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Document 52013TA1213(20)
Report on the annual accounts of the European Institute of Innovation and Technology for the financial year 2012, together with the Institute’s replies
Report on the annual accounts of the European Institute of Innovation and Technology for the financial year 2012, together with the Institute’s replies
Report on the annual accounts of the European Institute of Innovation and Technology for the financial year 2012, together with the Institute’s replies
OJ C 365, 13.12.2013, p. 142–149
(BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)
13.12.2013 |
EN |
Official Journal of the European Union |
C 365/142 |
REPORT
on the annual accounts of the European Institute of Innovation and Technology for the financial year 2012, together with the Institute’s replies
2013/C 365/20
INTRODUCTION
1. |
The European Institute of Innovation and Technology (hereinafter ‘the Institute’, aka ‘EIT’), which is located in Budapest, was created by Regulation (EC) No 294/2008 of the European Parliament and of the Council (1). The Institute’s objective is to contribute to sustainable European economic growth and competitiveness by reinforcing the innovation capacity of the Member States and the European Union. The Institute awards grants to three ‘Knowledge and Innovation Communities’ (KICs), linking the higher education, research and business sectors with one another and thereby boosting innovation and entrepreneurship (2). KICs coordinate the activities of hundreds of partners. The grants provided by EIT reimburse partners’ costs and costs stemming from the KICs’ coordination activities. |
INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE
2. |
The audit approach taken by the Court comprises analytical audit procedures, direct testing of transactions and an assessment of key controls of the Institute’s supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations. |
STATEMENT OF ASSURANCE
3. |
Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited:
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The management’s responsibility
4. |
In accordance with Articles 33 and 43 of Commission Regulation (EC, Euratom) No 2343/2002 (5), the management is responsible for the preparation and fair presentation of the annual accounts of the Institute and the legality and regularity of the underlying transactions:
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The auditor’s responsibility
5. |
The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council (7) with a statement of assurance as to the reliability of the annual accounts and the legality and regularity of the underlying transactions. The Court conducts its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require the Court to plan and perform the audit to obtain reasonable assurance as to whether the annual accounts of the Institute are free from material misstatement and the transactions underlying them are legal and regular. |
6. |
The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the underlying transactions. The procedures selected depend on the auditor’s judgement, which is based on an assessment of the risks of material misstatement of the accounts and material non-compliance by the underlying transactions with the requirements in the legal framework of the European Union, whether due to fraud or error. In assessing these risks, the auditor considers any internal controls relevant to the preparation and fair presentation of the accounts, as well as the supervisory and control systems that are implemented to ensure the legality and regularity of underlying transactions, and designs audit procedures that are appropriate in the circumstances. The audit also entails evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates and the overall presentation of the accounts. |
7. |
The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its statement of assurance. |
Opinion on the reliability of the accounts
8. |
In the Court’s opinion, the Institute’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2012 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation and the accounting rules adopted by the Commission’s accounting officer. |
Basis for a qualified opinion on the legality and regularity of the underlying transactions
9. |
In 2012, the Institute made final payments and clearings of pre-financings (transactions) for grants amounting to 11,3 million euro (2010 activities) and 48,6 million euro (2011 activities). |
10. |
All grant transactions are subject to review by the Commission before authorisation by EIT. The Institute itself made considerable efforts to implement effective ex ante verifications with the aim of providing reasonable assurance on the legality and regularity of grant transactions. About 80 % of grant expenditure claimed by KIC’s is covered by certificates issued by independent audit firms contracted by the KICs and their partners. EIT itself carried out ex ante verifications consisting of comprehensive desk checks. Supporting documents obtained from the KICs and their partners were reviewed by EIT initially only in the case of particular risks identified. |
11. |
The Court found however that the quality of the audit certificates is inadequate in many instances (8). In order to have a second layer of assurance on the legality and regularity of grant transactions, at the end of 2012 the Institute introduced complementary ex post verifications for grants related to 2011 activities. They were carried out by independent audit firms contracted by EIT and are assessed as reliable. Ex post verification results confirmed that ex ante verifications are not fully effective. The Institute has however recovered the irregular payments found and the residual error rate for 2011 grant transactions is not material. |
12. |
No ex post verifications have been carried out yet for the transactions related to grants for 2010 activities (11,3 million euro). In addition, given the limited assurance that can be drawn from ex ante verifications, there is no reasonable assurance as to the legality and regularity of these transactions. The Court could not obtain sufficient appropriate audit evidence on the legality and regularity of the audited grant transactions related to 2010 activities. |
Qualified opinion on the legality and the regularity of the transactions underlying the accounts
13. |
In the Court’s opinion, except for the possible effects of the matters described in the basis for a qualified opinion paragraphs 9 to 12, the transactions underlying the annual accounts for the year ended 31 December 2012 are legal and regular in all material respects. |
14. |
The comments which follow do not call into question the Court’s opinion on the reliability of the accounts or its qualified opinion on the legality and regularity of the underlying transactions. |
COMMENTS ON INTERNAL CONTROLS
15. |
In addition to the matter described in paragraphs 9 to 13, budgets for grant agreements signed in 2010 and 2011, which resulted in payments in 2012, were not sufficiently specific. There was no link between the approved funds and the activities to be implemented. Grant agreements did not set individual thresholds for specific cost categories (i.e. staff costs, sub-contracting, legal services, etc.) and did not include rules for the procurement of goods and services by the KICs and their partners. |
16. |
EIT also carried out technical verifications for all funded projects as part of its ex ante verifications. However, there was a lack of quantifiable targets that hampered an effective assessment of project activities and results. Business plans did not define in detail the activities to be implemented; nor did they set clear milestones, deliverables per activity or quality criteria. |
COMMENT ON BUDGETARY MANAGEMENT
17. |
Out of the committed appropriations carried over from 2011 amounting to some 22 million euro, some 10 million euro (45 %) were cancelled in 2012. The high level of cancellations is mainly due to lower than estimated costs claimed by beneficiaries under 2011 grant agreements (9,2 million euro or 92 % of cancelled carry-overs). |
FOLLOW-UP OF PREVIOUS YEAR'S COMMENTS
18. |
An overview of the corrective actions taken in response to the Court's previous year's comments is provided in Annex I. |
This Report was adopted by Chamber IV, headed by Dr Louis GALEA, Member of the Court of Auditors, in Luxembourg at its meeting of 10 September 2013.
For the Court of Auditors
Vítor Manuel da SILVA CALDEIRA
President
(2) Annex II summarises the Institute's competences and activities. It is presented for information purposes.
(3) These include the balance sheet and the economic outturn account, the cash flow table, the statement of changes in net assets and a summary of the significant accounting policies and other explanatory notes.
(4) These comprise the budgetary outturn account and the annex to the budgetary outturn account.
(5) OJ L 357, 31.12.2002, p. 72.
(6) The accounting rules adopted by the Commission’s accounting officer are derived from the International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, where relevant, the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.
(7) Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (OJ L 248, 16.9.2002, p. 1).
(8) I.e. Audit certificates did not always indicate the cost claim audited. Not all cost categories had to be audited in sufficient detail (as an example, actual indirect costs, which can be declared without threshold, was not checked on the basis of original supporting evidence). The risk of double funding of equipment declared as cost was not comprehensively checked. Most audit certificates did not mention the coverage of costs audited and there was no common methodology to identify the overall error in the cost claims.
ANNEX I
Follow-up of previous year’s comments
Year |
Court’s comment |
Status of corrective action (Completed / Ongoing / Outstanding / N/A) |
2011 |
The rate of execution of the Institute’s budget for the audited period of financial autonomy (see paragraph 2) was low. Comparing payments with appropriations committed, the rate was 56 % for title I (staff expenditure), 30 % for title II (administrative expenditure) and 11 % for title III (operational expenditure). |
Completed |
2011 |
Grant agreements resulting in payments in 2011 were systematically signed by the European Commission (Directorate General for Education and Culture) and the Institute after most of the activities had already been implemented. Between September and December 2011, the Institute made final payments (1), amounting to 4,2 million euro, related to three grant agreements that were signed well after the start of activities (2). This is an issue in terms of good financial management. |
Ongoing |
(1) Advance payments had been made by the European Commission.
(2) In one case, the contract was signed 14 days before the end of the 13-month implementation period.
ANNEX II
European Institute of Innovation and Technology (Budapest)
Competences and activities
Areas of Union competence deriving from the Treaty (Article 173 of the Treaty on the Functioning of the European Union) |
The Union and the Member States shall ensure that the conditions necessary for the competitiveness of the Union’s industry exist. For that purpose, in accordance with a system of open and competitive markets, their action shall be aimed at:
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Competences of the Institute (Regulation (EC) No 294/2008 of the European Parliament and of the Council) |
Objectives The Institute’s objective is to contribute to sustainable European economic growth and competitiveness by reinforcing the innovation capacity of the Member States and the Community. It shall do this by promoting and integrating higher education, research and innovation of the highest standards. Tasks In order to achieve its objective, the Institute shall:
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Governance |
Governing Board Composition The Institute’s Governing Board (GB) consists of 18 appointed members providing a balance between experience and excellence in business, higher education and research, and four representative members proposed by the Knowledge and Innovation Communities (KICs). The European Commission has observer status. Tasks The Governing Board is responsible for steering the activities of the Institute, for the selection, designation, grant allocation to and evaluation of the KICs, and for all other strategic decisions. Executive Committee Composition The Executive Committee consists of five Governing Board members, including the Chairperson and Vice-Chairperson. It is chaired by the Chairperson of the Governing Board. Tasks The Executive Committee oversees the running of the Institute and takes such decisions as are necessary between meetings of the Governing Board. Director Appointed by and responsible to the Governing Board for the administrative and financial management of the Institute; the Institute’s legal representative. External audit European Court of Auditors. Discharge authority European Parliament acting on a recommendation from the Council. |
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Resources made available to the Institute in 2012 (2011) |
Final Budget 95,30 million euro for commitment appropriations and 77,09 million euro for payment appropriations. Staff as at 31 December 2012 Authorised posts: 52 (52) Posts occupied: 47 (40) Other posts: 0 (0) Total staff: 47 (40) assigned to the following duties:
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Products and services in 2012 |
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Source: Information supplied by the Institute. |
THE INSTITUTE’S REPLIES
10. |
EIT welcomes the acknowledgement by the Court of Auditors concerning the considerable efforts made by EIT to implement effective ex-ante verifications with the aim to obtain reasonable assurance on the legality and regularity of grant transactions. |
11. |
EIT welcomes the acknowledgement by the Court of Auditors concerning the reliability of EIT’s ex post verifications of grants for 2011 activities. As regards certificates, certifying auditors had to verify the eligibility of actual indirect costs reported in accordance with the Terms of Reference for the Certificates on Financial Statements. Furthermore, the majority of expenditure was subject to sample based verifications by the certifying auditors. Finally, the Terms of Reference have been updated and improved for the Grant Agreements 2012. |
12. |
As regards the assurance that can be drawn from ex ante verifications of transactions related to grants for 2010 activities, EIT foresaw the need to reinforce the ex ante verification to mitigate the risks related to the first year of operation of the KICs. In order to obtain reasonable assurance, EIT, beyond requesting audit certificates from the KICs, verified supporting documents related to an important percentage of expenditure based on a random sample. As a result, ineligible costs were corrected before the final payments. The combined assurance obtained from certificates and EIT’s reinforced verifications was considered sufficient to prevent material errors in the final payments made under the Grant Agreements 2010. Eventually, ex post verifications on Grant Agreements 2010 were launched by EIT and final results are expected in October 2013. Any irregularities will be corrected and amounts unduly paid will be recovered in 2013. |
15. |
The link between grants and activities to be implemented was established at a strategic level by focusing on outcomes and impact as well as at operational level through the KICs portfolio of activities. This approach is fully compliant with EIT Regulation and allowed to experiment new simplified approaches for enhancing the flexibility and efficiency of the KICs. Individual thresholds for specific cost categories (i.e. staff costs, sub-contracting, legal services, etc.) are not set as the Financial Regulation does not require them and, in addition, they do not help meet EIT/KICs objectives and operating needs. As regards subcontracting, Grant Agreements stipulate that contracts must be awarded on a best value for money basis and that conflicts of interest must be avoided. This is consistent with the relevant provisions of the Financial Regulation. |
16. |
Concerning quantifiable targets in the KICs’ Business Plans, EIT issued Guidelines to the KICs for the preparation of Business Plans in March 2012 and requested their data on the level of achievement of the Key Performance Indicators during 2010 and 2011. These guidelines have been recently revised in 2013 for the Business Plans 2014 in order to further improve the quality of the planning and reporting from the KICs as well as EIT’s assessment of their performance. |
17. |
EIT acknowledges the Court’s comment. By the end of 2012 the KICs completed their initial phase, which is also reflected in the use of grants (see also the explanations provided at point 15). Although there is a high level of carry-overs from 2012 to 2013, significant progress is expected since cancellations of carry-overs will be considerably reduced from 45 % (2011 carry-overs) to estimated 13 % (2012 carry-overs). EIT will follow up this matter closely. |