Rtom,'yvic'j'pn/viethorric.hrmG 1
http://la.be/http://la.be/


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Internal Audit ServiceInterna I Audit Report no. 06/02 to the InstjtttlionPart 3 : Key Findings nnd Detailed Action PlansFindings A Issues (continued)

Since 01/07/2003, all legal entities and all individuals who provide services in Belgiumhave to be registered in the nationa l database "Bnnquc-Ca rrefour des E ntrcprises - BOB".Internal Audit used the public search available on that database to check the registrationof all service providers included in ihe audit sample for w hich the contractual workplacewas Be lgium , Out.of 42 such cases, j5 (5 3 ^) could not he matched lo a record in thedatabase.

ImplicationsI R isk thai the courts cou ld, under applicable national labour law , rc-deline contracts for the! provision of services as being eniiiloynient contracts. _i R isk that Members c ould conclude contracts wi lh , and Parliament would make payments to,service providers who contravene (or facilitate non-compliance with) the relevant nationallegislation o n taxation and social security.Associated legal, financial and reputniional risks.

I Action Plans| Preamble; . .| Asa result of implementing action pians A-3-ahtl B-2.2 which foresee that parliamentary| assistants should be hir ed under employm ent c ontracts and not contracted as service.I providers, the number of new contracts for the provision of services concluded wouldI decrease. Howe ver, there w ill s til l be a need to contract paying agents and, possibly specific,i limited short term services..To protect both the Members and the Institution fro m legal, financial and reputniional risks,DG Finance s hould ob tain reasonable assurance lhat seiviee providers that have been o r w ill

j be contracted by Members comply with applicable law.Actions| C A U

New contracts or amendments to exis ting contracts:I - The existence of a valid VA T number should be used as a primary means of ob tainingreasonable assurance lhat the service provider's activity has been registered inaccordance wilh the law. In view of ihe requirements of Article? of lhc CODEX, theprovision o f the V A T registration number should be considered mandaioiy on theapplic ation form fo r Ihe teiinbursement o f parliamentary assistance expenses and in theI corre spo nding contract. Th is requirement sho uld also app ly to requests fo r changes.tobe made to that reimbursement.I DG Finance should return application forms and contracts w ilh missing V A T numbersto Ihe Membe r wi rh the request to get from his service provider cither his V A T number,or a detailed reference to the legal provisions thai exempt him fr om V AT resistra iiori.

Each V A T number provided should be checked by D C F inance through the EuropeanCommission's Taxation and Customs Union website^ "V IES ". When the V A Tnumber's validity is not confirmed by VJES, DG Finance should ask the Member lorequest clarification from his service provider.(continued)

!fllinp^'/cu.'Opa.eu.int/comm/!axa{ion vciistorii!:/v)(.'s/cn/vji:$home.himG 2


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Internal Audit ServiceInterna l Audit Report no . 06/02 to the Ins titutionPar t 3: Key Findings and Detailed Action PlansAction Plans (continued)

Wh en the service p rovider claims lo be exempt from V AT , the legal references of thatexemption should be checked for their plau sibil i ty. (As ihe findings reported underpoint C-2 sho w, in several cases, (he reasons provided for VATexemption provided oninvoices were found tobe inadequate.)In view of the requiicmcnis of Artic le 7 of the CO DE X, w hen there are doub ts that acontractor's activity as a service pro vider has been regis:ered in accordance w ilhapplicable law (in particular when nova l id VAT number can be provided):

In the case oflegal entities and individuals who provide services in Belgium , theirrcgislration in Ihe national database "Banquc-Ca rrcfour des Ehtrcprises - B C E "should be checked.For services provided in other Me mb er States, add itional evidence of ihecontractor's registration should be requested by DG Finance. The W orld Banks"D oin g Business" website already mentioned under ihe finding s s ection can be usedto determine the nature of the evidence thai is most relevant.

I f the service provider is a company, the systematic mention of its legal status on theapplication farm and in the contract p rovide s a dditional assurance of properregistration. (Internal Audit notes p ositive ly that Artic le 7 of the CODEX forparliamentary assistants adopted hy the. Bureau on 25/(W?.O0f> confirms that Ihe legalstatus of a service provider has tohe include d in the contract so lhat il may be. classifiedas a parliamentary assistance contract.)DG Finance should reject applications for the reimbursement of parl iamentaryassistance expenses as long as i l does not have reasonable assurance that the provisionof sei vices complies with applicable law.

(In his latest reply of 19 November 200'/, the Authorising Officer by Delegation draws.attention to the foci that the CODEX has not yet been notified to the Members and that DCFinance has therefore not been in a position to call for its implementation. He confirmed that,when it comes into force, the CODEX will provide the basis for requesting a number of .safeguards including the service provider's V A T registration number and business ' registration number (where provided by national law). He also considers that it would beappropriate to test these ne w provisions over a period of time and that, should they be foundto be insufficient, additional measures may be considered.)C-1.2Existing contracts:

DG Finance should exlract fromJ^D a recoid of all service providers a nd pa yingagents w hich have concluded a parliamentary assistance coniract with Members. Thisrecord should d istinguish between con tractors for whom a VAT number has beenentered in C1D (as declared in the application form) and those for whom no suchnumber is available .As a first step, available VAT numbers should be checked through the EuropeanCom mission's Taxation and Customs U nio n website28 "V IE S " .

(continued)

'' T h is action plan docs nol apply to paying agcol arrangements with die zd miaistrniiun of1I12 "tX-utschcrBundestag" (see findin gs reported under pot'ni E-3).* liitpV/curopa.eii.iiii/eorrinVtaxation cunlomtfvies/en/Wcslionis.hiin6 3


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I n t e r n a l A u d i t S e r v i c eI n t e r n a l A u d i t R e p o r t n o . 0 67 02 to t h e I n s t i t u t i o nP a r t 3 : K e y F i n d i n g s a n d D e t a i l e d A c t io n F l a n s

Action Plans (continued)Then, for contractors which have provided no VAT number ot an invalid VAT number,DG Finance should inform the Mem ber that his service provider should:

I . cither provide clarification as regards the performance of his activity in com plianceI with app licable legislationor regularise his situation as a se rvice provide r with the competent n ational| . authorities.

| - Th e Mem ber should be informed at :h esn m e time that, if no satisfactory clarification isprovided or action taken by the service prov ider within a specified period of time (forexample, a maximum of three m onths as suggested by (he Legal Service in its opinion),which would be indicative of a lack of reasonable assurance that ihe service p rovidercomplies with applicable legislation, DG Finance will: Invite the Member lo cancel that contract without delay on the grounds of breach ofthe contractual requirement to.comply wilh applicable fcgislation. (In accordancewilh A rticle 14 J of the PEAM rules, service contracts must include a clause thatconfirms the service provider's obligation to comply wilh applicable legislation.)

i| , No longer reimburse expenses incuircil under that contract from the parliame ntaryI assistance allowance. (How ever, con tractors ' fees thai would still be due by IheI 'Member despite her/his efforts to cancel the contract would be reim burs ed.))D G Finance indicated lhat it has already started checking the V AT numbers of invoices heldin.its database against the Commission's VIES website.)C-1.3 The PEAM rules (Article 73.7) should be amended to include the provision that theremuneration of a serv ice provider (or the fee of a paying ag ent) is lo be~panl On a hnqk accountI O y lT j0 Tc(e) Tj-0u.210.902 Tw -0.067 T-q Tj0 Tc(e) Tj0.005 Tw-0.102 Tc8be0 Tc(l) Tj1.153 Tw -0.294 T


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Internal Audit ServiceInternal Audit Report no. 06/02 to the InstitutionP a r t 3 : Key Findings and Detailed Action FlansC-2 I^VOIClN'fiOypARLIAMtOTAKYA.SSl6TANCKSRRVIC:KSl'KKroiWF.DFOR

MEMBEKSPreamble: the regulatory frameworkThe Financial Regulation and its Implementing Rules

| The Financial Regulation gov erns all paym ents made out of the general budg et of theEuropean Com.munilies. Artic le 75.1 stipulates that "every item of expen diture s hall becommitted, validated, authorised and paid".Before authorising the parliamentary assistance allowance for payment, the a uthorisingofficer responsible musi first validate it. Article 79 of the Financial Regulation defines the actof validation as follows:"Validation of expenditure is Ihe act whereby the authorising officer respo nsible :a) verifies Ihe existence of ihe cred itor's entitl em ent; ,.

| b) determines or verifies the reality and the am oun t of the claim ;c) verifies the cond itions in wliich paym ent is due ."The validation pf expenditure is thus a cornerstone of the procedures aimed at ensuring| compliance with the .principle uf sound, financial man agem ent and wilh the re quirem ents of. legality.and regu larity, .. 'The rules also require lhat ihe validation of a ny expen diture shall "...be based on supportingdocuments within the meaning ofArticle 104 attesting the creditor's entitlement, on the basisof a statement of services actually rendered, supplies actually delivered or work actuallycarr ied out, or on the basis of other documents justifying payment" (Article 97, FinancialRegulation Implementing Rules).The rules oblige the autho rising officer to "personally check the supporting doewnents or..,on his own responsibility, ascertain that this h\as been done, before taking the decisionvalidating the expenditure* .The supporting documents for the payment must prov ide proof that the services , supplies orworks have been carried out in accordance with the terms oi the contract or oth erw ise justifythe creditor's entitlement top ay m ent . In order to attest that the services foreseen in a contracthave been "actually rendered" or that the payment is justified on other ground s (as wh en, forexample, a "prc-financhig" payment is foreseen in Ihe contract), Ai tick 98 of the FinancialRegulation's Implementing R ules requires the .submission of an invoice drawn up by thecontractor and foresees that the validation procedure which p recedes the authorisation ofpayments (see findings reported undei po int C-3) shall include a mandatory 'certified cor rect'endorsement of the invoice. In the cas e of services, ihis endorsement "...shall certify that theservices provided or in the contract have been proper ly provided".)In accordance with those provisio ns, at paragraph 56 of the resolution acc om pany ing itsdecision on the 2003 d isch arg e", the European Parliament in plenary stated in respect of theparliamentary assistance allowance;"Points out that Article 79 of the Financial Regulation and Articles 98 an d 104 of theImplementing Rules on the validation of expenditure require the authorising officer lo ver ify acreditor's entitlement on the basis of supporting documents; reminds the Administration of theneed lo insist on the subm ission of invoices or fee-statements as a condition for makingpayments under service contracts (A rticle 14(6) of the Rules on. Members' expenses andallowances)."(continued) I

-* European Parliament decision on die dischargefor mplementing the general budget of the European Union fo:Ihe financial yew 2003, Section I - European Parliament (C6-Q015/2005 - 20tM/Z{WI(DEC))G5


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Inte rna l Audit ServiceInternal Audit Report no. 06/02 to the InstitutionPart 3 : Key Findings and Detailed Action PlansPream ble: the regulatory framewor k (continued)An additional requirement of the Financial Regulation relates to the recording in ihe accountsof "pre-financing" payments. In accordance with Ihe PEAM rules, there is a need toregularise:

payments relating fo service providers'fees made without the prior submission of aninvoice covering the tasks performed,- transfers to paying agents of funds 10 be managed on behalf of ihe Mem bers.Such payments awaiting regularisalion arc to be considered as "pre-financing" payments towhich. Ihe requirements of Article S i of the Financial Regulation ap ply. T hese foresee thaipfe-'finaTicing payments need lo'be identified separately-in Ihe accounts at Ihe time.they aremade. The purpose of this distinct re cording is, in particular, 10 allow the rcgularisation ofpre-financing payments lo be monitored.Rules governing the payment, .ofexgenses and allpwancesjo Mem bers ("PEAM")The.PEAM rules reflect the geneial principles on which the Financial Regulation rules onvalidating expenditure arc based.-,Under Ar ticle 14.1 of the PEA M, M emb ers shall be entitled lo tetnihu rsem enl DfexpenSfiSarising from the employment, or from the engagement of services, of one or more assistants.In either case, the Member is required to conclude a privalc-law co ntract w ilbth e employeeorservice provider in accordance with the national law applicable 1".For service contracts concluded by the M ember, Article 14.6 of the I'EAM states thaipayments shall be made directly to the service provider on Ihe personal instructions of theMember and on his or her responsibility. The PEAM also lays down that invoices or feestatements showing the. provision of serviccs'shall be drawn up in accordance with thenational law applicable and for a pciiod not exceeding twelve m on th s" .The minimum icquircmcnt for an annual invoice foreseen in the PEA M rules also im plies ihru"advance" (or pre-financing) paym ents a ie made during the year. Fur e ach such paymen t, theFinancial Regulation foresees the submission of an Invoice by the servic e provider. Th eannual invoice then establishes Ihe final amount due and determines the balance payable orrecoverable, alter taking inlo account the advances paid. (This is now explicit in Article 14.6of the Rules , but the same principle underlies previous versions of the Rules.)The PEAM rules also provide that, at the request of a Member, payments in respect ofemployed a ssis tan t may be made to a paying agent contracted by the M ember to han dle, inwhole or in pari, ihcadminislralive management of ihe employment contracts. The PEAMstipulates that, at least once a year", paying agents shall forward to the Member (with a copyto Ihe management service in Parliament), statements of expenditure incurred in respect ofsalaries, social security contributions, tax payments or any oilier re fundable expenditure.(continued)

' By way of exceptitin, Article 14.7 of the current version of the PEAM rules provid es for payment on the basis sfan original invoice, w ithout submission of the contract, for "occasional research, assistance, documentation orconsultancy work connec ted with a Member 's official d uties"." Before Ihe Bureau decision PE 359.163 of 22/06/2005- amending I lie PEAM rules, the requiiernent was forinvoices covering periods not exceeding six mcnilis. Th e Quaestors communication 32/05 Irani 13/07/2005extended ro 01/11/2005 (he dead tine for subm itting invoices oi fee statemen ts relatin g to I he period between ihestart of the parliamentary term and 30/06/2005. Tlic Bureau decided on 03A07/2006* to exiend unlit 0i/0l/20O7the dea dline "for pr esenting die supporting documents accompanied by the appropriate dcelorolions accor dingto the relevant tufasci reimbursement ofpit'linmcixtctry assistance expenses".

"B efo re the Bureau decision PE 33 8.886 of i:V 12/2004 amending Ihe REAM rule s. Ihe requirement was for asubmission ivvicc a year.6 6


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Interim] Audit ServiceInte rna l Audit Report no. 06/02 to tlie InstitutionPar t 3: Key Findings and Detailed Action PlansPreamble: the regulatory framework (continued)Model contracts provided bv Parliament's AdministrationThe model pa ying agent and service contracts have been drawn up in accorda nce with thePEAM rules and after consultation ol the Legal .Service. These contracts confirm therequirement for the submission of invoices covering ail the services carried out (includingVAT, if applicable).Findings & IssuesThe PEAM rules do not require service providers to submit invoices to Members beforepayment is ma de to them. In accordance with Article 14.6.(b) of the rules, this subm ission canI take place up to 12 months in arrears.The rules do not foresee a formal endorsement of the service provider's invoices by Memberswhich would co nfirm the performance of the services .in accordan ce with Ihe prov ision s of thecontract,i On 13/12/2006, |he Bureau also adopled'a revision of Ai t i de -14.6 of the PEAM rules whichonly requires M em bers to submit to DC Finance a copy of the service provider's statem ent ofi Ihe amounts invoiced , but not copies of the invoices diawn up in accordance w ilh.ihe.nationallaw app licable:"a. The service contr act may provide for monthly payments being made as advance paymentsThe invoicesor fee statements showing the provision of services and, where appropriate,regularising the advance payments made and determining any outstanding balance, shallbe drawn up, in accordance, with the national law app licable, for a period not exceeding12 months. The Member shall keep the invoices or fee statements for the period laid downby the applicable national legislation and for no less than one yeur after the end of theparliamentary term. "b. The service provider shall forward to the Member.at least once a yeur, a s well as onexpiry of the contract, a statement of the amounts invoiced, accompanied by a declarationcertifying that all tax and social security obligations resulting from the applicablenational legislation arc complied with The Member shall forward a copy of the statementand the accompanying declaration to the managem ent service, authorising thercgularisation of the advance payments made."

When invo ices a re nol submitted to DO -finance, it m eans .that it is not possible for theAuthorising Officer by Delegation to verify the creditor's cntillcmcnt or to establish lhat iheservices paid for have been rendered. This is a breach of ihe Financial K cgulalion .The audited sam ple of payments gave rise to the following findings:- 1343 3 pay me nts in the audit sample covered fees, of which 29 related to pay ing agentcontracts and 105 to service provider contracts. In accordan ce with the FinancialRegulation (see the preamble on the regulatory framework), such paymenls should onlybe made following prior submission of an invoice drawn up by the contractor andestablishing his entitlement to payment, Th is should be the case both for "adv ance s""' andfor pa yme nts cove ring services actually rendered (Sec also findings reported under pointC-3.) In pra ctice, such p rior invoicing was found in 3 cas es.(continued)

In eleven a ddit ion al cases of pay ing agcnl conlracis, i t W&S nol possible lo establish if the contraniual amo uniincluded a fee.'frc-financing" payment in the terminology of (he Financial Regulation,67


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Internal Audit ServiceInternal Audit Report no. 06/02 to the InstitutionPart 3 : Key Findings and Detailed Action Plansfindings A Issues (continued) Of the 105 paymen ts related to service contracts, 75 w ere made from the parliamentarynssislance allowance of Members elected under the 6th Term and 30 were "lay-offpayments to service contracts of Members who were not re-elected. Six months after theconclusion of the contracts, contrary lo what was foreseen by ihe PEAM rules applicableat the time, invoices had been made available for otilyjl ,Ti:*f ihe 75J""_djjcd Hies relatingto service provider contracts of Members elected under the 6th Term.

The Bureau decision of 22 June 2005 extended the submission penod for invoices lo 12months and an additional deadline until 01/01/2007 was subsequently granted by Bureaudecision of 3 July 2006. Additional audit testing was performed in early January 2007 toestablish, for the audit sam ple, an updated record of the invoices submitted. It was foundlhat invoices had flgt been provided for 63 Jf 'o f the 105 service contracts. (Of those 63cases, 35 related to the allow anteof Members elected under the 6th Term and 28 to "layoff payments.)In only five of thc-42 (105-63 ) Mtrvire ron traets for .which invoices were supp lied d idIhcse appear to includ e all the minimum det ails required for valid invoices a s laid down inCouncil Oireqlive'2O0 1/n5/t^ J^S cle vah tJss ucs noted (with some files evidencingninre than one such issue) wc rca s follows; ' " ,'.

. In 24 cases, the invoices did not appear to include a valid VAT identification numb er.. in 15 cases, whereas no VA Twas'included on Ihe invoice, the mandatory reference toany p rovision justifying VA T exemption w as not provided. In four cases, such areference was provided but it was invalid (it rcfci icd to Ihe VA T exemption of theParliament).. Oth er issues noted include the absence of the mandatory number which uniquelyidentifies the invoice (12 cases) and where the Farliameiil is uienlioued as the clientfather lhan ihe Member or no recipient is indicated (si* cases).As the PEAM rules do nor foresee a formal endorsement of the service provider's invoicesby Members, such endorsement was, in general, not found in the audited sample; ofpayment.1:. (However, six cases where such an endorsement by Members was foundconstituted a positive exception.)The payments in the audit sample made without prior invoicing and the transfers of fundsto paying agents, which both need to be regularised through Ihe submission of either aninvoice or a statement of expenditure, were not recorded separately in the Parliament'sofficial accoun ting system as pre financing paym ents. However, DG Finance explainedlhat Ihe local JT application it uses to manage the parliamentary assistance allowance:

allows a distinction between payments made-upon presentation of an invoice and thepre-financing payments which are made on Ihe basis of a submilred contract;contains a module thai allows DG Finance lo monitor the rcgularisalion of thepayments in accordance with articles 14.5.cand 14.6,bof the FEAM rules.

In two further cases, receipts were provided which do nol, however, consiiiuie invoices01 hi six of those cases, receipts or llJlem eniswC ie provided1 which do not, however, cunslitule invoices"C oun cil Directive 2C01/11VEC Of 20 December 2001 amending LVeciivr. 77/jSS/EnC wilh a view to

simplifying, m odernising and harmonising ihe conditions laid down foi invoicing in respect of vatuc edded tax6 8


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In te rna l Audi t Serv iceInternal Audi t Repor t no . 06/02 to the Inst i tu t ionPar t 3 : Key Findings and Detai led Act ion Plans

ImplicationsHreach of ihe provision s of Ihe PEAM rules on the submission ol invoice s, applicable to theaudited transactions (Article 14.6.b).Contradicts the provisions of the Financial Regulation (Article 79) and of its ImplementingRules (Articles 07 and 9 8) which require, prior to payment being ma de, the validation ofexpenditure relating to ihe procurement of service s on ihe basis of suppo rting do cuments thaiattest the creditor's entitlement and p mvide pos itive proof that the services w ere actuallyrendered.Insufficient a ssuranc e regarding the service provider's entitlement to payment followingservices rendered in conformity with Ihe requirem ents of ihe contract.Lack of assurance regarding the entitlement of the service provider lo the pre-financingpayments received because:- the absence of invoices prevents reconciliation between the sums receive d and theservices provided, and,- the absence of distinct recording in ihe accounts isan ob siac le to a reliable andcomprehensive monitoring of ihe rcgularisation of such pre-financing payments.Breach of the provisions of Ihe Financial Regulation (Article SI) which require Mini distinction shall be made in each Institution's acco unts between Ihe different types of payment(entire amount, pre-financing, interim paym ents mid balance payment) at the time they aremade.Action plansC-2.1 DG F inance shou ld draw up a record of all contracts for the provision of servicesmm1, hided under the sixlh term where paym ents m ade have not UccnVcgularJscd by thesubmission of either invoices or siaiemenls of ihe amounts invoiced, accompanied by adeclaration certifying lhat all lax and social security obligations resulting from the applicablenational legislation are complied with, drawn up in accordance with the piovisions ol Article14.6.b of the TEAM rules as last amended by the Bureau decision of 13/12/2006.This list would form the basis of a proposal for a Quaeslors' decision which wou ld foreseethat cases of non-compliance should be notified to the Members who have concluded (hecontracts with the request lhat missing invoices or statements of amounts invoicedregularising paym ents made so far should be provided to DG Finance, within two m onths (ifrequired, after having requested them from the service providers).C-2.2 The proposal for a decision mentioned underaction plan C-2.1 should confirm thai.after expiry of the deadline set and pending submission of the required documents, DGFinance should suspend all payments of fees to service providers for whom the regulatoryobligation to submit invoices or stalemenls of Ihe amounts invoiced has not been compliedwith.(For actions C-2.1 and C-2.2, DG Finance indicated that similar proposals are beingincluded in the draft of the implementing measures for the Members' Statute that will besubmitted to the Working Party.)C-2.3 Th e proposal for a decision should also confirm thai, if required inv oice s or statementsof the amounts invoiced arc not submitted within a month of that deadline, DG Financeshould initiate the procedure to recover the amounts that have not been regularised.

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Interna] Audit ServiceInternal Audit Report no. 06/02 to the InstitutionPa rt 3 : Key Findings and Detailed Action PlansAction plansC-2.4 lit order to:- ensure com pliance with Ihc provisions of the Financial Regulation and of its

Implementing Rules,.I - increase assurance regarding the entitlement of the service provider lo the pre-fin ancingpayments- prevent ihe reported situations where invoices required to regularise pre-financingpayments are not submitted and! avoid management inefficiencies linked lo the follow-up of pre-financ ing paym ents,Ihe payment of fees to a service provider shou ld, in the future, only be performed followingthe prior submission to Ihe Member, w ith a copy lo DG Finance, of a regular invoicecomplying with the minimum requirement of Council Directive 2001/1T5/EC and coveringwork actually performed. DG Finance should submit, for discussion in the Members' StaluieWorking Tarty and for subsequent submission to the Bureau lor adoption, Ihe proposal for acorresponding amendment of the PEAM rules.(The Authorising Officer by Delegation confirmed that, should the final conclusion of theMembers'Statute Workihg Party retain the possibility of engaging service providers, he will. consider tjie adequacy of the.safeguards that will have been adopted in this respect and will,if tie judges it necessary, submit proposals for further tightening of the relevant r ules.)

I . ';" ' ' . ' . . ' ' . . . - .C-2.5 Th efE A M rules should require an endorsem ent, by ihe Mem ber, prior to paymen t, ofthe service provided invoices. This endorsement would certify thai the service provider hasperformed the tasks for which he requests the paym ent of his lees, in accordance with theprovisions of Ihc contract. The certification could either take the form of an endorsement'certified correct'on the invoice itself or be confirmed in a document signed by ihc Memberand accompanying the invoice received.DC FinJince should sub mit, for discussion in ihc Me mb ers'Siatu te Working Parly and forsubsequent subm ission lo the Durcau for adoption, the proposal for a corresp ond ing! amendment of the PEAM rules which would confirm this principle.(DG Finance indicated that it is now established practice that Members sign the invoicessubm itted for reimbursement, indicating their appr oval of the payment and of the invoice.)C-2.fiTo deal with the requirement of ihc Financial Regulation (o record prc-iin ancin gpayments in the BCCOUM5 separately and lo comply with the principles of accru als accou nting,the required action includes the development necessary to ensure that ihe data available in DGFinance's local FT application for managing the parliamentary assistance allowance is used asa basis for recording all such payments in ihe Parliament's official accounting system at ihetime the payments are m ade. This can be envisaged in the context of Ihc proposed upgrade ofihe official accounting system in 2008 lo reflect the requirements of accruals accou nting.C-2.7 Pte-financing payments to paying agents which co ver expe nditure incurred in relationto the management of employment contracts on behalf of the M embers arc unavo idable.However, pre-financing payments do-not appear to be a necessity for the paying agent's fees.DG Finance should therefore foresee that ihe payment of Ihe fees will lake place in arrears, onIhe basis of an invoice, after submission of the periodical cosl statements showing the use offunds managed on behalf of the Members.

{For conlraets for the provision of services, the limitations on their use foreseen in actionsplans A-3 and B-2.2 and the requirement for ihc invoicing of fees relating to work performedprior inpaym ent (ac tion plan C-2A)should lead to a situation where prc-financ.ing paymentsarc no longer made.)(DG Finance has indicated that it now r equests a statement of forecast expenditure fr om altpaying agents at the beginning of the contractual relationship.)

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http://c-2.fi/http://c-2.fi/http://c-2.fi/


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I n t e r n a l A u d i t S e r v i c eI n t e r n a l A u d i t R e p o r t n o . 0 6 /0 2 t o t h e I n s t i t u t i o nP a r t 3 : K e y b i n d i n g s a n d D e t a i l e d A c t i o n P l a n s

C -3 INCLUDING THE KKQUIRKMENT FOR yAt.miNVOlCl^ANOSTATK MlyN T.SOi';EXPENDITURE IN Till-: CONTRACTS

Findings & Issues| The PEAM rules foresee that payments 10 contractors have to be supported by a valid invoiceand/or siaiement of expe nditure. The m odel contracts provided by DG Finance correctly take. account of this requirement. How ever, as these models arc nol man dalory, Ihc rules can becircumvented and undermined by ihe failure to transpose ihe invoicing requirement into thecontract concluded w ith the assistance p rovider. When this is ihc case, DG Finance explainedthai il is nol in a position to reject the corresponding conlract as the obligation to submit aninvoice is not included in the lisl of obligatory clauses as set oul by the PEAM rules .

Out of the 146 cases in the audit sam ple for which paying agent or service con lraets w ereconcluded, it was found lhat 85 (58%) ufth ose contracts did not include ajtroper requ irem entfor Ihe submission of an invoice or statement of expenditure by Ihe contractor. Of these cT5contracts:- 17 did not include any requirem ent for the submission of invoices Of sisifements ulexpenditure;- OS did include such a requirement but did nol specify the periodicity for ihcsubrnission of invoices or statements.(Seealso findings under point C-2.)ImplicationsContracts with service provide rs lhat do nut foresee the subm ission of invoices an d/or coststatements, oi do not m ention the periodicity of their subm ission.- undermine the enforcement of the PEAM rules, and,

arc in contradiction of the relevant principles of the Financial Regulation on th evalidation of exp enditure .The fact that Ihc PEAM rules them selves do not require the submission of invoices prior lothe payment of "advance" pay men ts being made to service p roviders:

Is in contradiction with the relevant principles of i.he Financial Regulation on Ihcvalidation of expen ditureRequires pulling in place and managing specific recording and monitoring systems toensure that regularisation takes place through (he subsequent submission of invoices. Thisis a source of managem ent inefficiency.

Associated risk lhat the implem entation of the budget is not in compliance with ihe prin cipleof sound financial m anagem ent and the requirements of legality and regularity.

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Inte rna l Au dit ServiceInternal Audit R eport no. 06/02 to the InstitutionPart 3 : Key Findings and Detailed Action PlansAction PlansC-3.1 DG Finance should submit, for discussion in the Members' Staiute Working Party and| for subsequent subm ission to the Bureau for adopiion, a proposal for an explicit requirementon invoicing to be included in the list of essential details to be provided in a se rvic e contractas set u'i:_by Ailicle 7.1 uf the CODEX. ftThoiThl f.-iLii:;e t:i;.l ;i!i new applications fol thereimbursement of parliamentary assistance expenses relating to the provision of services(including paying agent serv ices) are supported by contracts Ihal comply wilh therequirements on the subm ission of invoices and cost statements as defined by the PEA Mrules (including Ihe explicit indication of the periodicity). (Sec also action pla n A-2 w hichforesees the mandatory use of Ihe model contracts provided by DG Finance.)In the case of paying agen ts pr ovidin g their services against a fee, these contractualrequirements should cover both Ihe submission of invoices (fee clement) and of coststaiements (use of th e funds managed on behalf of the Member).

When an application for the parliamentary assistance allowance relates to a contract whichdocs not comply with the regulatory requirements, DG Finance should request ana m end m en:to that contract before grantitif^jhe allowance. The sam e principles should a pply whenchanges aje made to'a'n application for ihc reimbursement of parliamentary assistanceexpenses. V \ '(The Authorising Officer by Delegation considers that ike COD EX (Article V) requirement }orservice providers' contracts to comply with the national law applicable.and provide a V ATregisfration number represents an implicit obligation to submit invoices. H e confirmed that,in line with the conclusions of the Mem ber *;' Statute Working Party, he will propose that themodel contracts be am ended to include an explicit reference to the requirement for invoicing,He also indicated that, in the fram ework of future developments in relation to the Member s'Statute, he wou ld consider an explicit reference to this in the CODEX or its implementingmodalities.)

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Internal Audit ServiceInternal Audit Report no. 06/02 to the InstitutionPort 3 : Key Findings and Detailed Action PlansC-4 RISK THAT EXISTING SKRVICK CONTKACTS ARK DE-FACTO CONTRACTS or

EMPLOYMENTfindings


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Interna l Audit ServiceInternal Audit Report no. 06/02 to the institutionPart 3 : Key Findings and Detailed Action PlansFindings & Issues (continued/In the case of parliamen tary assistance, although ihe absence of "any chain of authority ormanagement" between Ihe Member and Ihe service provider is mentioned in mosi conlraets, illacks plausibility when the nature of the services and deliverables lo be provided is noldefined wilh precision m the contract. In 91% of |he audited contracts for the provision ofservices, the description of the service provider's duties appeared to be too imprecise to allow| ap autonomous performance of the tasks without management supervision by the M ember(sec also findings reported under point B-l).It was also noled that 23 M embers (18.5% of Ihe M embe rs in ihc sample) paid the fulla mount of the monthly parliamentary assistance allowance f 12 576) to one service prov idcrand could therefore not have any employed assistant. Valid arrangements may explain litissituation in specific cases. However, parliamcnlary assistance includes the ahility to respondon a day-to-day basis to a Member's needs.It is unlikely that this aspect of parliamentary assistance can be provided exclusively Ihroughcontracts for the provision of services from wh ich, by definition, "any chain of authority ormanagement" should be prohibited.For eight contracts lor the piovisioii of services in the nndit_siimp_[ci it appeared that theirpuipode. is to place staff at ihe M ember's disposal and manage Ihc corresponding employ mentcontracts, descriptions.of Ihe service provider's duties found in such conlraets include:"putting at the disposal staff or "employment of staff on behalf of the Mem ber".In four of ihesc cases, staff put at the disposal would perform the assistance tasks in theworkplaces or the prem ises of the Parliament w hil e the set vice piuvide r's registered officewould be located in a different place. Th is im plies , in practice, the Member's d irec t siuthijrilyover ihc daily performance of tasks by staff.

ImplicationsRisk lhat the courts could, under upplicable national Inbour law, rc-definc eoniracrs lor theprovision of services as being employment contracts."""Risk thai the conlracling of parliamentary assistants as service providers co ntravene s therelevant national legislation on social security.Associated legal, financial and reputations! risks in the case of disputes or complaints.

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galvin report pt3

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