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Document 52014TA1210(21)
Report on the annual accounts of the European Institute of Innovation and Technology for the financial year 2013, together with the Institute’s replies
Report on the annual accounts of the European Institute of Innovation and Technology for the financial year 2013, together with the Institute’s replies
Report on the annual accounts of the European Institute of Innovation and Technology for the financial year 2013, together with the Institute’s replies
IO C 442, 10.12.2014, p. 184–192
(BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)
10.12.2014 |
EN |
Official Journal of the European Union |
C 442/184 |
REPORT
on the annual accounts of the European Institute of Innovation and Technology for the financial year 2013, together with the Institute’s replies
(2014/C 442/21)
INTRODUCTION
1. |
The European Institute of Innovation and Technology (hereinafter ‘the Institute’, aka ‘EIT’), which is located in Budapest, was created by Regulation (EC) No 294/2008 of the European Parliament and of the Council (1). The Institute’s objective is to contribute to sustainable European economic growth and competitiveness by reinforcing the innovation capacity of the Member States and the European Union. The Institute awards grants to three ‘Knowledge and Innovation Communities’ (KICs), linking the higher education, research and business sectors with one another and aiming thereby to boost innovation and entrepreneurship (2). KICs coordinate the activities of hundreds of partners. The grants provided by EIT reimburse partners’ costs and costs stemming from the KICs’ coordination activities. |
INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE
2. |
The audit approach taken by the Court comprises analytical audit procedures, direct testing of transactions and an assessment of key controls of the Institute’s supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations. |
STATEMENT OF ASSURANCE
The management’s responsibility
The auditor’s responsibility
Opinion on the reliability of the accounts
Basis for a qualified opinion on the legality and regularity of the underlying transactions No reasonable assurance on the legality and regularity of grant transactions
Material procurement errors
Qualified opinion on the legality and the regularity of the transactions underlying the accounts
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14. |
The comments which follow do not call into question the Court’s opinion on the reliability of the accounts or its qualified opinion on the legality and regularity of the underlying transactions. |
COMMENTS ON THE LEGALITY AND REGULARITY OF TRANSACTIONS
15. |
The Framework Partnership Agreements (FPA) with the three KICs stipulate that the EIT financial contribution may cover up to 25 % of the KIC’s global expenditure over the first four years, from 1 January 2010 to December 2013. According to the figures reported by the KICs, this ceiling was respected by all three KICs. However, as these figures will not be audited before 2015, there is no appropriate audit evidence that the EIT funding did not exceed this 25 % ceiling. |
COMMENTS ON BUDGETARY MANAGEMENT
16. |
In 2013 the overall level of committed appropriations was 97 %, indicating that overall commitments were made in a timely manner. The budget implementation rate was low, however, at 74 % of the EU contributions for title I (staff expenditure), which is mainly related to the high turnover of staff and the outstanding adoption of the regulations on salary adjustments. |
17. |
The Institute carried over committed appropriations under title II (administrative expenditure) amounting to 1 93 420 euro (24 %). Carry-overs mainly concerned invoices not yet received and ongoing IT projects. It did not implement 91 918 euro (29 %) of the committed appropriations carried over from 2012 to 2013 under this title, which were largely due to overestimated costs for a Governing Board meeting. |
18. |
The Institute had budgeted 3 4 0 78 025 euro under title III (operational expenditure) for KIC grants. The relatively low execution rate of 82 % is due to the fact that the KICs did not fully absorb the available funding for 2012 activities (2012 grants). |
FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS
19. |
An overview of the corrective actions taken in response to the Court's comments from previous years is provided in Annex I. |
This Report was adopted by Chamber IV, headed by Mr Pietro RUSSO, Member of the Court of Auditors, in Luxembourg at its meeting of 16 September 2014.
For the Court of Auditors
Vítor Manuel da SILVA CALDEIRA
President
(2) Annex II summarises the Institute's competences and activities. It is presented for information purposes.
(3) These include the balance sheet and the economic outturn account, the cash flow table, the statement of changes in net assets and a summary of the significant accounting policies and other explanatory notes.
(4) These comprise the budgetary outturn account and the annex to the budgetary outturn account.
(5) Articles 39 and 50 of Commission Delegated Regulation (EU) No 1271/2013 (OJ L 328, 7.12.2013, p. 42).
(6) The accounting rules adopted by the Commission’s accounting officer are derived from the International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, where relevant, the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.
(7) Article 107 of Regulation (EU) No 1271/2013.
ANNEX I
Follow-up of previous years’ comments
Year |
Court’s comment |
Status of corrective action (Completed/Ongoing/Outstanding/N/A) |
2012 |
In 2012, the Institute made final payments and clearings of pre-financings (transactions) for grants amounting to 11,3 million euro (2010 activities) and 48,6 million euro (2011 activities). All grant transactions are subject to review by the Commission before authorisation by EIT. The Institute itself made considerable efforts to implement effective ex ante verifications with the aim of providing reasonable assurance on the legality and regularity of grant transactions. About 80 % of grant expenditure claimed by KIC’s is covered by certificates issued by independent audit firms contracted by the KICs and their partners. EIT itself carried out ex ante verifications consisting of comprehensive desk checks. Supporting documents obtained from the KICs and their partners were reviewed by EIT initially only in the case of particular risks identified. The Court found however that the quality of the audit certificates is inadequate in many instances (1). In order to have a second layer of assurance on the legality and regularity of grant transactions, at the end of 2012 the Institute introduced complementary ex post verifications for grants related to 2011 activities. They were carried out by independent audit firms contracted by EIT and are assessed as reliable. Ex post verification results confirmed that ex ante verifications are not fully effective. The Institute has however recovered the irregular payments found and the residual error rate for 2011 grant transactions is not material. No ex post verifications have been carried out yet for the transactions related to grants for 2010 activities (11,3 milllion euro). In addition, given the limited assurance that can be drawn from ex ante verifications, there is no reasonable assurance as to the legality and regularity of these transactions. The Court could not obtain sufficient appropriate audit evidence on the legality and regularity of the audited grant transactions related to 2010 activities. |
Completed |
2012 |
In addition to the matter described in paragraphs 9 to 13, budgets for grant agreements signed in 2010 and 2011, which resulted in payments in 2012, were not sufficiently specific. There was no link between the approved funds and the activities to be implemented. Grant agreements did not set individual thresholds for specific cost categories (i.e. staff costs, sub-contracting, legal services, etc.) and did not include rules for the procurement of goods and services by the KICs and their partners. EIT also carried out technical verifications for all funded projects as part of its ex ante verifications. However, there was a lack of quantifiable targets that hampered an effective assessment of project activities and results. Business plans did not define in detail the activities to be implemented; nor did they set clear milestones, deliverables per activity or quality criteria. Out of the committed appropriations carried over from 2011 amounting to some 22 million euro, some 10 million euro (45 %) were cancelled in 2012. The high level of cancellations is mainly due to lower than estimated costs claimed by beneficiaries under 2011 grant agreements (9,2 million euro or 92 % of cancelled carry-overs). |
Ongoing |
2011 |
Grant agreements resulting in payments in 2011 were systematically signed by the European Commission (Directorate General for Education and Culture) and the Institute after most of the activities had already been implemented. Between September and December 2011, the Institute made final payments (2), amounting to 4,2 million euro, related to three grant agreements that were signed well after the start of activities (3). This is an issue in terms of good financial management. |
Completed |
(1) I.e. Audit certificates did not always indicate the cost claim audited. Not all cost categories had to be audited in sufficient detail (as an example, actual indirect costs, which can be declared without threshold, was not checked on the basis of original supporting evidence). The risk of double funding of equipment declared as cost was not comprehensively checked. Most audit certificates did not mention the coverage of costs audited and there was no common methodology to identify the overall error in the cost claims.
(2) Advance payments had been made by the European Commission.
(3) In one case, the contract was signed 14 days before the end of the 13-month implementation period.
ANNEX II
European Institute of Innovation and Technology (Budapest)
Competences and activities
Areas of Union competence deriving from the Treaty (Article 173 of the Treaty on the Functioning of the European Union) |
The Union and the Member States shall ensure that the conditions necessary for the competitiveness of the Union’s industry exist. For that purpose, in accordance with a system of open and competitive markets, their action shall be aimed at:
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Competences of the Institute (Regulation (EC) No 294/2008 of the European Parliament and of the Council) |
Objectives The Institute’s objective is to contribute to sustainable European economic growth and competitiveness by reinforcing the innovation capacity of the Member States and the Community. It shall do this by promoting and integrating higher education, research and innovation of the highest standards. Tasks In order to achieve its objective, the Institute shall:
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Governance |
Governing Board Composition The Institute's Governing Board (GB) consists of 18 appointed members providing a balance between experience and excellence in business, higher education and research, and four representative members proposed by the Knowledge and Innovation Communities (KICs). The European Commission has observer status. Tasks The Governing Board is responsible for steering the activities of the Institute, for the selection, designation, grant allocation to and evaluation of the KICs, and for all other strategic decisions. Executive Committee Composition The Executive Committee consists of five Governing Board members, including the Chairperson and Vice-Chairperson. It is chaired by the Chairperson of the Governing Board. Tasks The Executive Committee oversees the running of the Institute and takes such decisions as are necessary between meetings of the Governing Board. Director Appointed by and responsible to the Governing Board for the administrative and financial management of the Institute; the Institute's legal representative. External audit European Court of Auditors. Discharge authority European Parliament acting on a recommendation from the Council. |
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Resources made available to the Institute in 2013 (2012) |
Final Budget 142,20 million euro for commitment appropriations and 98,76 million euro for payment appropriations. Staff as at 31 December 2013 Authorised posts: 58 (52) Posts occupied: 41 (47) Other posts: 0 (0) Total staff: 41 (47) assigned to the following duties:
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Products and services in 2013 |
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Source: Annex supplied by the Institute. |
THE INSTITUTE’S REPLIES
9. |
The EIT welcomes the acknowledgement by the Court of Auditors concerning the considerable efforts made by EIT to implement effective ex ante verifications with the aim to obtain reasonable assurance on the legality and regularity of grant transactions. The EIT is committed to further improve the instructions provided to certifying auditors in order to remedy the weaknesses identified by the Court of Auditors and to increase the level of assurance obtained from audit certificates. |
10. |
In accordance with the ex-post audit strategy of the EIT, KIC Partners to be audited are selected primarily on the basis of a risk assessment for maximum efficiency of limited resources. However, in order to be in a position to provide a representative error rate, the EIT selects part of the sample on a random basis. This ensures a more balanced coverage of KIC Partners over the duration of the Framework Partnership Agreements. As regards Grant Agreements 2012, while the overall error rate was indeed 3 % of the audited grants, as reported by the Court of Auditors, the detected error rate in the random sample was only 1,37 %. The detected error rate of 3,29 % in the risk-based sample is by definition not representative for the overall population. As the representative error rate of 1,37 % remained below the materiality threshold of 2 %, the EIT did not make a reservation in the Annual Activity Report and considers that grants paid under Grant Agreements 2012 are free from material errors. |
11. |
The EIT has taken a proactive approach in order to launch immediate mitigating actions in the area of procurement as follows. 1) Extensive revision of the internal procedures, circuits and templates to fully comply with the respective public procurement rules, with special attention to the sound planning and estimation of needs. 2) In order to ensure the provision of the necessary services, the EIT has started to use the available Commission framework contracts and has launched procurement procedures to award new service contracts. 3) The EIT has planned a series of trainings for EIT staff on procurement. The EIT is committed to implement mitigating measures in order to avoid procurement procedural errors in the future. |
12. |
According to the EIT’s calculation, based on the methodology of the Court of Auditors, the combined error rate for 2013 expenditure was 2,12 %. While this error rate is indeed in the range reported by the Court of Auditors, it is important to note that the level of financial errors in grants (i.e. representative error rate of 1,37 %) was well below the materiality threshold of 2 %. Furthermore, the EIT is committed to improve its internal procedures to avoid future procurement procedural errors. |
15. |
The EIT will obtain audit certificates on costs of KIC complementary activities in the first quarter of 2015 and compliance with the 25 % ceiling set out in the Framework Partnership Agreements will be verified on the basis of final figures in the first half of 2015. If the 25 % ceiling is not met, the corresponding amount will be recovered from the KIC(s) in accordance with the provisions of the Framework Partnership Agreement. Such a recovery will be reflected in the annual accounts of the EIT for the financial year 2014. |
16. |
The EIT welcomes the acknowledgement by the Court of Auditors concerning the budget execution. The overall implementation rate of commitment appropriations for title 1 (staff expenditure) was 84 %. While it is true that the implementation rate of EU contribution was 74 %, as reported by the Court of Auditors, it is important to note that 100 % of Host Member State contribution was implemented. The non-executed part of staff expenditure relates to high staff turnover and the appropriations earmarked for salary adjustments for the years 2011 and 2012, for which the European Court of Justice eventually made a ruling that prevented such adjustments to be paid before year-end. |
17. |
The EIT acknowledges the comments of the Court of Auditors on the execution of carry-overs on title 2 (administrative expenditure). Non-execution of appropriations carried over from 2012 to 2013 under this title was largely due to overestimated costs for a Governing Board meeting of December 2012, more specifically, the actual costs turned out to be lower than the estimates. |
18. |
The EIT acknowledges the comments of the Court of Auditors on the execution of commitments for 2012 KIC grants carried over from 2012 to 2013. |