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Document 52017TA1212(05)
Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply
Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply
Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply
OJ C 426, 12.12.2017, p. 31–41
(BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)
12.12.2017 |
EN |
Official Journal of the European Union |
C 426/31 |
REPORT
on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply
(2017/C 426/05)
CONTENTS
|
Paragraph |
Page |
||
INTRODUCTION |
1-6 |
32 |
||
Establishment of the F4E Joint Undertaking |
1-2 |
32 |
||
Governance |
3-4 |
32 |
||
Objectives |
5 |
32 |
||
Resources |
6 |
32 |
||
OPINION |
7-29 |
32 |
||
Opinion on the reliability of the accounts |
8 |
33 |
||
Opinion on the legality and regularity of revenue underlying the accounts |
9 |
33 |
||
Opinion on the legality and regularity of payments underlying the accounts |
10-20 |
33 |
||
Emphasis of matter |
11-20 |
33 |
||
Responsibilities of management and those in charge of governance |
21-23 |
34 |
||
Auditor’s responsibilities for the audit of the accounts and underlying transactions |
24-28 |
34 |
||
BUDGETARY AND FINANCIAL MANAGEMENT |
30 |
35 |
||
Implementation of the 2016 budget |
30 |
35 |
||
INTERNAL CONTROLS |
31-35 |
35 |
||
Monitoring of operational procurement contracts and grants |
31-34 |
35 |
||
Anti-fraud strategy |
35 |
36 |
||
|
37 |
INTRODUCTION
Establishment of the F4E Joint Undertaking
1. |
The European Joint Undertaking for ITER (1) and the Development of Fusion Energy (‘F4E Joint Undertaking’) was set up in March 2007 (2) for a period of 35 years. While the main fusion facilities were to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona. |
2. |
The founding members of the Joint Undertaking are Euratom, represented by the Commission, the Euratom Member States and Switzerland (which has concluded a cooperation agreement with Euratom. |
Governance
3. |
The governance structure of the F4E Joint Undertaking includes the Governing Board, Director and other bodies. The Governing Board is responsible for the supervision of the Joint Undertaking in the pursuit of its objectives. The Director is responsible for the day-to-day management of the Joint Undertaking. |
4. |
The other governance bodies of the Joint Undertaking are the Bureau, the Technical Advisory Panel, the Procurement and Contracts Committee, the Administration and Management Committee, the Audit Committee and the Internal Review Panel. |
Objectives
5. |
The objectives of the F4E Joint Undertaking are:
|
Resources
6. |
In 2016, the payments budget for the F4E Joint Undertaking was 720 million euro (2015: 586 million euro) and the commitments budget was 459 million euro (2015: 467,9 million euro) (3). At 31 December 2016, the Joint Undertaking employed 415 staff (2015: 383) (4). |
OPINION
Opinion on the reliability of the accounts
Opinion on the legality and regularity of revenue underlying the accounts
Opinion on the legality and regularity of payments underlying the accounts
Emphasis of matter
Responsibilities of management and those in charge of governance
Auditor’s responsibilities for the audit of the accounts and underlying transactions
|
29. |
The comments which follow do not call the ECA’s opinions into question. |
BUDGETARY AND FINANCIAL MANAGEMENT
Implementation of the 2016 budget
30. |
The final 2016 budget available for implementation included commitment appropriations of 488 million euro (18) and payment appropriations of 724 million euro (19). The utilisation rates for commitment and payment appropriations were 99,8 % and 98 % respectively. |
INTERNAL CONTROLS
Monitoring of operational procurement contracts and grants
31. |
The F4E Joint Undertaking has a system for performing audits at contractors’ premises with the aim of checking compliance with its quality assurance requirements (20). |
32. |
In September 2016, the Commission’s Internal Audit Service (IAS) completed an audit on the implementation of procurement arrangements. The F4E Joint Undertaking is implementing an action plan in response to the resulting recommendations. The IAS also followed up its audit on contract management and concluded that all its related recommendations had been adequately implemented by the Joint Undertaking. |
33. |
In 2016, the F4E Joint Undertaking Internal Audit Capability (IAC) followed up its audit of procurement in the area of ITER buildings. The IAC acknowledged the important work performed by the Joint Undertaking in formalising and designing the process, guidelines, rules and tools related to procurement activities. The IAC also made six further recommendations for improvements in procedures. |
34. |
A residual error rate for grant payments is not calculated, due to their low share of the F4E Joint Undertaking’s budget (21) and the small number of ex-post audits carried out (22). In 2016, the Research Executive Agency launched an ex-post audit of a beneficiary on behalf of the F4E Joint Undertaking. The Joint Undertaking has taken the necessary action to correct errors identified in previous years’ audits. |
Anti-fraud strategy
35. |
In June 2015, the F4E Joint Undertaking’s Governing Board adopted an anti-fraud strategy and corresponding action plan. Most of the actions were implemented in 2016. However, the Joint Undertaking has not set up a specific tool to facilitate the monitoring of its actions in relation to procurement procedures, in particular those related to risk assessment and the evaluation, negotiation and award phases of the procedures. |
This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 3 October 2017.
For the Court of Auditors
Klaus-Heiner LEHNE
President
(1) International Thermonuclear Experimental Reactor.
(2) Council Decision 2007/198/Euratom of 27 March 2007 establishing the European Joint Undertaking for ITER and the Development of Fusion Energy and conferring advantages upon it (OJ L 90, 30.3.2007, p. 58), amended by Council Decision 2013/791/Euratom of 13 December 2013 (OJ L 349, 21.12.2013, p. 100) and Council Decision (Euratom) 2015/224 of 10 February 2015 (OJ L 37, 13.2.2015, p. 8).
(3) Second amendment to the Budget approved by the Governing Board in December 2016.
(4) Further information about the F4E Joint Undertaking and its activities are available at its website: http://www.fusionforenergy.europa.eu
(5) The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.
(6) The reports on implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.
(7) Council conclusions on ITER status of 7 July 2010 (Ref. 11902/10).
(8) Communication from the Commission to the European Parliament and the Council of 4 May 2010 on ITER status and a possible way forward (COM(2010) 226 final).
(9) 19th ITER Council on 16-17 November 2016. The ITER Council is the governing body of the ITER IO.
(10) The ITER Council reviewed the complete updated project construction schedule through First Plasma (2025) and up to Deuterium-Tritium operation (2035) as proposed by ITER IO.
(11) The People’s Republic of China, Republic of India, Japan, Republic of Korea, Russian Federation, United States of America and European Union.
(12) The operational phase of the ITER project is expected to last until 2037.
(13) As stated in the fifth annual assessment by an independent Review Group (31 October 2016) and in the report by the F4E Joint Undertaking’s Head of Project Management to the Governing Board in December 2016.
(14) COM(2017)319 final of 14.6.2017 (accompanied by Commission Staff Working Document SWD(2017) 232 final of 14.6.2017).
(15) The Euratom contribution is without prejudice to the proposals of the Commission, the outcome of the negotiations on the withdrawal of the United Kingdom from Euratom and the Multiannual Financial Framework after 2020.
(16) COM(2017)319 final of 14.6.2017 (accompanied by Commission Staff Working Document SWD(2017) 232 final of 14.6.2017), chapter V ‘ITER: the way forward’.
(17) Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 298, 26.10.2012, p. 1).
(18) The changes to the final 2016 approved budget mainly relate to 15 million euro in assigned revenue from the ITER Reserve Fund, 13,5 million euro for commitments carried over from the previous years and 0,5 million euro of recoveries of payments made in excess on operational contracts.
(19) The changes to the final 2016 approved budget mainly relate to 4 million euro in payments from the ITER Reserve Fund.
(20) The audits cover numerous aspects of implementation, including the quality plan, any situations of non-compliance with a specific requirement, purchase control and subcontracting management, documentation and data management, change and deviation management, the civil works quality control plan, the detailed project schedule, contract risk management and the technical works quality control plan. The 29 audits carried out in 2016 identified 47 situations of non-conformity with the quality assurance requirements and 202 areas for improvement.
(21) From its founding until the end of 2016, the Joint Undertaking had awarded 150 grants for a total of 81 million euro. The Joint Undertaking awarded six grants for a total of 5 million euro in 2016.
(22) Six beneficiaries and a total audited amount of 6 million euro, representing respectively 8 % of total beneficiaries and 7 % of total signed grant agreements since the founding of F4E.
ANNEX
Follow-up of previous years’ comments
Year |
Court’s comment |
Status of corrective action (Completed/Ongoing/Outstanding) |
|
COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT |
|
|
Presentation of the accounts |
|
2015 |
In the notes to the financial statements, the table and the information included under heading 4.3.1.1 ‘ITER Procurement Arrangement (ITER IO)’, reflect the procurement arrangements signed (column 3) and those credited so far (column 4). However, the table does not show the actual degree of advancement of the works in progress. In the 2015 annual accounts, F4E has supplemented this information with an estimate of the work in progress taking into account the total value of spending on contracts linked to PAs, and a chart showing the achievement of milestones for each procurement arrangement signed with ITER IO. Despite the estimate presented in the 2015 accounts, further work is needed to present more accurate information on the status and value of the activities carried out so far by the Joint Undertaking. |
Ongoing |
|
COMMENTS ON KEY CONTROLS IN THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS |
|
2015 |
F4E is further developing a central and uniform system for the integration of all the operational, financial and budgeting data, which will allow regular monitoring and control of estimates, costs and deviations. At its meeting of 8-9 June 2015, the Governing Board endorsed a proposal by the Director to implement an Enterprise Resources Planning (ERP) system within 2 years. |
Ongoing |
2015 |
The system to provide information on the value of the degree of the implementation of activities (Earned Value Management) is under discussion with ITER IO with a view to improving the distribution of credit milestones during the life of a procurement arrangement. |
Ongoing |
|
Operational procurement and grants |
|
2015 |
Negotiated procedures constituted 45 % of the 84 operational tendering procedures launched in 2015 (58 % in 2014). Although the Joint Undertaking reduced the percentage of negotiated procedures in 2015, efforts are needed to increase the competitiveness of its operational procurement procedures. For grants, the average number of proposals received was 1,4 per call. |
Ongoing |
|
OTHER MATTERS |
|
|
Legal framework |
|
2015 |
On 2 December 2015, the F4E Governing Board finally amended its Financial Regulation and Implementing Rules to align them with the new EU Financial Framework. In February 2016, the European Commission issued a positive opinion on the amendments introduced by F4E in its financial rules, but requested the Joint Undertaking to consider further developing certain provisions in its Implementing Rules relating to specific derogations from the EU Financial Regulation and from the framework financial regulation applicable to the Article 208 bodies. |
Ongoing |
|
Intellectual property rights and industrial policy |
|
2015 |
The Decision on the implementation of the Fusion for Energy Industrial Policy and the policy on intellectual property rights and dissemination of information were adopted by the Joint Undertaking’s Governing Board on 27 June 2013. The Joint Undertaking has developed a procurement strategy document for each procurement action. A checklist for monitoring the implementation of the procurement strategy as regards the ownership of the foreground for each procurement action has been drawn up. |
Ongoing |
At the time of the audit (April 2016), F4E had implemented the majority of the provisions in the Governing Board Decision of 27 June 2013, though five were not yet fully implemented and three were still pending. |
Completed |
|
An impact assessment on the implementation of these policies is planned but has not yet been carried out. |
Ongoing |
|
|
Host State agreement |
|
2015 |
According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, permanent premises should have been made available to the Joint Undertaking by June 2010. Following contacts between F4E and the Spanish Government, a formal offer was presented to the Joint Undertaking on 10 March 2015. In December 2015, the Host State informed the F4E Governing Board that the discussions at ministerial level to formalise the offer of 10 March 2015 had not been concluded, and offered instead to start negotiations with the owner of the building where F4E is currently located with a view to making it the permanent headquarters of the Joint Undertaking. At the time of the audit (April 2016) this new proposal was under examination by the Joint Undertaking. |
Completed |
|
Rules implementing the Staff Regulations |
|
2015 |
During 2015, the Joint Undertaking continued with its adoption by analogy of several EU rules implementing the Staff Regulations. However, certain specific rules for the implementation of the Staff Regulations still remain to be adopted. |
Completed |
THE JOINT UNDERTAKING’S REPLY
33. |
As of July 2017, five out of the six new IAC recommendations have been implemented. The ongoing recommendation relates to the redefinition of the role of the Internal Review Panel (IRP). Its expected date for completion is October 2017 as this action is part of a wider improvement project geared at optimising the open procurement procedures. |
35. |
F4E is currently defining the requirements to parametrize the tool that will allow F4E to collect systematically information relating to Anti-Fraud indicators on procurement procedures. This tool will also offer the possibility to F4E staff to insert additional information related to red flags on any procurement procedure. |
Follow up of previous years’ comments
2015 — Presentation of the accounts
EU uses the ITER credit as its Earned Value Management (EVM) system. The value of the achieved credit versus the planned value provides the progress of F4E toward the completion of the EU share of the procurements. The credit profile is intended to represent the value of the real work done through the various project phases (i.e. design, manufacturing, delivery, installation).
F4E and ITER IO have agreed to readjust this profile for each Procurement Arrangement (PA) in order to make sure that the right credit weight is given all throughout the PA duration and as close as possible to reality. Such changes have already been made for some past PA’s and are expected to be completed by the end of October 2017.
2015 — Comments on key controls in the Joint Undertaking’s supervisory and control systems
First paragraph: In March 2016 the new F4E Director commissioned an independent consultancy study on the development of a concept for an integrated cross functional and integrated commercial and financial controlling system. The report of this study was issued in mid-June 2016 and the recommendations contained therein have been reviewed and accepted.
F4E is now working on the implementation of an Enterprise Project Control System, this being considered as a lower complexity and lower cost means to achieve a greater degree of integration of the F4E financial information.
F4E has selected the Ecosys system, and is currently finalising contract negotiation with the supplier. F4E will then implement a pilot phase, with a target date for full implementation of first quarter of 2018.
Second Paragraph: EU uses the ITER credit as its Earned Value Management (EVM) system. The value of the achieved credit versus the planned value provides the progress of F4E toward the completion of the EU share of the procurements. The credit profile is intended to represent the value of the real work done through the various project phases (i.e. design, manufacturing, delivery, installation).
F4E and ITER IO have agreed to readjust this profile for each Procurement Arrangement (PA) in order to make sure that the right credit weight is given all throughout the PA duration and as close as possible to reality. Such changes have already been made for some past PA’s and are expected to be completed by the end of October 2017.
2015 — Operational procurement and grants
In spite of renewed communication and dissemination efforts, notably in the context of integrating the new Financial Regulation, the figures for negotiated procedures remained during 2016 similar to previous years (49 % of total in 2016, vs 45 % in 2015 and 58 % in 2014). Nevertheless, it has to be noted that the majority of these procedures were for low value negotiated procedures performed below the Directive’s publication threshold and fully in line with the F4E financial regulations.
Negotiated procedures with low value represent around 40 % of F4E’s yearly number of contracts (2016: 41 % in number and 0,8 % in value; 2015: 43 % in number and 0,3 % in value) but only correspond to around 1 % of the annual budget.
Using negotiated procedures in these cases (within the limits imposed by F4E’s Financial Regulations) responds to a concern of sound financial management, as this allows F4E to engage internal resources more effectively in high value procurement. Therefore F4E considers that no action is needed to further reduce low value negotiated procedures as it is in compliance with the Financial Regulations’ principles and provisions.
The remaining negotiated procedures, typically higher value contracts, (5 % of the total number of procedures in average) are an expression of the complex and innovative context in which F4E operates. The characteristics of the fusion technology market are such that in many cases very limited competition is present in the market. This often results in low competition or (in extreme cases) to monopoly or even lack of participation to calls for tender.
Since 2012, F4E increased its dissemination efforts but participation remained low. In F4E’s opinion, the main root cause is not lack of visibility but rather the sporadic nature of F4E purchases. F4E came to the conclusion that the nature of the activities related to the scope of large science and technology projects is such that limited competition is regrettably a matter of fact, on which a single contracting authority can have only a modest impact.
As a consequence, during 2016 F4E started to look for ways to address the issue, in collaboration with other contracting authorities managing similar projects in Europe and facing the same lack of competition. In order to increase the impact of initiatives aimed at ensuring more industrial competition and engagement, F4E has been the initiator of a forum comprising similar, first of a kind high-tech frontier projects in Europe (CERN, ESA, ESS, ESRF, ESO, etc.). Through this forum different organizations with similar project challenges can work together to address them in a more coordinated and effective way. This is an attempt to foster a single market for large scientific projects, which is more stable and larger and therefore more capable of attracting companies’ interest.
An event hosted by Denmark in February 2018 will be the first opportunity for the forum participants to put in practice their new collaboration.
2015 — Legal Framework
In cooperation with the European Commission (DG BUDG and DG ENER), the Joint Undertaking has developed the requested specific provisions to be added to the Implementing Rules to the Joint Undertaking’s Financial Regulation relating to four derogations which the Joint Undertaking had been granted in its Financial Regulation from the EU General Financial Regulation and the Framework Financial Regulation applicable to the Article 208 bodies.
On 4 July 2017, the Joint Undertaking’s Governing Board adopted the amendment to the Implementing Rules which is now subject to a positive formal opinion from the European Commission. Once a positive opinion is issued, the four implementing provisions will enter into force on 1 August 2017.
2015 — Intellectual property rights and industrial policy
With regards to the impact assessment of the Industrial Policy, F4E intends to use the results of the assessment of F4E’s activities (and the ITER project as a whole) that will be performed by the European Commission during 2017 and 2018.