I.

Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU) the Court has audited:

II.

In accordance with Articles 310 to 325 of the TFEU and the Financial Regulation, management is responsible for the preparation and presentation of the consolidated accounts of the European Union on the basis of internationally accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Union (Article 317 of the TFEU).

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 transactions underlying them. 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. These standards require that the Court plans and performs the audit to obtain reasonable assurance as to whether the consolidated accounts of the European Union 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 judgment, including an 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 Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the consolidated accounts and legality and regularity of underlying transactions, is considered in order to design audit procedures that are appropriate in the circumstances but not for the purposes of expressing an opinion on the effectiveness of internal control. 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.

V.

For revenue, the Court’s examination of Value Added Tax and Gross National Income-based own resources takes as its starting point the relevant macroeconomic aggregates on which these are calculated, and assesses the Commission's systems for processing these until the contributions of the Member States have been received and recorded in the consolidated accounts. For traditional own resources, the Court examines the accounts of the customs authorities and analyses the flow of duties until the amounts are received by the Commission and recorded in the accounts.

VI.

For expenditure, the Court examines payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) other than advances at the point they are made. Advance payments are examined when the recipient of funds provides justification for their proper use and the Institution or body accepts the justification by clearing the advance payment, whether in the same year or later.

VII.

The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its opinions.

VIII.

In the Court's opinion, the consolidated accounts of the European Union for the year ended 31 December 2013 present fairly, in all material respects, the financial position of the Union as at 31 December 2013, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with the Financial Regulation and with accounting rules based on internationally accepted accounting standards for the public sector.

IX.

In the Court’s opinion, revenue underlying the accounts for the year ended 31 December 2013 is legal and regular in all material respects.

X.

In the Court’s opinion, commitments underlying the accounts for the year ended 31 December 2013 are legal and regular in all material respects.

XI.

All policy groups covering operational expenditure are materially affected by error. The Court’s estimate for the most likely error rate for expensed payments underlying the accounts is 4,7 %. The supervisory and control systems examined were partially effective in ensuring the legality and regularity of payments underlying the accounts.

XII.

In the Court’s opinion, because of the significance of the matters described in the basis for adverse opinion on the legality and regularity of payments underlying the accounts paragraph, the payments underlying the accounts for the year ended 31 December 2013 are materially affected by error.

1.1.

The European Union (EU) budget is the instrument for financing EU policy objectives. EU spending amounts to around one per cent of EU gross national income (around 290 euro for every EU citizen in 2013). This represents approximately two per cent of total public spending of EU Member States. Graph 1.1 compares the total implemented EU budget of 2013 with the public spending (3) of EU Member States in 2013.

1.2.

EU spending is dominated by two types of expenditure:

1.3.

The role of the European Court of Auditors includes:

The first two of these responsibilities are met through publication of the Statement of Assurance (4) (see paragraph 1.5).

1.4.

This chapter of the annual report:

1.5.

The Court of Auditors provides the European Parliament and the Council with a Statement of Assurance concerning the reliability of the accounts and the regularity of the underlying transactions. The Court supplements this statement with specific assessments of each major area of EU activity. These specific assessments do not constitute audit opinions; they present significant issues specific to each policy group. The conclusion of each specific assessment is based on the overall audit evidence gathered at the level of the policy group.

1.6.

The aim of the work on the reliability of the accounts of the European Union is to obtain sufficient appropriate evidence to conclude on the extent to which revenue, expenditure, assets and liabilities have been properly recorded and that the consolidated accounts (see extract in Annex 1.3 ) properly present the financial position at 31 December 2013, and the revenue, expenses, cash flows and changes in net assets for the year then ended (see paragraphs 1.9 to 1.11).

1.7.

The aim of the work on the regularity of the transactions underlying the 2013 consolidated accounts is to obtain sufficient appropriate evidence to conclude on whether those transactions are in accordance with the applicable regulations or contractual provisions, and have been correctly calculated (see paragraphs 1.16 to 1.24 for an overview of the results and chapters 2 to 9 for more details).

1.8.

The aim of the examination of the annual activity reports of the Commission’s services and of the related synthesis report is to assess the extent to which they provide a fair assessment of the quality of financial management, and thus help form a view of the reliability of the accounts and the regularity of revenue and expenditure (see paragraphs 1.25 to 1.40 and related observations in the sections ‘Examination of selected control systems’ in chapters 2 to 9 (5)).

1.9.

The Court's observations concern the consolidated accounts of the European Union for the financial year 2013 prepared by the Commission's accounting officer, approved by the Commission in compliance with the Financial Regulation (6) and received, together with the accounting officer‘s letter of representation, by the Court on 31 July 2014. The consolidated accounts comprise:

1.10.

As part of the audit of the 2013 financial statements, the Court used the services of an independent actuary to examine the calculation and disclosure of employee benefits covered by the Pension Scheme of European Officials. This supports the Court’s overall conclusion on the 2013 consolidated accounts. However the work performed indicates a need for the Commission to improve the reliability of source data and to ensure it has the appropriate technical resources necessary for the assessment of this liability.

1.10.

1.11.

The Court’s audit of the 2013 consolidated accounts found that these were free from material misstatements (see also Annex 1.2 ).

1.12.

Ongoing developments in EU financial management include the growing use of net corrections and of financial instruments. This means that the Commission will face growing challenges in presenting reliable financial information. These include:

1.12.

(a)

reflecting within the accounts the extended use of net financial corrections in the area of cohesion, distinguishing these from other corrective mechanisms, and providing information on the differing impact of the various corrective mechanisms in its annual communication on the protection of the EU budget (7) (see paragraph 1.13);

(a)

Amounts resulting from the extended use of net financial corrections in the area of Cohesion will be reflected in the accounts applying common accounting procedures.

(b)

introducing new procedures for recording the operation of all corrective mechanisms presented in Note 6 within conventional accounting systems, and confirming the timing, origin and nature of these mechanisms with the bodies concerned (see paragraph 1.14);

(b)

The Commission will review the procedures in place taking into account the new reporting requirements but considers that transactions linked to the exchange of ineligible against eligible projects/expenditure by Member States have in the first place to be recorded in the national accounting systems. As regards the new regulatory framework on net financial corrections, see reply to paragraph 1.12(a).

(c)

completing the process of recording and measuring financial instruments and financial engineering instruments in accordance with international public sector accounting standards (as required by Article 140(11) of the Financial Regulation), in particular through reliable procedures for identifying and recording impairment;

(c)

The Commission has a reporting process for financial instruments in place on the basis of EU accounting rule 11 which is in line with IPSAS. It has issued guidelines for fiduciary accounts as well as detailed year-end reporting requirements in Financial and administrative framework (FAFA) agreements with EIB and EIF.

(d)

obtaining information on cash held pending initial use (see paragraph 1.48); and

(d)

The Commission will examine together with Member states how information could be further improved in the way the Court suggests, bearing in mind cost-benefit considerations.

(e)

ensuring that all Commission services clear advances only on the basis of incurred expenditure, supported by reliable information from recipients (see chapter 7, paragraph 7.25, recommendation 1).

(e)

The existing accounting rules and guidance already communicated to DGs clarify the correct treatment to be followed for clearings.

1.13.

Summarised figures for financial corrections are presented in Note 6 to the EU consolidated accounts. These are further elaborated in an annual Commission communication on the protection of the EU budget. At present, neither Note 6 nor the annual Commission communication summarises the varying impact of a number of different corrective adjustments:

1.13.

(a)

(b)

(c)

(c)

See reply to paragraph 1.12(a).

1.14.

The information presented in Note 6 focusses on the Commission’s supervisory role and includes figures both on annual and cumulative (8) bases. However, the mechanisms summarised in the note:

(a)

involve many actors from national authorities and Commission services;

(a)

This is the nature/set-up of the shared management system.

(b)

take several years to complete (in particular for cohesion spending, where around four fifth of corrections made during the years 2007 to 2013 relate to operational programmes of earlier periods, see Graph 1.2 ); and

(b)

See reply to paragraph 1.18.

(c)

are for cohesion largely recorded outside the accounting system of the Commission.

(c)

The Commission would point out that the information is partly recorded outside of the Commission's accounting system in accordance with the underlying legal basis and the fact that such transactions are transactions of the Member State, not the Commission.

1.15.

It is therefore important that the Commission puts in place sound procedures for confirming the timing, the origin and the amount of corrective measures with the Member States that give greater assurance on the accuracy of the figures presented in the accounts and in the annual communication on the protection of the EU budget.

1.15.

1.16.

The Court presents its audit results on revenue in chapter 2 and on expenditure in chapters 3 to 9 (see Table 1.1 ).

1.17.

The 2013 audit results indicate that revenue (1 49  504 million euro) and transactions in the policy group administrative and related expenditure (10  600 million euro) were free from material error and that the examined supervisory and control systems were effective (see Table 1.2 and paragraphs 2.27 and 9.18). All policy groups covering operational expenditure were affected by material error (see paragraphs 3.44, 4.35, 5.61 to 5.62, 6.39 to 6.40, 7.22 to 7.23 and 8.33 to 8.34). Commitments were free from material error.

1.17.

1.18.

The Court concludes that, overall, payments (9) were materially affected by error and that the supervisory and control systems examined were, in general, partially effective (see Table 1.2 ).

1.18.

—

Chapter 3 — Agriculture — Market and Direct Support: 637 million euro of financial corrections and recoveries (1,4 % of the payments made),

—

Chapter 4 — Rural development, Environment, Fisheries and Health: 476 million euro of financial corrections and recoveries (3,2 % of the payments made),

—

Chapter 5 — Regional policy, Energy and Transport: 1  029 million euro of financial corrections and recoveries implemented (2,3 % of the payments made),

—

Chapter 6 — Employment and Social Affairs: 898 million euro (6,4 % of total payments made) ,

—

Chapter 7 — External relations, Aid and Enlargement: 93 million euro (1,5 % of total payments made),

—

Chapter 8 — Research and Other Internal Policies: 197 million euro (1,5 % of total payments made) and

—

Chapter 9 — Administrative expenditure: 3 million euro (0 % of payments made).

1.19.

This year’s results show a material level of error in most parts of the budget, close to that of 2012. Overall, the estimated error rate for 2013 is 4,7 %, a decrease of 0,1 percentage points. A significant factor in 2013 has been the increased impact of corrective measures applied by the Member States and the Commission. If these corrective measures had not been applied to transactions sampled by the Court, the overall estimated level of error would have been 1,6 percentage points higher.

1.19.

1.20.

The relatively stable results have been achieved in a year in which spending on the most error prone expenditure (cohesion) increased markedly.

1.21.

Other factors with an impact on the 2013 estimated level of error include:

—

the decrease in incidence of public procurement errors (although it still accounts for one fifth of the estimated level of error, see paragraph 1.22 and Graph 1.4 );

—

for cross-compliance a high number of errors (more than a quarter of farmers visited who were subject to cross-compliance requirements failed to observe one or more of them) and a wider coverage of cross-compliance meant that they contributed 0,2 percentage points to the overall error rate (2012: 0,1 percentage points);

1.22.

Eligibility errors in reimbursement expenditure dominate the errors detected by the Court in 2013. Ineligible costs included in cost claims contributed 1,8 percentage points (2012: 1,0), the category ineligible projects, activities and beneficiaries contributed a further 1,1 percentage points (2012: 1,1) to the total level of error and serious breaches of public procurement rules (mostly related to reimbursement expenditure but also affecting some administrative expenditure) contributed a further 1,0 percentage point (2012: 1,4). The key source of error for entitlement expenditure were incorrect declarations by farmers, which contributed 0,6 percentage points (2012: 0,8) to the overall level of error (see Graph 1.4 ).

1.22.

1.23.

A breakdown of the overall estimated error by chapter shows that ‘Regional policy, transport and energy’ (chapter 5) contributes around two fifths of the overall estimated error, ‘Agriculture: market and direct support’ (chapter 3) contributes around one quarter and ‘Rural development, environment, fisheries and health’ (chapter 4) contributes around one seventh (see Graph 1.5 ). There are no significant changes in this distribution compared to 2012.

1.24.

The Court calculates that the estimated rate of error taken as a whole on shared management expenditure amounts to 5,2 % (2012: 5,3 %) and on all other forms of operational expenditure (11) is 3,7 % (2012: 4,3 %). The estimated rate of error for administrative expenditure is 1 % in 2013 (2012: 0 %).

1.25.

The Commission requires directors-general (12) to provide declarations of assurance on the legality and regularity of underlying transactions in their annual activity reports (13) (performance reporting within the framework of annual activity reports is discussed in chapter 10). When they are unable to give assurance on a significant segment of spending, they issue a reservation. Directors-general should qualify their assurance where:

1.26.

In 2013 the Secretariat-General and the DG Budget updated guidance (14) on drafting and presenting information in the annual activity reports and the basis for reservations. Annual activity reports now aim to present a consistent message in three layers of information: (1) a summary, (2) description of achievements, management and assessments and (3) detailed annexes. A new element in the guidance requires directors-general to identify areas of persistently high error. This guidance also responds to the requirement in the Financial Regulation that the Commission should take or propose appropriate action where the level of error is persistently high (15).

1.27.

Directors-general made a total of 17 quantified reservations in 2013 compared to 23 in 2012 (see Table 1.3 ).The biggest factor in the reduction in the number of reservations was the drop in the level of payments under Sixth Framework Programme (FP6) and cohesion 2000-2006 operational programmes (16) (subject to five quantified reservations (17) in 2012 but none in 2013). The DGs responsible will still need to clear expenditure claims for these programmes (18).

1.28.

In the light of observations by the Court (19) and the Internal Audit Service, the Director-General for Agriculture and Rural Development introduced two new reservations. The additional reservations and the adjusted quantification of continuing reservations in the annual activity report of DG Agriculture and Rural Development provide a more realistic view of the policy area compared to last year. However, the Court notes the limitations to the approach followed (paragraphs 3.39 to 3.43).

1.28.

1.29.

Changes in presentation introduced in 2013 mean that annual activity reports provide more than one estimate of ‘amounts at risk’ (itself a complicated concept, see paragraphs 1.31 and 1.32). The error rate on which this calculation is based lies, however, in the lower end of the range estimated by the Court. While risk rates in the key area of cohesion are reported across a range of possible outcomes (20), the executive summary focusses upon a lower figure (21) (see chapter 3, paragraph 3.42, chapter 5, paragraphs 5.46, 5.47, 5.51, 5.52, 5.57, and chapter 6, paragraphs 6.34 to 6.38).

1.29.

1.30.

Two directorates-general (22) were subject to a ‘limited review’ and three to a follow up review (23) carried out by the Commission’s Internal Audit Service (IAS). The limited review of the residual error rate for DG Regional and Urban Policy found the system for checking and correcting Member State error rates to be relatively well planned, but that there were nevertheless significant uncertainties and weaknesses in the figures. For DG Agriculture and Rural Development the IAS found that the director-general has a more solid basis for providing assurance compared to 2012. However arrangements for collecting, processing and reporting information still need to be improved.

1.30.

1.31.

Table 1.3 presents two ‘amounts at risk taken from the annual activity reports’. The higher amount, totalling 4  179 million euro (24) is the amount mentioned in section 4.1 of the synthesis report (see paragraph 1.35). Presentation of this figure represents an improvement compared to 2012 (see paragraph 1.36). The lower amount (2  437 million euro) is the quantification of reservations, made by the directors-general in the annual activity reports.

1.31.

1.32.

The Court considers that some annual activity reports may underestimate ‘amounts at risk’. Thus the Commission’s assessment of different areas of spending, and identification of areas of persistently high error, may not be sufficiently robust (see paragraph 1.29).

1.32.

1.33.

The Commission adopted the ‘synthesis report’ (25) on 11 June 2014. The synthesis report was originally developed as part of internal accountability arrangements of the Commission, but it is also sent to the European Parliament and Council and made publicly available (26) (external accountability).

1.34.

As indicated in the 2012 annual report (27) the synthesis report is not subject to audit by the Court. It is finalised in accordance with a timetable set out in the Financial Regulation, but too late for it to be a significant input to the work of the Court. The following comments relate to its observations made in the 2012 annual report and the cost-effectiveness of control procedures.

1.35.

The 2013 synthesis report contains a description and overview of amounts at risk (comparable to Table 1.3 ). It notes that the financial scope of the reservations made by the directors-general increased compared with 2012. The amounts at risk (see paragraphs 1.29 to 1.32) correspond to 2,8 % (28) of all expenditure disbursed (both from the EU budget and through the European Development Fund). The Commission thus recognises that spending is affected by a material level of error. In key areas of spending, the Commission bases this evaluation on assessments of directors-general that are lower than the level estimated by the Court. In the Court’s view differences in the level of detected error are a key reason for the differing figures presented by the Court for estimated error, and the Commission for ‘amounts at risk’.

1.35.

1.36.

Alongside the synthesis report the Commission provides a one-page annex on the calculation of amounts at risk. This explains ‘amounts at risk’ as ‘the value of the fraction of the transactions which is estimated not to be in full conformity with the applicable regulatory and contractual requirements after the application of all controls (corrective measures) intended to mitigate compliance risks’. It would be useful for external readers to be informed of the nature and financial impact of these ‘corrective measures’. The Court will consider further examination of the calculation of amounts at risk in future audit work, taking account of the work of the Commission’s internal audit service.

1.36.

1.37.

The synthesis report considers the cost-effectiveness of control systems in section 3.4. This element responds to a new requirement, stemming from the 2012 revision of the financial regulation. While the analysis presented in the body of the report is provisional (29), and looks to further updates in methodology, the executive summary provides some firm conclusions. The Commission concludes that for direct management ‘more detailed controls are costly and […] additional controls should be performed only where the potential benefits can be shown to outweigh the costs to the Commission and the beneficiaries’. For shared management, the Commission concludes that ‘Member States should make maximum use of all available instruments to prevent errors’.

1.37.

1.38.

The report does not contain information on costs supporting the conclusions it presents for direct management (where ‘more detailed controls are costly’) and for shared management (where Member States are urged to ‘make maximum use of all available instruments’). The synthesis report does not discuss the challenge of programmes with persistently high level of error (see paragraph 1.26).

1.39.

The Court looks forward to further improvements in the synthesis report in future years. In particular the Commission should consider further clarifying the calculation of amounts at risk, and explaining the estimated impact of corrective mechanisms on this figure. Clarification of these points will assist the Commission in reaching conclusions on areas suffering from persistently high levels of error, on which more fundamental reconsideration is required (see paragraph 1.26).

1.39.

1.40.

Some other areas for improvement identified by the Court in 2012 remain relevant. Presentation of the synthesis report in accordance with the timetable set out in Article 66 of the Financial Regulation means that it is too late to have a significant impact on the Court’s conclusions. In addition the report — while now clearer on the material impact of irregularity — does not have to and does not include an explicit declaration (30) of the kind made in other areas.

1.40.

1.41.

Key features of EU budgetary and financial management in 2013 included:

(d)

a persistently lengthy period from initial commitment to acceptance of expenditure in several areas of spending;

(e)

a significant volume of funds charged to the budget but not disbursed to final recipients; and

(f)

delays in recording repayments as budgetary revenue.

1.42.

The initial budget for 2013 fixed a limit for payments of 132,8 billion euro. Nine amending budgets were approved during the year. In particular amending budgets 2 and 8 (31) added 11,2 billion euro to permitted spending for the year. In total, amending budgets and adjustments for carry-overs brought appropriations for payment in the annual budget to 145,5 billion euro (32) (6,3 % higher than in 2012). The additional budget for cohesion (Heading 1b, 9,2 billion euro) was an increase of 17 % on the previous year.

1.43.

The Multiannual Financial Framework set a maximum level for commitments which could be budgeted for 2013 of 153,3 billion euro, and a maximum level for payments of 144,6 billion euro (33). The final budget set a limit close to the maximum permitted under the financial framework (99,3 % of the maximum for commitments and 99,9 % of the maximum for payments). The final outturn for both commitments and payments was in turn close to the limits set in annual budget — and therefore the financial framework — with payments reaching 98,8 % of the financial framework ceiling.

1.44.

The budgetary result for the year was positive as revenue (essentially own resources received from the Member States) exceeded payments by 1,0 billion euro in 2013 (as in 2012). This budgetary surplus will offset calls for own resources from Member States in 2014. However the economic result (drawn up on an accrual basis) is negative, reflecting an increase in net liabilities of 5,4 billion euro (see Annex 1.3 , tables 1 and 6). Key factors were the increase in accrued expenses and in provisions.

1.45.

Taking outstanding commitments and outstanding liabilities together, the amount to be funded from future budgets increased from 313 billion euro at 31 December 2012 to 322 billion euro at 31 December 2013. Of the 322 billion euro, 222 billion euro represent outstanding budgetary commitments and 99 billion euro (34) relate to balance sheet liabilities not covered by outstanding commitments. Outstanding commitments for cohesion (Heading 1b) make up 61,6 % of the total (see Graph 1.6 ).

1.46.

On average more than two years elapse before a commitment becomes a payment. The liquidation of a commitment by a payment does not necessarily end the process of recording expenditure. The Commission records final expenditure by clearing prefinancing. This takes place only when activities have been undertaken, reported to it, and accepted. Table 1.4 shows the level of prefinancing disbursements on which the Commission has not yet accepted and validated final use by beneficiaries. Gross prefinancing amounted to 79,4 billion euro at the end of 2013.

1.46.

1.47.

Table 1.4 shows that the longest average period from commitment to acceptance of expenditure is for Heading 4 (EU as a global player), where for a typical operation 4 years elapse between a commitment being made, and the Commission recording the final related expenditure.

1.48.

In the latest Commission report (35) on structural fund financial engineering instruments (FEIs) (dated September 2013), describing the situation as at the end of 2012 only 37 % of amounts paid to FEIs were paid out to final beneficiaries. The EU had contributed 8,4 billion euro to these funds as at the end of 2012. Considering the pressure on the budget for payments and the Financial Regulation which states in Article 140(7) that excessive balances should be avoided on financial instruments, the Commission should look critically at the flow of payments towards these instruments. It should also keep sums held on fiduciary accounts to the lowest level consistent with expected cash flow demands over the following year.

1.48.

1.49.

At 31 December 2013, reflows (36) from MEDA (37) loans and risk capital operations amounting to 259 million euro had accumulated and remained in a fiduciary account at the EIB and had not been treated as budgetary revenue. Initially these reflows were regularly transferred by the EIB to the Commission. However, at the request of the Commission (38), the transfer of reflows to the budget was suspended in 2008. As a result reflows after this date were not returned to the EU budget as revenue.

1.49.

—

110 million EUR will be used to reinforce the ECFIN Guarantee Fund (for the EIB). The current status is that the EIB has been asked to return these funds to the Commission,

—

the balance of the reflow funds (151 million euro) has already been repaid by the EIB and has been returned to the general budget.

1.50.

The continued increase in sums to be funded from future budgets (see paragraph 1.45), despite the increase in payments in 2013, further supports the view expressed by the Court in its 2012 annual report. The Court continues to consider that the Commission should prepare and publish annually a long range cash flow forecast (39). This would assist stakeholders in assessing future payment requirements and budgetary priorities. It would also assist the Commission to take the decisions needed to ensure that essential payments can be met from approved annual budgets.

1.50.

2.1.

This chapter presents the specific assessment of revenue, which comprises own resources and other revenue. Key information on revenue in 2013 is provided in Table 2.1 .

2.2.

Most revenue comes from own resources (93,7 % of revenue) (1) of which there are three categories:

2.3.

The principal risks in respect of other revenue include the Commission’s management of fines and errors in the calculation of contributions in connection with Union/Community agreements.

2.4.

Annex 1.1 , part 2 , of chapter 1 describes the Court's overall audit approach and methodology. For the audit of revenue, the following specific points should be noted:

2.5.

Annex 2.1 contains a summary of the results of transaction testing. Out of the 55 transactions audited by the Court none was affected by error.

2.6.

Annex 2.2 contains a summary of the results of the systems examined by the Court.

2.7.

A reservation (11) is a means by which a doubtful element in GNI data submitted by a Member State can be kept open for correction after the statutory time-limit of four years. The use of reservations is thus part of the internal control process. The Commission and Member States should endeavour to resolve doubtful elements as soon as possible.

2.8.

At the end of 2013 there were 114 specific reservations in place (see Table 2.2 ). In the course of 2013 there were 21 specific reservations set (12) and 12 lifted. There is still one specific GNP reservation outstanding relating to the period 1995 — 2001. The financial effect of GNI and GNP reservations lifted in 2013 has been calculated by the Court (13) as a net reduction in contributions for the Member States concerned of 583,5 million euro (14).

2.9.

In addition to specific GNI reservations the Commission has set specific transversal reservations. These reservations are defined by the Commission as points notified to all Member States to enable the Commission to make a comparison of the underlying compilation of data. Two new transversal reservations (15) were set in 2013 (adding up to eight the number of open transversal reservations). For the six transversal reservations already in place, the Commission started the process of lifting them (for three this has led to lifting in some Member States (16)).

2.9.

2.10.

The only general reservation in place at the end of 2013 was on Greek GNI data covering the years 2008 and 2009. The reservation for the year 2008 was set in 2012 because the data for that year was based on preliminary estimates. It could not be lifted in 2013 as Greece did not provide the Commission with any new information. It had to be extended to 2009 to prevent time-barring (see paragraph 2.2, first indent) as the data for that year was still based on preliminary estimates.

2.10.

2.11.

The Commission is closely following the situation regarding the problems in Greece’s compilation of national accounts, including carrying out regular visits. The Court welcomes the fact that the Commission is placing general reservations on the Greek GNI data and thus safeguarding the financial interests of the EU. However, the prolonged use of general reservations can lead to budgetary uncertainty.

2.11.

2.12.

During 2013 the area of the non-observed economy was discussed in the meetings of the GNI Committee. It was acknowledged by the Commission that the level of harmonization of the data does not meet the usual standards of European Statistics. The Court has previously drawn attention to this matter and made a specific recommendation in its special report No 11/2013.

2.12.

Member States are not required to make separate estimates of individual elements of the non-observed economy as long as overall exhaustiveness of the GNI totals used for own resource purposes is ensured.

2.13.

Customs authorities may, after releasing the goods and in order to satisfy themselves as to the accuracy of the particulars contained in the declaration, inspect the commercial documents and data relating to the import operations (17). These checks, which include post-clearance audits (18), are referred to as post-clearance controls. They should be based on risk analysis on the basis of criteria developed at national, Community and, where available, international level (19).

2.14.

The Court’s audit found that the quality, scope and the results of the post-clearance audits varied substantially across the three Member States visited (20). The following weaknesses in the identification, selection and inspection of the importers after the clearance of goods for free circulation were identified in:

2.14.

(a)

Identification and selection of importers:

These three aspects limit the effectiveness of the identification and selection of importers for post-clearance audits. The riskiest importers may not be selected and certain importers may never be inspected. For example the importers which clear imports in several Member States with the total amount of these imports being significant, would never be selected for the inspection, if the amounts in each Member State are considered immaterial by the national customs authorities.

(b)

Inspection of the importers:

2.15.

Each Member State sends the Commission a monthly statement of established duties (the ‘A accounts’) and a quarterly statement of those established duties which are not included therein (the ‘B accounts’) (25).

2.16.

The Court’s audits in the three Member States identified weaknesses in the management of the B accounts. For example, the amounts deemed to be irrecoverable (26) were underestimated (27) or long delays in enforcement and follow-up procedures were detected.

2.17.

In addition the Court found weaknesses in the management of the A accounts in the Netherlands as manual interventions are still necessary in order to prepare the A account statements which gives rise to risks of errors (28).

2.17.

2.18.

The Commission’s inspections carried out during 2013 also found shortcomings in the management of the B accounts in most of the Member States they visited (29). Two inspections carried out in Greece identified significant problems in the management of the B accounts (30).

2.18.

2.19.

The Commission’s inspections in Member States result in ‘open points’ (31). These open points can have a potential financial impact or not and are closed when appropriately addressed by the Member States. At the year-end a total of 341 points were open, of which 35 had been open for longer than five years (see Table 2.3 ).

2.19.

2.20.

At the end of the year, a total of 103 reservations (32) were in place (see Table 2.4 ). The Commission lifted 81 reservations in 2013 (compared to 57 in the previous year). Out of these, 21 reservations related to infringements. Eight such reservations were lifted because the Court of Justice of the European Union ruled that the Member States’ legislation was in line with the VAT Directive. In the remaining 13 cases, a compensation was calculated where the infringement had an impact on the VAT own resources base.

2.21.

The net financial effect of lifting of reservations in 2013 for the time-barred years has been calculated by the Court (33) as an increase of VAT-based own resources of 81,7 million euro (34).

2.21.

2.22.

There were 12 Commission-set long-outstanding reservations (35) in place at the end of 2013, one less than in the previous year. During 2013 seven reservations that had been long-outstanding at the end of 2012 were lifted. Six Commission-set reservations became ‘long-outstanding’ because they concern year 2004 . There were also four long-outstanding reservations set by Member States at the end of 2013 (three identical to the Commission’s).

2.22.