EUROPEAN COMMISSION

Brussels, 7.5.2015

COM(2015) 211 final

REPORT FROM THE COMMISSION

on the investigation related to the manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area (Commission Decision of 11 July 2014)

{SWD(2015) 105 final}

Contents

Executive summary    

1.    Introduction    

1.1.Background

1.2.The formal Commission investigation into suspected manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011

2.    Main findings    

2.1.The recording of creditor accounts in the General Account of the AC of Valencia by IGGV 

2.2.Reporting by the IGGV to IGAE in 2012

2.3.The reporting of unrecorded expenditure by the Regional Court of Auditors

2.4.Working Group on health expenditure created in the framework of CPFF

2.5.Partial recognition of the unrecorded expenditure via account 411

2.6.Causes identified for the misrepresentation of data in the AC of Valencia

3.    Assessment of findings    

4.    Conclusions    

Executive summary

On 11 July 2014, the European Commission launched a formal investigation into the possible manipulation of statistics in the Autonomous Community (AC) of Valencia (Comunidad Valenciana), Spain. This Decision was taken in accordance with Article 8(3) of Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area in combination with Commission Delegated Decision 2012/678/EU of 29 June 2012 on investigations and fines related to the manipulation of statistics as referred to in Regulation (EU) No 1173/2011.

The investigation aimed at assessing whether the serious indications of misrepresentation of deficit and debt data in 2012 could be confirmed and, if so, whether it was a result of intent or serious negligence.

This report presents the findings of the Commission in the light of the investigation conducted, together with the key facts supporting those findings. The written observations submitted by the Kingdom of Spain on the Commission preliminary findings, are also included. The report contains a detailed description of the main reasons for the 1.9 billion euro revision in the government deficit of Spain in 2012 on the basis of an analysis of how government expenditure was compiled, recorded and reported in the AC of Valencia.

The report concludes that severe irregularities took place in the accounting, recording and reporting of expenditure of the AC of Valencia during many years. The accrual principle was not respected, extra-budgetary accounts were used against the rules in place, expenditure was sometimes left unrecorded for considerable periods of time, and the statistical information communicated from the regional authorities of Valencia to the national authorities was misleading, leading to the misreporting of the deficit data for Spain. Consequently, the EDP (Excessive Deficit Procedure) data transmitted to Eurostat did not include part of the expenditure incurred by this region, in breach of ESA 95 rules.

The key role of the IGGV (Regional Audit Office of the AC of Valencia - Intervención General de la Generalitat Valenciana) in the events surroundings the non-recording and non-reporting of expenditures is established in the report. The involvement of other institutions (the National Statistical Institute - Instituto Nacional de Estadística – INE), the National Audit Office (Intervención General de la Administración del Estado - IGAE), the Regional Ministry of Health of Valencia (Consejería de Sanidad de la Generalitat Valenciana) and the Regional Court of Auditors of Valencia (Sindicatura de Cuentas de la Comunidad Valenciana), is also discussed.

Another key finding of the report is that information on unrecorded expenditure was publicly available through the yearly reports of the Regional Court of Auditors of Valencia, which recommended that the Regional Audit Office of Valencia (IGGV) should ensure a correct recording of such expenditure.

However, the practice of not recording expenditure incurred for considerable periods of time was only brought to an end after the central government introduced a special financing mechanism for unpaid expenditure of the regions in 2012. In this context, it is concluded that an entity (IGGV) belonging to the general government sector of the Kingdom of Spain was seriously negligent concerning the non-recording of expenditure in national accounts. As a result, the data sent by Spain to Eurostat in the context of the EDP reporting was incomplete insofar as significant amounts of health expenditure were not reported.

Based on the findings in this report regarding the behaviour of the authorities of the Member State in the period from 13 December 2011 until the launch of the investigation on 11 July 2014, the Commission may decide to adopt a recommendation to the Council to impose a fine on the Kingdom of Spain, as foreseen in Regulation (EU) No 1173/2011.

 
List of acronyms used

AC - Autonomous Community (Comunidad Autónoma)

B.9 - Government deficit/surplus

CPFF - Fiscal and Financial Policy Council (Consejo de Política Fiscal y Financiera)

EDP - Excessive Deficit Procedure

ESA – European System of Accounts

IGAE - National Audit Office (Intervención General de la Administración del Estado)

IGGV - Regional Audit Office of Valencia (Intervención General de la Generalitat Valenciana)

INE - National Statistical Institute (Instituto Nacional de Estadística)

MoF - Ministry of Finance (Consejería de Hacienda y Admistración Pública)

PGCP - General Public Accounting Plan (Plan General de Contabilidad Pública)

PGCPGV - General Public Accounting Plan of the Generalitat Valenciana (Plan General de Contabilidad Pública de la Generalitat Valenciana)

SGCAL - Secretaría General de Coordinación Autonómica y Local

SPM - Special Payment Mechanism (Mecanismo de Pago a Proveedores)

SQ - Standardised Questionnaire

WG - Working Group

List of tables

Table 1: Creditor accounts in the balance sheet of the AC of Valencia, General Account published by the IGGV

Table 2: Amounts in account 409 transmitted by the IGGV to IGAE in the Standardised Questionnaire (SQ) in January, April and June 2012

Table 3: Communication between the IGGV and IGAE in chronological order

Table 4: Amounts of unrecognised (unrecorded) expenditure detailed in the reports of the Regional Court of Auditors of the AC of Valencia

Table 5: Health expenditure pending for budget allocations by the end of each year provided in the reports of the WG on health expenditure, 2007

Table 6: Details of the stock of unrecognised (unrecorded) expenditure in the AC of Valencia

List of Annexes

Annex: Observations of the Kingdom of Spain on the preliminary findings of the investigation related to the manipulation of statistics in Spain

List of documents accompanying the Report (only available in English)

Commission Staff Working Document (SWD): Relevant underlying information concerning the misrepresentation of data in the Autonomous Community of Valencia

accompanying the document Report from the Commission on the investigation related to the manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area (Commission Decision of 11 July 2014).

1.Introduction

1.1.Background

Since December 2011, Regulation (EU) No 1173/2011 on the effective enforcement of budgetary surveillance in the euro area 1 , empowers the Commission to launch investigations if there are serious indications of manipulation of statistics, intentionally or due to serious negligence. Certain criteria, procedures and rules relevant for the exercise of this mandate have been laid down in Commission Delegated Decision 2012/678 2 . According to Regulation (EU) No 1173/2011, such investigations may lead to a recommendation from the Commission to the Council to the effect that the Council should impose a fine on the Member State. The fine to be recommended is calculated by the Commission but the Council has the final say on its imposition and size. In case it is found that the Member State has, intentionally or by serious negligence, misrepresented its deficit and debt data, the Council may decide to impose a fine of up to 0.2% of GDP on that Member State.

Member States are obliged to report their annual deficit and debt data to the Commission (Eurostat), in full compliance with European statistical rules and procedures (European System of Accounts, ESA 3 ).

According to Article 16 of Council Regulation (EC) No 479/2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community 4 , “Members States shall ensure that the actual data reported to the Commission (Eurostat) are provided in accordance with principles established by Article 2 of Regulation (EC) No 223/2009. In this regard, the responsibility of the national statistical authorities is to ensure the compliance of reported data with Article 1 of this Regulation and the underlying ESA 2010 accounting rules”.

Following Article 3 of Council Regulation (EC) No 479/2009, Member States shall report to the Commission (Eurostat) their planned and actual government deficits and levels of government debt twice a year, the first time before 1 April of the current year (year n) and the second time before 1 October of year n. The data provided in year n concern years n-1, n-2, n-3 and n-4.

Spain sent its first notification in the year 2012 under the Excessive Deficit Procedure (EDP) to Eurostat on 30 March 2012. The notification contained, amongst other data, the first reported data for the year 2011. After having followed its usual procedure for data assessment, Eurostat validated and published the data of Spain on 23 April 2012, in its EDP Press Release 5 . However, on 17 of May 2012, the Spanish Statistical Authorities informed Eurostat of an increase in the expenditure of regional governments (Autonomous Communities) of about 4.5 billion euro (around 0.4% of GDP), which would impact the Spanish general government deficit, mainly in 2011, entailing an upward revision of the deficit data transmitted in the April 2012 EDP notification.

Eurostat carried out a technical visit to Spain on 24 May 2012. The follow-up actions resulting from this visit were further discussed during an Upstream Dialogue Visit 6 on 18-22 June 2012 and on 11-14 September 2012. A further ad-hoc visit was carried out in September 2013.

These visits (in particular the last ad-hoc visit in September 2013) were conducted in order to fully understand the revisions of 17 May 2012 and to establish the possible existence of “serious indications” which would justify the initiation of an investigation pursuant to Article 8(3) of Regulation (EU) No 1173/2011, which states that the Commission may “initiate an investigation when it finds that there are serious indications of facts liable to constitute [the relevant] misrepresentation”.

The Autonomous Community of Valencia (Comunidad Valenciana, hereinafter referred to as the "AC of Valencia") was identified as presenting significant irregularities, as government expenditure, in particular in the health sector, had been allowed to accumulate over a number of years without being recorded in the public accounts, in breach of the accrual principle 7 . The revision of the expenditure reported by the AC of Valencia for the April 2012 EDP notification, corresponding to the unpaid expenditure, amounted to around 1.9 billion euro.

The reason why the unpaid expenditure was revealed was that, in 2012, the Spanish Government introduced a special financing mechanism, the Special Payment Mechanism (SPM) for the payment of arrears incurred by Autonomous Communities' and municipalities. This mechanism was regulated by Agreement 6/2012 of 6 March 2012 of the Fiscal and Financial Policy Council (CPFF) (for the Autonomous Communities, hereinafter "the Agreement"), the Law 4/2012 (for municipalities) and the Law 7/2012 (for both Autonomous Communities and municipalities). The procedure and the calendar for applying for SPM financing were set in the Agreement 8 . The SPM implied that the Autonomous Communities or municipalities should disclose all their unpaid bills in exchange of the payment of such bills directly by central government.

In particular, in order to apply for the SPM, Autonomous Communities had to proceed as follows:

1.Send an application to the National Ministry of Finance (Ministerio de Hacienda y Administración Publica, hereinafter referred to as the "National MoF") before 1 April 2012;

2.Send the invoices for the unpaid bills to the National MoF before 15 April 2012;

3.Provide an adjustment plan (Economic and Financial Plan) by 30 April 2012, which had to be validated by the CPFF within 15 days.

The invoices corresponding to unpaid bills had thus already been sent by most regions, via their regional Ministries of Finance, to the National MoF before 17 May 2012. Moreover, the adjustment plans ensuring the ability to repay the loans had already been provided by regions and validated by the CPFF and published on its website. On the same day, the National Statistical Institute (INE) informed Eurostat for the first time about the discovery of unrecorded expenditure in some Autonomous Communities. The Regional Ministry of Finance of the AC of Valencia (hereinafter referred to as the "Regional MoF"), in order to be able to send an application under SPM to the National MoF before 1 April 2012, was therefore in possession of the information on the unrecorded expenditure at the time of the reporting of EDP figures to Eurostat, in the context of the April 2012 notification.

The requirements to be met in order for unpaid bills to be accepted in the SPM for reimbursement were also set in the Agreement. One of the main features and conditions was that the unpaid bills had to correspond to expenditure accrued, recorded and pending to be paid at the end of the year 2011. In order to benefit from the reimbursement of unpaid bills by the central government, the Autonomous Communities and municipalities were thus obliged to disclose the full amount of the existing debts (unpaid bills) with suppliers and, as a consequence, the previously unrecorded expenditure had to be disclosed.

In the course of the exercise, it became evident that some expenditure incurred in 2011 and previous years had not been reported in the April 2012 EDP notification (or in any previous EDP notification). These amounts increased the deficit of Autonomous Communities and therefore the general government deficit by 0.4 % of GDP.

As mentioned above, a significant part of the unreported expenditure was concentrated in the AC of Valencia. It appeared that violations of the accrual principle had been recurrent in this region, as considerable amounts of health expenditure not yet paid and not foreseen in the budget were not reported in any account, be it budgetary or extra-budgetary.

1.2.The formal Commission investigation into suspected manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011

On the basis of the visits undertaken and of further analysis of the situation, Eurostat concluded that there were serious indications of misrepresentation of statistics which justified the initiation of an investigation pursuant to Article 8(3) of Regulation (EU) No 1173/2011. It therefore recommended that the Commission opens an investigation into the misrepresentation of EDP data in Spain. On 11 July 2014, the European Commission decided to launch a formal investigation into the possible manipulation of statistics from the AC of Valencia, Spain 9 .

This is the first time that the Commission has drawn on its new powers under Regulation (EU) No 1173/2011 to investigate suspected manipulation of a Member State's deficit and debt data.

The Commission investigating team interviewed in separate meetings representatives of the National Statistical Institute (Instituto Nacional de Estadística – INE), the National Audit Office (Intervención General de la Administración del Estado - IGAE 10 ), the Regional Audit Office of Valencia (Intervención General de la Generalitat Valenciana - IGGV 11 ), the Regional Ministry of Health of Valencia (Consejería de Sanidad de la Generalitat Valenciana, hereinafter referred to as the "Regional Ministry of Health"), the Regional Court of Auditors of Valencia (Sindicatura de Cuentas de la Comunidad Valenciana, hereinafter referred to as the "Regional Court of Auditors"), as well as the ex-General Comptroller of the Autonomous Community of Valencia (head of IGGV) for the period 1997-2012, who was interviewed at his request. The written records of each meeting have been established and signed by all participants.

The quotations that appear in the endnotes (listed as a, b, c…) of this report have been taken from the official records of the above meetings and reproduce exactly the statements made by the representatives of the different institutions interviewed.

This report presents the findings of the Commission in the light of the investigation conducted in accordance with the Commission Delegated Decision 2012/678, together with the key facts supporting those findings. Further factual information concerning the misrepresentation of data in 2012 can be found in the Commission Staff Working Document “Relevant underlying information concerning the misrepresentation of data in the Autonomous Community of Valencia” (hereinafter referred to as SWD) accompanying this report.

It should be noted that when carrying out its investigation into the misreporting of expenditure, the Commission has aimed to uncover the full extent of the problem and how it occurred, in the interest of preventing future cases. It is therefore inevitable that the scrutiny has included facts which antedate the entry into force of Regulation (EU) No 1173/2011 on 13 December 2011. However, the aim of the investigation has been to demonstrate misrepresentation of data that took place after the entry into force of the Regulation. The relevant behaviour of the Member State on which the Commission may base a recommendation to the Council is thus its behaviour in the period from 13 December 2011 until the launch of the investigation on 11 July 2014.

The preliminary findings of the investigation related to manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011 were sent to the Kingdom of Spain for its observations on 19 February 2015, as required by Article 6 of Commission Delegated Decision 2012/678. The Commission invited the Kingdom of Spain to submit written observations on the preliminary findings by 19 March 2015. The Kingdom of Spain provided its written observations on 24 March 2015.

In an overall remark to the observations presented by the Kingdom of Spain, it should be noted that some of the observations are concurrent with the pleas presented by that Member State in case T-676/14, Spain v Commission. That case is currently pending before the General Court of the Court of Justice of the European Union. To the extent that the observations presented by Spain relate to legal issues, including regarding its rights to defence, which have been raised by Spain before the Court of Justice, these will be addressed in the context of the Court case. The Commission has therefore, in the context of this report, concentrated on the observations of Spain which relate to the facts of the case.

The written observations on the Commission preliminary findings submitted by the Kingdom of Spain are attached to this final report (Annex). All observations in Annex II of the Spanish observations, i.e. the list of errors and inaccuracies regarding the facts, were incorporated in the final report 12 .

2.Main findings

This section provides a detailed description of the main reasons for the 1.9 billion euro revision in the government deficit of Spain in May 2012 and of the involvement of the different institutions. The AC of Valencia was identified by the Commission (Eurostat) as the only region presenting significant irregularities. Those irregularities were mainly related to the recording of health expenditure. The expenditure from different years which were neither recorded in the AC of Valencia's public accounts nor in the national accounts amounted to a total of 1.9 billion euro.

These amounts had never been reported by IGGV to IGAE I in the Standardised Questionnaire (SQ) 13 , although the Regional Court of Auditors underlined the existence of amounts concerning unrecorded expenditure in all of its annual reports, from 1988.

Only after the SPM launched by the central government for the payment of arrears of the Autonomous Communities had entered into force, was the 1.9 billion euro reported to IGAE II , as the main requirement to obtain SPM financing was that the amounts should correspond to expenditure recorded and pending to be paid by the end of 2011.

2.1.The recording of creditor accounts in the General Account of the AC of Valencia by IGGV

Table 1 provides an overview of the creditor accounts in the balance sheet for the period 2001-2011 as compiled by the IGGV.

Table 1: Creditor accounts in the balance sheet of the AC of Valencia, General Account published by the IGGV

Table 1 includes two columns for the year 2011. The second column (the correct recording) is the version published by the IGGV at the end of June 2012, after the deficit revision in May 2012. The first column shows the provisional data sent by the IGGV to IGAE in January 2012, used for the April 2012 EDP notification.

The first line represents the amounts not paid in the year, but foreseen in the budget (public accounts) and therefore reflected in national accounts. As it can be seen in table 1, the behaviour of creditor accounts in the budget is quite stable and the amounts started to increase from 2008.

The third line, extra-budgetary accounts, represents amounts not paid in the year, not foreseen in the budget, but recorded in these account to be allocated to the budget of the following year. The amounts increased considerably in two years: 2007 and 2009. This was due to the recognition of unrecorded expenditure that took place in those years through the approval of specific regional Laws (Article 59bis – sections 2.d and 3 of the Public finance Law) and the signature of different agreements (more details in section 2.5).

The amounts in account 409 14 (second line) were negligible until a correct recording was implemented for the first time for the year 2011 when the SPM entered into force. As a consequence, only minor amounts were reported to IGAE in account 409 before June 2012. The first non-negligible amounts (although still incomplete) concerning the year 2011 were reported in January 2012 (and confirmed in April 2012), after the intervention of IGAE. In the third transmission in June 2012, significant revisions were reported as regards account 409 for the year 2011, confirming the deficit revision of 1.9 billion euro in the AC of Valencia.

Instead of recording in account 409, the AC of Valencia had used account 411 15 for such expenditure. Other regions used only the account 409 III .

2.2.Reporting by the IGGV to IGAE in 2012

Table 2 provides the detailed amounts reported by the IGGV to IGAE in January, April and June 2012 in the tables corresponding to account 409 in the Standardised Questionnaire (SQ). The table shows that not all amounts had been reported by IGGV to IGAE in the SQ sent in January 2012.

Table 2: Amounts in account 409 transmitted by the IGGV to IGAE in the Standardised Questionnaire (SQ) in January, April and June 2012

In the January 2012 data collection exercise, IGAE contacted IGGV and questioned the amount of the data reported in account 409, as it had been noticed that amounts reported in this account were extremely small. IGGV reported, as a result, by telephone, an additional expenditure of about 300 million euro, previously not included in the SQ. IGAE then included this additional information received by telephone in the data sent to Eurostat in the context of April 2012 EDP notification. IGGV officially reported these data, via the SQ, only on 30 April 2012.

The amount of 1.9 billion euro for unpaid bills was not transmitted to IGAE in either of the versions of the SQ sent by the IGGV at the end of January and at the end of April 2012. However, by the end of April 2012, the same unpaid bills included in the amount of 1.9 billion euro had already been sent by the Regional MoF to the National MoF, and the Economic and Financial Plan for 2012-2014 of the region of Valencia, which also included this amount, had been submitted to the CPFF.

At the beginning of May 2012, both the invoices and the adjustment (Economic and Financial Plan) started to be analysed and checked by the National MoF and the CPFF. It was only at that moment that IGAE was informed by the National MoF IV about the 1.9 billion euro revision involving the AC of Valencia. IGAE immediately contacted the IGGV in order for the information to be confirmed. In a telephone conversation, the IGGV confirmed that the additional debt was about 1.8 billion euro, but that it was not possible to know the exact amount at that stage, as data was still under validation. IGAE then raised the issue in the Spanish Technical Committee of National Accounts 16 and it was decided to immediately communicate these facts to Eurostat (on 17 May 2012), even though the figures were still under validation.

The figures for unpaid bills, recorded in account 409 for the first time, were finally transmitted officially by IGGV to IGAE at the end of June 2012.

The largest part of the unrecorded unpaid bills, reported officially in June 2012 (1.9 billion euro), was generated in 2011. An amount of 862 million euro was attributed to 2011 while more or less 1 billion euro was attributed to the years prior to 2011 as follows: 29 million euro to 2008 and earlier years, 378 million euro to 2009 and 624 million euro to 2010.

Table 3 shows the main events as regards the flow of information between the IGGV and IGAE listed in chronological order. The amount of 1.9 billion euro was included in the "Adjustment plan for 2012-2014" submitted by the AC of Valencia to the National MoF in April 2012, but not included in the SQ transmitted to IGAE by the end of April 2012, even though the deadline for both submissions was 30 April 2012 17 .

The following conclusions can be drawn as regards the recording of health expenditure in the AC of Valencia:

Only negligible amounts 18 were recorded in account 409 until the SPM was launched (in March 2012) as shown in line 2 of table 2. A correct recording was only achieved for 2011 after the revisions of the figures, carried out in order to benefit from the SPM (June 2012, affecting account 409 of year 2011).

Important amounts of unrecognised debt from previous years were recorded and recognised in account 411 as shown in line 3 of table 1.

The amounts concerning account 409 for 2011 sent by the IGGV to IGAE were revised by 1.9 billion euro between the transmissions of January 2012 and June 2012.

The expenditure reported for 2011 in account 409 in the SQ sent in June 2012, includes amounts corresponding to previous years.

Table 3: Communication between the IGGV and IGAE in chronological order

2.3.The reporting of unrecorded expenditure by the Regional Court of Auditors

Every year, in June, the IGGV provides the General Account of the AC for the year T-1 to the Regional Court of Auditors. In November, the Regional Court of Auditors submits a draft version of its assessment report to the IGGV for comments. The IGGV circulates the draft report to all the entities in the region that may be concerned and gathers all the comments/amendments that are then forwarded to the Regional Court of Auditors for a possible update of the report. The Regional Court of Auditors analyses the comments and decides, one by one, whether they should be taken into account in the final version of the document. The final version of the report for the year T-1, including the amendments, when considered appropriate by the Regional Court of Auditors, is approved and published by December of year T.

Every year, the comments on behalf of all entities involved, that had been sent by the IGGV to the Regional Court of Auditors for a possible amendment of the report, were published by the Regional Court of Auditors as Annex II 19 to the report, including the decision and the subsequent explanations of the Regional Court of Auditors for taking (or not taking) them into account.

The annual reports of the Regional Court of Auditors on the general account of the AC of Valencia reported the existence of unrecognised (and unrecorded) expenditure in the region from 1988. Table 4 shows the stock of unrecognised expenditure by year, for the period 1988 – 2011, as mentioned in the reports of the Regional Court of Auditors 20 .

All reports of the Regional Court of Auditors over the years, thus, outlined the existence of significant amounts of unrecognised expenditure related to the health sector. The reports from the Regional Court of Auditors recommended (at least from 2003 onwards) the recording of these unrecognised expenditure related to the health sector in account 409, in line with Rule 5 of the Accounting Instruction for the AC of Valencia (Instrucción de Contabilidad de la Generalitat). The Regional Court of Auditors detailed the amounts of unrecorded expenditure each year. However, the IGGV never took any action to implement the recommendations V .

The Regional Court of Auditors, thus, recommended to the regional government (the Consell) to adopt measures for the liquidation and payment of the remaining stock of unrecognised expenditure. In this context, it recommended analysing and regularising expenditure corresponding to previous years in the creditor accounts. In addition, the report of the Regional Court of Auditors recommended elaborating the budget relating to the health sector according to the real situation, as the current version hindered the application of the principles of effectiveness, efficiency, economy and legality. To solve this situation, different measures were implemented by the regional government from the year 2007 onwards (signature of agreements, recognition of the past debt) and it was recommended that such measures continued to be adopted until the situation was balanced.

At the beginning, the full amount of expenditure not recognised in a given year was immediately imputed to the following year and, in addition, the amounts were quite small, making the total impact limited. However, from 1993 onwards, only part of the expenditure not recognised in a given year, and not the full amount, was imputed to the following year. As a consequence, the amounts of expenditure not yet paid, not foreseen in the budget and not reported, gradually increased to reach considerable amounts.

In the reports from the Regional Court of Auditors, it was stated that the data was provided by the Regional Ministry of Health and therefore publicly available VI .

During the investigation, the Regional Court of Auditors confirmed that it always received all necessary accounting information at the requested dates from the Regional Ministry of Health and that the cooperation with the ministry had always been very good in this respect VII .

The Regional Ministry of Health usually provided information on health expenditure to the Regional Court of Auditors between February and May every year. The date varied every year and it depended on when the Regional Court of Auditors asked for it. Usually, the Regional Ministry of Health had this information available at the beginning of the year and promptly provided it to the Regional Court of Auditors. In 2006, exceptionally, the Regional Ministry of Health sent the complete amount of unrecorded health expenditure incurred in 2001-2005 directly to IGGV at the beginning of the year VIII .

Table 4: Amounts of unrecognised (unrecorded) expenditure detailed in the reports of the Regional Court of Auditors

The Regional Court of Auditors offered to provide to IGGV all information (should IGGV not have access to it) on unrecorded unpaid bills in the health sector, as described in the public report of the Regional Court of Auditors of 2010 IX . In spite of this offer, IGGV never asked the Regional Court of Auditors to provide it with this data.

The Regional Court of Auditors sent its reports to about 60 persons in different bodies of the Autonomous Communities, including the Regional Ministry of Health and IGGV X . Draft reports were sent to IGGV for distribution to managers who drafted the observations. The final report (with its conclusions and recommendations) was sent to all managers of the different bodies and to the IGGV.

It appears from the investigation that management centres (such as the Regional Ministry of Health) do not have the power to account the expenditure incurred but not paid in account 409 or in similar accounts for that purpose (something which only IGGV could do), but only in the budgetary accounts. Under the Public Finance Law it is the IGGV in the AC of Valencia which is responsible for making sure that expenditure is recorded according to the accrual principle. The correct implementation of the accrual principle is a pure accounting issue.

2.4.Working Group on health expenditure created in the framework of CPFF

In 2007, the CPFF established a Working Group (WG) on health expenditure with the main aim to analyse such expenditure 21 . All 17 regions were represented by the regional ministers of health and accompanied by the regional General Comptrollers (heads of the Regional Audit Offices). Valencia was represented by the Regional Ministry of Health and the Regional MoF, the latter being the direct hierarchical superior of IGGV. IGAE also participated in this WG.

Three Autonomous Communities (Andalucía, Cataluña and Valencia) represented 75% of the total expenditure pending to be allocated to the budget by the end of each year (see table 5). There was however a substantial difference between them. In Andalucía and Cataluña the amounts had been correctly recorded in the extra-budgetary accounts (409 or similar) and reported to IGAE accordingly. In Valencia they were not.

Table 5: Health expenditure pending for budget allocations by the end of each year provided in the reports of the WG on health expenditure, 2007

In the case of the AC of Valencia, there were considerable amounts of unpaid bills related to health not recorded in any account. As IGAE also participated to these meetings, they became aware of these “unrecorded unpaid bills”.

During the investigation, IGAE confirmed that the non-recording of health expenditure in Valencia was first spotted in 2007, after the report of CPFF Working Group on Health expenditure.

In this context, IGAE had asked IGGV to confirm the amounts included in accounts 409 and 411, and IGGV had confirmed that the data sent to IGAE by it was correct.

In 2007, the AC of Valencia signed the first Agreement through which it recognised a large amount of previously unrecorded bills via account 411. In 2007, the AC of Valencia reported to IGAE, for the first time, previously unrecorded unpaid bills, broken down according to the different years in which the expenditure should have been recorded. IGAE, therefore, assumed that all previously unrecorded unpaid bills were now recorded either in account 411 or in the budgetp.

The investigation concluded that IGAE did not have any relations, either direct or indirect, with the Regional Court of Auditors or with any other external control body. There is no existing agreement between IGAE and the Regional Court of Auditors. IGAE has access to the reports of the Regional Court of Auditors only once they are published. These reports were checked on a regular basis only from 2009 onwards. However, the reports concerning data of year T-1 are usually available at the earliest only in December of year T, whereas the data has to be reported to Eurostat already in April.

During the investigation IGAE reported that it regularly asked IGGV why such considerable amounts, reported in the reports of the Regional Court of Auditors, were not recorded in the accounts of the region. IGGV replied that they did not have any information in order to check whether the data reported by the Regional Court of Auditors was correct.

This led IGAE to believe that these amounts would be included at the latest in the budget of January/February of the following year. IGAE underlined that they needed the collaboration of the IGGV and that the reports of the Regional Court of Auditors did not provide enough details to be used directly in national accounts, as IGAE asks for more detailed information in their SQs than what is available in the report of the Regional Court of Auditors. With just the information from the reports of the Regional Court of Auditors it was not possible, according to IGAE, to make the necessary national accounts adjustments.

In addition, IGAE had no powers to unilaterally amend data sent by IGGV and no means to verify whether the data sent by IGGV was correct. IGAE could only ask for additional clarifications on the data and must accept the data officially sent by Autonomous Communities. If the outcome of the questioning by IGAE is that the regions confirm the data sent, IGAE must accept this.

It is to be underlined that the Autonomous Communities have the possibility to send revised data to IGAE, via the SQ, up until the 15 March of a given year, in order for them to be included in the April EDP notification. Revised SQs were sent by some regions, but never by AC of Valencia.

According to IGAE, when the quality of the data sent by the AC of Valencia was questioned, IGGV confirmed the data which had originally been sent.

2.5.Partial recognition of the unrecorded expenditure via account 411

When the stock of unrecorded expenditure by the end of year 2006 had risen to a considerable level (see table 6), the regional government adopted measures with a view to recognizing part of the expenditure.

Table 6 details how the amounts of unrecorded expenditure were dealt with. Starting from the stock of unrecorded expenditure at the beginning of the year, every year some amounts were deducted (the amounts imputed to the budget of that year and the amounts to be recognised in account 411) and some amounts were added (the unrecorded expenditure generated that year) to obtain the new stock of unrecorded expenditure by the end of each year.

Table 6: Details of the stock of unrecognised (unrecorded) expenditure in the AC of Valencia

In practice, part of the unrecorded expenditure was removed from the stock of unrecognised debt and included in account 411 (integrated in the public accounts) from the year 2007 onwards. Two regulatory changes were implemented, which, according to the regional government, allowed the recognition of unrecognised debt in account 411.

Firstly, the "Ley de Hacienda Pública de la Generalitat Valenciana" (Public Finance Act 22 ), which sets out the budget system and the accounting framework and forms the basis for the control of public accounts in the region, was modified several times as concerns the recognition of expenditure. By Law 12/2004 of 27 December, its article 59 was extended with the inclusion of an article 59bis, setting the framework for the non-recognition of payment obligations under certain circumstances. Later, through Law 10/2006 of 26 December, two new sections (2.d and 3) were added to article 59bis. These new sections 2.d and 3 would have enabled the adoption of specific mechanisms for the allocation of incurred but unrecognised expenditure to budgets of future years, in case of insufficient budgetary provision to meet past and present payment obligations.

Article 59bis, in its original version, states as follows:

Secondly, specific agreements 23 were signed by the regional government between 2007 and 2010. According to the regional government, these agreements allowed the recording in public accounts (in particular, in account 411) of unrecognised health expenditure related to past years.

The agreements are the following:

-Agreement signed on 20 April 2007. Recognition of 847.4 million euro in account 411. The expenditure was recognised in 2007, but incurred in the period 2002-2004.

-Agreement signed on 13 June 2008. Recognition of 145.4 million euro in account 411. The expenditure was recognised in 2008, but incurred in the period 2002-2004. This agreement is simply an extension of the previous agreement.

-Agreement signed on 13 March 2009. Recognition of 774.3 million euro in account 411. The expenditure was recognised in 2009, but incurred in the period 2006-2008.

-Agreement signed on 31 July 2009. Recognition of 82.7 million euro in account 411. The expenditure was recognised in 2009, but incurred in the period 2004-2008.

-Agreement signed on 15 October 2010. Recognition of 96.3 million € in account 411. The expenditure was recognised in 2010, but incurred in the period 2002-2004. This agreement is simply a second extension of the agreement signed the 20-4-2007.

Every time an agreement was signed, the corresponding amount reduced the stock of unrecorded expenditure and was automatically included in the account 411, having an immediate impact on both public and national accounts.

This explains the increases in the extra-budgetary account 411 for the years 2007 and 2009 and the corresponding decrease in the stock of unrecognised expenditure which can be seen in the previous tables 1 and 6 respectively.

In 2007, 847 million euro, which corresponded to non-recognised health expenditure incurred in the period 2002-2004, were added to account 411. In 2009, 857 million euro were added to account 411, this time corresponding to unrecognised health expenditure incurred during the period 2004-2008. In 2008 and 2010 other small amounts 24 corresponding to unrecognised health expenditure from the past were added to account 411, but due to their size, the impact cannot be easily seen. The decrease in the stock of unrecognised expenditure was not discernible, as the recognition of the small amounts in account 411 was neutralized by considerable amounts of unrecognised expenditure incurred during that year.

2.6.Causes identified for the misrepresentation of data in the AC of Valencia

This section enumerates the irregularities found in the compilation, recording and reporting of expenditure in the AC of Valencia. The irregularities were carried out at a regional level, by the Regional MoF and, in particular, by the IGGV.

Firstly, the non-recording of expenditure effectively incurred goes against basic accrual accounting principles applicable both at national level and according to ESA 95 25 .

Secondly, the use of account 409 is specified in both the General Public Accounting Plan (Ley de Hacienda Pública de la Generalitat Valenciana) and the Accounting Instruction for the AC of Valencia (Instrucción de Contabilidad de la Generalitat Valenciana) for the recording of expenditure pending allocation to the budget 26 . Had account 409 been used correctly in accordance with the instruments cited, this would have ensured the correct reporting of data. However, by disregarding its mandatory use, unrecorded expenditure was never included by the IGGV in this account, despite the obligation to do so. Amounts recorded in the account 409 were insignificant until reporting of the correct figures in May 2012 and the subsequent deficit revision.

Reports from the Regional Court of Auditors explicitly recommended the recording of unaccounted and unrecorded health expenditure in the account 409. This advice was also supported by the Regional Ministry of Health 27 . This recommendation was however not followed by the IGGV. IGGV started to recognise (record) some amounts from 2007, but only for partial amounts, and the practice of not recording expenditure effectively incurred continued, thereby increasing the stock of unrecorded expenditure of the region.

The result was that the accrual principle was not followed in the AC of Valencia, in breach of ESA 95 rules, and the EDP and government finance statistics data reported were incorrect, and not corrected until the revision in the October 2012 EDP notification. No significant amounts concerning expenditure pending allocation to the budget (account 409) were transmitted by the IGGV to IGAE in the SQ. This led to incorrect recording of the amounts from previous years, impacting the deficit (B.9) of years in which they did not incur, via the recognition of past expenditure in the account 411. The result of the non-compliance with the accrual principle in the AC of Valencia, in breach of ESA 95 rules, was that the EDP and government statistics finance data reported in 2012 were incorrect, and not corrected until the revision in the October 2012 EDP notification.

According to the Public Finance Act (Ley de Hacienda Pública de la Generalitat Valenciana), the IGGV is responsible for the internal control of the accounts in the region and for the compilation of the general account, which should correctly reflect the economic situation. This task was not fulfilled, as significant amounts of expenditure were not reflected in the accounts (general account of the region) and the IGGV did not acknowledge them. The IGGV must have been aware of these amounts, given that the Regional Ministry of Health and the Regional Court of Auditors were aware of them and communicated them to IGGV both informally via e-mails from the Ministry of Health and formally via the reports of the Regional Court of Auditors.

Even if the ad-hoc regulation approved by the region (article 59bis of the Public Finance Act and the different other agreements signed by the regional government) would have allowed the procedure followed by the IGGV in the accounts, through the recording of relevant amounts of unrecognised debts from previous years in account 411, this did not exempt the Spanish authorities from complying with the ESA 95 principles in the reporting of EDP data  XI .

In addition, the general account of the region, compiled by the IGGV, did not seem to be detailed enough as regards extra-budgetary accounts. Considerable amounts of health expenditure incurred were not reported in the general account. The amounts recognised from year 2007 onwards, in the account 411, were not clearly explained and no breakdown was provided. In other tables, very small amounts were explained in detail, while no explanation was given for the close to 2 billion euro recognised in the account 411 between the year 2007 and the year 2010. The report referred only briefly to the extra-budgetary creditors and account 411. The Regional Court of Auditors, in its annual reports, recommended to the IGGV more clarity in this respect and asked to provide more detail as regards the explanation and the breakdown of certain accounts in the general account of the region.

Concerning the information sent by the IGGV to IGAE in the SQ, no amounts for unpaid unrecorded bills were reported in the SQ sent to IGAE on 30 April 2012, while such amounts had already been transmitted to the National MoF in the invoices sent for the purposes of the SPM and in the adjustment plan provided to the CPFF. Moreover, IGGV had received information on these amounts by email from the Regional Ministry of Health already in February 2012.

The irregularities in the AC of Valencia were in fact revealed to Eurostat only after INE had communicated the new revision of deficit (B.9) to Eurostat in May 2012. Following this information, Eurostat carried out a technical mission to Spain and it was only after this mission that a new recording procedure began in the AC of Valencia using the account 409 and reflecting the corresponding amounts in both the general account for the region and the SQ transmitted to IGAE.

3.Assessment of findings

The final report shows that severe irregularities took place in the accounting, recording and reporting of expenditure of the AC of Valencia over a significant period of time. The accrual principle was not respected 28 , extra-budgetary accounts were used improperly, expenditure was sometimes left unrecorded for years and the statistical information communicated from the regional authorities of Valencia to the national authorities was misleading, leading to the misreporting of the deficit data for Spain in 2012.

This practice of not recording expenditure was brought to an end later in 2012, due to the introduction of the SPM, which provided an incentive for the regions to disclose the full amounts of their unpaid bills in order to receive financial assistance from the central government. This full disclosure of expenditure was necessary, due to the fact that the unpaid bills had to refer, as one of the main conditions of the SPM, exclusively to expenditure already accrued and recorded at the end of 2011.

It must be therefore concluded that the EDP data transmitted to Eurostat in 2012 did not include part of the expenditure incurred by the AC of Valencia. The accrual principle, which follows from ESA 95 rules, was disregarded. Moreover, the budgetary, financial and accounting framework adopted at national and regional level was also widely disregarded as far as the recording of health expenditure (and for lower amounts, other types of expenditure) was concerned. Accounts which were supposed to be used for recording expenditure incurred but not paid (in order to be entered in the budget of the following years and be accounted for in ESA 95 terms in the present year) were not used.

The non-recording of some expenditure started in 1988. This involved, at first, very small amounts, and expenditure not recorded in a specific year was subsequently recorded in the following year. From 1993 onwards, the total amounts of unrecorded expenditure increased and not all the expenditure unrecorded in one year was recorded the following year.

By the year 2007, the total amount of unrecorded expenditure of past years reached over 1 billion euro. Five agreements were signed between 2007 and 2010 which. via the adoption of special regional regulations, allowed the recording in the accounts of the region of such expenditure, as well as the payment to the suppliers of goods and services which had been provided to the regional government in the context of its health policy and were long overdue for payment. In this context, no measures were taken by IGGV to ensure a correct recording of expenditure in the future. The practice of non-recording of expenditure continued, leading to the considerable upward revision of the deficit of Spain in 2011 of around 1.9 billion euro.

This amount was not reported by the IGGV to IGAE in the SQ in January 2012. Nor was it brought to the attention of IGAE via the use of the SQ three months later, at the end of April 2012 29 , at the time of the second annual transmission of the SQ, even if regional government had, by that time, already transmitted to the central government the information that unpaid and unrecorded bills corresponding to such an amount existed. The correct figure was finally confirmed to IGAE only in May 2012.

The non-recording of expenditure in the AC of Valencia, as described in this report, resulted in incorrect transmissions of data to Eurostat in the context of first EDP notification in 2012.

The main actors involved in the events described above, are the IGGV, IGAE, INE, the Regional ministry of Health and the Regional Court of Auditors XII . All the entities interviewed have been helpful and fully cooperative with the Commission investigation team, providing to the Commission (Eurostat) the information requested as necessary for the investigation.

The Regional Court of Auditors consistently reported in its annual reports the unrecorded expenditure from 1988 onwards and recommended that these amounts be recorded in the accounts of the AC of Valencia XIII   XIV . It reported, in particular, amounts of unrecognised expenditure of over 1 billion euro for the years between 2003 and 2010 in the AC of Valencia (with the exception of 2007 and 2009, when the amount was smaller due to the recognition of unrecorded expenditure via account 411). However, the fact that the existence (for progressively increasing amounts) of unrecognised expenditure was systematically pointed out by the Regional Court of Auditors, did not lead to any specific action at regional level in order to rectify this situation, which was only corrected in the accounts of 2011, as confirmed in the report of the Regional Court of Auditors XV .

The National Statistical Office (INE) informed Eurostat about the situation on 17 May 2012, after the IGGV confirmed to IGAE that the data had to be revised by 1.9 billion euro related to previously unrecorded expenditure.

IGAE realised that something was wrong in 2007, via the Working Group created in order to deal with the problem of health expenditure in the region. However, IGAE thought that the problem had been solved via the agreements approved by the AC of Valencia, the first of which was concluded in 2007 XVI , recognising the significant amounts of past unrecorded expenditure which were recorded then in account 411 (although they should have been recorded in account 409) 30 . However, the practice of not recording expenditure continued. Moreover, the investigation seems to indicate that IGAE had limited powers to rectify the issue, as it could not (and still cannot) unilaterally change the data provided to it by the regions XVII .

The Regional Ministry of Health is the entity which provided the source data for the recording of the health expenditure in the AC of Valencia XVIII . The Regional Ministry of Health provided the available information on extra-budgetary expenditure to the Regional Court of Auditors, (as well as to the national Ministry of Health) XIX in a formalised way, sending them at the same time informally, via e-mail XX , to IGGV XXI . Moreover, the Regional Ministry of Health agreed with the Regional Court of Auditors that extra-budgetary expenditure should have been recorded in the account 409.

IGGV seems to have been the main responsible for the fact that the accrual principle was not followed and that considerable amounts of health expenditure were not recorded XXII , as supported by evidence provided by different entities, including IGGV itself, the Regional Ministry of Health, IGAE and the Regional Court of Auditors. It was the IGGV that had the responsibility of compiling the public accounts of the region XXIII . In this context, the findings of the report demonstrate that the IGGV:

1. did not completely follow neither the national General Public Accounting Plan nor the specific one of the AC of Valencia, thus misusing accounts 409 and 411 XXIV . Moreover, the IGGV did not follow the Accounting Instructions for the AC of Valencia (Instrucción general de contabilidad pública de la Generalidad Valenciana) approved in 2002.

2. did not record past expenditure incurred, in breach of ESA 95 rules and in particular of the accrual principle.

3. did not take into account the reports of the Regional Court of Auditors XXV , supported by comments of the Regional Ministry of Health XXVI , which brought the practice of not recording incurred expenditure to light XXVII . In 2008, IGGV started to record amounts of past unrecorded expenditure incurred in the past, but only for partial amounts and not for the totality of unrecorded expenditure.

4. did not raise the attention of IGAE on the shortcomings of the information sent by the IGGV to IGAE in the context of the SQ.

5. sent to IGAE, both at the end of January 2012 and at the end of April 2012, an SQ which did not include the amount of unrecognised expenditure (1.9 billion euro) which had been already provided by the IGGV to central government in another context during the month of April 2012, in spite of the fact that IGGV had unofficially received this information from the Regional Ministry of Health by email already in February 2012. This was one of the main reasons for the upwards revision of the deficit of Spain for 2011 between the April and the October 2012 EDP notifications. The IGGV officially confirmed the correct amounts to IGAE only in June 2012, that is, not only after the figure concerning the amount of unpaid bills (never recorded earlier as expenditure) had already been sent directly to the central government, but also after the economic and financial plan of the region (which detailed the existence of these unpaid bills) had been submitted to the CPPF.

6. compiled general accounts for the region (publicly available on the website) that, up to June 2012, did not refer explicitly to any unrecorded expenditure and provided only minimal information on the considerable amounts included in account 411.

7. ignored the data of the Regional Ministry of Health sent to the Regional Court of Auditors (and informally, and at least once even formally, to IGGV itself) which showed the full amount of health expenditure accumulated over the years XXVIII   XXIX .

8. failed to obtain and examine the necessary documentation in order to elaborate the general accounts of the region XXX , in spite of its obligation to do so.

9. did not use the network of the “Interventores delegados” in the hospitals of the region, to obtain directly the data on health expenditure XXXI .

10. insisted with IGAE that the data sent through the SQ were correct, even though this was not the case.

11. failed to send the correct data to IGAE in the SQ 31 even after the Regional Court of Auditors had published the correct data of unrecorded health expenditure.

12. did not accept the offer of the Regional Court of Auditors of providing the correct data directly to IGGV, for inclusion in the accounts of the AC of Valencia, and did not ask the Regional Ministry of Health to provide formally to IGGV the information on unrecorded health expenditure that the Regional Ministry of Health sent to the Regional Court of Auditors. According to the statements of the representatives of the Regional Ministry of Health, it seems that the head of the IGGV until 2012 had given oral instructions to the Regional Ministry of Health not to send the data of unrecorded health expenditure formally to IGGV.

13. in spite of knowing that the data in the general account and reported to IGAE were not correct, failed to take contact with the Regional Ministry of Health or any other authority in order to correct the situation, and did not make any attempt to make an estimation XXXII of the unrecorded health expenditure in order to comply with the accrual principle.

4.Conclusions

On the basis of all the above mentioned facts and reasoning, it can be concluded that an entity (IGGV) within the general government sector of the Kingdom of Spain was seriously negligent concerning the non-recording of health expenditure (and the non-respect of the accrual principle) in national accounts (ESA 95), leading to an incorrect reporting of deficit data to Eurostat in 2012, i.e. after the entry into force of Regulation (EU) 1173/2011. The non-recording of expenditure was not rectified in spite of publicly available information on the existence and extent of the problem in the reporting of the Regional Court of Auditors.

As a result, the data sent by Spain to Eurostat in the context of the 2012 EDP reporting was incomplete insofar as significant amounts of health expenditure were not reported, leading to the revision of the reported government deficit of 1.9 billion euro.

Based on the findings in this report regarding the behaviour of the authorities of the Member State in the period from 13 December 2011 until the launch of the investigation on 11 July 2014, the Commission may decide to adopt a recommendation to the Council to impose a fine on the Kingdom of Spain, as foreseen in Regulation (EU) No 1173/2011.

Endnotes

(1)

Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area, OJ L 306, 23.11.2011, p. 1.

(2)

Commission Delegated Decision 2012/678/EU of 29 June 2012 on investigations and fines related to the manipulation of statistics as referred to in Regulation (EU) No 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area, OJ L 306, 6.11.2012, p. 21.

(3)

The relevant reporting described in the current case was made under Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community, OJ L 310, 30.11.1996, p. 1, (ESA 95). Regulation (EU) No 549/2013 of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union, OJ L 174, 26.6.2013, p. 1, (ESA 2010) is applicable from 1 September 2014.

(4)

Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community, OJ L 145, 10.6.2009, p. 1.

(5)

The EDP Press release is available at the following link: http://ec.europa.eu/eurostat/documents/2995521/5147302/2-23042012-AP-EN.PDF/30b8f91b-4325-4d6b-9c6f-6e699ff87cd5

(6)

The main objective of the EDP Upstream Dialogue Visit was to review the quality of the EDP reporting system, in particular the primary public accounting ("upstream") data sources. This meeting had been planned already before 17 May 2012, when Eurostat became aware of the misreporting of data from the Autonomous Community of Valencia.

(7)

The accrual principle means that the expenditure should be recorded when undertaken and not when the bill is settled. ESA 95, paragraph 1.57, provides that “The system records flows on an accrual basis; that is, when economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled”.

(8)

The Agreements for the Autonomous Communities are available at the following link: http://www.boe.es/boe/dias/2012/04/14/pdfs/BOE-A-2012-5080.pdf

(9)

Commission Decision C(2014) 4856 of 11.7.2014 on the launching of an investigation related to the manipulation of statistics in Spain as referred to in Regulation (EU) No 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area. See also http://europa.eu/rapid/press-release_IP-14-822_en.htm  

(10)

IGAE is responsible for the collection of data on non-financial government accounts and it is also responsible for the translation of public accounts into national accounts (ESA95).

(11)

IGGV is a specific unit inside the Regional MoF responsible for the compilation, internal control and reporting of the public accounts of the region.

(12)

As a consequence the report has been amended.

(13)

The Standardised Questionnaire is used to collect all the information related to the public accounts of the region (more details in the SWD – Section 3.3.3 (The translation of public accounts into national accounts)).

(14)

Account 409 consists of expenditure, not imputed in the budget of year T, for which the obligation to pay has been recognised (invoice received) and must be imputed to the budget of year T+1. Such expenditure impact the EDP deficit (B.9) of year T. For more details see the SWD, Section 2 (Overview of creditor accounts in the Spanish public accounting plan).

(15)

Account 411 consists of expenditure, not imputed in the budget of year T, for which the obligation to pay has not been created, as the expenditure is not matured (the official invoice was not yet received), which must be imputed to the budget of year T+1 once the invoice has been received, after the due date, and the obligation to pay is recognised. Such expenditure impact the EDP deficit (B.9) of year T. For more details see the SWD, Section 2 (Overview of creditor accounts in the Spanish public accounting plan).

(16)

It is composed of INE, IGAE and the Bank of Spain and its role is limited to the classification of units and to methodological issues.

(17)

This figure was deemed solid enough by the regional authorities in Valencia to be sent to the national authorities in order to benefit from the Special Payment Mechanism, but not solid enough to be sent to IGAE in order to show the real amount of unrecorded health expenditure. This indicates that data were available at the regional level, but were not sent by IGGV to IGAE in the context of April 2012 EDP notification.

(18)

Or, for some years, no amounts at all.

(19)

All the reports are available at the following link:

http://www.sindicom.gva.es/web/informes.nsf/vInformesCastellanoCGGV?SearchView&idioma=castellano&query=field%20Titulo=anexo%20or%20field%20Titol=anexo%20or%20field%20claves=anexo&check=1&nomVista=Informes+castellano+-+Cuenta+general+de+la+GV&vista=vInformesCastellanoCGGV&qOriginal=anexo

(20)

The reports of the Regional Court of Auditors concerning the general account of years 1988-2013 can be found at the following link: http://www.sindicom.gva.es/web/informes.nsf/vInformesCastellanoCGGV?OpenView&start=1&Count=20

(21)

The 2007 report of this WG is available on the website: http://www.meh.es/Documentacion/Publico/PortalVarios/Grupo%20de%20Trabajo%20Gasto%20Sanitario.pdf

(22)

 The Public Finance Act of the Generalitat Valenciana is available at the following link: http://noticias.juridicas.com/base_datos/CCAA/va-dleg260691.html

(23)

Adopted by the Generalitat Valenciana

(24)

Including some expenditure carried out as far as the year 2002.

(25)

The Accrual principle must be respected both in national accounts (ESA 95) and according to the Spanish General Public Accounting Plan.

(26)

The Accrual principle is a universal principle in the Spanish General Public Accounting Plan (PGCP).

(27)

See Annex II to the report of the Regional Court of Auditors for the year 2008.

(28)

The Accrual principle must be respected in national accounts (ESA 95) and in the Spanish General Public Accounting Plan.

(29)

In spite of IGGV having had already received the amount of unrecorded health expenditure from the Regional Ministry of Health in February 2012, via email.

(30)

Although it was not correct to use account 411 instead of account 409, past unrecorded expenditure was finally recorded.

(31)

A practice which was often used by other Autonomous Communities in Spain.

(I)

 IGAE stated on this issue that “every time IGAE asked IGGV about unreported expenditure, IGGV always responded that they were not aware of the existence of any unrecorded expenditure that had been properly checked. IGAE was indeed checking the reports of the regional Court of Auditors (albeit with some delay, at the moment when these reports were published) and constantly questioned IGGV. The answer of IGGV was always the same, that the data provided to IGAE were correct, i.e. that all data received from the regional Ministry of Health were reported to IGAE and they could not ensure the quality of the data published by the regional Court of auditors. IGAE had no powers to amend data sent by IGGV and no other means to verify whether the data sent by IGGV were correct, especially as IGGV continuously insisted and confirmed that the data sent were the correct ones.”

(II)

In this respect, IGAE declared that “they were not aware of the estimated or final data on health expenditures in Valencia due to the Special Payment Mechanism, in April 2012. IGGV never informed IGAE about it in any form, neither by letter nor by phone. In the April 2012 data collection, IGAE knew only what IGGV had reported in the Questionnaire. As soon as IGAE became aware of the considerable revision of health expenditure, Eurostat was informed”.

(III)

 The fact that the account 409 should have been used instead of the account 411 has been recognised at the same time by IGAE, IGGV and by the Consejeria de Sanidad. According to IGGV: “expenditure incurred but not paid and not recorded should have been recorded in account 409, but for some reason this was not done.… IGGV could not comment on why account 411 was used in the past instead of account 409, the one that, in its opinion, should have been used for these kinds of expenditures.” According to the Consejeria de Sanidad: “These amounts should have been recorded in the account 409, which was created for this specific purpose, in order to record expenditure incurred, not paid and not included in the budget (in order to fully apply the universal accrual principle as dictated by Law). However, the former General Comptroller of IGGV always insisted that the account 409 had not been created for this purposes and that it was not appropriate to use it to record this kind of expenditure. The former General Comptroller of IGGV always made clear to Consejería de Sanidad managers that account 409 was not suitable for recording health expenditure incurred, unpaid and not included in the budget. He understood that this expenditure had to be included in the budget every two or three years by means of a financial operation applying the mechanism provided for in Article 59bis of the Public Finance Act of the Generalitat Valenciana.” On the contrary, according to the ex-General Comptroller of IGGV “account 409 had been used from the outset (i.e. since 2003), but only for the very low amounts provided by the Consejería de Sanidad (regional health ministry. The amounts being hidden by the Consejería de Sanidad could not be recorded in this account, because the IGGV did not know about them.”

(IV)

In particular, it was the Secretaría General de Coordinación Autonómica y Local (SGCAL), part of the MoF in charge of implementing the SPM, which telephoned IGAE to communicate this information. As stated by IGAE “by the 30th of April 2012, when IGGV sent the data to IGAE, no unrecorded health expenditures had been recognised by IGGV, although these data (i.e. all unrecorded bills) had been already sent to the Ministerio de Hacienda. IGAE became aware of the issue not from IGGV but from a phone call of a colleague in Ministerio de Hacienda, and as a result IGAE then contacted IGGV to check about the existence of these considerable unrecorded health expenditures, and after a few days IGGV confirmed their existence. Immediately after IGAE became aware of it (not from IGGV but from a phone call of a colleague in Ministerio de Hacienda) it informed INE and the Bank of Spain and on the 17th of May, Eurostat was also informed”

(V)

All institutions, which the Commission investigating team met in the course of the investigation, agreed that the recommendations of the Sindicatura de Cuentas should have been followed by IGGV. In the case of IGGV, it was declared “To the question asked by the Head of the Commission investigation team on whose responsibility was the implementation of the recommendations of the Sindicatura de Cuentas, as regarded the accounting of the unrecorded expenditures and the suggested use of account 409, IGGV`s opinion is that the implementation of such recommendations in the reports of the Sindicatura de Cuentas was under the responsibility of the IGGV, which is the body responsible for the correct implementation of the accounting of government revenue and expenditure in the Autonomous Community of Valencia.”.

In the case of Sindicatura de Cuentas, the fact that the recommendations were addressed to IGGV, is proven by the fact that it was IGGV, which replied to the observations of the Sindicatura de Cuentas. The Sindicatura de Cuentas declared that “It is to be underlined, in this respect, that in 2003, the observations of the bodies that were the subject of the comments, conclusions and recommendations and the comments of the Sindicatura de Cuentas on the observations were particularly revealing and were made public for the first time. In its report, "Annual Account of the Administration of the Generalitat Valenciana", the Sindicatura de Cuentas states that "There is a series of obligations resulting from expenditure incurred or goods and services received that relate to Conselleria de Sanidad healthcare programmes amounting to at least 1 121 379 thousands of EUR, which were pending application to the budget on 31 December 2003 and which, given their nature, should have been included in the profit and loss account and, if appropriate, in account 409 'Creditors relating to transactions pending allocation to the budget'". In its arguments, the IGGV stated that "The Sindicatura's report confuses the concept of transactions pending application to the budget – correct – with the concept of transactions made outside the budget. This error, which the IGGV considers to be a glaring mistake, undermines any criticism levelled at the General Account of the Generalitat Valenciana, which is beyond reproach from both a legal and an accounting perspective. The persons responsible for drawing up the General Account cannot be blamed for a non-existent accounting situation, which therefore could not form part of the said account." In its reply to the IGGV, the Sindicatura de Cuentas drew the following conclusion: "As indicated in the PGCPGV and in Rule 18 of the Accounting Instructions of the Generalitat Valenciana, by applying the accountancy principles laid down in the PGCPGV, the annual accounts of the administration of the Generalitat Valenciana shall present a true and fair view of the assets, the financial situation, the results and the implementation of the budget. By correctly applying the principles of accrual, prudence and recording, expenditure will be entered into the accounts correctly. Any expenditure incurred and accrued during the financial year has to be entered into the accounts. The expenditure has to be entered in the accounts, at least financially. According to the accrual principle, expenditure must be recorded in the period when the goods and services are actually provided or received. If the expenditure has not come out of the budget's implementation, at least when the financial year ends, even if there has been no administrative act, the expenditure actually incurred by the entity to date should be recognised in the profit and loss account and, consequently, the amounts still to be paid should be recognised in the liabilities." The ex-General Comptroller of IGGV disagreed in this respect, stating that while the recommendations of the Sindicatura de Cuentas to record all unrecognised health expenditures were correct, and should have been implemented, it was up to the Consejeria de Sanidad to implement them and not to IGGV. The ex-General Comptroller of IGGV declared on this issue that “The recommendations of the Sindicatura de Cuentas on health expenditure were considered to be within the competence of the Consejería de Sanidad, not the IGGV. The recommendations that were within the competence of the IGGV were always adopted by the IGGV.” If such was the case, however, it is not explained why it was IGGV, which answered the remarks of the Sindicatura de Cuentas and not the Consejeria de Sanidad.

(VI)

Answering to the question of why only a part of the expenditures incurred were recorded, the ex-General Comptroller of IGGV answered that “this expenditure had been hidden by the Consejería de Sanidad and the IGGV was unaware of it.” However, the Sindicatura de Cuentas stated that “they do not know whether Consejeria de Sanidad did hide expenditure from IGGV concerning unrecorded health expenditures, although it is difficult to understand how information could be hidden in the first place as the reports of Sindicatura de Cuentas with the correct figures were always publicly available.” On the same issue, the Consejeria de Sanidad underlined that “if they had really wanted to hide health expenditure in order for them not to be recorded, it would not have regularly sent them annually, on a continuous basis, to the Sindicatura de Cuentas. Therefore the real issue is not that there was a deliberate intention by Consejeria de Sanidad to hide these expenditures, but simply the lack of their recording in the accounts of the region, which is a clear task of the IGGV”.

(VII)

In particular, Sindicatura de Cuentas confirmed “that the cooperation between them and Consejeria de Sanidad has been always very good.” As regards the cooperation with the IGGV, they said that “the comments (alegaciones by IGGV and answers by Sindicatura de Cuentas) included in their reports (publicly available) faithfully reflect and are particularly revealing of the level of cooperation that Sindicatura de Cuentas had with IGGV”.

(VIII)

IGGV was therefore informed of the amount of the unrecorded health expenditures at the beginning of the year 2006, and not indirectly at the end of the year, as usual, through the reports of the Sindicatura de Cuentas. This was exceptionally done as IGGV had requested the Consejeria de Sanidad, in 2006, not to provide the accounts directly to the Sindicatura de Cuentas, but only through IGGV. This was not done anymore in the following years as Sindicatura de Cuentas answered that this was an erroneous interpretation of the Public Finance Law by IGGV, and that Sindicatura de Cuentas had the right to ask to receive the information directly from the Consejeria de Sanidad.

(IX)

In this respect, the Sindicatura de Cuentas stated that “they had offered in writing to provide to IGGV all information (should IGGV not had access to it) on unrecorded unpaid bills in the health sector, as publicly stated and available in the report of Sindicatura de Cuentas of 2010. IGGV however, in spite of the offer of Sindicatura de Cuentas, never asked Sindicatura de Cuentas to provide them with these data.” This is indeed confirmed by the fact that, in its report of 2011 concerning the accounts of 2010, Sindicatura de Cuentas stated that “The IGGV may, when it considers appropriate, ask for the Conselleria de Sanidad's list of unrecognised obligations included in the audit report of the 2010 Account – if it does not have them – and they will be passed on to the IGGV in a timely manner." However, IGGV did not accept the offer, doubting that the figures were complete or correct. As underlined by the Sindicatura de Cuentas, however, “whenever an auditor signs a report, this is a sign that data are considered to be good. Although sometimes later on further expenditures were found, which had not been included in the original report, it was considered that the data reflected in their report were very good, as based on existing bills which were given to Sindicatura de Cuentas by Consejeria de Sanidad and therefore represented a minimum level of expenditure incurred and not recorded, which should have been recorded by IGGV in account 409. Had Sindicatura de Cuentas any doubt on the quality of such data, it would not have included them in its reports”. Sindicatura de Cuentas also stressed that “these data were in fact also used as starting point for the establishment of the expenditure to be included in the budget of the following year, which bear witness to the fact that they were public, considered by the government of the Autonomous Community of Valencia to be reliable, and used for forecasting and budgetary purposes”. Sindicatura de Cuentas stressed again that “their recommendation were clear and that all expenditure incurred should have been recorded in the accounts of the Autonomous Community of Valencia, in line with the accrual principle”.

(X)

Every year, moreover, the report of Sindicatura de Cuentas was presented and discussed in the Cortes, the regional Parliament of the AC of Valencia, which demonstrates that the issue was fully public.

(XI)

There seems to be general agreement on this point. The ex-General Comptroller of IGGV, in particular stated that “Article 59a was adopted specifically to bring to light this kind of hidden expenditure which had not been subject to auditing, and where Rule 5 had not been applied correctly. In no cases did Article 59a, therefore permit the inclusion of expenditure into the accounts; on the contrary, it required a correction file for the failure to audit to be dealt with in advance. The inclusion of sections 2d and 3 enabled the recognition of expenditure even if there was no budget appropriation.”

(XII)

It is also to be underlined in this respect that the ex-General Comptroller of IGGV declared that “both the Ministry of Finance and the Consejería (regional ministry) had been aware of the existence of hidden expenditure and of the time lag before this hidden expenditure came to light. …. the IGGV was also aware of this practice. The hidden expenditure was not known at the time it was incurred because the expenditure was not disclosed by the Consejería de Sanidad (regional health ministry), which was the only body that knew the actual amount of health expenditure at regional and national level.”

(XIII)

Every year, an almost standard sentence on this issue was inserted in its report on the General Account of the region. As an example, in the year 2006 it was recommended by the Sindicatura de Cuentas that “As the body responsible for accounting, the IGGV must take the necessary measures to ensure that the budget for each financial year includes all those economic transactions that have an impact on it, in such a way as to provide an accurate representation of the budget's implementation at the end of the financial year. In this respect, with regard to the goods and services received during the financial year, the administrative acts recognising them must be issued in such a way as to ensure that the goods and services are charged to the budget of the financial year in which they were produced and received. If this is not possible, the PGCP lays down that they should be charged to Account 409 'Creditors in view of transactions pending application to the budget'. As regards obligations with delayed payment, under the PGCP, obligations that are not due at the end of the financial year that correspond to accrued expenditure or to goods and services that were actually received during the said financial year must be recorded in Account 411 'Creditors due to periodification of budgetary expenditure', which forms part of the group of non-budgetary creditors." As can be seen, the Sindicatura de Cuentas considered that IGGV was not implementing correctly the accrual principle and should use for that purpose account 409. It is to be underlined that its recommendation was obviously and explicitly addressed to IGGV and not to Consejeria de Sanidad.

(XIV)

The only dissenting opinion on this point was voiced by the ex-General Comptroller of IGGV, who claimed that “the competent bodies that were responsible for resolving the situation did not do so. The Sindicatura de Cuentas did not take the necessary action and did not specify who should resolve the problem.”

(XV)

It was stated, in its report of 2012 for the year 2011, that "Significant progress has been made, given that the Administration's Account includes under the balance sheet's liabilities (accounts 409 and 411) for the first time the total debt resulting from unrecognised obligations in the Conselleria de Sanidad's budget, which amount to 2221.2. million EUR.".

(XVI)

IGAE stated that " In 2007, when the AC of Valencia signed the first of their Agreements (“Acuerdos del Consell”) they considered that the problem would have been solved. That year a considerable amount of previously unrecorded bills was finally reported via the extra-budgetary account 411”. IGAE then thought, at that time, that “all previously unrecorded unpaid bills would now be recorded either in the account 411 or in the budget and that the problem had been solved once for all."

(XVII)

On this issue, IGAE stated that “they have no power to modify any data sent by regions and cannot make any control of the quality of the accounting information provided by regions. IGAE can only ask for additional clarifications on the data and has the obligation to accept the data officially sent by regions via the questionnaires. If after the questions asked by IGAE the regions confirm the data sent, IGAE is obliged to accept them. Many years questions were asked on the quality of the data sent by the Autonomous Community of Valencia, but every single year the IGGV confirmed the data which had originally sent. IGAE can only contact the region by phone or e-mail to clarify the issue. If the region confirms the data sent, then IGAE has to accept this data as they do not have the power to change the data officially sent by regions. This had been the case, for instance, in 2008, in the case of the AC of Valencia”. IGAE explained that, “at present, they still cannot change the official data sent by regions. Now, however, under Organic Law 9/2013 of 20 December 2013 on commercial debt control in the public sector, public administration bodies not subject to accounting audits must carry out checks using auditing techniques to check for liabilities not recorded in the budget. Furthermore, a single register of invoices has been set up in the Autonomous Communities.”

(XVIII)

It is to be underlined, in this respect that the ex-General Comptroller of IGGV, uniquely among all the persons interviewed, considered the Consejeria de Sanidad as the main responsible for the fact that considerable amounts of health expenditures went unrecorded during many years. In this context, the ex-General Comptroller of IGGV declared that “Accounting was closed on 15 January (year T+1). The Consejería de Sanidad deliberately allowed the expenditure to emerge in the months of November/December of year T+1, when it was too late to record it in accounting year T.” Moreover he added that “it was undeniable that: 1) the Conselleria de Sanidad had hidden expenditure incurred without a budget appropriation, 2) had infringed the law in force relating to the budget, financial assets and public procurement, and 3) there was an unjustified attempt to shift responsibility for the action taken by the Consejería de Sanidad to other bodies, including the IGGV.” and that “The Consejería de Sanidad was failing to comply with its obligations on two fronts; at the same time, it was infringing both the law and budgetary and financial and asset regulations. The expenditure not entered in the accounts was automatically void since it had been issued without being entered in the budget and was hidden for reasons of expediency, and was therefore unknown to the IGGV. The Consejería de Sanidad divulged the outstanding invoices in order to obtain a better budget allocation, but it was in addition to the expenditure of the previous accounting year.” Finally, he also declared that “the Consejería de Sanidad had infringed the rules, overspent its budget appropriations and hidden invoices. It revealed the expenditure at a later date (in the final quarter of the following year) in order to negotiate and obtain a better budget allocation for the following year”. The ex-General Comptroller said that “this was an objectionable practice which should have been treated with much more severity in view of the seriousness of the mismanagement involved. There had been serious deficiencies for which the Conselleria de Sanidad was clearly at fault.”

(XIX)

In this respect, it is to be underlined, that according to the Consejeria de Sanidad, “full information on health expenditure incurred but not recorded was sent on a yearly basis by Consejeria de Sanidad to the national Ministry of Health too, in order to prepare the annual Public Health Expenditure Survey, which it published on its website: http://www.msssi.gob.es/estadEstudios/estadisticas/inforRecopilaciones/gastoSanitario2005/home.htm . This also shows that IGGV was fully informed about the existence of considerable amounts of unrecorded health expenditure and that the Consejería de Sanidad did not try to conceal this information in any way. In fact, in case the Consejeria de Sanidad would have been explicitly hiding this information, the IGGV should have opened an "expediente sancionador" against them, and this was never done by IGGV.”

(XX)

Except in one occasion, in 2006, when they were sent formally to IGGV. In this regard the Consejeria de Sanidad declared that “Normally, Consejeria de Sanidad sent this information directly to the Sindicatura de Cuentas, always sending nevertheless the same data informally in an "Excel file" to the IGGV (more specifically, to the vice-General comptroller of IGGV for the general accounts) by e-mail at the same time.” and that “Data was sent to IGGV officially only once, in 2006, and concerned the health expenditures from 2001 to 2005. From 2007 onwards, data was again sent directly to the Sindicatura de Cuentas, as explicitly asked by them, and informally by e-mail to the IGGV.”

(XXI)

The Consejeria de Sanidad declared in this respect that “it would have been better to officially send this information to IGGV instead of using the informal channel (e-mail). However it was declared by the ex-Director General de recursos económicos of Consejeria de Sanidad that the reasons for which this was not done was that “the ex-General Comptroller always orally instructed Consejeria de Sanidad not to send this information to IGGV. Many discussion and meetings took place on this issue, with Consejeria de Sanidad always insisting that these expenditures should have been recorded in the accounts of the region by IGGV. As result of the disagreement on this issue, the ex-Director General de recursos económicos of Consejeria de Sanidad risked twice losing his job”. Answering by a question of the Head of the Commission investigation team of why Consejeria de Sanidad complied with an instruction dictated by a body (IGGV) upon which the Consejeria de Sanidad was not depending upon, it was replied that “verbal instruction of IGGV had to be followed as IGGV was the body responsible for the establishment and publishing of public accounts in the AC of Valencia, and this was an accounting issue.”

(XXII)

 The ex-General Comptroller of IGGV declared that “the IGGV team was indeed aware of the importance of the data it sent to the IGAE during the years in which he acted as Comptroller of the IGGV.”

(XXIII)

 In accordance with Rule 16 of the Order of the Conselleria de Economía y Hacienda (Regional Ministry of Economy and Finance) of 12 December 1994 on the management and recording for accounting purposes of operations to administer and implement the budget of the Generalitat Valenciana, "It is the sole responsibility of the IGGV to record operations in the accounts". This point was also made clear by the Sindicatura de Cuentas, which in many of its reports insisted that "As the body responsible for accounting, it is recommended that the IGGV take the necessary steps to ensure that the budget for each financial year provides an accurate representation of how the budget was actually implemented and that operations are correctly entered into the budget at 31 December. In this respect, with regard to the goods and services received during the financial year, the administrative acts recognising them must be issued in such a way as to ensure that the goods and services are charged to the budget of the financial year in which they were produced and received. If this is not possible, generally accepted public accounting principles lay down that the expenditure should be recorded in the accounts corresponding to the balance sheet."

(XXIV)

 IGAE had in fact noticed that the accounts 409 and 411 were not used correctly. In this respect IGAE stated that “Although in the specific case of the AC of Valencia, the use of account 409 would have been the correct one, IGAE was not in a position to tell IGGV (or the IG of any other region for that matter) that it was using incorrectly the Plan general de contabilidad, as IGAE does not have such power. The Autonomous Community of Valencia started to use the account 411 only in 2008 (for the 2007 data). After a phone call by IGAE, around 840 million € were added in accounts 411. In fact, Valencia was the only region that used this account, as the amounts recorded in this account in all the other ACs were insignificant. However, the issue of why they were using account 411 instead of account 409 was not raised, as IGAE cannot ask any Autonomous Community to change the accounting entries of their public accounting plan.”

(XXV)

IGGV in fact contested them more than ignored them. As a matter of example, in its comments (alegaciones) to the report of the Sindicatura de Cuentas of 2011 for the year 2010, IGGV stated that “The IGGV considers that the Sindicatura should indicate the procedure followed to determine and quantify the previously mentioned obligations of the Conselleria de Sanidad that were dealt with without budgetary allocation and without the corresponding administrative procedure. It should also provide a detailed list of these obligations and issue an opinion on their veracity, so as not to damage the interests of the Generalitat.". The ex-General Comptroller of IGGV specified, in this respect, that he was referring to “the late payment interest generated by obligations not admitted in previous accounting years caused an additional expenditure because of the figures remaining outstanding from previous years' expenditure.” However, it is not fully clear which “interests” of the AC of Valencia could be really damaged. In fact, as stated by the Sindicatura de Cuentas, ”the existence of "Intereses de demora" does not depend on whether the expenditure is recorded or not or on whether their existence is known through Sindicatura de Cuentas reports, but rather on the real delay in paying an invoice after it has been issued and submitted”. Moreover the Sindicatura de Cuentas answered in the same report mentioned above that "With regard to the reference made to possible damage to the interests of the Generalitat, we do not believe that the Sindicatura's actions will have a negative impact on the Generalitat's interests; in fact, the opposite is true, since they highlight information that should have been included automatically in the annual accounts." 

(XXVI)

The Consejeria de Sanidad, for instance, in its comments to the report of the Sindicatura de Cuentas of 2010 for the year 2009, stated that “Concerning the failure to include obligations to be charged to future financial years resulting from the payment of obligations from previous financial years, based on the Agreements of the Regional Government of 20 April 2007 and 13 March 2009, this was the position taken by the IGGV at the time."

(XXVII)

In this respect, the ex-General Comptroller of IGGV justified the non-recording of expenditures claiming that “The regions recorded the amounts which were communicated to them, like the IGGV did. Costs that had been hidden could not be recorded. Accounting was closed on 15 January (year T+1). The Consejería de Sanidad deliberately allowed the expenditure to emerge in the months of November/December of year T+1, when it was too late to record it in accounting year T.” However, it seems not to be correct that nothing could be recorded after the 15 of January each year. Both IGAE and IGGV stated that this is not exact, as extra-budgetary accounts are open and amounts can be included into them until the 15 of June. According to IGAE ”Between 2008 and 2012, IGGV usually reported data in mid-February in the context of the January data collection and in the April data collection the data were always revised (for example in 2012: IGGV did not report expenditure in the account 409, but they reported it much later in the context of the April data collection, although with considerable delay). The account 413 equivalent to account 409 of the ACs is not closed until 15 June, as it is audited. It is closed only when data from all different management centres have been provided.” On the same line, according to Sindicatura de Cuentas, “although budgetary accounts might be closed on 15 January, this is not the case for the extra-budgetary accounts (such as account 409), which are closed much later.” Specifically referring to the events of 2012, IGAE also stated that “even if final data were still not available, an estimate could have been sent by IGGV to IGAE up until the 15th of June as the data could be revised again before the EDP notification in September.”

(XXVIII)

On this issue, it is to be underlined that the ex-General Comptroller of IGGV when questioned on why IGGV never explicitly asked this information to the Consejeria de Sanidad, answered that “it was never requested, since there was no obligation to request this information. It was an obligation for the Consejería de Sanidad to transmit this information under Rule 5, whether or not anybody requested it, and whether or not it was with a budget appropriation. The ex-General Comptroller pointed out that the IGGV had sent a reminder from 2002 onwards, before the budgetary period was closed, on the need to comply with Rule 5. As part of his response, the ex-General Comptroller provided Eurostat with a copy of the e-mails sent to the Vice-Comptrollers Offices and the decentralised audit departments reminding them of the obligations pursuant to Rule 5. These letters were sent simultaneously by e-mail and by post, mainly as a reminder of the obligation to record expenditure obligations which, for justified reasons, had not been attributable to the budget.” It is however to be noticed that these letters were not sent to the Consejeria de Sanidad, but to personnel (Vice-intervenciones Generales e Intervenciones Delegadas) belonging to IGGV, so they were in fact notes internal to IGGV. On the contrary, the Consejeria de Sanidad stated that “Although it could be discussed whether it should have been an obligation of the Consejeria de Sanidad to officially provide the correct data directly to IGGV and not only directly to Sindicatura de Cuentas and only informally to IGGV, it was clearly the task of IGGV to request these data in order to give a faithful picture of the accounts of Generalitat Valenciana, a task which clearly belongs to IGGV” and that ”The Consejeria de Sanidad stressed again that, over so many years, IGGV should have reacted to solve the problem. It might had been advisable for the Consejeria de Sanidad to provide the information officially (and not by e-mail) to IGGV, but this was not done due to the fact that the ex- general comptroller of IGGV requested this not to be done. Moreover IGGV should have taken some action especially in a situation where the reports of Sindicatura de Cuentas revealed the nature and considerable size of the problem into the open for more than 20 years”. On the same issue, the current team of IGGV considered the past practices of both IGGV and Consejeria de Sanidad as incorrect, stating that “With regard to Eurostat's question as to whether the previous team should have asked the Consejeria de Sanidad for the same information it sent the Sindicatura de Cuentas with the total amount of expenditure incurred in the health sector, the IGGV thought that it should have, but the IGGV also found it surprising that the Consejeria de Sanidad, which provided this information to the Sindicatura de Cuentas each year, did not send the data to the IGGV as part of official procedure even if the IGGV did not ask for it”.

(XXIX)

It is to be underlined, moreover, that IGGV had its own representatives in all the major hospitals of the AC of Valencia. These “interventores delegados” either did not have access to the total amount of expenditures incurred in the hospitals, or did not send it to the central offices of IGGV. The Sindicatura de Cuentas states in this respect that “the biggest hospitals in the AC of Valencia have their own Interventores delegados, who depend directly from IGGV. Sindicatura de Cuentas could not confirm officially whether such Interventores delegados had access to the full information concerning all expenditure incurred by hospitals, but the fact is that the Sindicatura de Cuentas did have access to all these data whenever they asked for it. Interventores delegados either had the information or could have asked to have full access in case they did not. However, given the large volume of unrecorded invoices, either the Intervendores Delegados had access to all data and did not provide it to IGGV or indeed they did not have access to data and failed to ask for it. However, it is clear in any case that full information on such expenditure was publicly available through the reports of the Sindicatura de Cuentas.”

(XXX)

It is to be underlined that “Under Article 3.4.c of Decree 72/2005 of 8 April of the Regional Government approving the Regulations of the Cuerpo Superior de Interventores y Auditores de la Generalitat (Body of Senior Inspectors and Auditors of the Generalitat) (Annex 6), the Vice Intervención General para la Contabilidad Pública is responsible for 'obtaining and examining the documentation needed to prepare the General Accounts”

(XXXI)

The Sindicatura de Cuentas underlined in this respect that “as regards the issue of obtaining such information (which Sindicatura de Cuentas always manage to obtain), IGGV has considerably more power and capacity than Sindicatura de Cuentas has, as they are entitled by Law to request such information and they have their own mechanisms of gathering and obtaining such data, e.g. the intervenciones delegadas.” It is also to be underlined that article 91bis of the “Ley de Hacienda Publica de la Generalitat Valenciana” establishes that the “interventores delegados”, through IGGV, are obliged to communicate to the competent authorities all those infractions which could give rise to the opening of an “expediente administrativo” in order to determine individual responsibilities. In this respect the Consejeria de Sanidad indicated that “Despite the fact that, each year, the Sindicatura de Cuentas emphasised that there was health expenditure that had not been recorded in account 409, the IGGV never launched proceedings against the Conselleria de Sanitat to determine whether it had concealed information, because it was the IGGV that should have obtained the documentation needed to prepare the General Accounts and it was the IGGV that should have recorded in account 409 the health expenditure incurred but not paid and not included in the budget.” 

(XXXII)

When Eurostat asked the present team of IGGV what would need to be done if there was a suspicion that not all expenditures were correctly recorded by one “Centro de Gestion” (such as Consejeria de Sanidad), IGGV answered that “as is current practice, they would have contacted the management centre and asked for additional information and/or even an estimation of the amounts of such expenditures would have been made. … if the accrual principle is not followed, then the economic reality of the region cannot be shown.”

EUROPEAN COMMISSION

Brussels, 7.5.2015

COM(2015) 211 final

ANNEX

to the

Commission report

on the investigation into the manipulation of stastistics in Spain as referred to in Regulation (EU) No 1173/2011 of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area (Commission Decision of 11 July 2014)

{SWD(2015) 105 final}

COMMENTS ON THE PRELIMINARY FINDINGS OF THE INVESTIGATION INTO THE MANIPULATION OF STATISTICS IN SPAIN AS REFERRED TO IN REGULATION (EU) No 1173/2011 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL ON THE EFFECTIVE ENFORCEMENT OF BUDGETARY SURVEILLANCE IN THE EURO AREA (INITIATED BY THE COMMISSION DECISION OF 11 JULY 2014)

The KINGDOM OF SPAIN, exercising the rights under Article 8(3) of Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November (hereinafter Regulation (EU) No 1173/2011) and Article 6 of Commission Delegated Decision 2012/678/EU, herewith presents its comments on the Commission's preliminary findings on the basis of the following

FACTS

The facts relevant for the purposes of this investigation are, in strictly chronological order, as follows 1 :

1. On 13 December 2011, Regulation (EU) No 1173/2011 on the effective enforcement of budgetary surveillance in the euro zone entered into force.

2. On 30 January 2012 the Autonomous Communities audit offices (including the Intervención General de la Generalidad Valenciana (the Government Audit Office of the Autonomous Community of Valencia, hereinafter IGGV) sent their public accounts data to the Intervención General de la Administración del Estado (General State Audit Office, hereinafter IGAE) using the standard questionnaire provided for that purpose (this questionnaire was approved by the Autonomous Communities – hereinafter ACs – on 30 April 2012).

3. On 30 March 2012 Spain sent the first notification of the provisional EDP (excessive deficit procedure) data to Eurostat.

4. On 23 April 2012 Eurostat published the provisional data from Spain’s first notification on the 2011 EDP.

5. At the same time, during the first quarter of 2012, Spain addressed the need to tackle the Spanish public administrations' commercial debt on which payment was pending by setting up, through the central administration, a special payment mechanism for suppliers, the salient characteristic of which was, for our purposes here, that the local administrations (ACs and local authorities) subscribed to this mechanism on a voluntary basis 2 .

6. During the first few days of May 2012, the Ministry of Finance and Public Administration's analysis of the information provided in order to implement this mechanism revealed an irregularity in the recording of health expenditure in the Autonomous Community of Valencia.

As soon as the IGAE was apprised of this irregularity, it asked IGGV to confirm the information and informed the National Accounts Working Group.

7. The National Accounts Working Group agreed to notify Eurostat immediately and did so on 17 May 2012, offering to revise the provisional notification published in April.

8. Eurostat conducted a “technical” visit to Spain on 24 May 2012 to establish what had happened in detail and said that it was not necessary to amend the provisional notification of April and that it would be sufficient to incorporate the data into the notification of October 2012. At this time Eurostat confirmed and validated the information sent by Spain on 17 May.

9. Eurostat conducted an “upstream” visit to Spain on 18 to 22 June 2012 during which it requested information on the process for preparing the EDP and made a series of recommendations.

10. All the information required and reviewed was incorporated into the document for the evaluation of the national reform programme and the stability programme for Spain for 2012 and in the “Council Recommendation with a view to bringing an end to the situation of an excessive government deficit in Spain” presented to the EU Council (sic) at the beginning of July 2012.

11. Eurostat conducted a second “upstream” visit to Spain from 11 to 14 September 2012, continuing the previous one.

12. On 26 November 2012 Commission Delegated Decision 2012/678/EU of 29 June (hereinafter Decision 2012/678/EU) on investigations and fines related to the manipulation of statistics entered into force.

13. On 21 December 2012 the Autonomous Community of Valencia Court of Auditors’ report for the year 2011 was published, in which the Court concluded that the expenditure of the Autonomous Community of Valencia for the year was correctly recorded.

14. On 2 February 2013 Eurostat published the “Report from the Commission to the European Parliament and the Council on the quality of fiscal data reported by the Member States in 2012” in which it was said that Eurostat did not question Spain’s data on the deficit for 2011.

15. Eurostat conducted an “ad hoc” visit on 26 and 27 September 2013 in order to obtain information supplementary to that obtained during previous visits.

16. On 7 March 2014, six months after conducting the last visit in Spain in September 2013, Eurostat published the “Report from the Commission to the European Parliament and the Council on the quality of fiscal data reported by the Member States in 2013” in which it did not question the data from Spain either;

17. Nor did the reports that Eurostat drew up for the Economic and Finance Committee in accordance with Regulation (EC) No 479/2009 for the years 2012 and 2013 question the data from Spain.

18. On 11 July 2014 the Commission adopted the decision to open a procedure for investigation of statistical manipulation in Spain.

19. The Kingdom of Spain did not agree with the investigation being opened and lodged an appeal with the General Court (Case T-676/14) on 22 September 2014, currently pending. The arguments presented therein must be taken into account in these submissions, together with any other comments emerging during the procedure.

20. On 3 March 2015 Eurostat published the “Report from the Commission to the European Parliament and the Council on the quality of fiscal data reported by the Member States in in 2014” which mentioned that an investigation procedure was underway but also stated – verbatim – “The Commission is not calling into question the current accuracy of EDP statistics in Spain”.

LEGAL BASIS

1. THE PRINCIPLE OF NON-RETROACTIVITY. ESTABLISHING THE TIME FRAME COVERED BY THE INVESTIGATION PROCEDURE

The Kingdom of Spain has insisted throughout the procedure on the need to establish properly the time frame for the Commission’s analysis and investigation.

As stated in the Act of 10 December 2014, containing declarations by the representative of the INE (Instituto Nacional de Estadística – National Statistics Institute), Alfredo Cristóbal, prior to the questions raised by the Commission, the Kingdom of Spain’s legal counsel requested that the investigation should cover only the period subsequent to the entry into force of Regulation (EU) No 1173/2011, i.e. 13 December 2011.

The investigation team responded that it considered it “to be within its mandate to reveal the full extent of the problem and therefore to investigate the entire period starting from 1988. However, it noted that it was aware of the issue of retroactivity and that it would take account of that principle if the European Commission recommended that the Council impose a fine”.

This statement must no doubt be understood as being compatible with the principle of non-retroactivity, a general principle of law which is one of the keystones of the rule of law, ranks higher than the body of law common to the European Union Member States and is the benchmark for any investigation procedure (whether or not any penalty is ultimately applied) that complies with the principle of legality. And it could only be compatible with such principles if it meant that – whilst the Commission needs to analyse a process which, in its view, started previously and must therefore extend its investigations to the period prior to 13 December 2011 (when the time frame for the investigation starts) in order to establish what has happened since – the knowledge of what occurred in that prior period must be purely instrumental in focusing the investigation on the relevant period (from 13 December 2011). The conclusions (even preliminary ones) to which the investigation team comes must be confined exclusively to the relevant period, although, in order to understand what happened after 13 December, investigations have been conducted (for purely instrumental purposes) on how the mechanisms governing the flow of information between the Spanish institutions functioned over a longer period.

In fact, merely reading the final conclusion of Eurostat’s letter containing the preliminary findings is enough to show that the investigation did not comply with the only means of extending the time frame for the investigation that is compatible with the law and as a consequence, violates the principle of non-retroactivity. It states that “it may be concluded that the Autonomous Community of Valencia was guilty, at least, of grave negligence for its failure to record health costs and non-compliance of the accruals principle in the national accounts for many years. As a consequence, for several years, the data sent by Spain to Eurostat in the context of the EDP were not entirely correct”.

The Commission also establishes May 2012 as the final date for the recording errors, which is when it acknowledges (and it has been confirmed) that the State of Spain informed it of the error in recording healthcare expenditure in the Autonomous Community of Valencia; the Commission acknowledges this in, for example, its findings when it states that IGGV “Compiled General Accounts for the region (…) that, up to June 2012, did not refer explicitly to any unrecorded expenditures and provided only minimal information on the considerable amounts included in account 411”. From this it can be gathered that, since May 2012, when the problem was detected, the procedure has been correct, as indeed it has.

If the investigation period was therefore from 13 December 2011 to 17 May 2012 (the time at which the National Accounts Working Group communicated the error to Eurostat, offering to revise the notification published in April), we fail to see how the preliminary findings, which serve as a basis for drawing up the final conclusions, can possibly contain a recommendation for a fine by the Commission to the Council referring to “many years” or “several years” when the period investigated which can serve as a basis for the decision to impose a penalty is less than one year.

It is particularly important to point out that the time frame for the conduct is a matter of fact and therefore must be set out clearly from the outset of the investigation in order not to undermine the right of defence. The Commission has not established the time frame with such clarity at any time, stating that it is aware of non-retroactivity but that it needs to review a longer period, and then going on, in its conclusions, to refer to a period of time which is not subject to examination because there was no legislation applicable at the time at which the facts took place.

It is not only the final conclusions but the entire letter which show that the conclusions are essentially based on periods prior to those which they are entitled to cover; only two fragments are given below by way of example:

1. In 1.1 (Background) in the fourth paragraph, it is said that “the AC of Valencia was identified as presenting significant irregularities, as unrecorded health expenditures had accumulated over 24 years”.

2. In the same conclusions when it is said that “the existence of unrecognised expenditure in the region dates back to year 1988”.

With all respect to the Commission and its investigation team, it must be understood that going from an investigation which ought to cover several months to one whose conclusions are based on events 24, 15 or 10 years ago constitutes a form of disproportionality which is prohibited by the Commission’s own Decision 2012/678/EU when it states that the “investigations undertaken should be proportionate so as not to go beyond what is necessary to establish the possible existence of manipulation of the relevant deficit and debt data.”. It is in any event unnecessary to go back to practices “many years ago” when the purpose is to establish what happened between 13 December 2011 and May 2012.

The Charter of Fundamental Rights of the European Union states in Article 49 on “Principles of legality and proportionality of criminal offences and penalties as follows”:

“No-one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national law or international law at the time when it was committed. If, subsequent to the commission of a criminal offence, the law provides for a lighter penalty, that penalty shall be applicable.”

More specifically, Regulation (EU) No 1173/2011 indicates in recital 21 that “In order to avoid the retroactive application of the sanctions under the preventive part of the SGP provided for in this Regulation, they should apply only in respect of the relevant decisions adopted by the Council under Regulation (EC) No 1466/97 after the entry into force of this Regulation. Similarly, in order to avoid the retroactive application of the sanctions under the corrective part of the SGP provided for in this Regulation, they should apply only in respect of the relevant recommendations and decisions to correct an excessive government deficit adopted by the Council after the entry into force of this Regulation.”

The evidence and errors detected which serve as a basis for the preliminary findings virtually all took place at times previous to that on which the investigation should focus, which is clearly prohibited by the legislation reproduced above.

2. RESPECT OF THE KINGDOM OF SPAIN’S RIGHT OF DEFENCE

Article 8 of Regulation (EU) No 1173/2011 stipulates that “The Commission shall fully respect the rights of defence of the Member State concerned during the investigations.”

To that end it empowers the Commission to adopt “detailed rules of procedure aimed at guaranteeing the rights of defence, access to the file, legal representation, confidentiality and provisions as to timing and the collection of the fines referred to in paragraph 1”.

In compliance with the delegated powers, Decision 2012/678/EU states in recital 11 that “For the purposes of its defence, the Member State concerned should be duly notified of the opening of as well as of the results of the Commission investigations” (…) and goes on to say in the following recital that “The rights of defence and the principle of confidentiality should be respected in accordance with the general principles of law and the case-law of the Court of Justice of the European Union. In particular, the Member State concerned should have the right to be heard by the Commission during the investigations, as well as access to the file compiled by the Commission.”

As the delegated Decision did not enter into force until the end of November 2012, Eurostat could clearly not initiate a procedure of investigation against any Member State between December 2011 (date of entry into force of Regulation (EU) No 1173/2011) and November 2012 (entry into force of the delegated Decision), since a procedure offering the Member States sufficient guarantees had not yet been approved. The Commission acknowledges as much in the main body of the letter containing the preliminary findings although it mistakenly refers to 2011; it states (in point 1.2 of the letter) that “since November 2011, the Commission can launch an investigation if there are serious indications that a Member State (…) misrepresents deficit and debt data”.

Although these rights are enshrined in the applicable legislation and have to be complied with during the investigations carried out in Spain following the opening of the investigation procedure, the issue here is what has happened in Spain since notification by the statistical authorities in May 2012 of the revision of the figures up to the date when the procedure was initiated.

Apart from the normal visits for exchanges provided for in Regulation (EC) No 479/2009, Eurostat conducted three “technical”, “upstream” and “ad hoc” visits in 2012 and 2013 (24 May 2012, 18-22 June 2012, which continued on 11-14 September 2012, and 26-27 September 2013). In the light of subsequent events these visits could be deemed materially equivalent to an investigation of the Spanish authorities which at the time did not have sufficient legal cover.

At the time of the first visits there was no adequate legal basis for initiating an investigation. The situation is worse with regard to the visits in 2013 because there was already a procedure offering Member States guaranteed rights of defence and a methodological visit could have been made to Spain to conduct more investigations under the EDP. However, the Commission decided to continue making its investigations alongside the established procedure.

During these visits prior to the formal opening of the investigation procedure, the Commission had access to persons, institutions and documentation without the Spanish State being able to exercise its right of defence, as it was not informed of the real purpose of the visits. The statistical authorities collaborated with the Commission as they preferred to clarify the facts and show Eurostat that measures had already been taken, whereas if they had known that what happened in the “informal” visits was going to be used by the Commission as proof for opening a subsequent investigation, they could have availed themselves of their legal rights of defence, without disregarding the duty of collaboration with the European statistical authorities that the Kingdom of Spain demonstrated and continued to demonstrate during the formal (and legal) investigation procedure, throughout which all the Spanish authorities were at the Commission’s disposition.

Finally, a series of factual inaccuracies and errors have been observed, which have been incorporated into Annex II to the current document since not correcting them may also give rise to violations of the rights of defence throughout the procedure, which at this time can neither be foreseen nor specified. In any event, in order to clarify the facts as far as possible we would ask the Commission to incorporate the corrections requested into the said Annex II prior to its analysis.

3. INFRINGEMENT OF THE PRINCIPLE OF LEGALITY. PRACTICE FOR REVISING DATA. NON-EXISTENCE OF MANIPULATION OR MISREPRESENTATION OF STATISTICS. INFRINGEMENT OF ARTICLE 8(1) OF REGULATION (EU) No 1173/2011

Regulation (EC) No 479/2009 of the Council of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (hereinafter Regulation (EC) No 479/2009), states in Article 6:

“1. Member States shall inform the Commission (Eurostat), as soon as it becomes available, of any major revision in their actual and planned government deficit and debt figures already reported.

2. Major revisions in the actual deficit and debt figures already reported must be properly documented. In any case, revisions which result in the reference values as specified in the Protocol on the excessive deficit procedure being exceeded, or revisions which mean that a Member State’s data no longer exceed the reference values, shall be reported and properly documented”.

In turn, Article 8(1) of Regulation (EU) No 1173/2011 stipulates that “The Council, acting on a recommendation by the Commission, may decide to impose a fine on a Member State that intentionally or by serious negligence misrepresents deficit and debt data relevant for the application of Articles 121 or 126 TFEU, or for the application of the Protocol on the excessive deficit procedure annexed to the TEU and to the TFEU”.

Article 6 of Regulation (EC) No 479/2009 essentially provides for the option of communicating major reviews of the deficit and debt figures, even if they may involve the reference values specified by the EU Protocol being exceeded. And Article 8(1) of Regulation (EU) No 1173/2011 characterises and imposes penalties for conduct which comprises misrepresentation or manipulation of the relative statistical data in application of Articles 121 and 126 of the TFEU.

Finally, recital 9 of Decision 2012/678/EU is very explicit in stating that “In assessing what constitutes a misrepresentation of deficit and debt data within the meaning of Regulation (EU) No 1173/2011, incorrect implementation of ESA 95 accounting rules which is not the result of either intent or serious negligence shall not be considered as such. Further excluded from the application of this Decision should be revisions, including major revisions due to changes in methodology for all historical years that are clearly and adequately explained, insignificant mistakes and cases where a doubt has been expressed by the Member State concerned and clarification has been requested from the Commission (Eurostat) in accordance with Article 10 of Regulation (EC) No 479/2009.”

The Spanish authorities’ activities during the time frame which, as is set out under Point 1, the investigation may legitimately cover, constitute a clearly and properly explained revision of the deficit and debt data and do not therefore comprise any type of manipulation or misrepresentation, and this is corroborated by the Commission’s report on what took place from May 2012 onwards.

As we have said (under number 8), Eurostat conducted a “technical” visit to Spain on 24 May 2012 in order to establish what had happened in detail and said that there was no need to amend the April notification and that it was sufficient for the data to be incorporated into the October 2012 notification. During this visit, Eurostat confirmed and validated the information supplied by Spain. The report on this visit published by Eurostat on its website states the following:

“INE announced on 18 May 2012 an estimated increase of 0.4% of GDP of the 2011 government deficit for the Autonomous Communities, compared to what was reported to Eurostat on 30 March 2012. The special suppliers payment mechanism for the arrears of ACs and regional governments revealed higher unpaid bills than reported to Eurostat in the context of the April 2012 EDP notification.

The total amount of the unreported unpaid bills reported in 2012 amounts to about 4.5 billion euro. A major part of these unreported unpaid bills were attributed to the year 2011 and about 40 % of the expenditure occurred in 2010, or in the case of the Autonomous Community of Valencia, even before. The Spanish statistical authorities confirmed that no 2012 expenditure have been included in the 2011 deficit figure.

INE confirmed that the final updated data on the government deficit for the Autonomous Communities, as well as for the municipalities, as will be reported to Eurostat in the October EDP notification data, was expected to be available during the summer 2012. (Footnote: Note that the 2011 data to be reported in the October EDP notification will still be half-finalised and may be subject to further revisions.”

The Commission is referring here to updating and revising data, and estimates of increases but in no instance does it talk about any type of manipulation but rather about a process of revision in which provisional data are brought up to date until they are finalised in the notification produced in October of the year t+4, t being the reference year.

All the required information was incorporated into the documentation for the evaluation of the national reform programme and the stability programme for Spain for 2012 and in the “Council Recommendation with a view to bringing an end to the situation of an excessive government deficit in Spain” presented to the EU Council (sic) at the beginning of July 2012.

This means that the Commission accepted the revised data in May 2012, since it used the correct data to take EU decisions on economic matters, thereby complying with the objectives of European statistics (ex Article 338 TFEU). It is therefore clear that the operation was considered by the Spanish statistical authorities and by Eurostat as an ordinary revision under Articles 3 and 6 of Regulation (EC) No 479/2009 on the EDP. The EDP notification of October 2011 confirmed the figures reported in the May revision.

We would also like to return to another fact (number 14 of our initial account) which is that on 2 February 2013 Eurostat published the “Report from the Commission to the European Parliament and the Council on the quality of fiscal data reported by the Member States in 2012” in which it was stated that Eurostat did not question the 2011 deficit data from Spain.

It is worth reproducing here what is said the report, which again repeatedly refers to the revision of data without establishing any differences between the incidences that occurred in Spain and other countries:

“Revisions between the April 2012 and the October 2012 notifications were mainly due to source data updates, sector re-classification of units, the recording of interventions undertaken by government in the context of the financial crisis and methodological changes. As usual, debt was revised less than deficit between April and October.

The largest revisions in the deficit took place in Spain and Ireland. In Spain, the deficit was revised upwards between the April and October 2012 EDP notifications for years 2010 and 2011 due to the previously unrecorded unpaid bills related to health expenditure in the state and local government sub-sectors and due to the re-classification of capital injections by central government into three banks. In Ireland, the biggest revision took place for the year 2011, where the deficit was revised upwards due to a revised capital transfer element of injections into two banks.

Between April and October, there were noticeable revisions in GDP for Greece for the years 2010 and 2011 and for Luxembourg for the years 2008 and 2009.

As regards revisions undertaken within the notification period, most Member States revised their reporting after the first submission in October 2012. 35 revised submissions were sent by 23 countries, while in April 2012, 38 revised submissions were sent by 22 countries. Member States sent most of the revised submissions in response to comments, technical questions or remarks by Eurostat, and they concerned completeness of missing data, corrections of technical errors, internal inconsistencies, adjustments provided in the notification tables or the related questionnaire or inappropriate recording within tables.

In the April and October reporting, revised submissions within the notification period did not change substantially the deficit and debt levels originally reported by Member States, except in the October reporting, where the deficit figure was revised by -0.2 percentage points (pp) of GDP during the notification period for Ireland.”

The documentation stresses that the new data communicated by Spain to Eurostat are part of the natural and ordinary process of revision and updating of data and one of the causes of this need for revision is even included: “previously unrecorded unpaid bills related to health expenditure in the state and local government sub-sectors”. As a result the report acknowledges that it was customary for data to be revised under the EDP and in particular, Spain’s revision of the AC data was similar to the revisions made by other Member States (in fact, unlike in the case of other countries, no reservations were entered about the Spanish data). This means that the report acknowledges these operations as ordinary revisions which comply with the EDP Regulation.

Moreover, the preliminary findings on which we are presenting these comments characterise this activity as revision when they describe the background, perhaps not intentionally but in a highly revealing manner; it is therefore said in point 1.1 (Background), paragraphs four and five:

“(…) the revision to the expenditure reported by the Autonomous Community of Valencia (Comunidad Valenciana) for the April 2012 EDP notification, corresponding to the unpaid (mainly health) expenditure amounted to about 1.9 billion euro..

At the source of this revision was the fact that (…) the Spanish Government had introduced … the Special Payment Mechanism (…) for the payment of regional and local government arrears” (…).

In conclusion, it can be said that the data which were sent in the April notification to Eurostat are not final in accordance with Article 3 of Regulation (EC) No 479/2009. As we have seen, Article 6 of that Regulation establishes that Member States shall inform the Commission (Eurostat), as soon as it becomes available, of any major revision in their actual and planned government deficit and debt figures already reported. The Member States are under an obligation to conduct these revisions.

In fact Eurostat has acknowledged for some time, without seeing it as anything out of the ordinary and without entering any type of reservation, that some States do not include real primary data from the regions but simply estimates in their April EDP notification.

Eurostat itself explains this as follows 3 : “It is important to note that Eurostat constantly refers to statistics and not to bookkeeping with regard to EDP data. EDP data are the result of statistical processes which are based on primary accounting data, sampling and estimation procedures. Therefore, as point estimates, they are by their very nature subject to uncertainty and revisions. The first notifications for a given year n (in April of year n+1 and October of year n+1, even sometimes April of year n+2) cannot be based on a complete set of final accounts of general government entities. Thus part of the data needs to be “estimated” at these stages”.

As mentioned above in the facts and the preliminary findings from Eurostat, Spain informed the Commission of the need to revise the data forwarded in the 2012 April notification and offered to revise the April notification. As a very short period of time had elapsed since the official forwarding, Eurostat, followed the rules of Regulation (EC) No 479/2009 and recommended that they be formally included in the October 2012 notification.

4. INFRINGEMENT OF THE PRINCIPLE OF LEGALITY, THE INFRINGEMENT DESCRIBED IN ARTICLE 8(1) OF REGULATION (EU) No 1173/2011 IS AN INFRINGEMENT CONTINGENT ON OUTCOME: THE FLAWED DATA FORWARDED NEED TO AFFECT THE PUBLIC DEFICIT AND DATA INFORMATION DRAWN UP OR USED BY THE COMMISSION IN EXERCISING ITS FUNCTIONS FOR AN INFRINGEMENT TO BE COMMITTED.

Even if forwarding of faulty or incomplete data in the provisional notification of April 2012 were not held to be compatible with the notion of revision we have posited above, we would draw attention to a second infringement of the principle of legality.

As we have seen, and reiterate here for the purposes of clarity, Article 8(1) of Regulation (EU) No 1173/2011 states “The Council, acting on a recommendation by the Commission, may decide to impose a fine on a Member State that intentionally or by serious negligence misrepresents deficit and debt data relevant for the application of Articles 121 or 126 TFEU, or for the application of the Protocol on the excessive deficit procedure annexed to the TEU and to the TFEU”.

The infringement described in Article 8(1) of Regulation (EU) No 1173/2011 can therefore be said to be an infringement of outcome which means that the data that are misrepresented in this case must be “relevant” for the application of Articles 121 or 126 TFEU; the English version of the Regulation talks about “data relevant for the application of Articles 121 or 126 TFEU” and in English “pertinent” is a synonym for “relevant” and this is probably the reason for the misplaced use of the word “pertinente” in the Spanish translation. In any event, the word “relevant” translated by “pertinente” refers to what is related to the matter at hand, i.e. what is important or significant. In this case it refers to the manipulation of data which are important or relevant to guarantee (or, as the case may be, impede) correct application of Articles 121 and 126 TFEU. In other words it must concern manipulation of data which may influence or affect proper exercise of the EU’s powers of supervision of the Member States’ economic policy (Article 121) and the powers of supervision of “the development of the budgetary situation and the stock of government debt in the Member States with a view to identifying gross errors”, which is of particular relevance in this case (Article 126).

Finally then, in order for the infringement under Article 8(1) of Regulation (EU) No 1173/2011, which is quoted many times, to be committed, it is vital for the misrepresentation of data to have an effect on economic oversight or excessive deficit policies. Not only do the preliminary findings not confirm this (since this is not mentioned at all) but what they do confirm is precisely that the incorrect data had absolutely no relevance or importance (or “pertinencia” if we accept the literal translation of the Regulation) with regard to the exercise of EU powers, as we stated above.

Once again we must return to the “Report from the Commission to the European Parliament and the Council on the quality of fiscal data reported by the Member States in 2012” published on 2 February 2013 and, specifically, emphasise once again its conclusions on the reliability of data:

“Eurostat has been introducing amendments and/or reservations on the quality of reported data since the year 2006. For the first time, in October 2012, Eurostat has neither expressed reservations nor amended the data in the EDP notification. In addition, the two reservations expressed for Ireland, and the amendment to the data for the United Kingdom in April 2012, were all withdrawn in the October 2012 EDP notification.

Eurostat acknowledges overall improvements in the consistency and completeness of the reported data. Nevertheless, some issues persist, and Member States should step up efforts in order to improve the coverage and quality of the trade credits reported and the completeness of data on the sub-national government levels. Moreover, Eurostat is closely monitoring the system for the reporting by autonomous regions and the recording of interventions undertaken by government in the context of the financial crisis (bank recapitalisations).

Overall, Eurostat concludes that the progress on the quality of the reporting of fiscal data continued in 2012. In general, Member States have provided better information, both in EDP notification tables and in other relevant statistical returns”.

It is consistent with the part of the report that we quoted in Point 3, which stated that there had been no statistical manipulation of any type but merely an ordinary process of data revision, the report's conclusions highlight the reliability of the data, the improvement in the system with regard to previous years and emphasise that there was no need to formulate any reservations or amendment. This is also because the Spanish authorities, as we will have occasion to explain later on, were extremely diligent in speedily revising (on 17 May 2012) the provisional information of April 2012 as soon as they became aware of the error that was made in forwarding it, although the Commission did not request any amendment to the EDP (although the Spanish statistical authorities offered to amend it) and said that it was sufficient for the data to be corrected in the October notification, which is what was finally done. And the Commission acted in this way quite simply because the error only affected provisional data, which had to be confirmed by a subsequent notification, and there was no need for immediate amendment as long as the following notification included correctly entered data, because the Commission’s supervisory powers, in the Commission’s own view, were not being compromised. If it had been otherwise and the information could have been challenged, the Commission would have at least requested immediate amendment of the April notification.

In reality, since Spain informed Eurostat of these facts in May 2012, the Commission had the correct data from Spain in sufficient time for decisions on economic policy and the EDP protocol to be taken on the basis of the correct data without any detrimental effect at all.

It is not only this document which underpins the lack of importance or relevance but at least two others:

1. Proof of the absence of any real impact of these facts can be found firstly in the “Council Recommendation with a view to bringing an end to the situation of an excessive government deficit in Spain” presented to the EU Council (sic) on 9 July 2012, which made it clear that when the relevant measures were taken the revised information was already available. According to the report:

“The general government deficit reached 9.3% of GDP in 2010, down from 11.2% in 2009. The improvement in the budget balance was driven by both cuts in total expenditure and an increase in total revenues, mainly as a result of discretionary measures. In 2011, the deficit outturn was significantly worse than expected, 8.5% of GDP compared with a target of 6% of GDP. Spain informed Eurostat on 17 May 2012 that the 2011 general government deficit could be revised up by around 0.4% of GDP due to new information on some expenditure items of the autonomous regions which had not been included in the March 2012 EDP notification. Around two thirds of the 2011 budget deviation occurred at the regional level, while central government and social security recorded much smaller slippages. The budget deviation was mainly explained by weaker-than-expected revenues due to the materialisation of a less favourable Economic environment than foreseen in the 2011 Stability Programme and a less tax-rich grow composition, while expenditure overruns were limited.”

2. Likewise, the Commission’s working document on the evaluation of the national reform programme and the stability programme for Spain for 2012 accompanying the Council Recommendation on the national reform programme in 2012 for Spain, in which a Council opinion was issued on the stability programme in Spain for 2012-2015 (adopted on 6 July 2012), acknowledged that these data were already known: “The deficit of the public administrations increased to 8.5% of GDP in 2011 compared with the target of 6% of GDP. (Footnote: According to the most recent information, the official deficit figure of the public administrations in 2011 may still be revised)”.

That is to say that the EU Commission and Council, which are tasked with supervision, had these data since May 2012 and used them, simply as revised figures, for adopting decisions under Articles 121 and 126 TFEU.

Finally, we would add that relevance was not only not confirmed from a qualitative point of view (as we have just seen) but not from a quantitative point of view either. In fact the potential impact (bearing in mind that we are talking about a potential impact because there was never any real impact) of the data forwarded initially could not be described as “pertinent” or relevant since the accumulated effect notified in May 2012 after the revision was nearly 1.9 thousand million. However, what we need to know is not only the stock accumulated over time but the amount revised in each year, which was done following Eurostat’s instructions at that time. Of the 1.9 thousand million, only 0.9 thousand million were accounted for by the year 2011 (0.08% of the GDP in that year), the remainder being accrued in previous years in accordance with Eurostat’s own criteria at the time. Amongst other reasons, in statistics the homogeneity of a rate of flows, such as public deficit related to GDP, requires the numerator and the denominator to refer to the same year. Correct registration of these quantities over the last decade would not have led to a different diagnosis of the Spanish public accounts for the purposes of EDP rules in any case. This means that these quantities would never have exceeded the threshold of 3% of GDP and therefore would not have had any effect on the excessive deficit in any of the years mentioned. Obviously this is also true in relation to their non-existent impact on the public deficit of the euro zone and the European Union.

Finally, we would return once again to the “Report from the Commission to the European Parliament and the Council on the quality of fiscal data reported by the Member States in 2013”, to which we have already referred, which talks about other revisions of similar quantitative importance which did not give rise to any type of investigatory activity. The wording is as follows:

“Reservations on the quality of data: Eurostat expressed a reservation on the data reported in the October 2013 EDP notification in one Member State. Austria: Eurostat is expressing a reservation on the quality of the data reported by Austria, due to uncertainties on the statistical impact of the conclusions of the Federal Audit Office’s report on the Land Salzburg, published on 9 October 2013. The report revealed deficiencies with regard to financial management and to completeness of the public accounts of the Land Salzburg. The statistical implications of the audit for EDP data are being investigated by Statistics Austria in collaboration with Eurostat, in order to clarify the precise impacts on 2012 and also on preceding years. It is possible that this will lead to an upward revision of government debt of up to half a per cent of GDP, with more minor revisions to the government deficit, based on the information available at this point.”

5. ALTERNATIVELY WITH REGARD TO THE TWO POINTS ABOVE. INFRINGEMENT OF THE PRINCIPLE OF LEGALITY AS REGARDS THE SUBJECTIVE ELEMENT: LACK OF GRAVE NEGLIGENCE, LET ALONE INTENTION, ON THE PART OF THE KINGDOM OF SPAIN.

So far we have demonstrated why the situation described in Article 8(1) of Regulation 1173/2011 did not arise in this case in objective terms, thus obviating the need to discuss the subjective aspects. This notwithstanding, we must point out, in claiming the right of defence to which this Member State is entitled, that the above-mentioned situation is governed by a system of subjective responsibility, which means that non-compliance is not sufficient grounds per se for laying charges and imposing penalties but must be the result of fraud or grave negligence.

The final conclusion of the Commission’s preliminary findings says that “the AC of Valencia was, at least, seriously negligent concerning the non-recording of health expenditures and the non-respect of the accrual principle in national accounts”.

First of all, we would point out that the Spanish State is in a position where it cannot defend itself because it does not know precisely what charge is being made, since the conclusions state that the conduct is attributed at least to grave negligence but do not rule out intention.

Moreover, and probably more importantly, the preliminary findings appear to highlight solely the activity of the Autonomous Communities’ institutions whose conduct is described in detail therein. However, they do not do justice to the diligence with which the national statistical authorities acted at all times. It is therefore difficult to see how an intentional or gravely negligent infringement is compatible with the fact that it was the statistical authorities who, on their own initiative, informed the Commission of the facts of the matter. As we highlighted in facts 6 and 7 of this letter, during the first days of May 2012, the Ministry of Finance and Public Administrations’ analysis of the information forwarded in application of the measure for paying suppliers revealed an irregularity in the recording of healthcare expenditure in the Autonomous Community of Valencia. As soon as it was aware of the irregularity the IGAE requested the IGGV to confirm the information and forward it to the National Accounts Working Group. The National Accounts Working Group agreed to notify Eurostat immediately and did so on 17 May 2012, offering to revise the notification published in April.

Through its institutions, Spain detected an error in communication which was brought to light on its own initiative and the statistical authorities informed the competent European institution with the result that, as we have seen above, there was no incidence at all or impact on the Commission’s supervisory powers. Not only did the authorities act with all due diligence but also as quickly as could be expected.

Moreover, before the investigation procedure was initiated, the national statistical institutions cooperated with absolute trustworthiness, transparency and willingness with the Commission in what was understood to be a series of visits to improve the technical system for data communication. As we have already said here, three visits were made to Spain, apart from the ordinary dialogue visits provided for by Regulation (EC) No 479/2009 which were called “technical”, “upstream” and “ad hoc” in 2012 and 2013 (24 May 2012, 18-22 June 2012, 11-14 September 2012 and 26-27 September 2013) in which again the cooperation offered was, in our view, totally incompatible with the notion of intention or grave negligence.

Likewise, since May 2012, again not as a consequence of any penalties being imposed or the start of the investigation formalities, but simply with the simple desire to improve the system, given the fact that an error in the communication of data had been detected, improvements were made to the communication procedures which are set out in the letter of preliminary findings itself and which include the Organic Law on Budgetary Stability and Financial Sustainability, which is compulsory for all levels of Spanish administration (central, Autonomous Community and local levels), the Organic Law on the Independent Authority for Fiscal Responsibility, also compulsory throughout Spain, which institutionalised the existing national accounts working group, made up of the INE, the IGAE and the Bank of Spain under the name of “National Accounts Technical Committee” and various improvements at Autonomous Community level such as the setting up of a single entry point for recording invoices in each Community, setting up of interdepartmental committees in the Autonomous Communities to monitor rationalisation and austerity policies, the amendment of the “Council Accord of 27 June 2008” and “Decree 40/1992 of 16 March” of the Autonomous Community of Valencia, the amendments to the Law of Finances published in the Autonomous Community of Valencia in order to incorporate the instruments required and the procedures to guarantee compliance with the Law on Budgetary Stability and Sustainability, expressly including a system of responsibilities to be borne by those in charge of the various departments and entities in the event of non-compliance with the above legislation and principles, amongst other things.

The preliminary findings do not take account of the assessment by the Autonomous Community of Valencia’s Court of Auditors of the AC’s public accounts for the year 2011 which is the one which is supposed to be under investigation (published on 21 December 2012), but they do analyse the content of the audit office’s reports for years outside the time frame of this procedure. The report highlights the fact that real improvements have been made:

“The administration’s account for the year 2011 incorporates accounts 409 and 411 on the debit side of the balance sheet which essentially comprise the debt for healthcare for obligations not recorded (ONR) in the expenditure budget.

Although the ONRs were not taken into account in calculating the budget for the year (see section 6.1) they were included in calculating the deficit for 2011 for the purposes of the ESA 95 as set out in the 2012-2014 Economic Financial Rebalancing Plan of the Autonomous Community of Valencia (see section 6.5).

In 2012 the IGG started to prepare a manual of procedures for management and control of the Generalitat (Valencian Government) Administration. The documents approved in May 2012 included one on the “Register of pending operations in accounts 409 and 411 in application of the budget” which covered the procedures to be conducted for both expenditure management centres and for the IGG, for the recording in the accounts of the obligations stemming from goods and services actually received in respect of which a corresponding formal act of recognition and liquidation had not been enacted.

Decree 134/2012 of 7 September of the Council set up and governs the Registro de Facturas (Register of Invoices) of the Generalitat (RFG) and stipulated, amongst other things, that information had to be entered in the RFG as a prerequisite for the procedure for acknowledging the obligation and that entry triggered the start of calculating the deadline for payment under the terms of Law 3/2004.

These measures require a new system of control, supervision and accounting of all the invoices to be put in place which must provide evidence of actual supply of goods and services to the Administration of the Generalitat. The sound functioning of the RFG will be audited by the Court in subsequent years.”

The Member State knows at first hand and respects the hard work conducted by the investigation team but, in its defence, would point out that it sees a disconnect in terms of time frame and events, since the investigation appears to be focused on a few facts which are, admittedly, not entirely outside the scope of the procedure, but certainly marginal to it, and on some reports which emphasis the errors committed by the autonomous authorities of Valencia without taking into consideration the speed, diligence and trustworthiness of the Kingdom of Spain prior to the investigation procedure and during it, when it was also was at pains to offer maximum cooperation.

Furthermore it should be acknowledged that even in relation with the IGGV’s activities not all the facts are reported. The preliminary findings thus state that “Concerning the information sent by the IGGV to IGAE in the SQ, no amounts for unpaid unrecorded bills were reported in the SQ sent to IGAE on the 30th of April 2012, while such amounts had already been transmitted to the National MoF in the invoices sent for the purposes of the SPM and in the adjustment plan provided to the CPFF and while IGGV had received by email such amounts from Consejeria de Sanidad already in February”, which is true, but the findings fail to make it clear that the IGGV, after a request from the IGAE, did confirm these amounts and regularised them in the following dispatch as is mentioned in the 2011 report from the Court of Auditors of the Autonomous Community of Valencia.

In the light of the relevant facts mentioned and the previous legal grounds we would like to formulate the following conclusions:

CONCLUSIONS

Conclusion to Point 1. In compliance with Article 14, Regulation (EU) No 1173/2011 entered into force twenty days after its publication in the Official Journal of the European Union, that is to say on 13 December 2011.

However, the decision which is being contested mentions as key indicators for the conclusions of the investigation facts which sometimes go back as far as 1988. Extending the investigation retroactively without any time limit beyond 13 December 2011 is an act with no legal basis which contravenes the principles of legal certainty and non-retroactivity of the provisions for penalties and constitutes a disproportionate exercise of investigatory powers prohibited by the Commission itself in recital 6 of its delegated Decision of 29 June 2012.

The Commission’s interpretation would enable the Commission to investigate the data sent by any Member State since their accession to the EU retroactively and without any limits.

The period under investigation should be restricted to the data included in the notifications from 2012 onwards and indeed the Commission only has investigatory powers from November of that year. As a result there is no legal basis for opening an investigation procedure for events prior to 13 December 2011. The investigation focused on data whose reference period started in 1988 (at which time there was not even any European legislation on EDP and national accounts) and extended to 2011, giving rise to conclusions which may be misleading as to the facts which are relevant for the investigation and infringing the principle of legality and non-retroactivity of legislation.

Conclusion to Point 2. The investigation was conducted over a period of three years in which Eurostat had access to persons and documents as a result of the “informal” visits without the guarantees established by the law and reused this information in the investigation procedure under Decision 2012/678/EU.

There are many inaccuracies in the findings which may lead to misinterpretations and may compromise the Kingdom of Spain’s right of defence.

Conclusions to Point 3. The data communicated by the Spanish authorities from the month of May 2012 formed part of a normal data revision process which is provided for specifically in the EDP Regulation. An interpretation which implies that any update or revision of data performed by a Member State may involve, at least potentially, an activity which may be investigated or penalised by the Commission under the EDP is not only contrary to the letter and spirit of Regulation (EU) No 1173/2011 and Decision 2012/678/EU but means, from a practical point of view, that the Member State’s collaboration in improving the quality of its data by implementing revision policies is not only not valued but, on the contrary, in the case of Spain has entailed the opening of an investigation procedure and concomitant damage both to the letter and spirit and purpose of the legislative framework which applies.

The Kingdom of Spain’s actions may not be considered to be a misrepresentation of data but revision thereof under the EDP which was provided for in law and is standard practice in the majority of countries, as the Eurostat reports on EDP demonstrates; there is also an assumption of non-misrepresentation defined explicitly in Decision 2012/678/EU.

Conclusion to Point 4. The infringement described in Article 8(1) of Regulation (EU) No 1173/2011 is an infringement of outcome which requires that the misrepresentation of data prevents proper exercise of the Commission’s supervisory powers provided for in Articles 121 and 126 TFEU. Such an impact not only has not been demonstrated but, according to the documents issued by the Commission itself, has never existed. In brief therefore there has not been any real impact because these were provisional data the revision of which in May made it possible to use them for the purposes provided for by European legislation.

The EDP data are correct and have never been revised by Eurostat nor has a reservation been entered in that regard. This was acknowledged by Eurostat and the European Commission in the public notification on the opening of the investigation on 11 July 2014 in the following terms: “It is important to underline that Spanish data has always been published without reservation by Eurostat.” Likewise, Commissioner Semeta reiterated this when responding to the following parliamentary question “Does the investigation initiated today mean that Spain’s figures on debt and deficit are not reliable?

“(…) This correction was reflected in the October 2012 EDP notification, and Spanish data has been published without reservation by Eurostat since then. All the expenditures that Eurostat was discussing with Spain have now been included into the general government data, and Spain has taken important steps to ensure that the reporting problems in the regions do not happen again (…).”

And more recently in the Commission to the Council and the European Parliament on the quality of fiscal data in 2015 in which it affirms that “The Commission is not calling into question the current accuracy of EDP statistics in Spain”.

Neither can one conclude that the figures involved justify any suggestion of any impact in terms of quantity; of the 1.9 thousand million notified in May 2012, only 0.9 thousand million were accounted for by the year 2011 (0.08% of the GDP for the year in question), the rest having been accrued over previous years in accordance with Eurostat’s own criterion of the time. It was primary information that was revised and involved a minimal percentage of less than 0.1% of GDP. By comparison, any statistical sampling operation with a sampling error of similar magnitude would be considered, in statistical terms, by the Member States or by Eurostat to be of a quality more than sufficient for use in national accounts and, by extension, in the EDP and other European economic policy areas.

Conclusion to Point 5. The preliminary findings deal exclusively with the conduct of the Autonomous Community of Valencia, describing its behaviour as negligent at least. However, they do not appear to have properly valued the conduct of the national statistical authorities which behaved with maximum diligence, commitment, trustworthiness and speed in informing the Commission immediately about the error which had been discovered and cooperating during the time prior to the investigation procedure, preventing the error from having real consequences on the European institutions’ supervisory powers.

ANNEX II

Errors and inaccuracies contained in the letter on preliminary findings

1. On page 6 where it is stated “since November 2011, the Commission carried out an investigation” should actually read “since November 2012, the Commission can launch an investigation” as this is the date of the entry into force of Delegated Decision 678/2012, governing the investigation procedure.

2. Table 1 on page 9 shows the specific responsibilities of the various institutions involved in the EDP for the ACs and how they interact but, while this is correctly described on pages 7-9, it is not the case in the table, which refers to the Technical Committee (which had not been created at that time) instead of the National Accounts Working Group and assigns it responsibility for compiling EDP data when it only handles methodological questions.

3. On page 12 and 13 where it is stated:

“Account 409 (currently 413) consists of expenditures:

Not imputed in the budget of year T;

For which the obligation to pay has been recognised (invoice received);

To be imputed to the budget of year T+1;

Impact the EDP deficit (B.9) of year T.

Account 411 consists of expenditures:

Not imputed in the budget of year T;

For which the obligation to pay has not been created, as the expenditure is not matured (the official invoice was not yet received);

To be imputed to the budget of year T+1 once the invoice has been received, after the due date, and the obligation to pay is recognised;

Impact the EDP deficit (B.9) of year T”.

It should, for a clearer understanding of how these accounts work, read as follows:

“Account 409 (currently 413) consists of expenditure not imputed in the budget of year T, for which the obligation to pay has been recognised (invoice received) and which is to be imputed to the budget of year T + 1. This expenditure affects the EDP deficit (B.9) of year T.

Account 411 contains expenditure not imputed to the budget of year T in respect of which an obligation to pay has not been created, as the expenditure has not matured (the official invoice has not yet been received); this should be imputed to the budget of the year T + 1 once the invoice has been received, after the due date, and the obligation to pay is recognised. This expenditure affects the EDP deficit (B.9) of year T”.

4. On page 12 on the penultimate line of footnote 12 “…the account 409 was not suitable” should read “…the account 411 was not suitable”.

5. On page 13 under the heading “Specific agreements of Government in 2007-2010” it is stated: “On the one hand, the new debt recognised after each agreement impacts the stock of debt of government as well as government deficit”. The reference to public debt should be deleted as it is not affected.

6. On page 13 it should have been clarified that “The audit office does not assess implementation of the national accounts principles” because these do not apply at Autonomous Community level but are the responsibility of the national statistical authorities. The same error is repeated in the title of section 4.3 which talks about “The workflow for the compilation of EDP data in the Comunidad Valenciana where “EDP data” should be "public accounts data" in the Autonomous Community of Valencia.

7. On page 17 there is an error in the third paragraph which mentions the “general comptrollers of the regional audit offices” where reference should be made to the “general comptrollers of the ACs”.

8. Table 3 and the explanatory text on the page where it is found do not specify the units of measurement and are misleading because they include a column referring to 2011 without any clear mention that these are the provisional data from the April notification. All the previous columns refer to periods outside the remit of the investigation. In particular it is said in the explanation that the penultimate column “shows what would have been published by the IGGV if they would have followed past practices” which is a specious comment referring to supposed conduct which did not take place and on which grounds this Member State requests with all due respect that it be deleted.

9. In the final paragraph on page 23 there is an inaccuracy where it is stated that “The figures for unpaid bills, recorded in account 409 for the first time, were finally transmitted by IGGV to IGAE only at the end of June 2012”, as this was actually not done formally but it was confirmed by telephone in May 2012 for which reason the adverb “formally” should be included.

The following page refers repeatedly to the revision of June 2012 and forwarding of the data by the IGGV in June 2012, whereas in reality the agreement by telephone took place in May 2012.

10. Table 6 on page 29 contains information in the penultimate line not mentioned in any report from the Court of Auditors of the Autonomous Community of Valencia, namely 1 842.3 million euros of expenditure not recognised in 2011 (and which should therefore be deleted in its entirety). The correct information is that which appears in the last line which corresponds with the 2011 report from the Regional Court of Auditors.

11. On page 23, fifth paragraph, there is an error in the statement that “IGAE underlined that they had an obligation to cooperate with IGGV and that the Court of Auditors report (…)” since it is precisely the opposite which is correct and should read “The IGAE underlined that it needed the cooperation of the IGGV to draw up national accounts since the report from the Court of Auditors…”.

12. Table 8 on page 33 does not identify any units of measurement. In the final column on 2011 only the data for April 2012 are included without all the information from that year revised in May and confirmed in the October notification.

13. On page 38 of the Spanish original we do not understand what is meant by the term “procedimiento de limpieza” (in the English version the term is simply “procedure”).

14. On page 37 it is affirmed that “The irregularities in the AC of Valencian were in fact revealed to Eurostat only after INE had communicated the new revision of B.9 to Eurostat. Eurostat carried out a technical mission to Spain and it was only after this mission that a new recording procedure began in the AC of Valencia using the account 409 and reflecting the corresponding amounts in both the general account for the region and the SQ transmitted to IGAE”. This information is presented as if it were negative and without any time frame instead of clarifying that in May 2012 the INE informed Eurostat of the revision of B.9 (which cannot be identified as new since there was no other previous revision, only that referring to the April notification). The above paragraph is inaccurate as well because, as has been mentioned, the revision was carried out by the national statistical authorities before Eurostat’s technical mission to Spain in May 2012. That visit actually came as a consequence of the revision and did not, as might be assumed from a literal reading of this paragraph, cause it. It should therefore be deleted.

(1)

   For greater clarity a timetable setting out the relevant factual events is attached as Annex I.

(2)

   The legal arrangements governing this mechanism are set out in Royal Decree-Law 4/2012 of 24 February specifying the information obligations and the procedures required to set up a financing mechanism for local governments to pay suppliers; and Royal Decree-Law 7/2012 of 9 March setting up a fund for financing payments to suppliers.

(3)

   https://webgate.ec.europa.eu/fpfis/mwikis/gfs/index.php/Revisions_of_EDP_data