10.11.2008 |
EN |
Official Journal of the European Union |
C 286/1 |
COURT OF AUDITORS
In accordance with the provisions of Article 248(1) and (4) of the EC Treaty and Articles 129 and 143 of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities, as last amended by Council Regulation (EC) No 1525/2007 of 17 December 2007 and Articles 139 and 156 of Council Regulation (EC) No 215/2008 of 18 February 2008 on the Financial Regulation applicable to the 10th European Development Fund,
the Court of Auditors of the European Communities, at its meeting of 24 and 25 September 2008, adopted its
ANNUAL REPORTS
concerning the financial year 2007
The reports, together with the institutions' replies to the Court's observations, were transmitted to the authorities responsible for giving discharge and to the other institutions.
The Members of the Court of Auditors are:
Vítor Manuel da SILVA CALDEIRA (President), Hubert WEBER, Maarten B. ENGWIRDA, Máire GEOGHEGAN-QUINN, David BOSTOCK, Morten Louis LEVYSOHN, Ioannis SARMAS, Július MOLNÁR, Vojko Anton ANTONČIČ, Gejza HALÁSZ, Jacek UCZKIEWICZ, Josef BONNICI, Irena PETRUŠKEVIČIENĖ, Igors LUDBORŽS, Jan KINŠT, Kersti KALJULAID, Kikis KAZAMIAS, Massimo VARI, Juan RAMALLO MASSANET, Olavi ALA-NISSILÄ, Lars HEIKENSTEN, Karel PINXTEN, Ovidiu ISPIR, Nadejda SANDOLOVA, Michel CRETIN, Harald NOACK, Henri GRETHEN.
ANNUAL REPORT ON THE IMPLEMENTATION OF THE BUDGET
(2008/C 286/01)
TABLE OF CONTENTS
General introduction
Chapter 1 |
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Chapter 2 |
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Chapter 3 |
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Chapter 4 |
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Chapter 5 |
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Chapter 6 |
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Chapter 7 |
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Chapter 8 |
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Chapter 9 |
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Chapter 10 |
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Chapter 11 |
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Annex I |
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Annex II |
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GENERAL INTRODUCTION
0.1. |
The European Court of Auditors is the EU institution established by the Treaty to carry out the audit of EU finances. As the EU's external auditor it contributes to improving EU financial management and acts as the independent guardian of the financial interests of the citizens of the Union. More information about the Court can be found in its annual activity report which, together with its special reports on specific subjects and its opinions on proposed legislation, are available on the Court's website www.eca.europa.eu. |
0.2. |
This document, covering the 2007 financial year, comprises the Court’s 31st annual report on the implementation of the general budget of the European Union. The replies of the Commission — or other EU institutions and bodies where appropriate — are presented with the report. A separate annual report covers the European Development Funds. |
0.3. |
The general budget of the EU is decided annually by the Council and the European Parliament. The Court's annual report provides a basis for the discharge procedure which brings the annual budgetary process to an end. A central part of this report is the Court's Statement of Assurance on the reliability of the annual accounts of the European Communities and on the legality and regularity of the underlying transactions. |
0.4. |
Chapter 1 of the report includes this Statement of Assurance as well as further information to support it. Chapter 2 reports on the Commission's internal control system and chapter 3 covers the Commission's management of the 2007 budget. The remaining chapters — 4 to 11 — deal with the revenue side of the budget and the different areas of expenditure in the form of groups of policy areas. |
0.5. |
Chapter 4 to 11 each contain the following elements:
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0.6. |
The specific assessments are based mainly on an assessment of the operation of the principal supervisory and control systems governing revenue and expenditure and on the results of the Court’s testing of transactions. The Court's overall appraisal of all these elements forms the basis for the Statement of Assurance. |
0.7. |
In addition to recommendations on specific areas in the individual revenue and expenditure chapters the Court sets out more cross-cutting ones in paragraphs 1.52 to 1.54, 2.41, 2.42, 3.29, 3.32 and 3.33. A more wide-ranging approach is taken in the Court's contribution to the current review of the EU budget, launched by the Commission in 2007. In this contribution the Court states that the review should address the quality of EU budgetary transactions — legality, regularity and value for money — as well as spending priorities and equity. The Court furthermore:
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0.8. |
The implementation of the budget is the responsibility of the Commission. However, Member States cooperate with the Commission to ensure that funds are used in accordance with the principles of sound financial management. There is a tendency towards an increased role for Member States, and often also national supreme audit institutions (SAIs), in the supervision and control of EU funds. For example, 2007 was the first year for which Member States were required to produce an annual summary of available audits and declarations. |
0.9. |
As outlined in the Court's opinion No 6/2007 annual summaries, as well as voluntary initiatives from Member States to issue declarations and the decisions by some national audit bodies to audit these, could stimulate improved management and control of EU funds. For 2007 the Court found that the Commission adequately supervised the annual summaries process (see paragraphs 2.19 and 2.20). However, due to the disparity of presentation and the frequent absence of a statement of their completeness and accuracy, the summaries cannot yet be regarded as providing a reliable assessment of the functioning of the control systems. |
0.10. |
The Court endeavours to make use of the national SAIs' audit work on national declarations, under the conditions outlined in its opinion. In general the Court aims to improve the cooperation with national SAIs, both by developing common auditing standards tailored for the EU area together with its fellow SAIs, and by bilateral cooperation with individual SAIs. A recent positive example of cooperation is the special report on administrative cooperation in the field of VAT (No 8/2007) where reports from several national SAIs were referred to. |
0.11. |
Since 2005 the general budget has been structured solely around Activity Based Budgeting (ABB) policy areas. This year the Court has modified the structure of its report to reflect this change as well as the introduction of a new financial framework. This year, for the first time each of the specific assessments are centered round groups of ABB policy areas outlined in table 1.2. This has resulted in the introduction of two new specific assessments, one on Education and Citizenship and one on Economic and Financial Affairs (previously covered under Internal policies), as well as the merger of two previous assessments (Pre-accession aid and External actions) into one on External Aid, Development and Enlargement. |
CHAPTER 1
The Statement of Assurance and supporting information
TABLE OF CONTENTS
I-XII |
The Court’s Statement of Assurance provided to the European Parliament and the Council |
VII-VIII |
Opinion on the reliability of the accounts |
IX-XII |
Opinion on the legality and regularity of the transactions underlying the accounts |
1.1-1.54 |
Information in support of the Statement of Assurance |
1.1-1.5 |
Introduction |
1.6-1.31 |
Reliability of the accounts |
1.6-1.8 |
General background |
1.9 |
Audit scope and approach |
1.10-1.18 |
Further steps taken to strengthen the transition to accruals based accounts |
1.19-1.20 |
Consolidated financial statements as at 31 December 2007 |
1.21-1.26 |
Consolidated balance sheet as at 31 December 2007 |
1.27-1.28 |
Consolidated economic outturn account |
1.29-1.31 |
Other issues |
1.32-1.54 |
Legality and regularity of transactions underlying the 2007 accounts |
1.32 |
New structure of the DAS specific assessments |
1.33-1.37 |
The Court’s approach |
1.38-1.41 |
General overview of audit results 2007 |
1.42-1.54 |
Assessment of progress made towards an effective Community internal control framework |
THE COURT’S STATEMENT OF ASSURANCE PROVIDED TO THE EUROPEAN PARLIAMENT AND THE COUNCIL
I. Pursuant to the provisions of Article 248 of the Treaty the Court has audited (a) the ‘Annual Accounts of the European Communities’ (1) which comprise the ‘Consolidated financial statements’ (2) and the ‘Consolidated reports on implementation of the budget’ (3) for the financial year ended 31 December 2007; and (b) the legality and regularity of the transactions underlying those accounts. II. In accordance with Articles 268 to 280 of the Treaty and the Financial Regulation, management (4) is responsible for the preparation and fair presentation of the ‘Annual Accounts of the European Communities’ and the legality and regularity of the transactions underlying them: (a) Management’s responsibility in respect of the ‘Annual Accounts of the European Communities’ includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies, on the basis of the accounting rules adopted by the Commission's accounting officer (5); and making accounting estimates that are reasonable in the circumstances. According to Article 129 of the Financial Regulation, the Commission approves the ‘Annual Accounts of the European Communities’ after the Commission's accounting officer has consolidated them on the basis of the information presented by the other institutions (6) and bodies (7) and established a note, accompanying the consolidated accounts, declaring, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the European Communities in all material aspects. (b) The way in which management exercises its responsibility for legality and regularity of underlying transactions depends on the method of implementation of the budget. In the case of direct centralised management, implementation tasks are performed by the Commission's departments. Under shared management, implementation tasks are delegated to Member States, under decentralised management to third countries and under indirect centralised management to other bodies. In the case of joint management, implementation tasks are shared between the Commission and international organisations (Article 53 to 57 of the Financial Regulation). Implementation tasks have to comply with the principle of sound financial management, requiring designing, implementing and maintaining effective and efficient internal control including adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used. Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty). III. The Court’s responsibility is to provide, on the basis of its audit, the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. The Court conducted its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions, in so far as these are applicable in the European Community context. These standards require that the Court plans and performs the audit to obtain reasonable assurance whether the ‘Annual Accounts of the European Communities’ are free from material misstatement and the transactions underlying them are legal and regular. IV. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated accounts and the legality and the regularity of the transactions underlying them. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated accounts and of material non-compliance of the underlying transactions with the requirements of the legal framework of the European Communities, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the consolidated accounts, and supervisory and control systems implemented to ensure legality and regularity of underlying transactions, in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated accounts and the annual activity reports. V. In the case of Revenue, the scope of the Court’s audit work was limited. Firstly, VAT and GNI own resources are based on macroeconomic statistics for which the underlying data cannot be audited directly by the Court, and secondly, the audits of traditional own resources cannot cover imports that have not been subject to custom supervision. VI. The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its statement of assurance.
Management’s responsibility
Auditor's responsibility
Opinion on the reliability of the accounts
VII. In the Court’s opinion, the ‘Annual Accounts of the European Communities’ present fairly, in all material respects, the financial position of the Communities as of 31 December 2007, and the results of their operations and cash flows for the year then ended, in accordance with the provisions of the Financial Regulation and the accounting rules adopted by the Commission's accounting officer. VIII. Without calling into question the opinion expressed in paragraph VII, the Court notes that weaknesses in the accounting systems, which are partly due to the complex legal and financial framework, still put at risk the quality of financial information of certain Directorates-General of the Commission (in particular for pre-financing, the related cut-off and for invoices/cost claims) and decentralised bodies whose accounts are subject to consolidation (in particular for fixed assets of the European GNSS (8) Supervisory Authority (GSA)). These weaknesses led to a number of corrections after the presentation of the provisional accounts.
Opinion on the legality and regularity of the transactions underlying the accounts
IX. In the Court’s opinion, revenue, commitments and payments for ‘Administrative and other expenditure’ and ‘Economic and financial affairs’ are free from material error. In these areas the supervisory and control systems are implemented in a manner which ensures adequate management of the risk of illegality and irregularity. X. In the Court’s opinion, in the other areas of expenditure payments are still materially affected by errors, although to different levels. The Commission and the Member States and other beneficiary states need to make further efforts to implement adequate supervisory and control systems, so as to improve the management of the risk of illegality and irregularity. These areas are: ‘Agriculture and natural resources’, ‘Cohesion’, ‘Research, energy and transport’, ‘External aid, Development and enlargement’ and ‘Education and citizenship’. (a) In ‘Agriculture and natural resources’, the Court found that the transactions underlying the expenditure declared for this policy group, taken as a whole, are affected by a material level of error of legality and/or regularity. On the basis of its audit work, the Court concludes that supervisory and control systems are only partially effective in providing assurance as to compliance with EU rules. However, the Court concludes that the Integrated Administration and Control System (IACS) continues to be effective in limiting the risk of irregular expenditure where properly implemented and if accurate and reliable data are entered into the system. (b) In ‘Cohesion’, the Court found that the reimbursement of expenditure to Cohesion policies projects is affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory system of the Commission and the control systems of the Member States are generally only partially effective in preventing overstated or ineligible expenditure. (c) In ‘Research, energy and transport’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that, despite some improvements, the Commission's supervisory and control systems are only partially effective in mitigating the risk of reimbursement of overstated or ineligible costs. (d) In ‘External aid, development and enlargement’, the Court found that transactions underlying the expenditure in the policy group are affected by a material level of error of legality and/or regularity, mostly at the level of implementing organisations. The Court concludes on the basis of its audit work that, despite the improvements at the level of the Commission, the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. (e) In ‘Education and citizenship’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. XI. The Court emphasises that: (a) Rural development accounts for a disproportionately large part of the overall error rate estimated for the area of ‘Agriculture and natural resources’; for EAGF expenditure the Court estimates the value of the error rate to be slightly below materiality whereas for EAFRD expenditure it is estimated to be significantly above. (b) Complicated or unclear legal requirements (such as eligibility rules) have a considerable impact on the legality and/or regularity of transactions underlying the expenditure in the areas of ‘Agriculture and natural resources’, ‘Cohesion’, ‘Research, energy and transport’ as well as ‘Education and citizenship’. XII. The Court has identified further progress in the Commission’s supervisory and control systems, in particular concerning, on the one hand, the impact of the reservations on the assurance given in the declarations by the Directors-General; and, on the other hand, the greater consistency of these declarations with the Court’s findings. However, the Court notes that the Commission is not yet able to demonstrate that its actions to improve supervisory and control systems have been effective in mitigating the risk of error in large areas of the budget.
24 and 25 September 2008
Vítor Manuel DA SILVA CALDEIRA
President
European Court of Auditors |
12, rue Alcide De Gasperi, L-1615 Luxembourg |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE |
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Introduction |
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Reliability of the accounts |
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General background |
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Audit scope and approach |
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Further steps taken to strengthen the transition to accruals based accounts |
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General achievements |
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Validation of local systems |
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Table 1.1 — Follow-up of the reservations expressed in the Statement of Assurance concerning the financial year 2006 as to the reliability of the accounts and certain other observations made in the Annual Report concerning the financial year 2006
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It is intended that the first complete cycle of verification of the respect of validation criteria in all Directorates-General and Services will be completed by the end of 2008 or the beginning of 2009. The report for the Directorate-General for Economic and Financial Affairs was transmitted to the Court on 4 June 2008. The report for the Directorate-General for Health and Consumers was transmitted to the Court on 2 September 2008. |
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The qualification to the validation for the EuropeAid Co-operation Office has now been removed as this Directorate-General was able to provide sufficient evidence regarding its consistency of reporting, and that a systematic reconciliation of CRIS with ABAC had been put in place. The missing interface between the Joint Research Centre (JRC) local IT system, JIPSY, and ABAC for the transfer of the JRC's contracts to the central database of ABAC Contracts has been put in place, and all contracts for 2007 have been put in the central database. JRC has still to upload the contracts for the remaining period from 2005 until end 2006, which is planned to be done before the year's end. The non-validation of the RELEX system concerned a local accounting system (BCC-NT/Rai-Web) which was not in conformity with the validation criteria. The ABAC IT system was deployed to all Commission delegations within the timeframe foreseen, and, as from January 2007, the administrative expenditure of the delegations is now managed within the ABAC system. The situation is therefore improved compared to 2006. |
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Strengthening of cut-off procedures |
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Consolidated financial statements as at 31 December 2007 |
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General remarks |
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Consolidated balance sheet as at 31 December 2007 |
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Pending issues in the accounts as regards the European satellite system |
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Risk capital operations |
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Pre-financings and related guarantees |
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Accounts payable |
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Consolidated economic outturn account |
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Off-balance sheet disclosures |
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Other issues |
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Recovery of undue payments |
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Only summary information was provided in the notes to the accounts on Member States’ recoveries of Structural Funds because of the timing of the submission of this information and the need to clarify some of the data with the Member States. However, the Commission provided more detailed information to Parliament in July 2008 in the second quarterly report on the Action Plan for strengthening the Commission's supervisory role in structural actions expenditure, and it is publishing the figures in an annex to the Annual Report on the Structural Funds for 2007, as it did last year for the 2006 information. Under the action plans, the Commission is making efforts to improve the reliability and completeness of the information received from Member States, by, amongst other things, carrying out on-the-spot audits in Member States. |
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The Commission has provided additional clarifications concerning debt recognition by the paying agencies in its revised guidelines for financial year 2008. The ‘different policies’ referred to by the Court are the result of the different national legal systems for the recovery of undue payments. See also replies to paragraphs 5.44 and 5.45. |
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Legality and regularity of transactions underlying the 2007 accounts |
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New structure of the DAS specific assessments |
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The Court’s approach |
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Sources and methods |
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Table 1.2 — Expenditure outturn in 2007 by Annual Report chapters
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Under the assurance model a judgement is made on the level of confidence that can be derived from the operation of supervisory and control systems as well as from direct testing of the legality and regularity of underlying transactions in order to arrive at the high level of assurance necessary to provide a robust conclusion. |
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Definition and treatment of errors |
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General overview of audit results 2007 |
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However, it acknowledges that further efforts are needed to resolve a number of weaknesses, in particular those highlighted in the reservations of the delegated authorising officers — and those belonging to budget areas that were not considered satisfactory by the Court of Auditors. |
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Table 1.3 — Summary of 2007 DAS results on the legality and regularity of underlying transactions
Legend:
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As regards agriculture and rural development, the Commission underlines the Court’s finding that the most likely overall error rate is not significantly different from last year's, as reported in its 2006 statement of assurance. Control statistics received from Member States indicate as well that the error rate found at the level of final beneficiaries under the EAGF, which accounts for about 85 % of total agriculture and rural development expenditure, is below the materiality threshold. This reconfirms for 2007 the positive results from 2006 acknowledged by the Court in the Annual report 2006 (56). The annual activity report for 2007 of the Directorate-General for Agriculture and Rural Development provides further details. The Integrated Administrative Control System (IACS) covering most of agricultural expenditure is effective in limiting the risk of irregular expenditure, where accurate and reliable data is introduced and the system is properly implemented. The 2007 agriculture and rural development expenditure likely to be excluded from Community financing by future conformity decisions, amounting to an estimated sum of EUR 439 million, together with the EUR 152 million of recoveries from final beneficiaries (57). In the cohesion area, the Commission is implementing an Action Plan (COM(2008) 97 final) to strengthen its supervision of Member States’ systems so as to reduce errors. The control strategy of the Research, energy and transport area aims to detect and correct errors. When fully implemented over a period of four years, this should ensure that the residual error rate (errors that remain uncorrected) is below the materiality threshold, as described in detail in the Annual Activity Reports of the Research Directorates-General. The errors in External aid, development and enlargement mostly concern expenditure made by the organisations implementing the projects on advance payments made by the Commission. Mandatory financial audits foreseen under the Commission's control system before the final payments should allow the Commission to detect and correct such errors. The errors concerning the Directorate-General for Education and Culture (DG EAC) are related to final payments of actions under the former legal framework. The design of the new programmes for the 2007-2013 period has taken into account the Court of Auditors’ recommendations of previous years to simplify the rules and to make extensive use of lump sum financing. This should reduce the error rate in the future. Furthermore, the results of the ex-post controls carried out by DG EAC, as presented in its annual activity report 2007, do not identify a material level of error. See also replies to paragraphs 2.8, 2.11, 5.50 to 5.55, 6.32, 7.41-7.42, 8.31 to 8.33 and 9.25. |
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As regards IACS, the Commission considers that the introduction in SPS of support schemes that in the past had a higher level of risk, such as the olive oil sector, has reduced the risk of incorrect spending by cancelling the old production aid system. |
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Assessment of progress made towards an effective Community internal control framework |
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Introduction |
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These seemingly contradictory observations are analysed in the following paragraphs. |
For example, the control strategy of the research, energy and transport area, as described in detail in the Annual Activity Reports of the Research Directorates-General, aims to detect and correct errors so that, when fully implemented over a period of four years, it should ensure that the residual error rate is below the materiality threshold. The level of residual risk (errors that remain uncorrected) which can be accepted will be examined towards the end of 2008 in a Communication from the Commission. |
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Framework for supervision and control (61) |
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How the different levels of control operate |
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See also replies to paragraphs 5.12 to 5.16, 6.23 to 6.27, 7.15 to 7.22, 8.9, 9.8 to 9.10 and 10.16. |
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The recommended frequency of on-the-spot primary controls in structural actions expenditure is much higher than the Court suggests as indicated in the guidance note on good practice for management verifications for the 2000-2006 period. The Court’s comments principally concern errors which can only be detected by checks on-the-spot, which are too costly to be undertaken before paying every claim. Beneficiaries can be required to submit with their final claim a certificate established by an independent auditor. In the research, energy and transport area, the control systems have been significantly strengthened with the introduction of audit certificates as from the sixth Framework Programme. The Commission agrees that the reliability of the Sixth Framework Programme (FP6) audit certification is not fully satisfactory, considering the remaining level of errors noted in audits. Nevertheless, the overall level of errors in FP6 is lower than the errors noted in uncertified cost claims related to the Fifth Framework Programme (FP5). This indicates that audit certificates do contribute to improving the accuracy of cost claims. For the Seventh Framework Programme (FP7), the Commission has further improved the reliability of audit certificates by using ‘agreed upon procedures’, setting out in detail the audit work to be performed by the certifying auditors and encouraging optional certification of the cost methodology. |
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In the cohesion sector, the Commission is acting in accordance with the Court’s recommendations. It is targeting its audit work at improving the effectiveness of primary controls and at the same time is investing in preventive activities such as guidance on good practices and training of national authorities. It also takes actions to mitigate the risk of deficient systems through the application of financial corrections. The Commission identifies systems with significant deficiencies, and presents the corrective actions being undertaken to remedy these, in the Annual Activity Reports of the Directorates General concerned. See also reply to paragraph 2.40. |
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Cost and benefits of controls should be balanced and approved |
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(1) The ‘Annual Accounts of the European Communities’ are presented in volume I of the Annual Accounts of the European Communities financial year 2007.
(2) The ‘Consolidated financial statements’ comprise the balance sheet, the economic outturn account (including segment reporting), the cash flow table, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.
(3) The ‘Consolidated reports on implementation of the budget’ comprise the consolidated reports on implementation of the budget and a summary of budgetary principles and other explanatory notes.
(4) At the level of the European institutions and bodies management includes the members of the institutions, Directors of the Agencies, Authorising Officers by delegation and sub-delegation, Accounting Officers and the leading staff of financial, audit or control units. At the level of Member and Beneficiary States, management includes Authorising Officers, Accounting Officers and the leading staff of paying authorities, certifying bodies and implementing agencies
(5) The accounting rules adopted by the Commission's accounting officer are derived from International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, in their absence, International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. In accordance with the Financial Regulation, the ‘Consolidated financial statements’ for the 2007 financial year are prepared (as they have been since the 2005 financial year) on the basis of these accounting rules adopted by the Commission's accounting officer, which adapt accruals based accounting principles to the specific environment of the Communities, while the ‘Consolidated reports on implementation of the budget’ continue to be primarily based on cash movements.
(6) Before the adoption of the Annual Accounts by the institutions, the different accounting officers sign them off, thereby certifying that they have a reasonable assurance that the accounts present a true and fair view of the financial situation of the institution (Article 61 of the Financial Regulation).
(7) The Annual Accounts are drawn up by the respective directors and sent to the Commission's accounting officer together with the opinion of the management board concerned. In addition, the respective accounting officers sign them off, thereby certifying that they have a reasonable assurance that the accounts present a true and fair view of the financial situation of the bodies (Article 61 of the Financial Regulation).
(8) GNSS: Global Navigation Satellite Systems.
(9) See paragraph 1.5 of the Annual Report concerning the financial year 2006 and chapter 2 of the present Annual Report.
(10) Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 248, 16.9.2002, p. 1), last amended by Council Regulation (EC, Euratom) No 1995/2006, (OJ L 390, 30.12.2006, p. 1) requires that the final accounts shall be sent before 31 July of the following financial year.
(11) These letters are used to let the management acknowledge that the financial statements are sufficient and appropriate and without omission of material facts.
(12) See communication from the Commission — Modernisation of the Accounting System of the European Communities (COM(2002) 755 final of 17.12.2002).
(13) The Court’s findings on previous stages of the modernisation were presented in the Annual Report concerning the financial year 2004 (see paragraphs 1.21 to 1.45), the Annual Report concerning the financial year 2005 (see paragraphs 1.5 to 1.58) and in the Annual Report concerning the financial year 2006 (see paragraphs 1.6 to 1.36). Results of subsequent stages will be included in future Annual Reports.
(14) See paragraph IX of the Court’s Statement of Assurance concerning the financial year 2006.
(15) See paragraph VIII and IX of the Court’s Statement of Assurance concerning the financial year 2006.
(16) See paragraphs 1.20 and 1.21 of the Annual Report concerning the financial year 2005 and paragraphs 1.15 to 1.17 of the Annual Report concerning the financial year 2006. As at end of 2006, the Accounting Officer had still not provided its validation to three local accounting systems and a number of other issues remained for consideration.
(17) Directorates-General for Development, Enlargement, Environment, Maritime Affairs and Fisheries, Internal Audit Service, Interpretation.
(18) Directorates-General for Economic and Financial Affairs, Health and Consumers.
(19) The validation report for the Directorate-General for Education and Culture was not finalised in time for the Global Validation Report. The new system Symmetry is now foreseen for 2009 with a limited pilot phase envisaged for 2008.
(20) The validation report for the Directorate-General for External Relations was not finalised in time for the Global Validation Report. The validation report transmitted end of May 2008 maintained the validation suspended.
(21) During 2007, EuropeAid Co-operation Office still had a reservation on reporting consistency due to lack of systematic reconciliation with the central system. However, this issue was addressed at the end of July 2008.
(22) The Joint Research Centre has implemented by the end of 2007 a new interface to upload contract information into the ABAC Contracts system. Data has been uploaded for new contracts from 2007, but none yet for 2006 and 2005 contracts.
(23) Notably general issues regarding cut-off procedures, late clearing and errors in recording pre-financing, timeliness of transactions’ posting, ABAC contracts, registration of guarantees, varying knowledge on accrual accounting principles across the services, data consistency between local systems and ABAC.
(24) Ex-post testing is only required when the pro-rata temporis technique is used and the interval between two progress reports is long.
(25) See also paragraph 1.18 of the Annual Report concerning the financial year 2006.
(26) Directorate-General for the Information Society and Media.
(27) E.g. Directorates-General for Research, Education and Culture and EuropeAid Co-operation Office.
(28) E.g. Directorates-General for Energy and Transport and Enlargement.
(29) The pro rata temporis method is an estimation technique allowing to attribute proportional values to the length of time involved.
(30) GNSS: Global Navigation Satellite Systems.
(31) Council Regulation (EC) No 1321/2004 (OJ L 246, 20.7.2004, p. 1), extended by Regulation (EC) No 1942/2006 (OJ L 367, 22.12.2006, p. 18).
(32) The Authority GSA shall manage the public interests relating to the European GNSS programmes and act as the regulatory authority for the programme during the development and operational phases and will play a key role for the achievement of the Galileo Programme.
(33) The Commission lodged a proposal to amend the founding Regulation No 1321/2004 on 19 September 2007. This proposal does not clarify the new role of the Authority and refers without any further detail to delegation agreements to be concluded by the Authority and the European Space Agency (ESA) regarding the management of the programme’s funds and the ownership of its assets.
(34) See also paragraph 1.26 of the Annual Report concerning the financial year 2006.
(35) See paragraphs 1.10 and 1.11 of the Annual Report concerning the financial year 2002, paragraph 1.11 of the Annual Report concerning the financial year 2003, paragraphs 1.12 and 1.13 of the Annual Report concerning the financial year 2004, paragraph 1.57 of the Annual Report concerning the financial year 2005 and paragraph 1.34 of the Annual Report concerning the financial year 2006.
(36) See also section 6 on the recovery of undue payments in the Annual Accounts of the European Communities concerning the financial year 2007, Volume I, pp. 75-80.
(37) Commission Regulation (EC) No 885/2006 (OJ L 171, 23.6.2006, p. 90), Annex III.
(38) See paragraph 5.61 of the Annual Report concerning the financial year 2006.
(39) Expenditure relating primarily to Financial Framework heading 1, ‘Sustainable growth’.
(40) Expenditure relating primarily to Financial Framework heading 2, ‘Preservation and management of natural resources’.
(41) Expenditure relating primarily to Financial Framework heading 4, ‘EU as a global player’.
(42) Expenditure relating primarily to Financial Framework heading 3, ‘Citizenship, freedom, security and justice’.
(43) Expenditure relating to Financial Framework headings 1 and 3
(44) Expenditure primarily relating to Financial Framework headings 5, ‘Administration’, and 6, ‘Compensations’ — see paragraph 11.1 for further details.
(45) This figure refers to ‘operational expenditure’ and not to the value of the ‘revenue’.
(46) Article 53 of the Financial Regulation.
(47) More detailed information can be found on the Court’s Internet site www.eca.europa.eu.
(48) This includes, for example, serious cases of non-respect of public procurement procedures affecting the conditions for payment (see for instance paragraph 6.17).
(49) Quantifiable and non-quantifiable errors are classified as being either limited or serious based on nature, context, financial importance and/or proportion of transaction affected. Serious quantifiable errors refer to errors above 2 %.
(50) See scope limitations in paragraphs 4.4 and 4.9.
(51) The Court concludes that IACS continues to be effective in limiting the risk of irregular expenditure where properly implemented and if accurate and reliable data is introduced as regards SPS payments based upon allocated entitlements (see paragraph 5.52).
(52) Rural development accounts for a disproportionately large part of the overall error rate: for EAGF expenditure the Court estimates the value of the error rate to be slightly below 2 % (see paragraph 5.13)
(53) Systems are classified as 'partially effective' where some control arrangements have been judged to work adequately whilst others have not. Consequently, taken as a whole, they might not succeed in restricting errors in the underlying transactions to an acceptable level.
(54) The error range cannot be interpreted as a confidence interval (in a statistical sense). It is the Court’s division of the scale of error rates into three intervals.
(55) For Agriculture and Natural Resources the overall error rate is not significantly different from the value obtained last year but does not take account of certain serious errors which could not be quantified (see paragraph 5.13).
(57) In 2007, 607 million euro was recovered by financial correction and 247 million euro recovered from final beneficiaries by Member States (chapter 6 of the notes to the annual accounts 2007).
(58) The former ‘Internal policies’ are now covered under the policy groups ‘Research, Energy and Transport’, ‘Education and Citizenship’ and ‘Economic and Financial Affairs’ (see Table 2.1 ).
(59) The former ‘External actions’ are now a part of the policy group ‘External Aid, Development and Enlargement’ (see Table 2.1 ).
(60) For example, because of the often complex eligibility conditions, errors were significantly more frequent among transactions underlying the European Agricultural Fund for Rural Development (EAFRD) examined by the Court than among transactions financed by the European Agricultural Guarantee Fund (EAGF) and examined by the Court. For EAGF expenditure the Court estimates the value of the error rate to be slightly below 2 % whereas for EAFRD expenditure it is estimated to be significantly above (see paragraph 5.13 of the present Annual Report and paragraph 1.42 of the Annual Report concerning the financial year 2006).
(61) Court’s opinion No 2/2004 on the ‘single audit’ model (and a proposal for a Community internal control framework).
(62) Overall supervision by the Commission may also draw on primary and secondary level controls.
(63) This does not refer to the Commission’s Internal Audit Service and Internal Audit Capabilities.
(64) Also in terms of residual risk output targets, rather than inputs (i.e. percentage of claims to be checked) as presently (see paragraph 2.42(b)).
(65) A Communication on this issue is to be published by the Commission in October 2008.
CHAPTER 2
Commission internal control system
TABLE OF CONTENTS
2.1 |
Introduction |
2.2-2.23 |
Audit findings concerning Commission's Management Representations |
2.2-2.5 |
Synthesis report of the Commission |
2.6-2.23 |
Annual Activity Reports and Declarations by Directors-General |
2.8 |
Process of preparation |
2.9-2.14 |
Declarations by the Directors-General |
2.15 |
Legality and regularity indicators |
2.16-2.20 |
Assurance drawn from Annual Summaries |
2.21-2.23 |
Materiality criteria and criteria for defining reservations |
2.24-2.28 |
Commission’s internal control standards |
2.25 |
Compliance with baseline requirements |
2.26 |
Effectiveness at the end of 2007 |
2.27-2.28 |
Effectiveness and the transition to the revised standards |
2.29-2.36 |
Action plan |
2.29 |
General assessment |
2.30-2.33 |
Assessment by action |
2.30 |
Implementation of actions has progressed … |
2.31-2.33 |
… with one notable exception |
2.34-2.36 |
First assessment of the impact of the Action Plan |
2.37-2.42 |
Overall conclusions and recommendations |
2.37-2.40 |
Conclusions |
2.41-2.42 |
Recommendations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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AUDIT FINDINGS CONCERNING COMMISSION'S MANAGEMENT REPRESENTATIONS |
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Synthesis report of the Commission |
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The Commission considers that the scope of potential reservations was in line with the criteria it established (see reply to paragraph 2.12). The synthesis report takes account of reservations made by the Directors-General in their 2007 annual activity reports and observations made by the Court of Auditors in the 2006 annual report. The Commission is then able to conclude that the internal control systems in place, with the limitations described in the 2007 annual activity reports, provide reasonable assurance that the resources assigned to the Commission’s activities have been used for their intended purpose and in accordance with the principles of sound financial management. |
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Table 2.1 — Evolution of the evidence given by Commission Directorates-General’s annual activity reports for the Court’s Statement of Assurance
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The 2007 Synthesis Report repeats the Commission’s commitment (see section 3.1) to provide the European Parliament with quarterly reports on the progress in implementing its action plan to strengthen the Commission’s supervisory role under shared management of structural actions (COM(2008) 97 final). These quarterly reports include information on corrections and recoveries imposed by the Commission in the area of shared management, and the second quarterly report contains information on withdrawals and recoveries by Member States reported in 2008 in relation to the previous year. The Commission’s action plan includes measures aimed at improving the quality of the information provided by Member States. See also replies to paragraphs 2.32, 2.33 and 3.26, and 3.27 to 3.28. |
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For example in 2007 the Commission closed two specific initiatives under the objective promoting accountability through annual activity reports and a new action has been introduced which consists in promoting consistency in the treatment of reputational risks and in addressing more clearly the link between error rates, materiality and reservations. The action concerning the annual activity reports and Synthesis has been taken. Directors-General now give a fuller explanation on their environment, on the risks faced and on the overall impact on assurance. For example, in the areas of cohesion and agriculture, the reservations made by the Directors-General in their 2007 annual activity reports were in the Commission’s view in line with the materiality criteria established and covered all systems where there were material deficiencies and that the potential impact of reservations was adequately assessed. Before signing their declarations, the Directors-General consider the effectiveness of the control framework as a whole, not just its effectiveness in preventing errors. See also the replies to paragraphs 2.12, 2.25 and 2.26. |
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Annual Activity Reports and Declarations by Directors-General |
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Process of preparation |
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Declarations by the Directors-General |
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The reservation for 2007 on Rural Development expenditure was based on information made available by the Member States by 31 March 2008 as well as audit results of the Court. For the 2008 budget, the Commission is expecting to have validated information from Member States before the end of March 2009. |
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As already mentioned under the replies to paragraphs 2.3 and 2.5, the Commission considers that the reservations made by the Directors-General in their 2007 annual activity reports or the absence of reservations were in line with the materiality criteria established and covered all systems where there were material deficiencies, and that the potential impact of reservations was adequately assessed. Before signing their declarations the Directors-General consider the effectiveness of the control framework as a whole, not just its effectiveness in preventing errors. |
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The management and control system provided for in the legal basis of the Lifelong Learning Programme 2007-2013 improves the 2000-2006 system taking account of the Court’s recommendation. The Commission controls in earlier years contributed, together with those undertaken in 2007, to DG EAC’s conclusion that control systems provide reasonable assurance, though significant improvements are needed in the application of the control system at the level of checks by the national authorities. Furthermore, the results of the ex-post controls carried out by DG EAC, as presented in its annual activity report 2007, do not identify a material level of error. In relation to the system as a whole, the Directorate-General for Communication had already entered a reservation in its annual activity report because of the lack of supervision, and had adopted the necessary measures to improve matters, starting with the establishment on 1 November 2007 of a monitoring unit which now incorporates the second level ex-ante control. See also replies to paragraphs 9.17, 9.20, 9.23 and 9.24. |
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Having examined the errors detected by the Court and taking into account future possible corrections, notably as a result of mandatory audits, the Commission considers that the residual risk of error is not material. The errors detected by the Court mostly concern expenditure made by the organisations implementing the projects on advance payments made by the Commission. Mandatory financial audits foreseen under the Commission’s control system before the final payments should allow the Commission to detect and correct such errors. The Commission considers the residual risk of error to be sufficiently mitigated. The Commission is however committed to further improving its systems and additional measures to further reinforce controls at the level of implementing organisations were taken in 2007, including revised terms of reference for audits of projects. See also the reply to paragraph 8.31. |
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Legality and regularity indicators |
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Assurance drawn from Annual Summaries |
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The Commission has taken appropriate steps to follow up all cases of non-compliance with the minimum requirements and issues concerning the quality of the submissions. An infringement procedure has been launched against the Member State which failed to submit an annual declaration in line with the requirements of the regulation. |
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Materiality criteria and criteria for defining reservations |
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However, for the case evoked in footnote 20, the expenditure concerned was particularly immaterial to the Commission’s operations as a whole, and the approach taken is consistent with the principle that Directorates-General must find a balance between costs and benefits when setting up their control systems. This is compatible with other statements as to the high level of assurance. |
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COMMISSION’S INTERNAL CONTROL STANDARDS |
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Compliance with baseline requirements |
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Effectiveness at the end of 2007 |
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See also replies to paragraphs 5.51, 6.33, 7.42, 8.31 and 9.25. |
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Table 2.2 — The Court’s analysis of the implementation of internal control standards (with a direct link to the legality and regularity of underlying transactions) for selected Directorates-General (Situation as at 31.12.2007)
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Effectiveness and the transition to the revised standards |
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See also reply to paragraph 2.28. |
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The implementation of selected priority standards within each service will be reported in the 2008 annual activity reports, as the requirement goes beyond pure compliance. The effectiveness of the internal control system as a whole to guarantee the legality and regularity of underlying transactions is the subject of the Delegated Authorising Officers’ declarations, introduced with the annual activity reports in the year 2001. |
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ACTION PLAN |
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General assessment |
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The implementation of the actions should be distinguished from the impact these will have (see Commission Communication of 27 February 2008 (31): ‘…Reduction of errors and increase in assurance will only build over time as the actions taken begin to have an impact on underlying control systems’). The Commission has committed itself to publishing an annual impact report covering the different actions. |
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Assessment by action |
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Implementation of actions has progressed … |
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Action 1 must necessarily be treated as completed, as the 2007-2013 rules are now largely adopted. Some simplification was achieved, notably in the areas of structural fund programming and in the acceptance of lump-sum reimbursements in several policy areas. On action 7c (Extend criteria for certification audits, focusing on the use of ‘agreed-upon procedures’, to other management modes), the Commission underlines that this is in progress. Agreed upon procedures are used in external aid and their use is being considered for education and culture. For action 8N (contact with the Supreme Audit Institutions (SAIs) to determine how their work can be used to provide assurance and the launch of a case study on the key issues faced by SAIs in examining Community expenditure) the work planned under the action plan is almost completed as reported by the Commission. Contact with several SAIs has been pursued, including with those Member States providing a national declaration. A case study with the Slovenian SAI has led to considerable improvements in the financial reports provided by the Commission to all national SAIs. On Action 12 (Put in place steps to close gaps in the internal control framework via the annual management plans and annual activity reports) the Commission considers this implemented as Directorates-General are required to analyse their risks as part of the annual management plan process and report on the effectiveness of their internal control systems via the annual activity reports. While such analysis and reporting is an ongoing responsibility of management, the Commission considers that the gaps identified in the action plan are being addressed through the standard reporting processes. |
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Table 2.3 — Overview of the implementation of the Commission's action plan towards an integrated internal control framework
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First assessment of the impact of the Action Plan |
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Certain of the actions within the action plan will also be taken further as part of the Commission Action Plan to improve its supervision of the Member States with regard to the Structural Funds. |
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OVERALL CONCLUSIONS AND RECOMMENDATIONS |
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Conclusions |
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The Directors-General assess the functioning of the control framework as a whole, not just its effectiveness in preventing errors. They take into account the measures aimed at detecting and correcting errors, and pay due regard to the costs and benefits of controls, in particular regarding on-the-spot checks. Several measures were taken by the Commission so that the 2007 annual activity reports better demonstrate the link between the effectiveness of internal control systems and the basis of assurance. For example, Directors-General were invited to describe the ‘building blocks’ on which they based their assurance and to explain the reasons for any differences of opinion between the Court and themselves. These differences will be addressed during 2008 and Directorates-General will then report on these issues in their 2008 annual activity report. The reservations made by the Directorates-General in their 2007 annual activity reports were in the Commission’s view in line with the materiality criteria established and covered all systems where there were material deficiencies and that the potential impact of reservations was adequately assessed. |
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It is difficult to asses the impact of each action taken in 2006 and 2007 on the risk of errors. Any simplification of the rules, and all improvement to the Commission’s controls, will take time to have an effect on the prevention of errors. Furthermore, many measures concern ex-post controls, and the recovery of errors in years after they have occurred. The Commission agrees with the Court’s view that impact can only be assessed over a longer time frame. The Commission is fully aware of the need to demonstrate the impact of its action plan: the Synthesis Reports concludes that the Commission will make all efforts to demonstrate the effectiveness of its controls. The Synthesis Report also underlines that addressing the causes of error is vital and that its services will issue guidance on this subject. The action plan was designed to meet specific gaps and the Commission is taking many other measures to further improve its internal control systems. The Court’s own assessment indicates that improvements are being made in internal control systems (notably the appreciation of annual activity reports has risen in some cases). The Commission can demonstrate the impact of some of the actions even at this early stage and will present its first annual impact report in early 2009. See also replies to paragraphs 2.26 and 2.35, and to paragraphs 5.51, 6.33, 7.42, 8.31 and 8.32, and 9.25. |
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Recommendations |
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(1) Communication from the Commission to the European Parliament, the Council and the Court of Auditors — Synthesis of the Commission’s management achievements in 2007, COM(2008) 338 final, 4.6.2008.
(2) The Court has decided to regroup the specific assessments for DAS purposes around policy groups. These correspond to the different chapters in this current Annual Report, but may not always allow a direct comparison with the data in the equivalent table in the Court’s Annual Report 2006.
(3) Impact of these most important reservations on the Director-General’s declaration in the Court’s view:
A: reasonable assurance that the internal control systems ensure the legality and regularity of the underlying transactions with no or insignificant qualifications.
B: reasonable assurance but with qualifications concerning identified weaknesses in the internal control system.
C: no assurance.
(4) Evidence given by the annual activity report for the Court’s audit conclusions:
A: sufficient evidence for the Court’s DAS conclusions (clear and unambiguous).
B: supporting evidence for the Court’s DAS conclusions after corrections.
C: no supporting evidence for the Court’s DAS conclusions.
(5) Although included in the annual activity reports.
(6) For CAP expenditure, where IACS is properly applied.
(7) For CAP expenditure, which is not subject to IACS or where IACS is not properly applied.
Source: Court of Auditors.
(8) By referring to the annex to the report on the Structural Funds SEC(2007) 1456.
(9) Note from the Commission’s central services (SEC GEN, DG BUDG and DG ADMIN) to Directors-General and Heads of Service — Standing instructions for the preparation of the annual activity reports for the year 2007, SEC(2007) 1645 of 12.12.2007.
(10) Directorates-General AGRI, REGIO, EMPL, RTD, INFSO, ENTR, TREN, ENV, JLS, ECFIN, ELARG, COMM and DIGIT.
(11) The overall amount of payments relating to the systems at risk is 10 200 million euro (approximately 28 % of cohesion expenditure). The Directorates-General quantified the impact of these reservations at 726 million euro (2006-140 million euro) on the basis of an estimated 5 or 10 % flat-rate correction.
(12) See the Annual Report concerning the financial year 2006, paragraph 2.37(a).
(13) SEC(2007) 1645 of 12.12.2007. The use of such templates is obligatory although may be adapted to the specific situation of the DG/Service establishing the AAR.
(14) For example, in DG TRADE, indicators on commitment rates for operational and administrative appropriations are given without a clear interpretation of their relevance.
(15) Nor do they always indicate in their Annual Management Plans legality and regularity targets to be met in the future and demonstrated by indicators in the Annual Activity Reports for 2008.
(16) Council Regulation (EC, Euratom) No 1995/2006 of 13 December 2006, amending Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the General Budget of the European Communities (OJ L 390, 30.12.2006).
(17) Applicable for the first time in 2008 and covering certified expenditure and audit activity for 2007.
(18) SEC(2007) 1645 of 12.12.2007, p. 12.
(19) Opinion of the Court No 6/2007 on the annual summaries of Member States; ‘national declarations’ of Member States; and audit work on EU funds of national audit bodies (OJ C 216, 14.9.2007, p. 3).
(20) In terms of scope or appropriateness of administrative level.
(21) Defines the circumstances the non-respect of which means that a weakness or series of weaknesses is considered significant enough to warrant a reservation.
(22) Communication from the Commission — The 2002 review of the implementation of activity-based management in the Commission, including clarification of the methodology for the establishment of annual activity reports (COM(2003) 28 final of 21.1.2003) et seq.
(23) See paragraphs 2.35 and 2.37(a).
(24) DGs AGRI (for EAGGF Guidance expenditure), EMPL, REGIO and MARE.
(25) In the area of agriculture (EAGF and EAFRD) the materiality criteria used was the level of errors detected at the level of final beneficiaries and as a complementary criterion, the estimated financial risk of significant deficiencies in management and control systems.
(26) DG DGT set a materiality level of 5 %. This is in spite of a budget for 2007 of non-differentiated appropriations of around 17 million euro spent entirely by direct central management and the Director General’s opinion that the internal control system in place provides reasonable assurance regarding the legality and regularity of transactions and is moreover, ‘sufficiently robust and effective in preventing/detecting/correcting errors.’ (Annual activity report 2007, DG DGT, p. 25).
(27) A finding echoed by the Commission’s Internal Audit Service report on ‘Preventing and Detection of fraud in the Structural Funds’, 19 December 2007. The Court also notes, however, the potential mitigating effect of the actions outlined in the Communication from the Commission to the European Parliament, the Council and the Court of Auditors, ‘An action plan to strengthen the Commission's supervisory role under shared management of structural actions’, COM(2008) 97 final of 19.2.2008.
(28) Communication to the Commission, ‘Revision of the Internal Control Standards and Underlying Framework — Strengthening Control Effectiveness’, SEC (2007) 1341 of 16.10.2007.
(29) COM(2007) 86 final, p. 11.
(30) Communication from the Commission to the European Parliament, the Council and the European Court of Auditors. Report on the Commission Action Plan towards an Integrated Internal Control Framework, COM(2008) 110 final, {SEC(2008) 259}, of 27.2.2008.
(31) COM(2008) 110 final: Report on the Commission Action Plan towards an Integrated Internal Control Framework.
(32) Based on a Commission grading system of 1 to 5 filled boxes.
(33) The Commission also states that the impact of the various (sub-)measures on the reduction of errors or the increase in assurance will only build over time as they begin to have an impact on the underlying control systems.
Source: Court of Auditors.
(34) COM(2008) 110 final, p. 2.
CHAPTER 3
Budgetary Management
TABLE OF CONTENTS
3.1-3.2 |
Introduction |
3.3-3.29 |
Observations |
3.3-3.6 |
Underspending managed by amending budgets |
3.7-3.11 |
Outstanding budgetary commitments 5,2 % higher than in the previous year |
3.12-3.17 |
Year n + 2 rule accelerates payments |
3.18-3.20 |
Commission report on budgetary and financial management |
3.21-3.29 |
Financial corrections/recoveries as part of the budget process: better information on and management of financial corrections required |
3.21-3.24 |
Legal and organisational framework |
3.25-3.29 |
Lack of complete and reliable information from Member States |
3.30-3.33 |
Conclusions and recommendations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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OBSERVATIONS |
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Underspending managed by amending budgets |
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Outstanding budgetary commitments 5,2 % higher than in the previous year |
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The n + 2/n + 3 rule in Cohesion Policy ensures that commitments are largely used up within 2-3 years. |
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Year n + 2 rule accelerates payments |
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Commission report on budgetary and financial management |
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The Commission endeavours to ensure a high degree of consistency of the data published in different Commission documents. However, these documents are produced for different purposes. A meaningful analysis of implementation and budgetary adjustments as part of the budgetary management has to be based on the financial framework, with the priority to the voted and the carryover appropriations. This structure is followed neither by the annual accounts (focus on implementation reporting on use, cancellation, and carryover of all authorised appropriations) nor the budget (nomenclature by policy areas which include both administrative and operational expenditure). This means that implementation data has to be structured in different ways in Commission documents and some figures, which may seem to cover the same area, are in reality based on (slightly) different definitions. |
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Financial corrections/recoveries as part of the budget process: better information on and management of financial corrections required |
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Lack of complete and reliable information from Member States |
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The Commission has made substantial efforts to improve the quality of data on recoveries provided by Member States and is currently carrying out work to verify the completeness and accuracy of this data. There has therefore been progress in producing reliable evidence of the operation of the multiannual corrective mechanisms. |
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Financial corrections at Member State level in the Cohesion Policy area are reported to the Commission annually and the data are published in the Annual Report on the Structural Funds. As noted in the reply to paragraph 3.25, the Commission is taking action to improve the reliability and completeness of this information. Information on the recoveries made from beneficiaries in individual cases is provided by the obligatory reporting procedures under Regulation (EC) No 1681/94, as well as being available in the Member States’ monitoring systems. The Commission focuses on having complete and reliable information to demonstrate that the EU budget has been safeguarded by the exclusion of funding which is irregular. As regards agriculture expenditure, the Commission considers the information which it has received from Member States to be complete and sufficiently reliable since no discrepancy with a material impact has been found. However, the Commission recognises that there is scope for improvement and has revised the relevant Guidelines for the financial year 2008 accordingly. It will also continue to closely monitor the situation (see reply to paragraph 5.44). |
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CONCLUSIONS AND RECOMMENDATIONS |
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For the Structural Funds, complete information on corrections applied by the Commission is provided in the 2007 accounts. Extensive information was also presented in the annex to the 2006 Annual Report on the Structural Funds. This will be further improved in the 2007 report, in particular concerning corrections effected by Member States. In agriculture, all the relevant information is already published and can be scrutinised and verified. This includes the corrections charged by the Commission to the Member States and the Member States’ recovery of undue payments from the final beneficiaries. |
(1) The budgetary surplus (budget outturn) is the result of the implementation of the budget. It is not a reserve and it cannot be accumulated and used in future years to finance expenditure. The unused revenue that the surplus represents is offset against the own resources to be collected for the following year.
(2) Detailed information on budgetary implementation for 2007 can be obtained from Part II of the Annual Accounts of the European Communities, Financial Year 2007, the EC’s (DG Budget) documents ‘Report on budgetary and financial management — financial year 2007’ as well as from the Report on the ‘Analysis of the budgetary implementation of the Structural and Cohesion Funds in 2007’, pp. 57-58. It must be noted, however, that figures mentioned in the different documents are not fully consistent and vary slightly.
(3) The titles cover policy areas 04-Employment and Social Affairs; 05-Agriculture and Rural Development; 11-Fisheries and Maritime Affairs; 13-Regional Policy.
(4) See also paragraphs 3.9 to 3.11 of the Annual Report concerning the financial year 2006.
(5) For Cohesion see EC’s (DG Budget) report ‘Analysis of the budgetary implementation of the Structural and Cohesion Funds in 2007’, p. 35.
(6) See EC’s (DG Budget) report ‘Analysis of the budgetary implementation of the Structural and Cohesion Funds in 2007’, table 5 and 6, p. 13.
(7) See EC’s (DG Budget) report ‘Analysis of the budgetary implementation of the Structural and Cohesion Funds in 2007’, table 10, p. 37.
(8) Due to late submissions of Operational Programmes and/or lengthy negotiations with Member States concerned, commitment appropriations amounting to 130 million euro have been carried forward to 2008, relating to one Convergence Operational Programme, nine Territorial Cooperation Programmes and six IPA Cross Border Cooperation Programmes. Some related technical assistance actions were also postponed to 2008 and 2009. See EC’s (DG Budget) Report on budgetary and financial management; Financial year 2007 and Analysis of the budgetary implementation of the Structural and Cohesion Funds in 2007 (table 3, p. 12).
(9) OJ L 161, 26.6.1999, p. 1.
(10) For outstanding commitments the French acronym ‘RAL’ for reste à liquider is often used.
(11) See Annual Accounts of the European Communities, Financial Year 2007, table 13b.
(12) See also paragraph 2.25 of the Annual Report concerning the financial year 2004.
(13) Article 93(2) of Council Regulation (EC) No 1083/2006 (OJ L 210, 31.7.2006, p. 25).
(14) For instance, the amounts regarding the implementation of the budget differ between the Annual Accounts and the ‘Report on budgetary and financial management’.
(15) For the EAGF all corrections are credited to the Fund. In the Structural Funds, Member States withdraw irregular expenditure found in their control and audit work from the expenditure declared for the programme or project concerned. They do so either immediately the irregular expenditure is detected or after the undue payment has been recovered from the beneficiary. The resources from the Structural Funds released in this way may be reused.
(16) Analogous rules as for shared management are applicable in cases of decentralised or joint management where the Commission implements the budget together with international organisations or other independent bodies.
(17) Some of these points were mentioned in the reply from Vice-President Kallas to written question No 21 from the European Parliament (Cocobu) within the discharge procedure for the financial year 2006.
(18) See Opinion No 2/2004 of the Court of Auditors of the European Communities on the ‘single audit model’ (and a proposal for a Community internal control framework) (OJ C 107, 30.4.2004, p. 1).
(19) Whereas for the Cohesion Fund the over-estimation rate increased from 32 % in 2006 to 54 % in 2007.
CHAPTER 4
Revenue
TABLE OF CONTENTS
4.1-4.3 |
Introduction |
4.1-4.3 |
Specific characteristics of Revenue |
4.4-4.45 |
Specific assessment in the context of the Statement of Assurance |
4.4-4.10 |
Audit scope |
4.4-4.7 |
Traditional own resources |
4.8-4.10 |
VAT and GNI own resources |
4.11-4.15 |
Legality and Regularity of underlying transactions |
4.11-4.14 |
Traditional own resources |
4.15 |
VAT and GNI own resources |
4.16-4.39 |
Assessment of supervisory and control systems |
4.16-4.19 |
Traditional own resources |
4.20-4.25 |
VAT own resources |
4.26-4.39 |
GNI own resources |
4.40-4.45 |
Overall conclusions and recommendations |
4.42 |
Traditional own resources |
4.43 |
VAT own resources |
4.44-4.45 |
GNI own resources |
4.46 |
Follow-up of previous observations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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Specific characteristics of Revenue |
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Table 4.1 — Revenue for the financial years 2006 and 2007
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Audit scope |
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Traditional own resources |
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Customs warehousing |
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Furthermore, it is for Member States to arrange the methods and frequency of customs controls. Community legal provisions only define minimum levels of verification in a small number of cases where particular risks are considered to apply. |
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VAT own resources |
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Reservations |
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Table 4.2 — VAT reservations as at 31 December 2007
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Monitoring of the application of the VAT directive |
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More generally, the Commission has recently changed its procedures, to allow for more frequent decision-taking in order to reduce the delays which occurred when Member State notifications were received shortly before the next procedural step was due to be taken, allowing for cases to progress as soon as the analysis of the new information has been completed. The Commission risks losing a case on procedural grounds if it does not take full account of the input by Member States. In addition, the preparation of the application to be lodged with the Court of Justice may sometimes prove to be difficult owing to the complexity of the facts, of the applicable legislation or of the legal questions raised. |
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GNI own resources |
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Annual GNI data |
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Reservations |
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Table 4.3 — GNP/GNI specific reservations as at 31 December 2007
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Verification of GNI inventories in the Member States |
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Overall conclusions and recommendations |
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are free from material error. |
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Even though the Court assesses the overall GNI systems as effective, the Court considers, in the summary table in Annex 4.1, that more direct verification should be applied during the checks of Member States' GNI. The Commission considers that its action to lift Member States' GNI reservations is based on a thorough verification of the supporting data and information (see reply to paragraph 4.35). However, the Commission started direct verification in 2007 in the sense indicated by the Court, as part of its new three-year cycle of GNI verification, and will continue to also apply this approach during 2008 and 2009. |
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Traditional own resources |
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VAT own resources |
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The Commission's validation of Member States' GNI data is mainly based on the verification and improvement of the reliability and suitability of the sources and methods used for the compilation of GNI and their conformity with the European system of accounts (ESA 95). During 2008 and 2009 the Commission will continue to carry out direct verification in the sense indicated by the Court. |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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(1) Article 34 of Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy (OJ L 209, 11.8.2005, p. 1).
(2) Contains surplus from previous financial year and miscellaneous revenue.
(3) Traditional own resources are collected by Member States on behalf of the European Union, retaining 25 % to cover collection costs.
(4) The VAT and GNI own resources are contributions resulting from the application of uniform rates to Member States’ harmonised VAT assessment bases or to the Member States’ GNI, calculated in accordance with Community rules.
(5) The Court selects Member States for detailed audit on a cyclical basis, with the largest contributors being examined more frequently. For 2007 the countries audited were Bulgaria, Denmark, Germany, Spain, Romania and Portugal.
(6) Advisory Committee on Own Resources, referred to in Article 20 of Council Regulation (EC, Euratom) No 1150/2000 (OJ L 130, 31.5.2000, p. 1). The Committee consists of representatives of the Member States and of the Commission, and provides the liaison between the Commission and the Member States on own resources matters. It examines questions concerning the implementation of the own resources system, as well as the estimates of own resources.
(7) Belgium, Czech Republic, France, Italy, Slovakia, Sweden and United Kingdom.
(8) See footnote 5.
(9) The GNI Committee is referred to in Article 4 of Council Regulation (EC, Euratom) No 1287/2003: the GNI Regulation (OJ L 181, 19.7.2003, p. 1). The Committee consists of representatives of the Commission and Member States. Each year, the Committee examines the GNI data forwarded by the Member States and issues an opinion on the appropriateness of these data for own resource purposes with respect to reliability, comparability and exhaustiveness.
(10) OJ L 163, 23.6.2007, p. 17.
(11) Reduced VAT rates of call for Austria, Germany, the Netherlands and Sweden and gross reductions in the GNI-based contributions of the Netherlands and Sweden.
(12) Articles 84 to 90 and 98 to 113 of the Community Customs Code (Council Regulation (EEC) No 2913/92 (OJ L 302, 19.10.1992, p. 1)) together with Articles 496 to 535 of the Community Customs Code Implementing Provisions (Commission Regulation (EEC) No 2454/93 (OJ L 253, 11.10.1993, p. 1)).
(13) Article 86 of the Community Customs Code.
(14) Articles 515 to 516 of the Community Customs Code Implementing Provisions as last amended by Commission Regulation (EC) No 1875/2006 (OJ L 360, 19.12.2006, p. 64).
(15) Article 4(f) of the Community Customs Code Implementing Provisions.
(16) In accordance with Article 221(3) of the Community Customs Code, communication to the debtor shall not take place after the expiry of a period of three years from the date on which the customs debt was incurred.
(17) In addition there were six cases, three in Germany and three in Italy, where a reservation was partially lifted.
(18) In accordance with Article 2(1)(c) of Decision 2000/597/EC, Euratom (OJ L 253, 7.10.2000, p. 42) the VAT bases to be taken into account for calculating the Member States VAT contributions shall not exceed 50 % of GNI/GNP for each Member State.
(19) Article 2(2) and 2(3) of the GNI Regulation.
(20) Article 10(8) of the Regulation (EC, Euratom) No 1150/2000 states that any changes to the GNP/GNI of previous financial years shall give rise for each Member State concerned to an adjustment to the balance established. It also states that, after 30 September of the fourth year following a given financial year, any changes to GNP/GNI shall no longer be taken into account, except on points notified within this time limit either by the Commission or by the Member State.
(21) Article 3 of the GNI Regulation: ‘Member States shall provide the Commission (Eurostat) […] with an inventory of the procedures and basis statistics used to calculate GNI and its components according to ESA 95. […]’.
(22) Gross national product.
(23) See paragraphs 4.24 to 4.26 of the Court’s Annual Report concerning the financial year 2006.
(24) Gross domestic product.
(25) Regulation (EC) No 1392/2007 of the European Parliament and of the Council of 13 November 2007 amending Council Regulation (EC) No 2223/96 with respect to the transmission of national accounts data (OJ L 324, 10.12.2007, p. 1).
(26) Reservations in respect of the GNI own resource make it possible to adjust GNI data after the 4-year time limit. A general reservation covers all the Member State’s data, whereas a specific reservation covers discrete elements of the GNI Inventory.
(27) For example, non-compliance with the European System of Accounts (ESA) 95 (for years 2002 onwards) or ESA 79 (for years 1995-2001), issues concerning the transition from ESA 95 to ESA 79 and weak methods for estimating certain components.
(28) For example the potential impact of reservations in respect of building caretakers and commissions paid to estate agents was not material. After the Member State's work, the impact was estimated to be around 0,01-0,02 % of GNP. Such cases do not respect the principle of avoiding committing disproportionate resources to calculate insignificant items, as set out in article 5(2)(b) of the GNI Regulation.
(29) Luxembourg did not send its inventory and process tables; Austria, Cyprus, France, Malta and United Kingdom did not send the process tables.
(30) 31.12.2007 for Sweden (which sent its inventory and process tables at the end of January 2008) and 31.12.2009 for Romania and Bulgaria.
(31) See Annex 4.1 of the Court’s Annual Report concerning the financial year 2006.
ANNEX 4.1
Assessment of supervisory and control systems (1)
Revenue type |
Key Internal Control |
Overall assessment |
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Commission checks in Member States (2) |
Commission desk checks |
Revenue management |
Management of Reservations (3) |
National customs supervision in Member States audited |
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N/A |
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VAT |
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N/A |
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GNI |
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N/A |
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Legend:
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Effective |
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Partially effective |
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Not effective |
N/A |
Not applicable |
(1) See scope limitation referred to in paragraphs 4.4 and 4.9.
(2) In respect of the Commission checks on GNI in Member States, the review of sources and methods set out in the inventories is assessed as effective, whereas direct verification is insufficiently used and thus only partially effective.
(3) Improvements are required in respect of the management of VAT reservations, notably to be able to lift long-outstanding reservations.
ANNEX 4.2
Follow-up of the Court’s previous observations
Court observation |
Action taken |
Court analysis |
Commission reply |
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Traditional Own Resources: Agricultural tariff quotas |
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In paragraph 4.13 of the Annual Report concerning the financial year 2006, the Court noted that the securities lodged with a view to imports or exports of agricultural products under the Tariff Quota System managed by an import or export licence and subsequently forfeited become a resource of the Member State concerned. The Court considers that such a security should form part of the Communities’ own resources and the amounts involved should be made available to the Commission. The Commission was invited to clarify this issue. |
The Commission provided the Court with detailed data concerning securities lodged with a view to imports or exports of agricultural products by an import or export licence subsequently forfeited in the last seven years. Based on this information the Court estimates the annual average to be some 16 million euro of which 3 million euro are under the Tariff Rate Quota (TRQ) System |
The Commission, as stated in its reply to paragraph 4.13, should raise the Court’s consideration in the appropriate forum in order to clarify the question. This is now planned for 2008. |
This issue has been placed on the agenda of the July 2008 Advisory Committee on Own Resources in order to further discuss the matter with the Member States. |
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Traditional Own Resources: Potential duties under discussion between the Commission and Germany |
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In paragraph 3.23 of Annual Report concerning the financial year 2004, the Court noted that in 2003 Germany removed entries totalling 40,1 million euro from its B account, without providing a full explanation of this reduction. In 2005, the Court indicated that 22,7 million euro of potential duties remain under discussion between the Commission and Germany. This was still the situation in 2006. |
The balance of 22,7 million euro was still under discussion in 2007. The Commission has asked Germany to provide the split between guaranteed and non guaranteed debts in the B-account and use this data to evaluate the assurance on the amounts likely to be eventually recovered. |
The definitive amount to be recovered should be established in order to finally close this issue. |
As indicated by the Court, Germany has been requested to supply the ratio between guaranteed and unguaranteed debts in the B account in order to gain assurance that there are no additional amounts due. |
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GNI own resource: revision policy (including the follow-up of the Greek revision) |
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In the Annual Report concerning the financial year 2006, the Court made some observations on the Greek revision (paragraphs 4.24-4.26) and recommended in paragraph 4.32 that the Commission: |
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CHAPTER 5
Agriculture and Natural Resources
TABLE OF CONTENTS
5.1-5.7 |
Introduction |
5.3-5.7 |
Specific characteristics of policy group Agriculture and Natural Resources |
5.8-5.58 |
Specific assessment in the context of the Statement of Assurance |
5.8-5.11 |
Audit scope |
5.12-5.16 |
Legality and regularity of underlying transactions |
5.17-5.49 |
Assessment of supervisory and control systems |
5.17-5.48 |
Policy area Agriculture and Rural Development |
5.49 |
Policy areas Environment, Fisheries, Health and Consumer Protection |
5.50-5.58 |
Overall conclusions and recommendations |
5.59-5.67 |
Follow-up of previous observations |
5.59-5.60 |
The common organisation of the market in raw tobacco |
5.61-5.65 |
The Commission’s management and supervision of the measures to control foot-and-mouth disease |
5.66-5.67 |
Measurement of farm incomes by the Commission |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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Specific characteristics of policy group Agriculture and Natural Resources |
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Audit scope |
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Legality and regularity of underlying transactions |
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As regards agriculture and rural development, the Commission underlines the Court’s finding that the most likely overall error rate is not significantly different from last year’s, as reported in its 2006 statement of assurance. Control statistics received from Member States, indicate as well that the error rate found at the level of final beneficiaries under the EAGF, which accounts for about 85 % of total agriculture and rural development expenditure, is below the materiality threshold. The Commission shares the Court’s view that rural development expenditure, in particular because of agri-environmental measures, is prone to a higher incidence of errors compared to EAGF expenditure. While the Member States have, at the explicit request of the Commission, provided detailed control statistics for the first time, these data are incomplete and have not yet been verified and validated by the certification bodies. The Director General of DG AGRI made a reservation for rural development in its Annual Activity Report 2007 (AAR 2007) for this reason and awaits future discussions on the level of the tolerable error with different institutions. The 2007 agriculture and rural development expenditure likely to be excluded from Community financing by future conformity decisions, amounts to an estimated sum of 439 million euro, together with the 152 million euro of recoveries from final beneficiaries (10). As described in its AAR 2007 the Directorate-General for Health and Consumers (DG SANCO) is confident that its transactions are not affected by a material level of error of legality and regularity given that the residual error rate is 1,6 % and thus below the materiality threshold of 2 %. As described in its AAR 2007 of the Directorate-General for Environment (DG ENV), the control systems and the shortcomings identification mechanisms have continuously matured and are complemented where appropriate. These alert mechanisms have not revealed any shortcomings, error or risk that could be qualified as significant and lead to reservations, according to the materiality criteria guidelines provided in the AAR circular, except in the area of the ex-post audits where the level of recovery orders recommended by the ex-post auditors and its regular increase over the last years lead to the expression of a reservation concerning the expenditures declared by the beneficiaries of action grants as the materiality level was exceeded by 0,6 %. |
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Assessment of supervisory and control systems |
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Policy area Agriculture and Rural Development |
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The Integrated Administration and Control System (IACS) |
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It now covers almost 85 % of the EAGF as a result of the inclusion in SPS of new aid schemes. This extension of IACS is intended to improve the financial management of high risk areas. In the case of EAFRD, and especially for agri-environment and less-favoured areas, certain basic elements such as surface, number of animals are covered by IACS and others by specifically designed controls. |
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The Single Payment Scheme (SPS) |
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The direct coupled payments |
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As the Court has acknowledged, most of the system weaknesses identified were also identified by the Commission’s clearance of accounts and appropriate follow-up action has been taken. |
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Supervisory and Control Systems in IACS |
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Member State controls under IACS and inspection results |
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As regards the extension of the work to the final beneficiaries, the certification bodies review a sample of field inspection reports and check that any claim adjustments required (as a result of the check) are made to the final beneficiary’s data in the IACS. In roughly 90 % of the cases, the certification bodies made an assessment and concluded positively for approximately 85 % of them which must be considered as an acceptable result for the first year of application of this new control obligation. The Commission recognises that there is scope for improvement in this area, and has revised its Guidelines accordingly for financial year 2008. The Commission systematically analyses the IACS statistics for consistency and compliance with regulatory requirements. The data’s reliability is verified by the Commission’s conformity audits. |
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Rural Development |
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As regards the control system, measures have been taken to reinforce and strengthen the control rules in this area and all eligibility criteria must now be controllable according to a set of verifiable indicators to be established by the Member States (29). Moreover, guidelines have been produced by the Commission on the verifiability of the agri-environmental measures. |
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Ex-post scrutiny of payments to traders and processors |
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According to information received from the Italian authorities on 29 May 2008 the minimum number of scrutinies at Community level has been reached for each of the preceding scrutiny periods. However, the Member States’ obligation to eliminate the backlog remains. |
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More importantly, at Member State level about 18 % of the total number of scrutinies in scrutiny year 2006/2007 concerned rural development measures, and this is considered to be an appropriate level of coverage. |
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The revised Guidelines presented to the Member States for the financial year 2008 address the Court’s observation. |
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Export refunds |
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The Commission’s clearance of accounts procedures |
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Financial clearance |
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In addition, certification bodies provide a separate opinion on the Statement of Assurance (the DAS) provided by each paying agency’s director, as well as an analysis of the effectiveness of the on-the-spot controls and the accuracy of the inspection statistics. |
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Each certification body analyses, and reports on, how well each paying agency complies with the accreditation criteria as laid down in Regulation (EC) No 885/2006, and gives an opinion accordingly. The difference of view between the DAS and the certification body’s opinion proves the added value of the opinion on the DAS, in that the certification body has appraised the DAS in the light of its own audit work, as foreseen. The 3 paying agencies concerned are now all under probation. For the remaining 79 paying agencies, the two documents were consistent. |
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However, the Commission recognises that there is scope for improvement in this area, and has revised its Guidelines for financial year 2008 accordingly. It will also continue to closely monitor the situation (via 7 audit missions to paying agencies and 6 audit missions to certification bodies in 2008). |
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Conformity clearance |
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While financial consequences are only determined at the end of the procedures, the preliminary findings of the Commission’s audits carried out in a given year are already known by the end of that year. Since the audits cover the Member States’ management and control systems, they do not only provide information on the expenditure audited but indirectly also on future expenditure. Furthermore, normally the corrections take into account expenditure effected after the date of the audit and are therefore not only retro-active. The conformity clearance is designed to exclude expenditure from Community financing which has not been effected in compliance with Community rules. In contrast, it is not a mechanism by which irregular payments to beneficiaries are recovered, which according to the principle of shared management is the sole responsibility of Member States. Where undue payments to beneficiaries can be identified as a result of the conformity clearance, Member States are required to follow them up by recovery actions against these beneficiaries. However, even where recoveries from beneficiaries are not needed because the financial correction only relates to deficiencies in the Member States’ management and control system and not to undue payments, these corrections are an important means to improve the Member States’ systems and thus to prevent or detect and recover irregular payments to beneficiaries. Flat-rates take account of the severity of the deficiencies in the national control systems in order to reflect the financial risk for the Community. Therefore the Commission considers there to be a valid link between this type of correction and the amount of irregular payments to final beneficiaries. |
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Policy areas Environment, Fisheries, Health and Consumer Protection |
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Overall conclusions and recommendations |
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As regards agriculture and rural development, the Commission underlines the Court’s finding that the most likely overall error rate is not significantly different from last year’s, as reported in its 2006 statement of assurance. Control statistics received from Member States, indicate as well that the error rate found at the level of final beneficiaries under the EAGF, which accounts for about 85 % of total agriculture and rural development expenditure, is below the materiality threshold. The Integrated Administrative Control System (IACS) covering most of agricultural expenditure is effective in limiting the risk of irregular expenditure, where accurate and reliable data is introduced and the system is properly implemented. The 2007 agriculture and rural development expenditure likely to be excluded from Community financing by future conformity decisions, amounts to an estimated sum of 439 million euro, together with the 152 million euro of recoveries from final beneficiaries. As described in the Annual Activity Report (AAR) 2007 the Directorate-General for Health and Consumers is confident that its transactions are not affected by a material level of error of legality and regularity. Furthermore, as explained in the AAR 2007 the residual error rate is 1,6 % which is below the materiality threshold of 2 %. As stated in the AAR 2007 of the Directorate General for Fisheries and Maritime Affairs, a reasonable assurance on the regularity and legality of DG Fisheries and Maritime Affairs expenditure can be given and weaknesses detected are not material enough to justify a reservation. DG ENV made a specific reservation in the Annual Activity Report on the eligibility of expenditure declared by the beneficiaries of action grants. |
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In its AAR 2007, the Management of the Directorate-General for Environment ‘feels confident about the overall state of internal control and financial and operational management in DG ENV’. This conclusion is also confirmed by the results of the analysis of the subdelegated authorising officers and management reports to the Director General which were requested from all of them in January 2008. The Internal Audit Capability of DG ENV has not discovered material weaknesses in the financial control systems or serious flaws in the management systems during its 2007 audits. The weaknesses flagged by the Management in 2007 were due to specific circumstances and will be further addressed in 2008. |
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As regards frequency and impact of errors, the IACS statistics received from the Member States (except Greece) and verified and validated by the certification bodies show that the frequency of errors including financial year 2007 is steadily decreasing and the financial impact of the errors is limited to only 0,83 % of the expenditure concerned. |
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Where undue payments to beneficiaries can be identified as a result of the conformity clearance, Member States are required to follow them up by recovery actions against these beneficiaries. However, even where recoveries from beneficiaries are not needed because the financial correction only relates to deficiencies in the Member States’ management and control system and not to undue payments, these corrections are an important means to improve the Member States’ systems and thus to prevent or detect and recover irregular payments to beneficiaries. The Commission considers there to be a valid link between its financial corrections and the level of irregular payments to final beneficiaries. |
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As regards the magnitude of the financial corrections, the 2007 agriculture and rural development expenditure likely to be excluded from Community financing by future conformity decisions, amounts to an estimated sum of 439 million euro, together with the 152 million euro of recoveries from final beneficiaries (42). |
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The Commission shares the view of the Court that rural development measures, in particular due to the inherent complexity of agri-environmental measures, are prone to a higher incidence of errors than EAGF payments. Agri-environmental measures are complex by nature and that there is only very limited scope for simplification of these measures without jeopardising their objectives. The Commission, therefore, considers that due to the added value of these measures and their high complexity, the tolerable risk of errors should be higher. Despite these considerations, important improvements of the rural development control framework have been introduced for the EAFRD programming period 2007-2013. As an example, Member States shall now ensure that all the eligibility criteria established by Community legislation or by the rural development programmes can be controlled according to a set of verifiable indicators to be established by them. As eligibility criteria are often complex, different rules and guidelines have been produced by the Commission services to assist Member States in their interpretation. Moreover, the application of the IACS has been further reinforced for area and animal related rural development measures under Axis 2 that constitute 44 % of the total expenditure programmed. |
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See reply in 5.51 for fisheries. |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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The common organisation of the market in raw tobacco |
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The Commission’s management and supervision of the measures to control foot-and-mouth disease |
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However, the basic rule remains that the compensation should never exceed the market value of the animal. Correct application of the legislation prevents over- and undervaluations. The legislation concerning compensation and state aid is harmonised and is identical for all EU Member States. The difference observed in this case stems from the different made of the instruments available. |
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Measurement of farm incomes by the Commission |
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(1) Source: Annual accounts of the European Communities financial year 2007, volume II, Annex B.
(2) Policy area Health and Consumer Protection also includes expenditure under heading 2 and 3b of the financial framework.
(3) Under the historical model each farmer is granted entitlements based on the average amount of aid received and area farmed during the reference period 2000 to 2002. Under the regional model all entitlements of a region have the same flat-rate value and the farmer is allocated an entitlement for every eligible hectare declared in the first year of application. The hybrid model combines the historical element with a flat rate amount and, if it is dynamic, the historical component decreases each year until it becomes a predominantly flat rate-system.
(4) The Member States which joined the EU in 2004 and 2007 except for Slovenia and Malta, currently apply a simplified version of SPS called the Single Area Payments Scheme (SAPS) as the farmers did not receive EU subsidies during the reference period.
(5) The specific quality premium for durum wheat, protein crop premium, crop specific payment for rice, area payment for nuts and aid for energy crops remain coupled. Aid for cotton and for starch potato remain partially coupled.
(6) The schemes concerned are in particular arable crops, sheep and goats, beef and veal, hops and seed aid. Aid for tobacco can remain partially coupled and a specific aid for the maintenance of olive groves can be granted if the Member State decides so.
(7) The 10 Member States which first applied SPS were audited in 2006. See the Annual Report concerning the financial year 2006, paragraphs 5.15 to 5.38.
(8) Germany (Bayern), Italy (AGEA) and Portugal which have introduced SPS in 2005; France, Greece and Spain (Castilla y Leon) which have introduced SPS in 2006.
(9) Commission Decision 2007/243/EC (OJ L 106, 24.4.2007, p. 55), Commission Decision 2007/647/EC (OJ L 261, 6.10.2007, p. 28) and Commission Decision 2008/68/EC (OJ L 18, 23.1.2008, p. 12).
(10) In 2007, 607 million euro was recovered by financial correction and 247 million euro recovered from final beneficiaries by Member States (see chapter 6 of the notes to the annual accounts 2007).
(11) Paragraphs 5.82 to 5.84.
(12) Letters of June 2006 and April 2007.
(13) Council Regulation (EC) No 1782/2003.
(14) Article 23 of Commission Regulation (EC) No 1227/2000 (OJ L 143, 16.6.2000, p. 1), according to which the payments due shall be made in full to the beneficiaries.
(15) Sanco 1182/2008 rev.3.
(16) Currently set out in Commission Decision 2002/677/EC.
(17) Enzyme Linked Immuno Sorbent Assay testing (ELISA testing) enables to diagnose classical swine fever.
(18) Council Regulations (EEC) No 3508/92 (OJ L 355, 5.12.1992, p. 1) and (EC) No 1782/2003 (OJ L 270, 21.10.2003, p. 1) covering animal premiums and area aid.
(19) Council Regulation (EEC) No 386/90 (OJ L 42, 16.2.1990, p. 6).
(20) Council Regulation (EEC) No 4045/89 (OJ L 388, 30.12.1989, p. 18) covering payments above a specified threshold of export refunds, processing and transformation subsidies, cotton, olive oil, tobacco and some rural development measures.
(21) Annual Report concerning the financial year 2006, paragraph 5.66.
(22) Under this model the payment for each entitlement consists of two elements: (i) an amount based on an historic reference period for each farmer, and (ii) a flat rate amount which is the same for all farmers. In 2005 the ratio was 90:10 but each year the flat rate increases and will reach 100 % in 2012. If too many entitlements have been given to the farmer he will receive more and more money under the flat rate component which outweighs the loss on the individual component.
(23) Payment entitlements subject to special conditions are set by Articles 47 and 48 of Regulation (EC) No 1782/2003 mainly for cases when the farmer was granted livestock premiums but had no hectares or the entitlement per hectare results in an amount higher than 5 000 euro.
(24) Regulation (EC) No 1782/2003, Chapter 3, section 1.
(25) Article 42 of Regulation (EC) No 1782/2003.
(26) Paragraphs 5.25 to 5.27.
(27) LPIS is a database in which all the agricultural area of the Member State is recorded with a unique identification number.
(28) Determination of set aside entitlements is set by Article 53 of Regulation (EC) No 1782/2003.
(29) Article 5 of Regulation (EC) No 1975/2006.
(30) A total of 916 of the almost 20 000 planned scrutinies were, as at the end of 2007, incomplete.
(31) Adopted on 21 June 2007 by the Court (OJ C 252, 26.10.2007, p. 1).
(32) Council Regulation (EC) No 14/2008 (OJ L 8, 11.1.2008, p. 1) and Commission Regulation (EC) No 159/2008 (OJ L 48, 22.2.2008, p. 19).
(33) The first subparagraph of article 5(1) of Council Regulation (EC) No 1258/1999 stated that ‘The financial resources required to cover the expenditure… shall be made available to the Member States by the Commission by means of advances …’. However Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy has repealed Regulation (EC) No 1258/1999 and article 14(1), replacing Article 5(1), first subparagraph, stipulates that ‘The appropriations necessary to finance the expenditure… shall be made available to Member States by the Commission in the form of monthly reimbursements, hereinafter referred to as “monthly payments”, on the basis of the expenditure effected by the accredited paying agencies during a reference period.’
(34) Annex III to Commission Regulation (EC) No 885/2006 (OJ L 171, 23.6.2006, p. 90).
(35) Annual Report concerning the financial year 2006, paragraph 5.61.
(36) Article 11 of Regulation (EC) No 885/2006.
(37) Paragraph 5.61.
(38) Article 31 of Council Regulation (EC) No 1290/2005 (OJ L 209, 11.8.2005, p. 1).
(39) Annual Report concerning the financial year 2006, paragraph 5.63.
(40) Council Regulation (EC) No 199/2008.
(41) Sanco 1182/2008 rev.3.
(42) In 2007, 607 million euro was recovered by financial correction and 247 million euro recovered from final beneficiaries by Member States (see chapter 6 of the notes to the annual accounts 2007).
(43) OJ C 41, 17.2.2005, p. 1.
(45) COM(2007) 539 adopted on 19 September 2007 http://ec.europa.eu/food/animal/diseases/strategy/docs/animal_health_strategy_en.pdf
(46) Communication on a new Animal Health Strategy (2007-2013) COM(2007) 539/F, 19.9.2007.
(47) Council Directive 2006/88/EC of 24 October 2006 on animal health requirements for aquaculture animals and products thereof, and on the prevention and control of certain diseases in aquatic animals (OJ L 328, 24.11.2006, p. 14).
(48) Proposal for a Council Directive simplifying procedures of listing and publishing information in the veterinary and zootechnical fields and amending Directives 64/432/EEC, 77/504/EEC, 88/407/EEC, 88/661/EEC, 89/361/EEC, 89/556/EEC, 90/4para27/EEC, 90/428/EEC, 90/429/EEC, 90/539/EEC, 91/68/EEC, 92/35/EEC, 92/65/EEC, 92/66/EEC, 92/119/EEC, 94/28/EC, 2000/75/EC, Decision 2000/258/EC and Directives 2001/89/EC, 2002/60/EC, and 2005/94/EC. (COM(2008) 120 final — 2008/0046 (CNS)).
(49) SCoFCAH: Standing Committee of the Food Chain and Animal Health.
(50) OJ C 45, 20.2.2004, p. 1.
ANNEX 5.1.1
Assessment of supervisory and control systems — Direct coupled payments — managed under IACS
Member State |
Area Aid |
Animal Premiums |
Overall assessment |
||||||
Administrative procedures and controls to ensure correct payment |
Risk analysis and selection procedures for inspections |
Inspection methodology, quality control and reporting of individual results |
Preparation and reliability of statistics on inspections and results |
Administrative procedures and controls to ensure correct payment |
Risk analysis and selection procedures for inspections |
Inspection methodology, quality control and reporting of individual results |
Preparation and reliability of statistics on inspections and results |
||
Germany (Bavaria) |
|
|
|
|
n/a |
n/a |
n/a |
n/a |
|
Spain (Castilla y Leon) |
1 |
2 |
3 |
|
|
14 |
4 |
|
|
Italy (AGEA) |
5 |
n/v |
3 |
|
n/a |
n/a |
n/a |
n/a |
|
Portugal |
|
n/v |
6 |
|
n/v |
|
7 |
|
|
France |
|
8 |
|
|
|
9 |
10 |
|
|
Greece |
1/11 |
|
12 |
13 |
n/a |
n/a |
n/a |
n/a |
|
Legend
|
Effective |
|
Partially effective |
|
Not effective |
n/a |
Not applicable |
n/v |
Not verified |
The result of transaction testing
Sample estimate of proportion of transactions affected by an error |
31 % |
error rate |
Between 2 % and 5 % |
1 |
The geographic information system (GIS) on which the management of EU aid schemes is based does not always contain complete and reliable information about eligible/non eligible areas by reference parcel. |
2 |
The Spanish authorities have not provided evidence that any evaluation of the well-foundedness of the risk criteria and their specific weightings was carried out for the 2006 year. |
3 |
The results of the national on-the-spot checks and their incorporation into the GIS are not reliable (permanent ineligible features or different types of land use were not identified by the inspectors, GIS was then not updated and this results in overpayments to farmers). |
4 |
Certain weaknesses were found in the administrative applications relating to the on-the-spot animal checks such as the format of the control reports and the registers for holdings. |
5 |
The nature of AGEA's monitoring does not ensure that it is in command of the sound operation of the delegated responsibilities for the control and management. Amendments accepted after the deadline, payments issued before the final results of the on-the-spot control were found. |
6 |
Some weaknesses in the on-the-spot control procedures have been identified (ineligible areas not identified, eligibility criteria not checked). |
7 |
Some weaknesses in the on-the-spot control procedures have been identified (control work on animal registers not properly carried out or not documented). |
8 |
The risk parameters were not evaluated for traditional on-the-spot checks. These checks represent 20 % of on-the-spot controls, the rest being carried out by remote sensing, in respect of which there is an evaluation. |
9 |
No evaluation of the effectiveness of the parameters for the risk analysis used in previous years. |
10 |
The control procedures provide for marking the animals present on an extract from the national computerised database (NCDB) and not for a separate count of all the animals present. |
11 |
Input errors of claim data identified, claim data modified after submission date. |
12 |
Measurement methods, results and tolerances applied are not documented in the control reports. |
13 |
As at 1 April 2008 control statistics for 2006 had not been submitted to the Commission (the deadline was July 2007). |
14 |
The evaluation in respect of animal aid schemes only covered the specific weighting of risk factors and not the nature of these factors. |
ANNEX 5.1.2
IACS Monitoring elements — Single Payment Scheme (SPS) (1)
Member State |
Administrative procedures and controls to ensure correct payment |
Risk analysis and selection procedures for inspections |
Inspection methodology, quality control and reporting of individual results |
Preparation and reliability of statistics on inspections and results |
Overall assessment |
Finland |
4/13/15/21 |
23 |
25 |
|
|
France |
2/4/6/7/[11]/12/13/15/17 |
22/23 |
|
26 |
|
Netherlands |
2/5/6/8/10/13/14/15/16 |
24 |
|
|
|
Portugal |
3/5/6/14/15/17 |
22/23 |
|
|
|
Spain (Andalusia) |
11/15 |
22 |
|
|
|
Sweden |
2/7/9/13/17 |
22 |
|
|
|
UK (England) |
1/6/13/14/15/17/18/19/20 |
24 |
|
26 |
|
|
Effective |
|
Partially effective |
|
Not effective |
1 |
No orthophotos available for administrative cross-checks, which although not compulsory, significantly increases the reliability of data used for cross-checks. |
2 |
Ineligible features visible on air-born photos or declared by the farmer are not eliminated from the eligible area recorded in the LPIS. |
3 |
Forest parcels are not systematically excluded from the eligible area. |
4 |
Eligibility of new parcels not systematically checked. |
5 |
Minimum size for the eligibility of agricultural parcels not defined. |
6 |
The Land Parcel Identification System is not adequately updated by on-the-spot inspection results and/or data held in topographical database. |
7 |
Administrative cross-checks patially based on outdated orthophotos. |
8 |
IACS database of entitlements not reliable, no reliable figures provided as regards the up to date numbers and values of entitlements recorded in the database for 2006 and 2007, entitlements that failed to respect minimum activation requirements not withdrawn. |
9 |
No final administrative cross-check at national level before payments were authorised. |
10 |
The Netherlands initially allocated entitlements in excess of the national ceiling of 4,9 million euro. Payments were made on this basis to individual farmers. |
11 |
SPS payments were authorised to farmers who did not have payment entitlements. |
12 |
Payments are not systematically blocked until all anomalies are cleared or necessary documents are available. |
13 |
Claim registration procedures do not provide sufficient proof of the actual date of receipt and/or are not adequately controlled. |
14 |
Incorrect application of late claim penalties. |
15 |
Systematic incorrect calculation of payments where area determined is not sufficient for all entitlements declared. |
16 |
Non-application of EU provisions on sanctions in cases of over declaration of areas. |
17 |
No or insufficient administrative cross-checks whether area declared for set-aside meets the legal conditions. |
18 |
Insufficient management control on changes made to the database. |
19 |
The same parcel can be claimed by different farmers under different EU aid schemes. |
20 |
The reference parcel area can be overshot by a tolerance of up to 2 %. |
21 |
Vegetable gardens were paid up to maximum of 0,3 ha per claim without entitlements (719,62 ha, 134 535,85 euro). |
22 |
Selection of inspections partially based on outdated application data and/or based on an incomplete population of applications. |
23 |
Inspection rate was not increased during the year. |
24 |
Inspections chosen on the basis of the risk analysis showed a lower incidence of error than randomly selected inspections. |
25 |
Application of measurement methods with insufficient precision. |
26 |
Significant differences between statistics reported to the Commission and the underlying data transmitted to the auditors. |
(1) Aspects relevant to cross-compliance are not included.
ANNEX 5.2
Follow-up of key Statement of Assurance observations
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Court obsevation in the Annual Report 2006 |
Action taken |
Court analysis |
Commission reply |
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IACS |
For the fifth consecutive year the Director General’s declaration contains a reservation concerning insufficient implementation of the IACS in Greece. For 2006 the Commission and the Court have confirmed continuing failure to implement key controls (5.11 (1)). |
According to its replies, the Commission continues with an intensive audit programme and as long as necessary will impose financial corrections on Greece. Moreover, the Commission closely monitors and supervises the Greek action plan that has been drawn up by the Greek authorities on the explicit request of and in close cooperation with the Commission in order to remedy the above deficiencies. The action plan contains strict deadlines for the implementation of the different actions which should produce their first results as of financial year 2007 (claim year 2006). |
Weaknesses in administrative controls in the direct coupled payments have been identified in DAS 2007 audit in Greece, Italy, Spain and Portugal: wrong input of application data, payment for multiple incompatible aid schemes on the same parcel and a failure to correctly apply penalties and sanctions, leading to overpayments (5.27(a) (2)). The LPIS in Greece is incomplete and contains errors in the referencing of parcels. Furthermore, in some countries the graphical layer of the LPIS (GIS) contains only aerial photos that are more than five (France, and Sweden) years old. In Portugal the update is carried out with significant delays (5.30(b), 5.30(c) (2)). The 2007 Annual Activity Report of the Director General for Agriculture contains again a reservation in respect of insufficient implementation of the IACS in Greece. |
The issues named in the Annual Report 2007 are generally already followed up through conformity procedures. |
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SPS |
The United Kingdom allocated entitlements to landlords who let out their land for most of the year (5.20 (1)). Contrary to the rules some Member States have extended the provision concerning consolidation of entitlements to all cases where a farmer in 2005 had fewer hectares than entitlements (5.24 (1)). The SPS has had a number of side-effects: aid has been paid to landlords and new beneficiaries (5.28 (1)); in many Member States ‘farmers’ have been allowed to keep their windfall profits (5.30 (1)); inappropriate investment criteria have led to questionable allocation of extra entitlements (5.34 (1)). |
According to the Commisison’s reply, the issues named in the Annual Report concerning the financial year 2006 will be followed up through conformity procedures. |
The audit found systematic shortcomings in calculation of the entitlements due to:
The re-performances of controls carried out by the Court found a number of specific weaknesses in the quality of the on-the-spot controls and identified ineligible areas or parcels that should have been excluded by the national inspectors. (Greece, Italy, Spain, Portugal) 5.28 (2)). The Court concludes, however, that IACS continues to be effective in limiting the risk of irregular expenditure where properly implemented and if accurate and reliable data is introduced as regards SPS payments based upon allocated entitlements The recent introduction in SPS of support schemes, such as those related to olive oil, is a positive development although in the short term might lead to a higher frequency of errors (see paragraph 5.52 (2)). |
See reply to paragraph 5.22b. The issues named in the Annual Report 2007 are generally already followed up through conformity procedures. |
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Olive oil |
The on-the-spot visits in the main producer Member States revealed general problems which affect the reliability and accuracy of GIS and consequently the correct calculation of entitlements under the SPS (5.84 (1)). |
According to the Commission’s reply in the Annual Report concerning the financial year 2006, some 180 million euro of financial corrections have already been applied by the Commission since financial year 2000 and more significant corrections are in the pipeline. As of 1 January 2006, the olive oil production aid has been fully decoupled and integrated in the single payment scheme (only Spain kept a small element of coupled aid). |
The impact of the accuracy of the olive oil GIS on the integration of the production aid scheme into the SPS has been confirmed in Greece and Italiy where four out of five olive oil SPS transactions audited contained errors, some of which led to significant over payments (5.14c (2)). |
Further financial corrections on olive oil production aid have been applied in 2007 and 2008. See also reply to paragraph 5.14(c). |
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Ex-post scrutiny |
The conformity unit responsible for rural development did not carry out any audits covering Regulation (EEC) No 4045/89 issues (5.50 (1)). |
N/A |
The Court noted (again) a limited coverage of rural development measures both at the Commission and Member States level (5.35 (2)). |
See reply to paragraph 5.35. |
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The Commission still does not know how many of the potential irregularities initially reported under Regulation (EEC) No 4045/89 resulted in recovery or why they did not (5.52 (1)). |
The Commission has introduced the obligation for the certifying bodies to verify and report on the Paying Agencies’ follow up of the potential irregularities reported. (5.40-5.45 (2)). |
The Court’s analysis of the certifying bodies’ reports has shown a need for improvements in the verification and reporting by the Paying Agencies on the follow up of the potential irregularities reported (5.36 (2)). |
See reply to paragraph 5.36. |
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Backlogs in completing post-payment checks persist in Germany, Italy and Spain (5.53 (1)). |
There is still a limited number of scrutinies not completed from each of the precedent scrutiny periods dating back as far as 2000/2001 (5.34 (2)). |
The timely execution of the scrutiny programme has improved in 2007 (5.34 (2)). |
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Clearance of the accounts |
Although the clearance of accounts systems as well as post-payment checks have the objective of excluding expenditure which does not comply with Community rules, at present they fail to do so at the level of payments to beneficiaries. (5.76 (1)). |
N/A |
The Court reiterates its opinion from the previous Annual Report on the clearance of the accounts system. |
The Commission disagrees and refers to its reply to paragraph 5.47. |
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Export refund: |
The Court’s own audit of physical and substitution checks (export refunds) led to Special Report No 4/2007 of 21 June 2007. An analysis carried out by the Court shows that the information in respect of physical and substitution checks is not reliable (5.55 (1)). |
The Council and Commission acted promptly on the recommendations made in the Special Report by amending the relevant legislation. (5.38 (2)). |
The particular weakness concerning the reintroduction of exported goods into Community territory following transportation on a non regular shipping line, has not yet been addressed (5.38 (2)). |
See reply to paragraph 5.38. |
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Rural develop-ment |
For agri-environmental measures the Court continues to find a high incidence of errors because farmers do not meet their commitments or the key eligibility conditions are not checked by the authorities (5.44 (1)). |
The Commission considers that the high incidence of errors in agri-environmental measures found by the Court is not representative for the total of rural development expenditure. |
The Court reiterates that Rural Development expenditure is particularly prone to errors and notes that, in recognition of this, the 2007 Annual Activity Report of the Director General for Agriculture contains a global reservation in respect of that expenditure (5.12 (2)). Further significant efforts are required to ensure that beneficiaries respect their obligations in the area of rural development which is particularly prone to errors because of the often complex rules and eligibility conditions (5.57 (2)). |
See reply to paragraph 5.12. See reply to paragraph 5.57. |
(1) paragraph number in the ECA Annual Report 2006.
(2) paragraph number in the ECA Annual Report 2007.
ANNEX 5.3
Paying agency accounts disjoined for 2007
Member State |
Paying agency |
Accounts disjoined (1) |
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EAGF (million euro) |
EAFRD (million euro) |
TRDI (million euro) |
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Austria |
AMA |
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79,00 |
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Belgium |
ALV |
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25,00 |
|
Belgium |
Région Wallone |
|
14,00 |
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Germany |
Baden-Württemberg |
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52,00 |
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Germany |
Bayern |
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159,00 |
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Estonia |
PRIA |
38,00 |
|
41,00 |
Greece |
OPEKEPE |
2 378,00 |
194,00 |
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Finland |
MAVI |
580,00 |
217,00 |
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Italy |
ARBEA |
101,00 |
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Malta |
MRAE |
2,00 |
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4,00 |
Netherlands |
Dienst Regelingen |
1 050,00 |
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Portugal |
IFADAP |
6,00 |
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Portugal |
INGA |
528,00 |
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Portugal |
IFAP |
197,00 |
90,00 |
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Total |
4 868,00 |
830,00 |
45,00 |
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Source: Commission Decisions 2008/395/EC, 2008/396/EC and 2008/397/EC (OJ L 139, 29.5.2008). |
(1) Accounts which the Commission considered not to be able to clear in its decisions of 30 April 2008. This due to reasons attributable to the Member States concerned which require additional inquiries.
Source: Commission Decisions 2008/395/EC, 2008/396/EC and 2008/397/EC (OJ L 139, 29.5.2008).
CHAPTER 6
Cohesion
TABLE OF CONTENTS
6.1-6.20 |
Introduction |
6.2-6.20 |
Specific characteristics of Cohesion Policies |
6.4-6.6 |
Policy objectives and instruments: 2000-2006 |
6.7-6.8 |
How the money is spent |
6.9-6.14 |
Supervisory and control systems |
6.15 |
Financial Corrections |
6.16-6.17 |
Types of error in Cohesion Policies projects |
6.18-6.20 |
2007-2013 Period |
6.21-6.36 |
Specific assessment in the context of the Statement of ssurance |
6.21 |
Audit Scope |
6.22-6.31 |
Audit Findings |
6.22-6.27 |
Legality and regularity of underlying transactions |
6.28-6.31 |
Assessment of supervisory and control systems |
6.32-6.36 |
Overall conclusion and recommedations |
6.32 |
Overall conclusion |
6.33-6.36 |
Recommendations |
6.37 |
Follow-up of previous observations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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Specific characteristics of Cohesion Policies |
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Policy objectives and instruments: 2000-2006 |
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and to a series of more specific ‘Community Initiatives’ covering, for example interregional cooperation in the EU and urban regeneration. |
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How the money is spent |
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Supervisory and control systems |
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The Court assesses these audits based on the abovementioned criteria. |
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Financial Corrections |
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Types of error in Cohesion Policies projects |
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2007-2013 period |
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Audit Scope |
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Audit Findings |
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Legality and regularity of underlying transactions |
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Table 6.1 — Cross-tabulation of compliance by correctness of reimbursement (9)
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Table 6.2 — Analysis of errors affecting reimbursement by type
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Example:A university situated in an Objective 1 area had work on a robotics project carried out in a laboratory outside the Objective 1 area. This was not allowed under the national legislation on state aid for research under which the ERDF co-financed the project, rendering the expenditure ineligible.The owners of a holiday village failed to hold a public tender for renovation work for which they were receiving subsidies totalling 63 % of the costs, including a 33 % tax rebate and a 25 % grant from ERDF. As the EU public procurement rules apply to projects of private firms as from 50 % of financing with public funds, the breach made the project ineligible for EU support. |
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Example:In one project, there was insufficient evidence that the external staff costs were relevant to the project: there were monthly records showing the daily presence of the staff concerned but no daily time sheets describing their concrete daily activities. In the absence of detailed time recording to justify the working days charged, the costs in question may not be charged to the project. The expenditure was therefore considered ineligible.In another project the staff costs were overestimated: costs relating to several members of staff were charged entirely to the co-financed ESF project but the staff in question were also involved in other activities outside the co-financed project. |
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The estimation given by the Court for the amount which should not have been reimbursed includes cases where the Commission does not consider that the circumstances identified by the Court provide a basis for the application of financial corrections, or at least not at the level proposed. |
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Assessment of supervisory and control systems |
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For three programmes the Annual Activity Reports by Commission’s DGs gave a more positive assessment than that of the Court in Annex 6.1. |
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Overall conclusion and recommendations |
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Overall conclusion |
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The Directorates-General responsible for Structural Policies have set out the results of their assessments of the effective functioning of the systems in 545 national programmes in their respective AARs, which show a marked gradation as follows: about 37 % of systems work well, about 51 % of systems work but need improvement and about 12 % of systems are ineffective. The Commission has invested substantial resources in order to achieve a high audit coverage, it has brought about substantial improvements in national systems through the application of ‘action plan’ procedures, it has suspended payments and applied financial corrections. Implementing the Action Plan adopted in February 2008 is further strengthening the Commission’s supervisory role. |
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Recommendations |
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This will require a significant increase in the amount of field work in the Member States and therefore cannot be done without facing the resource implications. |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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(1) Payments related to the period 2007-2013 consisted of advances only and they comprised 16 % of the expenditure.
(2) Council Regulation (EC) No 1164/94 (OJ L 130, 25.5.1994, p. 1).
(3) Depending on the type and complexity of the project there can be many items and types of costs supporting a reimbursement request.
(4) Project promoters are final beneficiaries and final recipients which range from private individuals to associations, private or public companies to local, regional or national bodies.
(5) See for example Annual Report concerning the financial year 2006, paragraph 6.39, the Commission's reply.
(6) Notably Council Regulation (EC) No 1083/2006 (OJ L 210, 31.7.2006, p. 25) and Commission Regulation (EC) No 1828/2006 (OJ L 371, 27.12.2006, p. 1).
(7) Although for smaller programmes (less than 750 million euro and 40 % EU financing) this is not required.
(8) The audit of each reimbursement includes the checking of a large number of underlying invoices and other documents.
(9) Compliance errors are non-quantifiable errors (see paragraphs 1.9 to 1.11).
(10) See Annex 6.2 . In 2006, the corresponding figure was 69 %.
ANNEX 6.1
Assessment of supervisory and control systems
Programme |
Key internal control |
Overall assessment |
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Managing authority |
Paying authority |
Audit body |
Winding-up body |
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EAGGF — Portugal |
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EAGGF — Spain |
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ESF — Denmark — obj. 3 |
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ESF — Greece — Health |
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ESF — Italy — Campania |
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ESF — Portugal — Norte |
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ESF — Spain — Entrepreneurial initiative |
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ERDF — Spain — Competitivity |
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ERDF — Czech Republic — Industry and enterprise |
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ERDF — Germany — Mecklenburg Vorpommern — obj. 1 |
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ERDF — Greece — Information society |
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ERDF — France — Martinique |
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ERDF — UK/Ireland — Peace II |
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ERDF — Italy — Research |
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ERDF — Czech Republic — Infrastructure |
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ERDF — Slovakia — Basic infrastructure |
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Legend
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Effective |
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Partially effective |
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Not effective |
ANNEX 6.2
Results of transaction testing
Sample estimate of the proportion of transactions affected by error |
54 % |
Error rate |
Above 5 % |
ANNEX 6.3
Follow up of key Statement of Assurance observations
Court observation |
Action taken |
Court analysis |
Commission reply |
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1. The Commission’s actions to improve the management of Cohesion projects |
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Over the past few years the Court have repeatedly detected a material level of error in Cohesion projects. The Court has assessed the control systems in the Member States as ineffective or moderately effective and identified that the Commission’s own supervision is not effective at preventing errors at Member State level. (See e.g. the Annual Reports concerning the financial year 2006, paragraphs 6.37 to 6.45, financial year 2005, paragraphs 6.38 to 6.45, financial year 2004, paragraph 5.47 to 5.54, and financial year 2003, paragraphs 5.55, 5.56 and 5.66 to 5.69). |
In early 2008 the Commission adopted an action plan to strengthen its supervisory role under shared management of structural actions (COM(2008) 97 final, published 19.2.2008). |
The Court welcomes the Commission's initiative, and takes note of the actions already launched. However, the Court considers that it is premature to assess the impact of the Commission’s actions. The Court will report on these issues in the Annual Report concerning the financial year 2008. |
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2. Statement of Assurance 2005: Follow-up by the Commission to the Court’s observations |
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In 2005, the Court identified a material level of errors in the project expenditure declarations across all audited programmes. Of the 95 projects audited from the 2000 to 2006 programming period, 60 were affected by material error. Similarly for the programmes of the 1994 to 1999 period, of the 65 projects examined 33 contained material errors. (Annual Report concerning the financial year 2005 paragraphs 6.13 to 6.15 and 6.26 to 6.28). |
The Commission had in its reply committed itself to follow up the Court’s findings and to ensure that required corrections are applied. (Annual Report concerning the financial year 2005 paragraphs 6.13 and 6.26, the Commission’s replies) |
The Court examined the follow-up by the Commission to the observations following from 15 audits carried out by the Court and reported upon in the Statement of Assurance concerning the financial year 2005. Eight of these concerned ERDF, one Cohesion Fund and six ESF (1). The Court’s analysis shows that eight cases received a timely and satisfactory follow-up, six were partially satisfactory and one case was unsatisfactory |
The Commission ensures that appropriate corrective measures are taken in all cases arising from the Court’s audits. Whilst accepting that delays in follow-up have in a few instances occurred, the Commission does not agree with the Court’s analysis in a number of cases. For example, the Commission cannot impose corrections on Member States with regard to individual errors identified by the Court in its 2005 audits, in cases where the Member State has presented sufficient post-audit evidence or arguments. |
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Rating: follow-up was |
DG REGIO |
DG EMPL |
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Satisfactory |
5 |
3 |
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Partially satisfactory |
4 |
2 |
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Unsatisfactory |
0 |
1 |
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Total |
9 |
6 |
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The main problems detected by the court were:
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(1) ERDF and Cohesion Fund are managed by DG REGIO and ESF by DG EMPL.
CHAPTER 7
Research, Energy and Transport
TABLE OF CONTENTS
7.1-7.11 |
Introduction |
7.2-7.11 |
Specific characteristics of Research, Energy and Transport |
7.12-7.43 |
Specific assessment in the context of the Statement of Assurance |
7.12-7.13 |
Audit scope |
7.14-7.23 |
Legality and Regularity of underlying transactions |
7.23 |
Sanctions |
7.24-7.39 |
Assessment of supervisory and control systems |
7.26-7.30 |
Desk reviews of cost statements before reimbursement of expenditure |
7.31-7.33 |
Audit certification of cost statements |
7.34-7.39 |
The Commission's ex-post financial audits |
7.40-7.43 |
Overall conclusions and recommendations |
7.44-7.49 |
Follow-up of previous observations |
7.44 |
Follow-up of key Statement of Assurance observations |
7.45-7.49 |
Follow-up of Special Report No 6/2005 on the trans-European network for transport (TEN-T) |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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Specific characteristics of Research, Energy and Transport |
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Evaluation of proposals The overall control objective is to select only those proposals that portray scientific excellence and that clearly address the operational objectives set out in the specific work programmes adopted by Parliament and Council. Proposal selection and contract negotiation The objective of the negotiation phase is to agree a contract for each of the retained scientific research proposals. Such contracts are the legally binding instrument for ensuring both the scientific and financial management of the project. Project and contract management The purpose of this stage is to ensure that — prior to any payment — all applicable contractual and regulatory requirements, both of an operational and financial nature, have been respected. Financial audits and other ex-post controls The purpose of this stage is to ensure the detection and correction of the main systemic errors on a multi-annual basis, which would not have otherwise been detected by ex-ante controls. Ex-post controls substantially contribute to ensuring the legality and regularity of transactions on a multi-annual basis, and aim to keep the residual error rate below the materiality threshold level. |
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The impact of the multi-annual audit programme will gradually increase over the four-year implementation period. |
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Audit scope |
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Legality and Regularity of underlying transactions |
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Table 7.1 —The results of substantive testing
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In order to address this problem the Commission has significantly reinforced its ex-post controls, in the framework of its common audit strategy (see also reply to paragraph 7.11). |
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Audit certificates have however already shown a preventive effect, making a major contribution to the reduction of the error rate for FP6 compared to FP5, when audit certificates were not requested. All Research DGs have increased the percentage of payments made on time. The issue is monitored closely and receives the highest attention to ensure further improvement. |
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To effectively address the risks highlighted by the Court in paragraph 7.21, the common audit strategy for FP6 covers all of the 200 biggest participants of FP6, who together receive 40 % of the total FP6 budget. In addition, extrapolation to non-audited contracts should limit the risk of having significant amounts of ineligible costs unduly paid not recuperated by the Commission. In those cases where the beneficiaries use average rates, the costs declared may, by their nature, deviate from actual costs. The Commission must examine both upwards and downwards deviations over a sufficiently large sample to obtain a fair assessment of the accuracy of average rates. This issue of transaction testing in average cost systems is being discussed between the Commission and the Court. For FP7 the Commission has initiated a system of optional ex-ante certification of a beneficiary's average cost calculation methodology, which will concern mainly big beneficiaries. The practical implementation measures of this ex-ante certification system are currently being finalised. |
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Sanctions |
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The main contractual sanction, which already existed in previous Framework Programmes, is the termination of contracts in cases of breach of the contractual obligations. The Commission introduced under FP6 the possibility to apply liquidated damages. The pursuit of liquidated damages is part of the audit strategy which foresees their application in all cases where follow-up audits would reveal that contractors had failed to correct errors following previous audits. The implementation of the FP6 audit strategy started in 2007 and the first follow-up audits are being organised in the course of 2008. Depending on the results, liquidated damages will be applied accordingly. |
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Assessment of supervisory and control systems |
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Desk reviews of cost statements before reimbursement of expenditure |
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Audit certification of cost statements |
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As regards FP6, there is no compulsory certificate model. Nevertheless the proposed model has been followed in most of the audit certificates submitted. For FP7 the Commission has further improved the reliability of audit certificates by using ‘agreed upon procedures’, setting out in detail the audit work to be performed by the certifying auditors and encouraging optional certification of the cost methodology. |
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The Commission's ex-post financial audits |
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Following an increased audit effort in 2007, attention is now turned towards the correction of the detected errors. The Research DGs are actively striving to improve the monitoring tools and are issuing more precise administrative and financial guidelines. These are expected to improve the efficiency and completeness of the recovery process (including extrapolation and follow-up of the Court's findings). |
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Data on FP5 and FP6 audits have now been transferred to the Commission's central audit tracking facility, and work is in progress to ensure the automatic transfer of new audit data from all local IT tools used by the Research DGs. |
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Table 7.2 — Ex-post financial audits on Research Framework Programmes completed 2005 to 2007
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Overall conclusions and recommendations |
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Furthermore the ex-ante certification of cost calculation methodology introduced in FP7 is a major step towards simplification. The Commission refers to the issues discussed in its reply to paragraphs 7.20 and 7.21. As regards the development of alternative funding mechanisms for the future (such as lump sums and results-based financing), the Commission is open to discussions with the Court and other stakeholders. |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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Follow-up of key Statement of Assurance observations |
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Follow-up of Special Report No 6/2005 on the trans-European network for transport (TEN-T) |
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(1) The i2010 strategy brings together all EU policies, initiatives and actions that aim to boost the development and use of digital technologies. i2010 is part of the Lisbon strategy to make Europe a more competitive and dynamic knowledge-driven economy. Most of the funding is provided by the research Framework Programmes.
(2) Direct research expenditure supports the EU Joint Research Centre (JRC: 2 % of total payments in 2007), which is a Directorate-General of the Commission. It has seven research institutes and provides scientific and technical support for the conception, development, implementation and monitoring of EU policies.
(3) Four Directorates-General in the Commission are principally responsible for managing research funding: Directorate-General for Research (DG RTD) and Directorate-General for Information Society and Media (DG INFSO) are the main departments concerned; Directorate-General for Energy and Transport (DG TREN) and Directorate-General Enterprise (DG ENTR) are also involved. Under the Seventh Framework Programme the Research DGs intend to implement a part of their budget by indirect centralised management.
(4) Projects have on average around 20 participants, although the number of participants may reach up to 95.
(5) Chapter 10 of this report covers research expenditure in policy area Enterprise.
(6) Checks of invoices and other supporting evidence. Cost statements submitted to the Commission for reimbursement consist mainly of personnel and indirect costs, together with travel, consumables and other direct costs.
(7) These consist of 59 advances (39 FP6, 13 FP7, 1 TEN-T, 6 other) paid to beneficiaries by the Commission upon conclusion of the grant agreement; 12 payments other than to projects, such as invoices for services provided by external experts evaluating project proposals; 109 interim and final reimbursements (85 FP6, 11 FP5, 6 TEN-T, 1 TEN-E, 6 other).
(8) In addition to the recovery of funds, the Commission is entitled to claim compensation (liquidated damages) from a beneficiary who is found to have overstated eligible costs and consequently received an unjustified contribution from the EU. Any beneficiary found to be persistently in breach of its contractual obligations may also be liable to flat-rate financial penalties.
(9) 8 research, 7 TEN.
(10) Excluding Trans-European Network (Transport) projects. For 2005 and 2006 the figures include all programmes (research and non-research) audited by the Directorate-General.
(11) The value of audited participations includes all costs (EU and participant).
(12) For 2005 and 2006 the figures include all programmes (research and non-research) audited by the Directorate-General.
Source: Data provided by the Commission.
ANNEX 7.1
Assessment of the supervisory and control systems
System concerned |
Key internal control |
Overall assessment |
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Desk checks before payment |
Audit certification |
Ex-post financial audits |
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Sixth Framework Programme (FP6) |
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Effective |
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Partially effective |
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Not effective |
Result of transaction testing
Sample estimate of the proportion of transactions affected by an error |
48 % |
Error rate |
Between 2 % and 5 % |
ANNEX 7.2
Follow-up of key Statement of Assurance observations
Court observation |
Action taken |
Court analysis |
Commission reply |
1. Statement of Assurance 2005: a material level of error in costs declared by beneficiaries |
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In 2005, the Court detected a material level of error in 17 of the 22 underlying transactions audited at the beneficiaries. The most frequent types of errors were: lack of supporting evidence, in particular for working time charged, or double charging of costs; use of average rates for personnel costs which deviate significantly from actual costs; unjustified allocation of indirect costs to the action; claims of costs which did not meet the eligibility criteria. (Annual Report concerning the financial year 2005, paragraphs 7.6 to 7.8). |
In three cases, the Commission did not agree with the Court’s findings and has taken no corrective action. In 10 cases, the Commission has made financial corrections, either by issuing a recovery order or by adjusting payments to the beneficiaries in subsequent periods. In four cases, the Commission has initiated corrective action which remains to be completed. |
Although the Commission has taken corrective action for the majority of the Court’s findings, in several cases the financial corrections have taken a considerable time (up to 20 months), or are not completed. Delays in the correction of undue payments are detrimental to the sound financial management of the expenditure. |
On the one hand, the Commission agrees that financial corrections made through compensation in the following payment may result in some delays. The Commission considers however that it is an appropriate system for ongoing projects. On the other hand the Commission continues to improve the follow-up of its audits in order to limit/avoid unjustified delays. |
2. Weaknesses in the audit certification system for FP6 |
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Late issue of guidelines by the Commission, together with the complexity of the financial provisions of FP6 have adversely affected the audit certification system. Improved guidelines are needed to address uncertainties on eligibility issues and on the independence of the certifying auditors. The audits carried out by the Court at beneficiaries have consistently detected significant amounts of ineligible costs included in cost statements for which the certifying auditor has issued an unqualified opinion. The problems most commonly relate to ineligible personnel expenditure and the use of costing systems which are not in line with contractual provisions. (Annual Report concerning the financial year 2004, paragraph 6.11; Annual Report concerning the financial year 2005, paragraphs 7.15 to 7.17; Annual Report concerning the financial year 2006, paragraphs 7.14 to 7.17). |
The Commission has improved support to certifying auditors and beneficiaries, and to its own operational departments. The ex-post audit strategy for FP6 is intended to contribute to the assessment of the effectiveness of the system of audit certification. Issues related to audit certificates are discussed regularly by the Research DGs in meetings of the Coordination Group for external audit in the Research family. For FP7, the Commission has introduced further measures to improve the quality of audit certificates: ‘agreed upon procedures’, compulsory certification of the calculation methodology for average personnel costs and optional certification of personnel cost and indirect cost methodologies. |
The Court continues to find that, in most cases for which it has identified significant errors in cost statements, the certifying auditor has given an unqualified opinion. It remains the case for FP6 that audit certificates do not yet function as a reliable control. |
The Commission agrees with the Court that the reliability of FP6 audit certification is not fully satisfactory, considering the remaining level of errors found in audits. Nevertheless, the overall level of errors in FP6 is lower than the errors noted in uncertified cost claims related to FP5. This indicates that audit certificates contribute to the improvement of the accuracy of cost claims. Furthermore for FP7 the Commission has improved the reliability of audit certificates by using ‘agreed upon procedures’, setting out in detail the audit work to be performed by the certifying auditors. |
3. Persistence of delays in payments by the Commission |
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In a significant proportion of cases, the Commission has incurred undue delays in making payments to beneficiaries, thus failing to comply with the time limits for expenditure operations set out in the Financial Regulation. In 2005, 11 out of 69 payments audited by the Court were made late (i.e. 16 %). For 2006, the Court identified late payments in 21 out of 113 cases (i.e. 18,6 %). In 2007, the Court found late payments in 30 out of 180 cases audited (i.e. 17 %). (Annual Report concerning the financial year 2003, paragraph 6.22; Annual Report concerning the financial year 2004, paragraph 6.27; Annual Report concerning the financial year 2005, paragraph 7.10; Annual Report concerning the financial year 2006, paragraph 7.29 and Annex 7.1). |
The Commission has improved the monitoring of delays, which are the subject of regular management meetings. The Commission has analysed the reasons for delays. Training sessions have been organised and additional instructions on the payment process have been issued to financial officers. |
Although steps have been taken to address the problem, the Commission has made little discernible progress in reducing payment delays during the course of FP6. As also pointed out by the Commission’s internal audit services, the persistence of delays increases the risks to the legality and regularity of expenditure. Apart from the financial risk (beneficiaries may demand interest) and the operational risks (evaluation experts may be unwilling to participate in future evaluations and projects may face cashflow difficulties), the Commission also exposes itself to unnecessary reputation risk. |
All Research DGs have increased the percentage of payments made on time. The issue is monitored closely and receives the highest attention to ensure further improvement. |
CHAPTER 8
External aid, Development and Enlargement
TABLE OF CONTENTS
8.1-8.6 |
Introduction |
8.1-8.6 |
Specific characteristics of External aid, Development and Enlargement |
8.7-8.33 |
Specific assessment in the context of the Statement of Assurance |
8.7-8.8 |
Audit scope |
8.9-8.10 |
Legality and Regularity of underlying transactions |
8.11-8.30 |
Assessment of supervisory and control systems |
8.11-8.16 |
Ex-ante checks |
8.17-8.22 |
Monitoring of implementing organisations |
8.23-8.28 |
External audits of project claims |
8.29-8.30 |
Internal audit |
8.31-8.33 |
Overall conclusions and recommendations |
8.31-8.32 |
Conclusions |
8.33 |
Recommendations |
8.34-8.52 |
Follow-up of previous observations |
8.34 |
Follow-up of key Statement of Assurance observations |
8.35-8.52 |
Follow-up review of Special Report No 2/2006 on the performance of projects financed under TACIS in the Russian Federation |
8.35-8.38 |
Introduction |
8.39-8.50 |
The Court’s observations |
8.51-8.52 |
Conclusions and recommendations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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Specific characteristics of External aid, Development and Enlargement |
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Final payments are made upon completion of the project and approval by the Commission of the final project reports. |
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The centralised management is used for multi-beneficiary programmes and for assistance to the Turkish Cypriot Community. |
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Audit scope |
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Legality and Regularity of underlying transactions |
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As soon as the Commission was informed by the Court of difficulties encountered in this respect, it approached its counterparts at the UN in order to find a solution and to ensure that the Court received the information requested. |
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Assessment of supervisory and control systems |
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Ex-ante checks |
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The Commission will continue to closely monitor the beneficiary countries systems. An action plan has been set up to ensure that improvements take place. Some progress has already been made, but the national authorities need to take further action. |
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Monitoring of implementing organisations |
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The complex and complementing controls, of which verification missions are but a part, form the basis of assurance of the Directors-general in the Annual Activity Report. Indeed other sources of information are also available, such as the four pillar review (completed for more than 97 % of contributions made to FAFA signatories), respect of the reporting requirements and checks made by the Commission services. |
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External audits of project claims |
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For expenditure verifications launched by beneficiaries new terms of reference have been in force for contracts signed as from February 2006. However these do not affect contracts existing prior to this date and so it will be some time before the benefits are fully apparent. For audits launched by the Commission, revised terms of reference have been obligatory since October 2007. |
The Commission welcomes the Court’s appreciation of the improvements observed. These audit reports are linked to contracts signed before February 2006. As a consequence, the new terms of reference set up by EuropeAid for external audits and put into force for new contracts signed as from this date were not applicable in the present cases. The aim of these new terms of reference is precisely to prevent the occurrence of weaknesses such as the ones mentioned by the Court. Both contracts were signed in 2005 and, according to the general conditions put into force for grant contracts signed as from February 2003, an external auditor has to certify the final financial report of an action before being submitted to the Commission. This auditor is selected by the beneficiary and must be approved by the Commission. His name is mentioned in the Specific Conditions of the contract. He must be ‘member of an internationally recognised supervisory body for statutory auditing’. This contract was signed by the Commission in 2002. At that time the beneficiaries were allowed to send, together with the financial and narrative reports, an audit report on their yearly accounts only. Since 2003, rules applicable to Grant contracts have been changed and a specific audit report on the action is now required before making the final payment. The Commission expects that the improvements introduced become more and more visible. |
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Many of the reports could not be closed at the year end since before the Commission can adopt a final position, the auditee has to reply to the Commission's observations, and any irregularities examined. This takes an average of 3 to 4 months. Longer processing delays have to be occasionally accepted due to the complexity of the findings and as a consequence of the need of accuracy in the application of possible financial corrections. |
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The information resulting from the checks described above are used by the external auditors in headquarters audits, and this enables them to assess the reality and legality of project expenditure. |
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Internal audit |
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Overall conclusions and recommendations |
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Conclusions |
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The Commission carefully checks the eligibility of expenditure once it receives the final declaration and the supporting documents from countries benefitting from pre-accession aid; it withholds or withdraws final payment for expenditure which is not in conformity with the rules. |
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Recommendations |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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Follow-up of key Statement of Assurance observations |
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Follow-up review of Special Report No 2/2006 on the performance of projects financed under TACIS in the Russian Federation |
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Introduction |
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The Court’s observations |
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More productive dialogue |
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Improved objective setting but still long planning schedules |
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Co-financing remains problematic |
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The Commission is facing the task of accomodating project requirements with a law preventing foreign citizens from working on the premises of the Russian Government. |
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Improved evaluation, however dissemination of project results and sustainability still weak |
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The responsibility for continued information availability and dissemination work after project finalisation lies with project beneficiaries. |
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Conclusions and recommendations |
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(1) Aid provided through the European Development Funds is reported separately as it is not financed from the General Budget.
(2) Phare was the main financial instrument of the pre-accession strategy for Central and Eastern European countries. The CARDS programme is Community Assistance for Reconstruction, Development and Stability in the Balkans.
(3) Regulation (EC) No 1638/2006 of the European Parliament and of the Council of 24 October 2006 laying down general provisions establishing a European Neighbourhood and Partnership Instrument (OJ L 310, 9.11.2006, p. 1) (Article 15(2)(e)), and Regulation (EC) No 1905/2006 of the European Parliament and of the Council of 18 December 2006 establishing a financing instrument for development cooperation (OJ L 378, 27.12.2006, p. 41) (Article 25(1)(b)).
(4) Guidelines on the Programming, Design & Management of General Budget Support, January 2007.
(6) Working document No PE 374.332 of the Committee on Budgetary Control.
(7) Draft Council Conclusions of 6 July 2006 No 196/06 Rev 1.
(8) The ‘iQSG’ (inter-service Quality Support Group) was set up to improve the quality of the main strategic and programming documents such as country strategy papers and national indicative programmes. The ‘oQSG’ (office Quality Support Group) were established by EuropeAid to improve the quality of the preparation and formulation stages of projects, mainly through performing peer reviews of relevant documents.
(9) At the St. Petersburg Summit in May 2003, the EU and Russia agreed to reinforce their cooperation by creating in the long term four ‘common spaces’ in the framework of the Partnership and Cooperation Agreement. These are as follows: The Common Economic Space, covering economic issues and environment; the Common Space of Freedom, Security and Justice; the Common Space of External Security; and the Common Space of Research and Education including cultural aspects.
(10) Regulation (EC) No 1638/2006 of the European Parliament and of the Council (OJ L 310, 9.11.2006, p. 1).
ANNEX 8.1
Assessment of the supervisory and control systems
Note: In relation to controls shown as ‘Partially effective’, this table should be read in conjunction with Annex 8.2 , which indicates where progress has been made.
System concerned |
Key internal controls (Commission services) |
Key internal controls in national administrations |
Overall assessment |
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Ex-ante checks on contracts and payments |
Monitoring of project implementing organisations |
External audits/closure audits of project claims |
Internal audit |
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EuropeAid Co-operation office |
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N/A |
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Enlargement |
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N/A |
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DG Humanitarian Aid (ECHO) |
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N/A |
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Legend:
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Effective |
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Partially effective |
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Not effective |
N/A |
Not applicable: does not apply or not assessed |
Result of transaction testing
Sample estimate of the proportion of transactions affected by an error |
11 % |
Error rate |
Between 2 % and 5 % |
ANNEX 8.2
Follow-up of key Statement of Assurance observations
Court observation |
Action taken |
Court analysis |
Commission reply |
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External relations and development |
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Weaknesses concerning implementing organisations |
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As in previous years the Court noted a material incidence of error in the sample of payments tested at implementing organisation level. (Annual Report concerning the financial year 2006, paragraphs 8.9 and 8.10) |
Terms of reference for financial audits to be launched by beneficiaries have been revised. |
Some of the effects of the new Terms of Reference were already noticed in 2007 However, as they only became compulsory from October 2007 onwards, the full benefits will only be seen in the future. |
The Commission welcomes the Court's observation as regard the improvement in the quality of the audit reports. However, it should be pointed out that:
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Information on audits and their results |
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Neither External Assistance Management Reports (EAMRs) nor the computerised management information system CRIS (Common Relex Information System) contain complete and systematic information on audits of projects and their results. (Annual Report concerning the financial year 2006, paragraphs 8.22 and 8.23) |
The reporting format used by Delegations on the implementation of the Annual Audit Plan 2007 has been modified. Further improvements have been made concerning CRIS-Audit. |
Improvements have been made. However, CRIS-Audit did not come into full use during 2007 and audits managed by project implementing organisations are still not included in the reporting. |
All the audits of the Annual Audit Plan 2007, as well as the audits of the current year, have been entered in CRIS-Audit. |
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Enlargement |
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Extended Decentralised Implementation System (EDIS) |
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Weaknesses were noted at the level of the national administration supervisory systems in Romania and Bulgaria, confirmed by the delay in the EDIS accreditation for Phare in Bulgaria. (Annual Report concerning the financial year 2006, paragraph 9.19) |
The Commission implemented close monitoring of the progress made in the national management systems. |
Despite the actions taken in this respect in the case of Bulgaria the audit work carried out revealed that there is still room for improvement at the level of the national supervisory and control systems. |
The Commission will continue to closely monitor the management systems in tight cooperation with the Bulgarian authorities. The proposed measures will be closely monitored and audited to verify that they lead to the desired improvements. |
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Humanitarian aid |
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External audits |
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The majority of audits are done at the partners' headquarters. As the reality of expenditure can be more effectively checked at field level, there should be more emphasis on on-the-spot audits. (Annual Report concerning the financial year 2006, paragraph 8.18) |
A new Framework Contract was concluded in August 2006. |
In spite of the new Framework Contract, in 2007 the majority of audits were done at partners' headquarters. |
The Commission has doubled the number of field audits as compared to the number undertaken in 2006. A further increase of field audits is considered not to be cost-effective. |
CHAPTER 9
Education and Citizenship
TABLE OF CONTENTS
9.1-9.4 |
Introduction |
9.1-9.4 |
Specific characteristics of Education and Citizenship |
9.5-9.26 |
Specific assessment in the context of the Statement of Assurance |
9.5-9.6 |
Audit scope |
9.7-9.11 |
Legality and regularity of underlying transactions |
9.12-9.24 |
Assessment of supervisory and control systems |
9.13-9.18 |
The Lifelong Learning Programme |
9.19-9.21 |
European Refugee Fund II and External Borders Fund |
9.22-9.23 |
Ex-ante checks for Communication expenditure |
9.24 |
Conclusion on Supervisory and Control Systems |
9.25-9.26 |
Overall conclusion and recommendations |
9.27 |
Follow-up of previous observations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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INTRODUCTION |
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Specific characteristics of Education and Citizenship |
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The regulatory and contractual framework defines the types of controls, minimum standards for internal control, common procedural requirements as well as classification and minimum number of checks made by the National agencies. Moreover, DG EAC has also enhanced simplification, notably on the basis of calculation of eligible expenditure (extensive use of lump sum financing). |
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Audit scope |
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Legality and regularity of underlying transactions |
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Table 9.1 — How many advances and interim/final payments were affected by errors and how many were free from errors?
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Table 9.2 — How many payments affected by errors or free from errors were in each of the three policy areas?
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The design of the new programmes 2007-2013 has taken into account the Court of Auditors’ recommendations of previous years to simplify the rules and to make extensive use of lump sum financing. This should reduce the error rate in the future. |
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Assessment of supervisory and control systems |
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Furthermore, in recent years DG EAC carried out systems audits of all national agencies as well as a number of monitoring visits. These on-the-spot visits have allowed the Commission to have a clear picture of the functioning of national agencies in 2007, at the beginning of the LLP. |
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The Lifelong Learning Programme |
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The system provided for in the legal basis LLP 2007-2013 represents an evolution of the 2000-2006 system taking into account the Court’s recommendations. The Commission’s controls in earlier years contributed with those undertaken in 2007 to DG EAC’s conclusion that control systems provide reasonable assurance, though significant improvements are needed in the application of the control system at the level of checks by national authorities. |
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European Refugee Fund II and External Borders Fund |
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Ex-ante checks for Communication expenditure |
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Conclusion on Supervisory and Control Systems |
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The Court’s assessment of non-effectiveness of the Ex-ante checks for communication expenditure is based on an analysis of, mainly, interim and final payments, while 63 % of the payments selected for the policy group Education and citizenship are advance payments. This assessment should be seen in light of the fact that final payments are subject to a higher risk than advance payments which are eligible as soon as the contract is signed. Measures have been, and will continue to be, taken in order to improve the general level of checks. |
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Overall conclusion and recommendations |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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(1) Except for expenditure under policy area 16.
(2) Excludes administrative expenditure.
(3) Management of some programmes such as the European Refugee Fund and the External Borders Fund is, however, shared with Member States.
(4) In particular in relation to the Lifelong Learning Programme (LLP) managed by the Directorate-General for Education and Culture (DG EAC).
(5) The sample comprised 104 Education and Culture, 24 Freedom, Security and Justice and 22 Communication payments. The sample comprised 95 advances and 55 interim and final payments (of which 19 for Communication); the latter represent a significantly higher risk.
(6) This programme, based on Decision No 1720/2006/EC of the European Parliament and of the Council (OJ L 327, 24.11.2006, p. 45) and Commission Decision C(2007) 1807 final, accounted for 84 % of the commitment appropriations for Education and Culture for the financial year 2007.
(7) These two programmes, based on respectively Decision No 574/2007/EC of the European Parliament and of the Council (OJ L 144, 6.6.2007, p. 22), Council Decision 2004/904/EC (OJ L 381, 28.12.2004, p. 52) and Commission Decision 2006/401/EC (OJ L 162, 14.6.2006, p. 20), accounted for 42 % of the commitment appropriations for Freedom, Security and Justice for the financial year 2007.
(8) The financial year 2007 saw the start-up of major new programmes under the 2007-2013 Financial Framework.
(9) These concern advance payments to National Agencies in Member States that are in charge of the management of the Lifelong Learning and Youth in Action Programmes.
(10) One of these payments was managed by DG Employment.
(11) The results of the ex-post controls carried out by DG EAC, as presented in its annual activity report 2007, do not identify a material level of error.
(12) The control system principally comprises the primary controls carried out by the National Agencies, the secondary controls carried out by the National Authorities and the Commission supervision.
(13) The classification of the qualifications was based on the compliance with the Guide for National Agencies and the key elements of controls mentioned in Article 18(7) of the EC/NA agreement.
(14) This declaration shall give assurance as to the reliability of financial systems and procedures of the National Agency and the probity of their accounts; it shall also give assurance that resources were used for the intended purpose and that control systems guarantee the legality and regularity of the underlying transactions.
(15) Denmark does not participate in the ERF II.
(16) See the Annual Activity Report 2007 of DG JLS’s Authorising Officer by Delegation.
(17) With the exception of Italy, Luxembourg and Malta who had not provided the required documents by December 2007.
(18) The payment appropriations for 2007 amounted to 95 million euro.
(19) A system for ex-post controls was only put in place in November 2007. Communication DG has created from 1 November 2007 a centralised ex-post control function and has started carrying out on-the-spot checks in 2008.
(20) In 2008 the ERF II will be followed by the ERF III.
ANNEX 9.1
Assessment of Supervisory and Control systems
System concerned |
Key internal control |
Overall assessment |
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Assessment by the Commission of the ex-ante declaration of assurance |
Ex-post declaration of assurance |
Ex-ante checks on payments |
Ex-post checks/audits |
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Education and Culture Programmes (2000-2006) |
N/A |
N/A |
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Lifelong Learning Programme (2007-2013) |
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N/A |
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N/A |
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External Borders Fund |
could not be assessed |
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European Refugee Fund II |
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N/A |
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N/A |
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DG COMM |
N/A |
N/A |
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N/A |
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Legend:
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Effective |
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Partially effective |
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Not effective |
N/A |
Not applicable: does not apply or not assessed |
Result of transaction testing
Sample estimate of the proportion of transactions affected by an error |
21 % |
Error rate |
Between 2 % and 5 % |
ANNEX 9.2
Follow-up key Statement of Assurance observations
Court observation |
Action taken |
Court analysis |
Commission reply |
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1. Late payments by Commission |
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Since early 2007, DG EAC has prepared a ‘Financial Indicators’ report which includes a section on late payments. This monthly report is sent to the Directors' board. |
DG EAC should ensure that appropriate and timely action is taken resulting from the information contained in this report. |
In addition to statistics on payment delays shown in ABAC, i.e. after the actual payment has taken place, a report of payments still to be made is presented to the Task Force Directors together with an analysis by operational units. This monthly reporting has contributed to a considerable reduction of late payments both in number and amount. |
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2. Sharing of results of the ex-post checks can increase their efficency and effectiveness. |
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As a response to the Court’s observation and as part of the Action Plan towards an integrated internal control framework, the Commission decided to integrate the audit data within its financial and accounting system in order to facilitate coordination of the audits and sharing of the results between DGs. In 2007, however, DG EAC had not yet put in place the necessary procedures. In April 2008, they were still to be formalised, to include retroactive sharing of results of ex-post audits closed in 2007 via the ABAC system. |
DG EAC should complete as soon as possible the sharing of the results of all ex-post audits closed in 2007 and ensure the consistent application of this procedure for ex-post audits undertaken in the future. |
Staff has been trained to use the ABAC tool and has received access to it. Audit information can now be input in the system, as required at Commission level. |
CHAPTER 10
Economic and Financial Affairs
TABLE OF CONTENTS
10.1 |
Overview |
10.2-10.35 |
Specific assessment in the context of the Statement of Assurance |
10.2-10.15 |
Introduction |
10.4-10.5 |
Audit scope |
10.6-10.9 |
Specific characteristics of the policy area |
10.10-10.15 |
Main risks to legality and regularity |
10.16-10.31 |
Audit Findings |
10.16-10.19 |
Legality and Regularity of underlying transactions |
10.20-10.31 |
Assessment of supervisory and control systems |
10.32-10.34 |
Overall conclusion and recommendation |
10.35 |
Monitoring elements |
10.36-10.39 |
Results of the Audit of the Guarantee Fund for External Actions |
10.40-10.42 |
Results of the Audit of the ECSC in liquidation |
10.43 |
Follow-up of previous observations |
THE COURT'S OBSERVATIONS |
THE COMMISSION'S REPLIES |
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OVERVIEW |
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Introduction |
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Audit scope |
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Specific characteristics of the policy area |
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Table 10.1 — Payments above 20 million euro made for main policy areas or (sub-)programmes in the policy area audited in 2007
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Main risks to legality and regularity |
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The impact of the multiannual audit programme will gradually increase over the four-year implementation period. |
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Audit Findings |
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Legality and Regularity of underlying transactions |
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The Commission is taking the necessary action to recover the amounts of funding relating to the ineligible costs. |
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Assessment of supervisory and control systems |
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Financial circuits and ex-ante desk checks on procurement contracts |
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Ex-ante desk checks for the main grant programmes |
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While the Research DGs do share data on participants, given the setup of FP6 the Commission is not convinced that the establishment of a database for ex-ante checking such as that proposed by the Court would eliminate the risk of a cost being financed twice. The proposed database would require every line of every cost statement, for all Community funded projects, including those under different forms of management, to be encoded for all participants. The details would need to record, for instance, hours worked on each day on each project for each project, where this cost information is required under the contract. The information needed in the database is not included in the normal contractual reporting of the beneficiaries and would need to be requested specifically by the Commission as it is only available during on the spot audits. The cost of encoding, updating and verifying these data would be prohibitive. For these reasons the Commission mitigates this risk with ex-post on-the-spot audits. The Commission has implemented a data sharing module for audits which allow the research DGs to exchange information on planned and completed audits and which helps them to co-ordinate their work, including the detection of possible duplicate charging of costs. |
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Audit certification of project cost statements |
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The Commission has informed the beneficiary about the requirements of FP6 concerning the independence of certifying auditors and invited him to ensure that his cost statements are certified by an independent auditor. |
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As regards FP6, there is no compulsory certificate model. Nevertheless the proposed model has been followed in most of the audit certificates submitted. For FP7 the Commission has further improved the reliability of audit certificates by using ‘agreed upon procedures’, setting out in detail the audit work to be performed by the certifying auditors and encouraging optional certification of the cost methodology. |
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Ex-post controls in the context of the Common FP6 Audit Strategy |
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Overall conclusion and recommendation |
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Monitoring elements |
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RESULTS OF THE AUDIT OF THE GUARANTEE FUND FOR EXTERNAL ACTIONS |
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Although the benchmark index was not achieved, the positive absolute annual performance of 3,1 % compares favourably with large privately managed global bond funds where a number experienced negative total performances. |
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RESULTS OF THE AUDIT OF THE ECSC IN LIQUIDATION |
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The spread range is a management monitoring mechanism designed to assess the behaviour of the ECSC i.L. portfolio compared to its benchmark in normal times. In a crisis context, such as the current ‘sub-prime crisis’ which began in August 2007, spreads should be expected to behave abnormally and thus fall outside ranges calculated on the basis on historical data from non-crisis times. Although the benchmark index was not achieved, the positive absolute annual performance of 2,13 % compares favourably with the large privately managed global bond funds where a number experienced negative total performances. |
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FOLLOW-UP OF PREVIOUS OBSERVATIONS |
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(1) No such payments were made under policy areas Competition, Internal Market, and Trade.
(2) These programmes comprise financial guarantee and investment activities for small and medium enterprises (SMEs). For the execution of the programmes, funds are transferred from the General Budget to fiduciary accounts to cover possible future payments. These payments may occur at some time during the duration of the programme which can be several years after the initial funding of the fiduciary accounts and may be subject to special audits of the Court. See also Annual Report concerning the financial year 2003, paragraphs 10.5 to 10.27 (OJ C 293, 30.11.2004).
(3) In the payment transactions audited, this related to grants under the fifth and sixth Framework Programmes and to one grant financed under the MAP.
(4) An error is considered ‘serious’ if the amount of the error is equal to or above 2 % of the transaction value.
(5) See Annual Report concerning the financial year 2006, paragraph 7.11 (OJ C 273, 15.11.2007).
(6) Case T-345/03.
(7) The audit was confined to the two Directorates-General of the largest policy areas and to one of the small policy areas. The other two small policy areas Competition and Trade will be audited in the coming years.
(8) This relates to audited payment transactions financed under the Multiannual Programme (1 payment transaction), the fifth Framework Programme (1 payment transaction), and the sixth Framework Programme (7 payment transactions).
(9) Article 111 of the Financial Regulation.
(10) In application of the Financial Regulation (Article 111), which applies to all applicants for Community funding, not just research program applicants.
(11) In accordance with Articles 94 and 96 of the Financial Regulation and in Article 134(b) of its Implementing Rules, such as 94(b) on false declarations.
(12) Under article 134(b) of the Implementation Rules.
(13) This relates to audited payment transactions financed under the Competitiveness and Innovation Framework Programme (4 payment transactions), the Multiannual Programme (5 payment transaction), and Macroeconomic Assistance (5 payment transactions).
(14) See Annual Report concerning the financial year 2006, paragraph 7.17.
(15) Figures are taken from an internal Commission database on the result of ex-post audits finalised in 2007 for policy area Enterprise for projects financed under the sixth Framework Programme.
(16) Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external actions (OJ L 293, 12.11.1994, p. 1), as last amended by Regulation (EC, Euratom) No 89/2007 (OJ L 22, 31.1.2007, p. 1).
(17) Principally the EIB, but also Euratom external lending and EC macro-financial assistance (MFA) loans to third countries.
(18) Management agreement between the EIB and the European Community, as last amended on 28 April 2002 and 8 May 2002. A new supplementary agreement was signed on 25 February 2008.
(19) As loans and guarantees for Member States are not covered by the Fund, the amount relating to the accession countries had to be repaid to the General Budget.
(20) Protocol on the financial consequences of the expiry of the ECSC Treaty and on the Research Fund for Coal and Steel (OJ C 80, 10.3.2001. p. 67).
(21) Variation of net present value on new Member States’ contribution of the Coal and Steel Research Fund and negative change of fair value of financial derivatives.
ANNEX 10.1
Assessment of the supervisory and control systems
System concerned |
Key internal control |
Overall assessment |
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Adequate checklists |
Ex-ante checks |
Audit certification |
Ex-post control |
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Procurements |
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N/A |
N/A |
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Grants other than research projects |
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N/A |
N/A |
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Grants for research projects |
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Legend
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Effective |
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Partially effective |
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Not effective |
N/A |
Not applicable: does not apply or not assessed |
Results of transaction testing
Sample estimate of the proportion of transactions affected by an error |
7,3 % |
Error rate |
Below 2 % |
ANNEX 10.2
Follow-up of the Court’s previous observations
Court observation |
Action taken |
Court analysis |
Commission reply |
Phasing out of risk capital operations |
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In its Annual Report, concerning the financial year 2005, paragraphs 11.6 to 11.13, the Court reported on the Phasing-out of five risk capital operations: The European Community Investment Partners (ECIP) managed by DG AIDCO, the MEDIA programmes managed by DG INFSO and three programmes managed by DG ECFIN (Venture consort, Eurotech Capital Programme and Joint Venture Programme). Main observations of the Court were as follows: |
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ECIP Programme |
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The Commission did not make significant progress in the closure of the programme and 1 276 of most problematic files were still open. Key financial information was missing for numerous files. Erroneous payments were not followed up and recovery orders were either not followed up or not issued. In March 2006 DG AIDCO estimated that the amount still to be recovered is 21 million euro. |
In its reply the Commission announced that at the end of 2006 all files will be reviewed and that the Commission will be able to provide complete and reliable financial statements. In the meantime, new and simplified checklists for closing were implemented. As at 31.12.2007, 77 ECIP files were still pending for a global amount of 6,1 million euro, covered by 4,7 million euro of value reduction. |
Despite the progress made in the closure of the files, the Court is still not yet able to confirm the reliability and the completeness of the financial statements linked to ECIP mainly due to uncertainties linked with the closure of the actions (pending legal actions, Financial Intermediary having lost contact with a beneficiary) and inconsistencies in the valuation, mainly due to incorrect value adjustments. No ending date for the liquidation of the ECIP programme can be given. |
The liquidation of ECIP has continued during 2007 and the first part of 2008. End May 2008 there remained 30 actions to be closed compared to the more than 1 700 files open in March 2005. Since then the Commission has recovered more than 31,5 million euro. Tracing certain partners requires complex inquiries and has taken a considerable time. We have been prompted to revise the figures as a result of information obtained from partners during these inquiries. These figures are often called into question and we update the accounts only if an acceptable degree of confidence is attained. |
MEDIA programmes |
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The loans and subsidies granted to the audiovisual industry were subject to particularly complex conditions which require constant monitoring over a long time. Up to 2005, the MEDIA II programme was administered by a Technical Assistance Office (TAO) on behalf of the Commission. The Court found that, for financial operations before 2001, the Commission services had no detailed accounting information for the programme nor a specific auditor’s certificate for the financial operations involved. For more recent transactions, documentation was often incomplete and there was inadequate follow-up, leading, in certain instances, to recovery orders not being issued in a timely manner. |
The management of the MEDIA programme files were taken over by the new Education Audiovisual and Culture Executive Agency (EACEA) on 1 January 2006. The EACEA has set up specific procedures, enhanced the monitoring framework, ensured the standardisation of the files’ documentation and built a database which should provide the detailed financial situation of each file. |
The database used to manage MEDIA programmes, amounting to 35,5 million euro covered by a related value reduction of 24,85 million euro, is a major achievement. However, inaccuracies have been found in this database and improvements are still necessary. |
The Commission takes note of the Court’s comment about the establishment of the database. The Commission recognises that the Court’s findings have led to the valuation of potential entitlements being reduced from 35,5 million euro to 35,0 million euro. The Commission intends to review these entitlements in order to determine whether their ‘potential’ status should not lead to any changes in the accounting principles which applied hitherto. |
ECFIN programmes |
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The audit of three programmes managed by DG ECFIN (Venture Consort, Eurotech Capital Programme and Joint Venture Programme) showed weaknesses in the management, follow-up and closure of the programmes. |
In its reply, the Commission referred to the implementation of a proactive and overall strategy of closure of the remaining files and that it considers to have reasonable assurance on the accuracy and completeness of the figures related to the three programmes. |
At the end of 2007 the Eurotech Programme was entirely closed. For Venture Consort there are two projects open for an original contribution of 0,4 million euro and for Joint Venture Programme there are four open projects for an initial investment of 1,1 million euro. The amounts are completely written down and the accounts were confirmed by the Court. |
The Commission agrees with the Court’s analysis for the situation at end 2007. Meanwhile, in 2008, the Commission has closed two further projects, one under Venture Consort and another under the Joint Venture Programme. |
CHAPTER 11
Administrative and other expenditure (1)
TABLE OF CONTENTS
11.1-11.4 |
Introduction |
11.3-11.4 |
Specific characteristics of administrative and certain operational expenditure |
11.5-11.25 |
Specific assessment in the context of the Statement of Assurance |
11.5 |
Audit scope |
11.6-11.25 |
Specific observations |
11.7-11.11 |
Multiplication factor applicable to salaries |
11.12-11.13 |
Parliament |
11.14 |
Council |
11.15-11.18 |
Commission |
11.19 |
Court of Justice |
11.20 |
Court of Auditors |
11.21 |
European Economic and Social Committee |
11.22 |
Committee of the Regions |
11.23 |
European Ombudsman |
11.24 |
European Data Protection Supervisor |
11.25 |
Overall conclusions |
11.26-11.27 |
European Union Agencies |
11.28-11.29 |
European Schools |
THE COURT'S OBSERVATIONS |
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INTRODUCTION |
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Specific characteristics of administrative and certain operational expenditure |
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Table 11.1 — Payments in 2007
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SPECIFIC ASSESSMENT IN THE CONTEXT OF THE STATEMENT OF ASSURANCE |
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Audit scope |
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Specific observations |
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Multiplication factor applicable to salaries |
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The Secretary-General, however, will appoint an administrative working group which will be charged to examine the subject in depth and to propose, if necessary, adequate adaptations. |
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In this respect, the Committee is aware of several complaints of Commission staff, in accordance with Article 90(2) of the Staff Regulations, and of one formal appeal to the Court of Justice (F-22/07, L/Commission). Therefore, the Committee continues to apply its current practice while waiting for the Court’s ruling. In order to preserve the interests of the institution, all Committee officials concerned have been informed that its current practice is susceptible to revision. The Committee will then align its practice, if necessary retroactively, to the said ruling. In this way, provided the other European institutions do the same, Committee staff will be treated identically to all other officials of European institutions. At the Committee, for a total of 237 promotions so far since the entry into force of the new staff Regulations (years 2004, 2005, 2006 and 2007), there were 25 cases of officials with a multiplication factor higher than one. |
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Parliament |
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Payments on carried over appropriations |
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Acceptance was confirmed on 17 December 2007, but the installation was not performed because the building was not available. The final payment was made on 19 December 2007 taking account of the following points: checks on the operation of each camera were deemed equivalent to their installation; the contractual guarantee for two years from the date of final reception was extended by six months; the supplier undertook to install the equipment as soon as the building became available. The authorising officer considered these points to be sufficient to enable the final payment to be made using the appropriations carried over from 2006. |
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Follow-up to observations from past Annual Reports |
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Council |
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Follow-up to observations from past Annual Reports |
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Commission (8) |
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Rental expenditure (DG RELEX) |
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Regarding the payment of city charges on behalf of the owner of a rented building, the Commission agrees with the Court that the Delegation should have included a specific clause in this respect in the sublease contract. Regarding the lack of a recovery order and the lack of a deadline for payment, the observations and comments of the Court are accepted, as adequate procedures required by the Financial Regulations and its Implementing Rules were not applied. However, the Delegation followed the matter and recovered the total prepaid amount (the total amount equivalent to EUR 44 000, approximately, was reimbursed to the Delegation by the owner of the rented building on 14 April 2008). Following this reimbursement, there is, in practice, no financial incidence for the Commission, in spite of the non-compliance with adequate procedures. |
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Payments on carried over appropriations (OIL) |
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The lease for the building in question provides, as regards cost statements, for four advances and one final statement. At the end of 2007 OIL was informed that the co-owners of this building had rejected the 2006 final statement of costs established by the managing agent of the building. The amount still payable is estimated at over EUR 55 000. So as not to doubly affect the budgetary principle of annuality, once in respect of the 2006 appropriations carried over which would have been cancelled and once in respect of the 2008 appropriations, OIL wrote asking the managing agent to recover an additional advance of EUR 55 000. At the beginning of June 2008 the final statement for 2006 had not yet been established. |
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Salary payments (PMO) |
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On 28 December 2006, a correction of data in Sysper was itself erroneous, leading to errors in the data transmitted. This was not detected by the ex-ante checks, because these had already taken place at that date, and was not picked up by the usual last minute control mechanisms, due to the holiday period and the reduced presence in the services. The error was detected by mid-January 2007, but the amounts had already been paid out to the former temporary officials. For most of the cases the recovery presented no problems, and at this time (July 2008), 9 of the 118 cases are still open (including reimbursements in instalments). The services involved have been reminded of the operating instructions concerning deadlines for last minute interventions and the period between last ex-ante controls and the final payroll run has been shortened. Given the exceptional circumstances, the Commission is of the opinion that this does not warrant the conclusion that this incident illustrates the lack of sufficient control. |
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Follow-up to observations from past Annual Reports |
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Court of Justice |
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Contract staff |
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These two factors — the brevity of the employment contracts and the frequent paucity of qualified candidates — explain why specific selection procedures have not been formally imposed so far for the recruitment of ‘Article 3b’ contract staff. We have no knowledge of any case where it could be said that the decision to recruit could have been influenced by non-objective elements. As regards, in particular, the replacement of lawyer linguists on maternity leave in the translation units, referred to by the Court of Auditors, all recruitments of ‘Article 3b’ contract staff were decided upon by the Authority authorised to conclude contracts (i.e. the Registrar of the Court), on a proposal from the head of unit, the director general for translation having been consulted. Ad hoc selection procedures were often put in place. All agents recruited for these auxiliary tasks fulfilled the requirements for the job as regards legal qualifications, knowledge of languages and experience in legal translation. |
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Court of Auditors |
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European Economic and Social Committee |
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Committee of the Regions |
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European Ombudsman |
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European Data Protection Supervisor |
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Overall conclusions |
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EUROPEAN UNION AGENCIES |
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EUROPEAN SCHOOLS |
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Table 11.2 — EU agencies — Principal data
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Table 11.3 — European schools — Principal data
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(1) See paragraph 11.1.
(2) European Parliament, Council, Commission, Court of Justice, Court of Auditors, European Economic and Social Committee, Committee of the Regions, European Ombudsman, European Data Protection Supervisor.
(3) Interinstitutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management (OJ C 139, 14.6.2006).
(4) Article 41(2) of the Financial Regulation requires that in the Commission section of the general budget the administrative appropriations of a title be grouped in a single chapter. This is done in chapter 01 of each title. Not all these administrative appropriations relate to the administrative expenditure included in ‘heading 5’, some relate to other headings of the Financial Framework.
(5) Title 24 concerns ‘fight against fraud’, title 25 ‘Commission’s policy coordination and legal advice’, title 26 ‘Commission’s administration’, title 27 ‘budget’ and title 29 ‘statistics’.
(6) For 2006 this expenditure was covered by other chapters of the Court’s Annual Report concerning that year.
(7) The subjects are: the application of the multiplication factor in calculating staff’s pay, the employment of contract staff and payments on carried over appropriations.
(8) The Commission departments responsible for most of the administrative expenditure are the following: Directorate-General (DG) for Personnel and Administration (ADMIN), DG for Translation (DGT), DG for Interpretation (SCIC), DG for Communication (COMM), DG for External Relations (RELEX), Office for Infrastructures and Logistics — Luxembourg (OIL), Office for Infrastructures and Logistics — Brussels (OIB), Office for the Administration and Settlement of Individual Entitlements (PMO), European Personnel Selection Office (EPSO) and Publications Office (OPOCE).
(9) ‘Contract staff shall be selected on the broadest possible geographical basis from among nationals of Member States and without distinction as to racial or ethnic origin, political, philosophical or religious beliefs, age or disability, gender or sexual orientation and without reference to their marital status or family situation’.
(10) PricewaterhouseCoopers, Société à responsabilité limitée, Réviseur d’Entreprises.
(11) The Court’s annual reports on the Agencies accounts are presented on its site (http://www.eca.europa.eu) and will be published in the Official Journal, except for the Euratom Supply Agency.
(12) Qualified opinion with regard to the reliability of the accounts and the legality and regularity of the underlying transactions.
(13) Disclaimer of opinion with regard to the reliability of the accounts.
(14) Source: General introduction to the 2008 budget of the European Schools.
(15) Payment appropriations.
(16) Formerly the European Monitoring Centre on Racism and Xenophobia.
(17) Agency having acquired its financial independence in 2006.
(18) Provisonal seat.
(19) Total revenue and expenditure as foreseen in the budget of each European School and the Office including all modifications made to the budgets initially adopted.
(20) Source: European Schools, clôture des comptes 2007.
(21) Source: 2007 Annual report of the Secretary General to the Board of Governors of the European Schools.
N. B.: Variations in totals are due to the effects of rounding.
ANNEX 11.1
Results of transaction testing of administrative and certain operational expenditure (1)
Sample estimate of the proportion of transactions affected by error |
7 % |
Error rate |
below 2 % |
(1) This table does not include data about Agencies and European Schools.
ANNEX 11.2
Follow-up to observations from past Annual Reports
Court observations |
Action taken |
Court analysis |
Reply |
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Reimbursement of accommodation costs incurred on mission |
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Annual Reports concerning the financial year 2004, paragraph 9.6, and 2005, paragraph 10.7: The amended Staff Regulations, which entered into force on 1 May 2004, state that accommodation costs incurred on mission are reimbursed up to a maximum fixed for each country, on production of supporting documents (Article 13 of Annex VII to the Staff Regulations). Contrary to this rule, all the institutions, except the Court of Justice, the Court of Auditors and the Ombudsman, provided in their internal rules for the payment of a flat-rate sum, ranging from 30 to 60 % of the maximum allowable amount, to staff who do not produce any evidence of having incurred accommodation costs. |
In the meantime, the Council, the European Economic and Social Committee and the Committee of the Regions have amended their internal rules so as to ensure compliance with the Staff Regulations. |
The Parliament and the Commission should amend their internal rules in order to ensure that accommodation costs incurred on mission are reimbursed in compliance with the Staff Regulations, which were amended following a Commission's proposal agreed upon by the Parliament. |
The European Parliament’s replies The European Parliament is in a unique situation compared to other institutions in that very large numbers of its officials have to travel between Brussels, Luxembourg and Strasbourg in the course of their normal work. Such travelling between the three working places amounts to 91 % of EP missions and 88 % of the mission expenses. As a measure of sound financial management it is therefore more practical to apply the flat-rate system for staff travelling between the three working places. For missions outside the three working places, as foreseen by the Staff Regulations, reimbursement on the basis of supporting documents applies. Since the Court’s previous observations on Parliament’s rules on missions, the institution’s internal auditor has conducted an audit of the mission regime. The conclusions in his report will give rise to a number of modifications to be proposed by the Secretary-General. The Commission’s replies The Commission's mission guide has been reviewed in order to take the Court’s remarks into account. There were delays in adoption of this text owing to several points of disagreement with the staff representatives, which have now been resolved. The text is expected to be adopted in September 2008 at the earliest. |
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Allowances for assistance to Members of the European Parliament (MEPs) |
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Annual Report concerning the financial year 2006, paragraphs 10.10 to 10.12: As the major part of the amounts paid for MEPs’ assistance allowance have not been subsequently justified by appropriate supporting documents of the expenses incurred on behalf of the MEPs, the Court considers that there is not sufficient documentation to demonstrate that the MEPs have actually employed or engaged the services of one or more assistants and that the duties or services mentioned in the contracts signed by the MEPs have been really carried out. The Bureau should take action in order to obtain the documents considered essential to prove that the expenditure was justified. Should these documents not be presented within reasonable time, appropriate measures, such as suspension of payments and/or issuing of recovery orders, should be initiated for the sums not justified. |
On 13 December 2006 the Bureau amended the rules governing the Parliamentary Assistance Allowance. According to the amended rules, which apply to allowances paid in 2006 and 2007, invoices and fee statements issued by paying agents and service providers are no longer required to be submitted by MEPs, but must be retained by them. Instead, MEPs are required to submit copies of ‘statements of expenditure’ and ‘statements of amounts invoiced’ issued by paying agents and service providers. The Bureau decided at its meeting of 10 December 2007 that for the period from July 2004 to the end of 2005 ‘statements of expenditure’ and ‘statements of amounts invoiced’ would also suffice. By the end of the Court’s audit for 2007, the vast majority of documents justifying the 2006 and 2007 expenditure had been submitted and regularised by the Parliament’s administration. Progress had also been made in collecting documents concerning the 2004 and 2005 expenditure. In 2008 the internal auditor of the European Parliament finalised an audit of the parliamentary assistance allowance and reported on weaknesses in this area. In the resolution of 22 April 2008 on the discharge for 2006, the Parliament called on its administration to correctly and consistently apply the rules and to improve implementing procedures and communication with MEPs. In the same resolution, the Parliament also noted that the Bureau had entrusted the Secretary-General to make contact with the Commission and the Council with a view to establishing a new set of rules and had charged a working group to assess the operation of the existing rules and to propose amendments as necessary. |
The Parliament should: |
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The European Parliament’s replies
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Additional pension scheme for Members of the European Parliament |
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Annual Report concerning the financial year 2006, Table 10.2: There should be clear rules established in the scheme to define the liabilities and responsibilities of the European Parliament and of the members of the scheme in case of a deficit. |
No rules have been established defining the liabilities and responsibilities of the European Parliament and of the members of the scheme in case of a deficit |
Appropriate rules should be established defining the liabilities and responsibilities of the European Parliament and of the members of the scheme in the event of a deficit. |
The European Parliament’s replies Confronted with an actuarial deficit, as at the end of 2004, of 43 765 745 euro, the issues relating to the management of the voluntary additional pension scheme for Members were debated by the Bureau at its meeting of 30 November 2005. On that occasion it approved the conclusions of its working group on the pension fund, namely:
As the plan of measures adopted by the Bureau on 30 November 2005 indicates, it is only ‘once these measures have been adopted that it will be possible to draw up the convention governing the respective relations and responsibilities of the Fund and of Parliament as mentioned by the Court of Auditors’. In accordance with this strategy, an actuarial study commissioned by Parliament was completed at the end of 2007 and has been forwarded to the Bureau working group responsible for drafting implementing provisions for the Statute for Members. Article 77 of the draft implementing provisions concerns the situation of the pension fund. At the meeting of 19 May 2008, the Bureau decided to abandon the system whereby Members’ contributions were being deducted from their general expenses allowance. The Secretary-General sent a communication informing members of the pension fund of the change in procedure before the summer recess. On 9 July 2008, the Bureau adopted the implementing provisions, making it possible to proceed with the next stage. On the basis of what has been decided in these provisions on the future of the pension fund, the negotiations on a convention governing the relations and responsibilities between the fund and Parliament will begin soon and will probably be completed at the beginning of next year. |
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Payment by the Council of additional annual leave not taken |
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Annual Reports concerning the financial years 2004, paragraph 9.18, and 2005, Table 10.2: At the Council additional annual leave granted before 31 December 1997 as a compensation for overtime is paid on retirement if the official has not taken the additional leave. As staff of the A and B categories are not entitled to compensation for overtime, such payments are not in accordance with Article 56 of the Staff Regulations. |
Even though the General Secretariat has taken action in order to gradually eliminate the stock of compensatory leave for A and B staff granted before 31 December 1997, payments were still made in 2007 to compensate for additional leave not taken. |
The payment of additional leave not taken should be discontinued. |
The Council’s replies As indicated in the replies to the Court of Auditors’ reports for the previous years, the General Secretariat of the Council is aware of the Court’s position concerning the payment of stocks of unused compensation days accumulated before 31 December 1997 and fully shares the observation of the Court about the necessity to bring the ongoing regularisation process to an end as soon as possible. As the Court has observed, a compulsory system aiming at the complete liquidation of all remaining stocks by 2009 has been put into place. In this context, the General Secretariat recalls its opinion that the continuation of the system for the progressive liquidation of these stocks until its final phase in 2009 is an inevitable consequence of the obligation to respect acquired rights as well as the fundamental principles of European law of legitimate expectations and equal treatment. Furthermore, the General Secretariat recalls that it has taken measures already in 1997 in order to prevent any repetition of such a situation in the future. The General Secretariat has also passed a decision that will prevent any residual payments linked to compensation days upon retirement. It should also be noted that the General Secretariat intends to finish work aimed at eliminating during 2009 all non-financial compensations not being in conformity with article 56 of the Staff regulations. |
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Follow-up of family allowances by the Commission |
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Annual Reports concerning the financial year 2005, paragraph 10.12, and 2006, table 10.2: Staff receiving the household allowance and having no dependent children are not regularly required to update the information. There was no evidence that 676 out of 1 605 Commission staff concerned based in Brussels had been requested to confirm or update their original declarations. Insufficient checks were also carried out concerning cases where national dependent child allowances might have been received and, if so, should have been deducted from the allowances paid according to the Staff Regulations. In 2006 the Commission followed up 231 of the 676 cases and planned to follow up the remainder of these cases within two years. |
The follow-up of the different types of allowances is still mainly based on the voluntary transmission of information by the staff. In February 2008, there were still 703 cases where the most recent check had been carried out before 2005, representing more than 37 % of the total of staff based in Brussels receiving the household allowance and having no dependent children. |
Further action needs to be taken by the Commission to verify family allowances on a regular basis. |
The Commission’s replies Priority is currently given to the verification of the right to household allowances. As of May 2008, one member of staff is dedicated to this task in order to catch up the delays incurred in the verification process. At the same time, for the same persons, household allowances received from elsewhere are also checked and if necessary, the amounts are corrected retroactively. Other persons potentially receiving allowances from elsewhere, not recently controlled will follow. |
ANNEX I
Financial information on the general budget
CONTENTS
BACKGROUND INFORMATION ON THE BUDGET
1. |
Origin of the budget |
2. |
Legal basis |
3. |
Budgetary principles laid down in the Treaties and the Financial Regulation |
4. |
Content and structure of the budget |
5. |
Financing of the budget (budgetary revenue) |
6. |
Types of budget appropriation |
7. |
Implementation of the budget |
7.1. |
Responsibility for implementation |
7.2. |
Implementation of revenue |
7.3. |
Implementation of expenditure |
7.4. |
The consolidated statements on budgetary implementation and determination of the balance of the financial year |
8. |
Presentation of the accounts |
9. |
External audit |
10. |
Discharge and follow-up |
EXPLANATORY NOTES
Sources of financial data
Monetary unit
Abbreviations and symbols
DIAGRAMS
BACKGROUND INFORMATION ON THE BUDGET
1. ORIGIN OF THE BUDGET
The budget comprises the expenditure of the European Community and the European Atomic Energy Community (Euratom). It also includes administrative expenditure on cooperation in the fields of ‘justice and home affairs’ and the common foreign and security policy, as well as all other expenditure that the Council considers should be borne by the budget for the purpose of implementing these policies.
2. LEGAL BASIS
The budget is governed by the financial provisions of the Rome Treaties (1) (2) (Articles 268 to 280 EC and Articles 171 to 183 Euratom) and by the financial regulations (3).
3. BUDGETARY PRINCIPLES LAID DOWN IN THE TREATIES AND THE FINANCIAL REGULATION
All items of Community revenue and expenditure are to be included in a single budget (unity and accuracy). The budget is authorised for one financial year only (annuality). Budgetary revenue and expenditure must balance (equilibrium). The accounts are established, implemented and presented in euro (unit of account). Revenue is to be used without distinction to finance all expenditure and, like the expenditure, is to be entered in full in the budget and subsequently in the financial statements without any adjustment of one item against another (universality). The appropriations are earmarked for specific purposes by title and chapter; the chapters are further subdivided into articles and items (specification). The budgetary appropriations are to be used in accordance with the principles of economy, efficiency and effectiveness (sound financial management). The budget is established and implemented and the accounts are presented in observance of the principle of transparency (transparency). There are some minor exceptions to these general principles.
4. CONTENT AND STRUCTURE OF THE BUDGET
The budget consists of a ‘Summary statement of revenue and expenditure’ and sections divided into ‘Statements of revenue and expenditure’ for each institution. The nine sections are: (I) Parliament; (II) Council; (III) Commission; (IV) Court of Justice; (V) Court of Auditors; (VI) Economic and Social Committee; (VII) Committee of the Regions; (VIII) European Ombudsman and (IX) European Data-protection Supervisor.
Within each section, items of revenue and expenditure are classified under budget headings (titles, chapters, articles and, where applicable, items) according to their type or the use to which they are to be applied.
5. FINANCING OF THE BUDGET (BUDGETARY REVENUE)
The budget is mainly financed from the Communities' own resources: GNI-based own resources; own resources accruing from VAT; customs duties; agricultural duties and sugar and isoglucose levies (4).
Besides own resources, there are other, marginal items of revenue (see Diagram I ).
6. TYPES OF BUDGET APPROPRIATION
To cover estimated expenditure, the following types of budget appropriation are distinguished in the budget:
(a) |
differentiated appropriations (DA) are used to finance multiannual activities in certain budgetary areas. They comprise commitment appropriations (CA) and payment appropriations (PA):
|
(b) |
non-differentiated appropriations (NDA) make it possible to ensure the commitment and payment of expenditure relating to annual activities during each financial year. |
It is thus important to establish the following two totals for each financial year:
(a) |
the total of appropriations for commitments (AFC) (5) = non-differentiated appropriations (NDA) + commitment appropriations (CA) (5); |
(b) |
the total of appropriations for payments (AFP) (5) = non-differentiated appropriations (NDA) + payment appropriations (PA) (5). |
Revenue raised in the budget is intended to cover the total appropriations for payments. Commitment appropriations do not need to be covered by revenue.
The following simplified presentation (with illustrative amounts) shows the impact of these types of appropriations in each budget year.
7. IMPLEMENTATION OF THE BUDGET
7.1. Responsibility for implementation
The Commission implements the budget on its own responsibility in accordance with the Financial Regulation and within the limits of the allotted appropriations; it also confers upon the other institutions the requisite powers for the implementation of the sections of the budget relating to them (6). The Financial Regulation lays down the implementation procedures and, in particular, the responsibilities of the authorising officers, accounting officers, administrators of imprest accounts and internal auditors of the institutions. In the two largest areas of expenditure (EAGF and Structural Funds) the management of Community funds is shared with the Member States.
7.2. Implementation of revenue
The estimated revenue is entered in the budget subject to changes deriving from amending budgets.
The budgetary implementation of revenue consists of establishing the entitlements and recovering the revenue due to the Communities (own resources and other revenue). It is governed by certain special provisions (7). The actual revenue of a financial year is defined as the total of sums collected against entitlements established during the current financial year and sums collected against entitlements still to be recovered from previous financial years.
7.3. Implementation of expenditure
The estimated expenditure is entered in the budget.
The budgetary implementation of expenditure, i.e. the evolution and utilisation of appropriations, may be summarised as follows:
(a) |
appropriations for commitments:
|
(b) |
appropriations for payments:
|
7.4. The consolidated statements on budgetary implementation and determination of the balance of the financial year
The consolidated statements on budgetary implementation are drawn up after the closure of each financial year. They determine the balance of the year, which is entered in the budget of the next financial year through an amending budget.
8. PRESENTATION OF THE ACCOUNTS
The accounts for a given financial year are forwarded to the Parliament, the Council and the Court of Auditors; these accounts comprise financial statements and statements on budgetary implementation, together with a report on the budgetary and financial management. The provisional accounts are forwarded not later than 31st of March of the following year; the final accounts are due on 31 July of that year.
The 2007 annual accounts of the European Communities are the third set of accounts to be prepared under the accrual-accounting based rules brought in by the European Communities in 2005. 2007 also saw the updating of the Financial Regulation applicable to the general budget of the European Communities and the new version came into force on 1 May 2007.
It should be noted, that in the consolidated accounts 2007:
— |
total assets increased from 67 332 million euro in 2006 to 75 720 million euro, with total liabilities increasing from 131 550 million euro to 131 646 million euro. The difference between assets and liabilities will be financed in the short-term from budgetary funds already voted, or guaranteed by the Member States in the longer-term; |
— |
the economic outturn for the year has increased from a surplus of 197 million euro in 2006 to a surplus of 10 120 million euro in 2007. |
9. EXTERNAL AUDIT
Since 1977 the external audit of the budget has been carried out by the Court of Auditors of the European Communities (8). The Court of Auditors examines the accounts of all revenue and expenditure of the budget. It must provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. It also considers whether revenue has been received and expenditure incurred in a lawful and regular manner, and whether the financial management has been sound. The audits may be carried out before the closure of the financial year in question and are performed on the basis of records and, where necessary, on the spot in the institutions of the Communities, in the Member States and in third countries. The Court of Auditors draws up an annual report for each financial year and may also, at any time, submit its observations on specific questions and deliver opinions at the request of any of the institutions of the Communities.
10. DISCHARGE AND FOLLOW-UP
Since 1977 the following provisions have been applicable (9): Parliament, on the recommendation of the Council, gives, before 30 April of the second year following the financial year in question, discharge to the Commission in respect of its implementation of the budget. To this end, the Council and Parliament in turn examine the accounts presented by the Commission and the annual report and special reports of the Court of Auditors. The institutions must take appropriate action in response to the comments appearing in the decisions giving discharge and report on the measures taken.
EXPLANATORY NOTES
SOURCES OF FINANCIAL DATA
The financial data contained in this Annex have been drawn from the annual accounts of the European Communities and from other financial records provided by the Commission. The geographical distribution is in accordance with the country codes in the Commission's system of accounting information (ABAC). As the Commission points out, all the figures given by MemberState — for both revenue and expenditure — are the result of arithmetic that gives an incomplete view of the benefits that each State derives from the Union. They must therefore be interpreted with circumspection.
MONETARY UNIT
All the financial data are presented in millions of euro. The totals are rounded from each exact value and will not therefore necessarily represent the sum of the rounded figures.
ABBREVIATIONS AND SYMBOLS
AFC |
Appropriations for commitments |
AFP |
Appropriations for payments |
AT |
Austria |
BE |
Belgium |
BG |
Bulgaria |
CA |
Commitment appropriations |
CY |
Cyprus |
CZ |
Czech Republic |
DA |
Differentiated appropriations |
DE |
Germany |
DIA |
Diagram referred to within other diagrams (e.g. DIA III) |
DK |
Denmark |
EAEC or Euratom |
European Atomic Energy Community |
EC |
European Community(ies) |
EE |
Estonia |
EEC |
European Economic Community |
EFTA |
European Free Trade Association |
EL |
Greece |
ES |
Spain |
EU |
European Union |
EU-27 |
Total for the 27 Member States of the European Union |
FI |
Finland |
FR |
France |
FINREG |
Financial Regulation of 25 June 2002 |
GNI |
Gross National Income |
HU |
Hungary |
IE |
Ireland |
IT |
Italy |
LT |
Lithuania |
LU |
Luxembourg |
LV |
Latvia |
MT |
Malta |
NDA |
Non-differentiated appropriations |
NL |
Netherlands |
OJ |
Official Journal of the European Union |
PA |
Payment appropriations |
PL |
Poland |
PT |
Portugal |
RO |
Romania |
S |
Budgetary section |
SE |
Sweden |
SI |
Slovenia |
SK |
Slovakia |
T |
Budgetary title |
UK |
United Kingdom |
VAT |
Value-added tax |
0,0 |
Data between zero and 0,05 |
— |
Lack of data |
DIAGRAMS
BUDGET FOR THE FINANCIAL YEAR 2007 AND BUDGETARY IMPLEMENTATION DURING THE FINANCIAL YEAR 2007
DIA I |
Budget 2007 — Estimated revenue and final appropriations for payments |
DIA II |
Budget 2007 — Appropriations for commitments |
DIA III |
Appropriations for commitments available in 2007 and utilisation thereof |
DIA IV |
Appropriations for payments available in 2007 and utilisation thereof |
DIA V |
Own resources in 2007 Member State |
DIA VI |
Payments made in 2007, in each Member State |
CONSOLIDATED ACCOUNTS FOR THE FINANCIAL YEAR 2007
DIA VII |
Consolidated balance sheet |
DIA VIII |
Consolidated economic outturn account |
(1) Treaty of Rome (25 March 1957): Treaty establishing the European Economic Community (EEC).
(2) Treaty of Rome (25 March 1957): Treaty establishing the European Atomic Energy Community (Euratom).
(3) Mainly the Financial Regulation (FINREG) of 25 June 2002 (OJ L 248, 16.9.2002).
(4) Principal legal acts relating to own resources: Council Decision 2007/436/EC of 7 June 2007 (OJ L 163, 23.6.2007); Council Decision 2000/597/EC, Euratom of 29 September 2000 (OJ L 253, 7.10.2000); Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 (OJ L 130, 31.5.2000); Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 (OJ L 155, 7.6.1989); Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006); Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonisation of the compilation of gross national product at market prices (OJ L 49, 21.2.1989), Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (OJ L 181, 19.7.2003).
(5) It is important to note the differences between ‘appropriations for commitments’ and ‘commitment appropriations’ and between ‘appropriations for payments’ and ‘payment appropriations’. The two terms ‘commitment appropriations’ and ‘payment appropriations’ are used exclusively in the context of differentiated appropriations.
(6) See Articles 274 of the EC Treaty, 179 of the Euratom Treaty and 50 of the FINREG.
(7) See Articles 69 to 74 of the FINREG and Regulation (EC, Euratom) No 1150/2000.
(8) See Articles 246, 247 and 248 of the EC Treaty, 160a, 160b and 160c of the Euratom Treaty and Articles 139 to 147 of the FINREG.
(9) See Articles 276 of the EC Treaty and 180b of the Euratom Treaty.
Diagram I
Budget 2007 — Estimated revenue and final appropriations for payments
[for revenue criteria, see ‘Background information on the budget’, paragraph 7.2; for expenditure criteria, see ‘Background information on the general budget’, paragraph 7.3 and for more detailed information, see Diagram IV, column (a)]
(million euro and %)
estimated REVENUE:
estimated EXPENDITURE:
(final appropriations for payment)
PT
IE
FI
DK
AT
PL
SE
EL
BE
NL
ES
UK
IT
FR
DE
Total estimated revenue:
113 845,7 (2)
Total appropriations for payment:
113 845,7 (3)
6 175,7 (4)
120 021,4
Own resources by Member State
Appropriations by institution
Revenue by Type
Approps. by heading
Revenue key: |
||
Total own resources (by Member State) |
||
Agricultural duties |
1 486,8 |
(1,3 %) |
‘Sugar’ and ‘isoglucose’ levies |
–37,7 |
(0 %) |
Customs duties |
15 083,8 |
(13,2 %) |
Own resources accruing from VAT |
19 478,6 |
(17,1 %) |
GNI-based own resources |
74 022,0 |
(65 %) |
Other revenue |
1 703,7 |
(1,5 %) |
Surplus available from the previous year |
2 108,6 |
(1,9 %) |
Expenditure key |
|||
Financial perspective headings: |
|||
1. |
Sustainable Growth |
45 461,8 |
(37,9 %) |
2. |
Preserv. Manage. of Natural Resources |
57 019,7 |
(47,5 %) |
3. |
Citizenship, freedom, security and justice |
1 356,2 |
(1,1 %) |
4. |
EU as a global player |
7 779,5 |
(6,5 %) |
5. |
Administration |
7 959,5 |
(6,6 %) |
6. |
Compensation |
444,6 |
(0,4 %) |
Appropriations available for other institutions |
3 046,6 |
(2,5 %) |
|
Appropriations availabe to the Commission |
116 974,8 |
(97,5 %) |
|
of which operating appropriations |
112 061,9 |
(93,4 %) |
Diagram II
Budget 2007 — Appropriations for commitments
[after amending budgets; for more detailed information, see Diagram III, column (b)]
(million euro and %)
Note:The total appropriations for commitment are not balanced by the budgetary revenue of 2007 as the commitment appropriations also include amounts to be financed by budgetary revenue from subsequent years.
Appropriations by heading
Total appropriations for commitments
130 881,1 million euro
Expenditure key |
|||
Financial framework headings: |
|||
1. |
Sustainable Growth |
56 060,3 |
(42,8 %) |
2. |
Preserv. and Managem. of Natural Resources |
58 399,1 |
(44,6 %) |
3. |
Citizenship, freedom, security and justice |
1 543,8 |
(1,2 %) |
4. |
EU as a global player |
7 142,3 |
(5,5 %) |
5. |
Administration |
7 291,0 |
(5,6 %) |
6. |
Compensation |
444,6 |
(0,3 %) |
Diagram III
Appropriations for commitments available in 2007 and utilisation thereof
(million euro and %) |
||||||||||
Sections (S) and titles (T) corresponding to the 2007 budgetary nomenclature and financial framework headings |
Financial Framework |
Final appropriations |
Utilisation of appropriations |
|||||||
Amount (5) |
Rate (%) |
Commitments entered into |
Utilisation Rate (%) |
Carry-overs to 2008 (6) |
Rate (%) |
Cancellations |
Rate (%) |
|||
(a) |
(b) |
(b)/(a) |
(c) |
(c)/(b) |
(d) |
(d)/(b) |
(e) = (b) – (c) – (d) |
(e)/(b) |
||
Budgetary nomenclature |
||||||||||
I |
Parliament (S. I) |
|
1 453,6 |
|
1 379,7 |
94,9 |
57,2 |
3,9 |
16,6 |
1,1 |
II |
Council (S. II) |
|
650,2 |
|
532,4 |
81,9 |
107,8 |
16,6 |
10,0 |
1,5 |
III |
Commission (S. III) (7) |
|
128 183,3 |
|
120 326,5 |
93,9 |
4 531,8 |
3,5 |
3 325,0 |
2,6 |
III.1 |
Economic and financial affairs (T.01) |
|
330,3 |
|
309,0 |
93,6 |
1,3 |
0,4 |
19,9 |
6,0 |
III.2 |
Enterprise (T.02) |
|
575,0 |
|
537,5 |
93,5 |
28,0 |
4,9 |
9,6 |
1,7 |
III.3 |
Competition (T.03) |
|
74,4 |
|
72,0 |
96,7 |
1,4 |
1,9 |
1,0 |
1,4 |
III.4 |
Employment and social affairs (T.04) |
|
10 908,1 |
|
10 860,9 |
99,6 |
23,0 |
0,2 |
24,1 |
0,2 |
III.5 |
Agriculture and rural development (T.05) |
|
57 040,8 |
|
52 026,7 |
91,2 |
3 385,7 |
5,9 |
1 628,4 |
2,9 |
III.6 |
Energy and transport (T.06) |
|
1 884,6 |
|
1 835,7 |
97,4 |
37,9 |
2,0 |
11,0 |
0,6 |
III.7 |
Environment (T.07) |
|
373,9 |
|
348,5 |
93,2 |
13,4 |
3,6 |
11,9 |
3,2 |
III.8 |
Research (T.08) |
|
4 049,5 |
|
3 838,8 |
94,8 |
204,4 |
5,0 |
6,2 |
0,2 |
III.9 |
Information society and media (T.09) |
|
1 537,0 |
|
1 491,0 |
97,0 |
42,0 |
2,7 |
4,0 |
0,3 |
III.10 |
Direct research (T.10) |
|
662,8 |
|
401,7 |
60,6 |
260,9 |
39,4 |
0,2 |
0,0 |
III.11 |
Fisheries and maritime affairs (T.11) |
|
958,9 |
|
706,5 |
73,7 |
5,3 |
0,6 |
247,1 |
25,8 |
III.12 |
Internal market (T.12) |
|
57,3 |
|
55,3 |
96,5 |
0,9 |
1,5 |
1,1 |
2,0 |
III.13 |
Regional policy (T.13) |
|
35 434,0 |
|
34 880,2 |
98,4 |
135,1 |
0,4 |
418,8 |
1,2 |
III.14 |
Taxation and customs union (T.14) |
|
113,8 |
|
100,9 |
88,7 |
1,8 |
1,6 |
11,1 |
9,7 |
III.15 |
Education and culture (T.15) |
|
1 440,2 |
|
1 326,7 |
92,1 |
110,8 |
7,7 |
2,7 |
0,2 |
III.16 |
Communication (T.16) |
|
204,1 |
|
196,9 |
96,5 |
1,2 |
0,6 |
5,9 |
2,9 |
III.17 |
Health and consumer protection (T.17) |
|
571,9 |
|
502,2 |
87,8 |
9,4 |
1,7 |
60,2 |
10,5 |
III.18 |
Area of freedom, security and justice (T.18) |
|
693,2 |
|
626,0 |
90,3 |
10,6 |
1,5 |
56,7 |
8,2 |
III.19 |
External relations (T.19) |
|
3 882,8 |
|
3 782,5 |
97,4 |
36,9 |
1,0 |
63,4 |
1,6 |
III.20 |
Trade (T.20) |
|
73,8 |
|
71,6 |
97,0 |
0,9 |
1,3 |
1,3 |
1,7 |
III.21 |
Development and relations with ACP States (T.21) |
|
1 409,9 |
|
1 304,9 |
92,5 |
97,3 |
6,9 |
7,8 |
0,6 |
III.22 |
Enlargement (T.22) |
|
1 133,1 |
|
1 052,6 |
92,9 |
77,7 |
6,9 |
2,7 |
0,2 |
III.23 |
Humanitarian aid (T.23) |
|
759,3 |
|
758,0 |
99,8 |
0,8 |
0,1 |
0,5 |
0,1 |
III.24 |
Fight against fraud (T.24) |
|
72,6 |
|
68,8 |
94,7 |
0,0 |
0,0 |
3,8 |
5,3 |
III.25 |
Commission's policy coordination and legal advice (T.25) |
|
177,6 |
|
169,4 |
95,4 |
3,5 |
2,0 |
4,7 |
2,7 |
III.26 |
Commission's Administration (T.26) |
|
1 048,1 |
|
995,4 |
95,0 |
29,1 |
2,8 |
23,6 |
2,3 |
III.27 |
Budget (T.27) |
|
508,8 |
|
499,1 |
98,1 |
1,8 |
0,3 |
7,9 |
1,5 |
III.28 |
Audit (T.28) |
|
9,9 |
|
9,1 |
91,8 |
0,2 |
1,7 |
0,6 |
6,4 |
III.29 |
Statistics (T.29) |
|
130,0 |
|
114,1 |
87,7 |
2,0 |
1,6 |
13,9 |
10,7 |
III.30 |
Pensions (T.30) |
|
997,5 |
|
994,5 |
99,7 |
0,0 |
0,0 |
3,0 |
0,3 |
III.31 |
Language Services (T.31) |
|
403,4 |
|
389,8 |
96,6 |
8,5 |
2,1 |
5,1 |
1,3 |
III.40 |
Reserves (T.40) |
|
666,7 |
|
— |
— |
— |
— |
666,7 |
100,0 |
IV |
Court of Justice (S. IV) |
|
274,7 |
|
266,0 |
96,8 |
1,6 |
0,6 |
7,1 |
2,6 |
V |
Court of Auditors (S. V) |
|
121,5 |
|
109,6 |
90,2 |
0,3 |
0,2 |
11,6 |
9,6 |
VI |
Economic and Social Committee (S. VI) |
|
116,3 |
|
106,6 |
91,6 |
0,6 |
0,5 |
9,1 |
7,8 |
VII |
Committee of the Regions (S. VII) |
|
68,2 |
|
65,7 |
96,2 |
0,1 |
0,1 |
2,5 |
3,7 |
VIII |
European Ombudsman (S. VIII) |
|
8,2 |
|
7,4 |
90,5 |
— |
— |
0,8 |
9,5 |
IX |
European Data-protection Supervisor (S. IX) |
|
5,0 |
|
4,3 |
86,1 |
— |
— |
0,7 |
13,9 |
Grand total appropriations for commitments |
124 455,0 |
130 881,1 |
105,2 |
122 798,4 |
93,8 |
4 699,4 |
3,6 |
3 383,3 |
2,6 |
|
Financial Framework (8) |
||||||||||
1 |
Sustainable Growth |
53 978,0 |
56 060,3 |
|
54 255,6 |
96,8 |
782,9 |
1,4 |
1 021,9 |
1,8 |
2 |
Preservation and Management of Natural Resources |
55 142,0 |
58 399,1 |
|
53 121,7 |
91,0 |
3 353,5 |
5,7 |
1 923,9 |
3,3 |
3 |
Citizenship, freedom, security and justice |
1 273,0 |
1 543,8 |
|
1 421,9 |
92,1 |
46,0 |
3,0 |
76,0 |
4,9 |
4 |
EU as a global player |
6 578,0 |
7 142,3 |
|
6 636,8 |
92,9 |
273,7 |
3,8 |
231,8 |
3,2 |
5 |
Administration |
7 039,0 (9) |
7 291,0 |
|
6 917,8 |
94,9 |
243,3 |
3,3 |
129,9 |
1,8 |
6 |
Compensation |
445,0 |
444,6 |
|
444,6 |
100,0 |
— |
— |
— |
— |
Grand total appropriations for commitments |
124 455,0 |
130 881,1 |
105,2 |
122 798,4 |
93,8 |
4 699,4 |
3,6 |
3 383,3 |
2,6 |
|
Grand total appropriations for payments |
122 190,0 |
120 021,4 |
98,2 |
113 953,3 |
94,9 |
4 603,3 |
3,8 |
1 464,8 |
1,2 |
Diagram IV
Appropriations for payments available in 2007 and utilisation thereof
(million euro and %) |
||||||||
Sections (S) and titles (T) corresponding to the 2007 budgetary nomenclature and financial framework headings |
Final appropriations (10) |
Utilisation of appropriations |
||||||
Payments made in 2007 |
Utilisation rate (%) |
Carry-overs to 2008 |
Rate (%) |
Cancellations |
Rate (%) |
|||
(a) |
(b) |
(b)/(a) |
(c) |
(c)/(a) |
(d) = (a) – (b) – (c) |
(d)/(a) |
||
Budgetary nomenclature |
||||||||
I |
Parliament (S. I) |
1 668,2 |
1 329,1 |
79,7 |
308,5 |
18,5 |
30,6 |
1,8 |
II |
Council (S. II) |
741,4 |
557,6 |
75,2 |
163,0 |
22,0 |
20,8 |
2,8 |
III |
Commission (S. III) (11) |
116 974,8 |
111 506,5 |
95,3 |
4 092,6 |
3,5 |
1 375,7 |
1,2 |
III.1 |
Economic and financial affairs (T.01) |
328,7 |
262,1 |
79,7 |
6,9 |
2,1 |
59,6 |
18,1 |
III.2 |
Enterprise (T.02) |
549,7 |
369,8 |
67,3 |
62,5 |
11,4 |
117,3 |
21,3 |
III.3 |
Competition (T.03) |
81,6 |
70,7 |
86,7 |
8,8 |
10,7 |
2,1 |
2,6 |
III.4 |
Employment and social affairs (T.04) |
11 664,4 |
11 547,4 |
99,0 |
27,9 |
0,2 |
89,0 |
0,8 |
III.5 |
Agriculture and rural development (T.05) |
55 802,4 |
53 685,2 |
96,2 |
1 965,0 |
3,5 |
152,1 |
0,3 |
III.6 |
Energy and transport (T.06) |
1 142,3 |
918,8 |
80,4 |
162,8 |
14,3 |
60,7 |
5,3 |
III.7 |
Environment (T.07) |
283,9 |
231,8 |
81,6 |
23,0 |
8,1 |
29,1 |
10,3 |
III.8 |
Research (T.08) |
3 311,8 |
2 678,5 |
80,9 |
609,4 |
18,4 |
24,0 |
0,7 |
III.9 |
Information society and media (T.09) |
1 436,4 |
1 226,7 |
85,4 |
180,8 |
12,6 |
29,0 |
2,0 |
III.10 |
Direct research (T.10) |
656,0 |
405,9 |
61,9 |
238,7 |
36,4 |
11,4 |
1,7 |
III.11 |
Fisheries and maritime affairs (T.11) |
1 248,1 |
1 039,0 |
83,2 |
13,1 |
1,0 |
196,0 |
15,7 |
III.12 |
Internal market (T.12) |
63,9 |
54,4 |
85,2 |
6,5 |
10,2 |
2,9 |
4,6 |
III.13 |
Regional policy (T.13) |
26 693,1 |
26 583,0 |
99,6 |
14,2 |
0,1 |
95,8 |
0,4 |
III.14 |
Taxation and customs union (T.14) |
122,9 |
84,7 |
68,9 |
7,9 |
6,4 |
30,3 |
24,6 |
III.15 |
Education and culture (T.15) |
1 449,8 |
1 260,5 |
86,9 |
162,0 |
11,2 |
27,3 |
1,9 |
III.16 |
Communication (T.16) |
223,1 |
182,8 |
81,9 |
20,8 |
9,3 |
19,5 |
8,7 |
III.17 |
Health and consumer protection (T.17) |
582,5 |
447,8 |
76,9 |
42,6 |
7,3 |
92,1 |
15,8 |
III.18 |
Area of freedom, security and justice (T.18) |
428,4 |
258,8 |
60,4 |
97,5 |
22,8 |
72,1 |
16,8 |
III.19 |
External relations (T.19) |
3 429,3 |
3 264,6 |
95,2 |
67,7 |
2,0 |
97,0 |
2,8 |
III.20 |
Trade (T.20) |
75,8 |
65,1 |
85,9 |
6,4 |
8,5 |
4,3 |
5,7 |
III.21 |
Development and relations with ACP States (T.21) |
1 343,7 |
1 192,8 |
88,8 |
105,8 |
7,9 |
45,1 |
3,4 |
III.22 |
Enlargement (T.22) |
1 793,2 |
1 748,5 |
97,5 |
19,6 |
1,1 |
25,1 |
1,4 |
III.23 |
Humanitarian aid (T.23) |
764,3 |
755,6 |
98,9 |
6,9 |
0,9 |
1,7 |
0,2 |
III.24 |
Fight against fraud (T.24) |
75,0 |
59,7 |
79,6 |
5,8 |
7,8 |
9,4 |
12,6 |
III.25 |
Commission's policy coordination and legal advice (T.25) |
194,4 |
170,2 |
87,5 |
18,5 |
9,5 |
5,7 |
2,9 |
III.26 |
Commission's Administration (T.26) |
1 154,7 |
965,4 |
83,6 |
150,9 |
13,1 |
38,5 |
3,3 |
III.27 |
Budget (T.27) |
517,7 |
497,9 |
96,2 |
10,8 |
2,1 |
9,1 |
1,8 |
III.28 |
Audit (T.28) |
10,8 |
8,9 |
83,0 |
1,0 |
9,4 |
0,8 |
7,5 |
III.29 |
Statistics (T.29) |
133,6 |
102,0 |
76,4 |
12,6 |
9,4 |
18,9 |
14,2 |
III.30 |
Pensions (T.30) |
997,5 |
994,5 |
99,7 |
0,0 |
0,0 |
3,0 |
0,3 |
III.31 |
Language Services (T.31) |
415,9 |
373,4 |
89,8 |
36,0 |
8,7 |
6,5 |
1,6 |
III.40 |
Reserves (T.40) |
— |
— |
— |
— |
— |
— |
— |
IV |
Court of Justice (S. IV) |
288,0 |
264,7 |
91,9 |
14,5 |
5,0 |
8,7 |
3,0 |
V |
Court of Auditors (S. V) |
128,8 |
107,0 |
83,1 |
9,1 |
7,1 |
12,6 |
9,8 |
VI |
Economic and Social Committee (S. VI) |
127,6 |
109,3 |
85,7 |
7,9 |
6,2 |
10,4 |
8,2 |
VII |
Committee of the Regions (S. VII) |
77,7 |
67,5 |
86,9 |
6,2 |
8,0 |
4,0 |
5,1 |
VIII |
European Ombudsman (S. VIII) |
8,6 |
7,3 |
84,0 |
0,6 |
6,4 |
0,8 |
9,6 |
IX |
European Data-protection Supervisor (S. IX) |
6,4 |
4,2 |
66,7 |
1,0 |
16,0 |
1,1 |
17,3 |
Grand total appropriations for payments |
120 021,4 |
113 953,3 |
94,9 |
4 603,3 |
3,8 |
1 464,8 |
1,2 |
|
Financial Framework |
||||||||
1 |
Sustainable Growth |
45 461,8 |
43 713,0 |
96,2 |
1 359,1 |
3,0 |
389,7 |
0,9 |
2 |
Preservation and Management of Natural Resources |
57 019,7 |
54 648,4 |
95,8 |
1 957,7 |
3,4 |
413,6 |
0,7 |
3 |
Citizenship, freedom, security and justice |
1 356,2 |
1 049,8 |
77,4 |
162,6 |
12,0 |
143,8 |
10,6 |
4 |
EU as a global player |
7 779,5 |
7 291,8 |
93,7 |
184,0 |
2,4 |
303,8 |
3,9 |
5 |
Administration |
7 959,5 |
6 805,6 |
85,5 |
940,0 |
11,8 |
214,0 |
2,7 |
6 |
Compensation |
444,6 |
444,6 |
100,0 |
— |
— |
— |
— |
Grand total appropriations for payments |
120 021,4 |
113 953,3 |
94,9 |
4 603,3 |
3,8 |
1 464,8 |
1,2 |
Diagram V
Own resources in 2007, by Member State
Revenue Outturn |
(million euro and %) |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BE |
BG |
CZ |
DK |
DE |
EE |
EL |
ES |
FI |
FR |
IE |
IT |
CY |
LV |
LT |
LU |
HU |
MT |
NL |
AT |
PL |
PT |
RO |
SI |
SK |
SE |
UK (12) |
EU 27 |
— Traditional own resources |
1 685,1 |
60,8 |
178,8 |
329,8 |
3 126,8 |
42,8 |
229,6 |
1 290,1 |
148,9 |
1 332,5 |
218,0 |
1 687,2 |
46,4 |
30,9 |
45,4 |
19,2 |
110,9 |
11,8 |
1 873,5 |
201,1 |
338,4 |
137,1 |
159,2 |
82,5 |
90,5 |
438,4 |
2 657,0 |
16 573,0 |
— VAT resources |
468,5 |
46,3 |
199,9 |
332,8 |
3 635,2 |
26,8 |
697,9 |
1 722,8 |
260,7 |
3 113,8 |
276,4 |
2 030,1 |
25,0 |
35,2 |
47,1 |
53,2 |
137,8 |
9,1 |
936,3 |
409,0 |
508,7 |
269,4 |
162,1 |
55,9 |
84,6 |
486,6 |
3 409,6 |
19 440,8 |
— GNI resources |
1 985,8 |
163,0 |
703,8 |
1 393,5 |
14 653,8 |
95,8 |
1 946,6 |
6 073,4 |
1 087,7 |
11 215,7 |
972,2 |
9 143,7 |
88,2 |
118,0 |
158,3 |
202,2 |
546,7 |
32,5 |
3 400,6 |
1 564,9 |
1 745,6 |
940,1 |
681,7 |
198,3 |
302,5 |
1 948,9 |
12 551,2 |
73 914,8 |
— United Kingdom correction |
232,5 |
20,8 |
84,4 |
162,9 |
294,2 |
11,2 |
145,8 |
751,7 |
132,0 |
1 326,9 |
119,6 |
1 163,2 |
10,7 |
14,9 |
20,1 |
21,2 |
74,9 |
3,6 |
92,4 |
43,0 |
215,8 |
113,9 |
86,4 |
22,6 |
41,6 |
41,3 |
–5 188,9 |
58,9 |
TOTAL |
4 371,9 |
290,8 |
1 167,0 |
2 219,0 |
21 710,0 |
176,7 |
3 019,9 |
9 838,2 |
1 629,4 |
16 988,9 |
1 586,4 |
14 024,2 |
170,3 |
199,0 |
271,0 |
295,8 |
870,2 |
57,0 |
6 302,8 |
2 218,1 |
2 808,6 |
1 460,4 |
1 089,4 |
359,4 |
519,2 |
2 915,2 |
13 429,0 |
109 987,5 |
|
4,0 % |
0,3 % |
1,1 % |
2,0 % |
19,7 % |
0,2 % |
2,7 % |
8,9 % |
1,5 % |
15,4 % |
1,4 % |
12,8 % |
0,2 % |
0,2 % |
0,2 % |
0,3 % |
0,8 % |
0,1 % |
5,7 % |
2,0 % |
2,6 % |
1,3 % |
1,0 % |
0,3 % |
0,5 % |
2,7 % |
12,2 % |
100,0 % |
Diagram VI
Payments made in 2007, in each Member State (13)
Note: Payments made in 2007 = payments against 2007 operating appropriations plus payments against carry-overs from 2006.
Financial framework headings |
(million euro and %) |
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BE |
BG |
CZ |
DK |
DE |
EE |
EL |
ES |
FI |
FR |
IE |
IT |
CY |
LV |
LT |
LU |
HU |
MT |
NL |
AT |
PL |
PT |
RO |
SI |
SK |
SE |
UK |
Third Countries and misc. (14) |
Total |
— Sustainable Growth |
998,8 |
161,7 |
952,5 |
214,5 |
5 034,1 |
226,8 |
4 704,8 |
5 683,7 |
400,3 |
3 089,6 |
344,5 |
5 055,5 |
41,9 |
449,8 |
507,6 |
163,9 |
1 351,6 |
54,0 |
578,3 |
401,1 |
4 323,1 |
2 552,8 |
450,9 |
185,9 |
667,3 |
459,4 |
2 949,7 |
1 707,7 |
43 713,0 |
Competitiveness |
653,0 |
16,8 |
34,2 |
85,3 |
722,3 |
10,1 |
112,2 |
254,1 |
78,3 |
640,3 |
80,8 |
603,1 |
7,5 |
12,5 |
42,0 |
150,8 |
47,4 |
4,9 |
326,9 |
136,4 |
106,0 |
96,8 |
29,5 |
23,9 |
32,1 |
155,9 |
592,7 |
1 683,4 |
6 739,0 |
Cohesion |
346,9 |
144,9 |
918,3 |
129,3 |
4 311,8 |
216,8 |
4 592,6 |
5 429,6 |
322,0 |
2 449,3 |
263,7 |
4 452,5 |
34,4 |
437,2 |
465,5 |
13,1 |
1 304,2 |
49,1 |
251,4 |
264,7 |
4 217,1 |
2 456,1 |
421,4 |
162,0 |
635,2 |
303,5 |
2 357,0 |
24,3 |
36 974,0 |
— Preserv. of Natural Resources |
925,6 |
6,6 |
717,1 |
1 173,3 |
6 905,9 |
121,6 |
3 644,5 |
7 042,6 |
977,9 |
10 378,7 |
1 841,3 |
6 152,2 |
61,0 |
186,4 |
483,0 |
55,6 |
956,4 |
8,7 |
1 229,4 |
1 130,4 |
3 114,3 |
1 341,3 |
24,2 |
180,3 |
380,5 |
1 117,2 |
4 328,9 |
163,6 |
54 648,4 |
— Citiz., freedom, sec. and justice |
91,0 |
3,3 |
18,1 |
8,7 |
234,4 |
9,3 |
19,3 |
27,3 |
11,0 |
99,6 |
7,2 |
88,4 |
9,0 |
10,0 |
15,8 |
10,6 |
37,4 |
11,4 |
39,6 |
26,9 |
89,2 |
21,3 |
4,4 |
9,2 |
13,9 |
45,1 |
42,9 |
45,7 |
1 049,8 |
— EU as a global player |
124,8 |
279,2 |
15,5 |
4,4 |
47,5 |
8,3 |
4,6 |
21,7 |
1,6 |
18,2 |
0,8 |
34,0 |
7,9 |
20,8 |
25,7 |
1,3 |
62,5 |
1,7 |
8,5 |
10,9 |
228,0 |
1,9 |
805,7 |
7,7 |
9,9 |
6,9 |
25,8 |
5 506,1 |
7 291,8 |
— Compensation |
— |
129,3 |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
— |
315,4 |
— |
— |
— |
— |
— |
444,6 |
TOTAL |
2 141,2 |
580,0 |
1 703,2 |
1 400,9 |
12 221,9 |
366,1 |
8 373,1 |
12 775,3 |
1 390,8 |
13 586,0 |
2 193,9 |
11 330,1 |
119,8 |
667,0 |
1 032,1 |
231,4 |
2 407,9 |
75,8 |
1 855,8 |
1 569,3 |
7 754,6 |
3 917,3 |
1 600,6 |
383,1 |
1 071,6 |
1 628,6 |
7 347,2 |
7 423,1 |
107 147,7 |
|
2,0 % |
0,5 % |
1,6 % |
1,3 % |
11,4 % |
0,3 % |
7,8 % |
11,9 % |
1,3 % |
12,7 % |
2,0 % |
10,6 % |
0,1 % |
0,6 % |
1,0 % |
0,2 % |
2,2 % |
0,1 % |
1,7 % |
1,5 % |
7,2 % |
3,7 % |
1,5 % |
0,4 % |
1,0 % |
1,5 % |
6,9 % |
6,9 % |
100,0 % |
Diagram VII
Consolidated balance sheet
(million euro) |
||
|
31.12.2007 |
31.12.2006 |
Non-current assets: |
||
Intangible assets |
44,0 |
37,0 |
Property, plant and equipment |
4 523,0 |
4 586,0 |
Long-term investments |
1 973,0 |
2 157,0 |
Loans |
1 806,0 |
2 023,0 |
Long-term pre-financing |
14 015,0 |
22 425,0 |
Long-term receivables |
127,0 |
328,0 |
|
22 488,0 |
31 556,0 |
Current assets: |
||
Inventories |
88,0 |
115,0 |
Short-term investments |
1 420,0 |
1 426,0 |
Short-term pre-financing |
20 583,0 |
8 055,0 |
Short-term receivables |
12 051,0 |
9 796,0 |
Cash and cash equivalents |
18 756,0 |
16 384,0 |
|
52 898,0 |
35 776,0 |
Total assets |
75 386,0 |
67 332,0 |
Non-current liabilities: |
||
Employee benefits |
–33 480,0 |
–32 200,0 |
Long-term provisions |
–1 079,0 |
– 989,0 |
Long-term financial liabilities |
–1 574,0 |
–1 862,0 |
Other long-term liabilities |
–1 989,0 |
–2 020,0 |
|
–38 122,0 |
–37 071,0 |
Current liabilities: |
||
Short-term provisions |
– 369,0 |
– 379,0 |
Short-term financial liabilities |
– 135,0 |
–20,0 |
Accounts payable |
–95 380,0 |
–94 080,0 |
|
–95 884,0 |
–94 479,0 |
Total liabilities |
– 134 006,0 |
– 131 550,0 |
Net assets |
–58 620,0 |
–64 218,0 |
Reserves |
2 806,0 |
2 855,0 |
Amounts to be called from Member States: |
|
|
Employee benefits (long-term) |
–33 480,0 |
–32 200,0 |
Other amounts |
–27 946,0 |
–34 873,0 |
Net assets |
–58 620,0 |
–64 218,0 |
Diagram VIII
Consolidated economic outturn account
(million euro) |
||
|
31.12.2007 |
31.12.2006 |
Operating revenue |
||
Own resource and contributions revenue |
112 084 |
105 118 |
Other operating revenue |
9 080 |
8 368 |
|
121 164 |
113 486 |
Operating expenses |
||
Administrative expenses |
–7 120 |
–6 619 |
Operating expenses |
– 104 682 |
– 106 803 |
|
– 111 802 |
– 113 422 |
Surplus from operating activities |
9 362 |
64 |
Financial revenue |
674 |
621 |
Financial expenses |
– 354 |
– 331 |
Movement in employee benefits liability |
–2 207 |
108 |
Share of net surplus (deficit) of associates and joint ventures |
–13 |
– 265 |
Economic outturn for the year |
7 462 |
197 |
(1) Revenue contribution by CZ, RO, HU, SK, SI, LU, BG, LT, LV, EE, CY, MT was grouped together.
(2) After amending budgets.
(3) After amending budgets and transfers between budget headings.
(4) Assigned revenue, appropriations made available again and carried over.
(5) Final budget appropriations after taking account of transfers between budget headings, appropriations corresponding to assigned revenue or similar and appropriations carried over from the previous financial year. As a consequence the ceiling for some financial framework headings is exceeded by the available appropriations.
(6) Including appropriations corresponding to assigned revenue or similar.
(7) For Section III (Commission) the titles (T) correspond to the activities/policy areas as defined by the institution for implementing activity based budgeting (ABB).
(8) The ceilings of the financial framework headings comprise the adjustement foreseen in the point 48 of the Interinstitutional Agreement of 2006.
(9) The Interinstitutional Agreement of 2006 states in its annex that the ceiling for this heading is presented net of staff contributions to the pension scheme, up to a maximum of 500 million euro at 2004 prices for the period 2007-2013. In 2007 this reduction amounts to 75,8 million euro.
(10) Final budget appropriations after taking account of transfers between budget headings, appropriations relating to assigned revenue or similar and appropriations carried over from the previous financial year.
(11) For Section III (Commission) the titles (T) correspond to the activities/policy areas as defined by the institution for implementing activity based budgeting (ABB).
(12) For the United Kingdom a correction (5 188,9 million euro) is applied to the gross amount of own resources (18 617,8 million euro). The financing of this adjustment is borne by the other Member States.
This correction was solely assigned to the VAT and GNI elements of gross own resources in accordance with their respective amounts.
(13) The geographical breakdown is not by payments made to the Member States but by expenditure according to the data in the Commission's computerised accounting system ABAC.
(14) The amounts under ‘Third Countries and miscellaneous’ mainly include expenditure related to the projects implemented outside the Union and participation by third countries. Expenditure in respect of which the geographical distribution could not be made is also included.
ANNEX II
List of Special Reports adopted by the Court of Auditors since the last Annual Report:
— |
Special Report No 6/2007 on the effectiveness of technical assistance in the context of capacity development |
— |
Special Report No 7/2007 on the control, inspection and sanction systems relating to the rules on conservation of Community fisheries resources |
— |
Special Report No 8/2007 concerning administrative cooperation in the field of value added tax |
— |
Special Report No 9/2007 ‘Evaluating the EU Research and Technological Development (RTD) framework programmes — could the Commission's approach be improved?’ |
— |
Special Report No 1/2008 concerning the procedures for the preliminary examination and evaluation of major investment projects for the 1994-1999 and 2000-2006 programming periods |
— |
Special Report No 2/2008 concerning Binding Tariff Information (BTI) |
— |
Special Report No 3/2008 — The European Union Solidarity Fund: how rapid, efficient and flexible is it? |
— |
Special Report No 4/2008 concerning the implementation of milk quotas in the Member States which joined the European Union on 1 May 2004 |
— |
Special Report No 5/2008 — The European Union's agencies: Getting results |
— |
Special Report No 6/2008 concerning European Commission Rehabilitation Aid following the Tsunami and Hurricane Mitch |
— |
Special Report No 7/2008 — Intelligent Energy 2003-2006 |
These reports can be accessed for consultation or downloading on the European Court of Auditors' website: www.eca.europa.eu
A paper copy or a CD-ROM version may be obtained on request to the Court of Auditors:
European Court of Auditors |
Communication and Reports Unit |
12 rue Alcide De Gasperi |
L-1615 Luxembourg |
Tel: + (352) 4398-1 |
e-mail: euraud@eca.europa.eu |
or by filling in an electronic order form on EU-Bookshop.