2019 Audit of EU Joint Undertakingsin brief
Introducing the European Court of Auditors’
2019 annual report on EU JUs

12, rue Alcide De Gasperi – L-1615 Luxembourg
T +352 4398-1
E eca-info@eca.europa.eu
eca.europa.eu

2Contents
Paragraph

Acronyms
Executive summary

I-VIII

What we are auditing

01-20

Legal structure and establishment

01-03

JUs operating under H2020

04-08

F4E is operating under Euratom to establish ITER

09-10

JUs are located in the European Union

11

JUs’ governance models

12JUs’ FP7 and H2020 research activities are financed by both the
EU and the industry and research partners
Discharge procedure

13-19
20

Our audit

21-24

Using the work of others

22-23

Our risk assessment

24

Overall results from the JUs’ annual audits for thefinancial year 201925-47

Unqualified (“clean”) opinions for all JUs…

25-29

… on the annual accounts, but emphasis of matter for F4E related to the EU
contribution to ITER

25-26

… on the revenue underlying the JUs’ accounts

27… on the payments underlying the JUs’ accounts

28-29

Our observations address areas for improvement

30-46

Shortcomings remain in the annual planning of payments

31

JUs achieved an implementation rate of 90 % for their FP7 and TEN-T
activities

32-33

Some JUs lost momentum for the implementation of their H2020 activities

34-38

3
Internal controls in respect of grant payments were generally effective

39-41

Our audit of a sample of 2019 grant payments at the beneficiaries confirmed
the ex post audit results for declared personnel cost

42-43

F4E’s weaknesses in procurement, human resource and project
management place its operational effectiveness at risk

44-46

Follow up on previous years’ audit findings

47

Other JU-related audits and reviews48

4

Acronyms
The list of acronyms includes the EU agencies and other Union bodies covered by thisreport.
Acronym

Full name

ARTEMISThe ARTEMIS Joint Undertaking to implement the Joint
Technology Initiative in Embedded Computing Systems

BBI

The Bio-based Industries Joint Undertaking

CAS

Common Audit Service of the Commission’s DG RTD

CEFConnecting Europe Facility

CFS

Certificate on Financial Statement

COSO

The Committee of Sponsoring Organizations of the Treadway
Commission

CS

The Clean Sky Joint Undertaking

DG RTD

Directorate General for Research and Innovation

EA

Executive Agency

EASA

The European Union Aviation Safety Agency

ECSEL

The Electronic Components and Systems Joint Undertaking

ENIAC

The European Nano-electronic Initiative Advisory Council

EIT

The European Institute of Innovation and Technology

EU

European Union

EUAN

European Union Agencies’ Network

EURATOM

European Atomic Energy Community

EUROHPCThe European High-Performance Computing Joint Undertaking

EVM

Earned value management

FP7

Seventh Framework Programme for Research and Technological
Development (2007-2013)

F4E

The Fusion for Energy Joint Undertaking

FCH

The Fuel Cells and Hydrogen Joint Undertaking

GERD

Gross Domestic Expenditure on Research and Development

5

H2020

Horizon 2020 Framework Programme for Research andInnovation (2014-2020)

ICF

Commission’s Internal Control Framework 2017

IFAC

International Federation of Accountants

IKAA

In-kind contributions for Additional Activities

IKOP

In-kind contributions for Operational Activities

IMI

The Innovative Medicines Initiative Joint Undertaking

INTOSAIInternational Organization of Supreme Audit Institutions

ISAs

The International Standards on Auditing of IFAC

ISSAIsThe International Standards of Supreme Audit Institutions of
INTOSAIITERInternational Thermonuclear Experimental Reactor

JU

Joint Undertaking

MFFMultiannual financial frameworkMUS

Monetary Unit Sampling

NFA

National funding authority

PMO

Office for Administration and Payment of individual entitlements

S2R

The Shift2Rail (European Rail Initiative) Joint Undertaking

SESAR

The Single European Sky Air Traffic Management Research Joint
Undertaking

SNE

Seconded National Expert

TEN-T

Trans European Transport Network programme

TFEU

Treaty on the Functioning of the European Union

6

Executive summary
I For the financial year ended 31 December 2019, we issued an unqualified (“clean”)

audit opinion on the reliability of the accounts of all Joint Undertakings (JUs). However,as in previous years, our audit opinion on the 2019 annual accounts of the ‘Fusion for
Energy’ (F4E) JU is accompanied by an emphasis of matter, mainly to draw attention to
the risk of further cost increases and delays in the ITER project implementation.

II We also issued an unqualified (“clean”) audit opinion on the legality and regularityof the payments and revenue underlying the 2019 annual accounts for all JUs.

III Overall, our audit of the annual accounts of the JUs and their underlying

transactions confirmed the positive results reported in previous years. However, weobserved various matters needing improvement in the areas of budgetary andfinancial management, in-kind contributions, the internal control and monitoring
framework for grant payments, procurement procedures, human resources and soundfinancial management.

IV For the Seventh Framework Programme for Research and Technological

Development (FP7) and Trans-European Transport Network programme (TEN-T)
activities, the members’ contributions amounted to approximately 90 % of the targets
set by the JUs’ founding regulations at the end of 2019 and the closing phase of the
programme.

V For the Horizon 2020 Framework Programme for Research and Innovation (H2020)

activities however, programme progress and related contribution fell short of targets
for some JUs. At the end of 2019, which was beyond the midpoint of the programme
period, the JUs had implemented on average 51 % of their H2020 and related
additional activities. If the additional activities are excluded, the implementation ratedrops to 44 %. In particular, the JUs achieved on average 36 % of their contribution
targets for operational activities, as compared to the 85 % for their additional
activities. On the other hand, the JUs completed most of the call procedures and had
already awarded and/or signed on average, 78 % of their planned H2020 activities atthe end of 2019.

VI The internal controls of the JUs were generally effective and – based on the

ex post audit results - the JUs reported residual error rates for 2019 below themateriality level of 2 % for grant payments. Our audit of a sample of 2019 grant
payments at beneficiaries confirmed the ex post audit results. Most of the JUs had

7
implemented the new principle-based internal control framework (ICF), which,however, should be regarded as an ongoing process, whose quality depends on thecontinuous improvement of the JUs’ key control indicators and annual selfassessments.

VII For the Fusion for Energy JU, the weaknesses we found in its procurement

procedures, the management of its human resources and the ITER project monitoring,might place the JU’s staff performance and operational effectiveness at risk.

VIII All JUs took corrective actions to follow up on our previous years’ observations.

Therefore, of the 26 observations not addressed at the end of 2018, 20 observations(77 %) were subsequently completed in 2019, while six observations (23 %) remained
ongoing at the end of 2019.

8

What we are auditing
Legal structure and establishment

01 Joint Undertakings (JUs) are a form of public-private partnership endowed withlegal personality that aims to foster cooperation with the private sector and Member
States in strategic areas of EU research and innovation, to achieve results that one
country or company is less likely to achieve alone and to bring research and innovation
results closer to the market.

02 The JUs operating under the FP7 and H2020 programmes are established under

Article 187 of the Treaty on the Functioning of the European Union (TFEU). Fusion for
Energy (F4E) was created under Articles 45 to 51 of the Treaty establishing theEuropean Atomic Energy Community (Euratom).

03 They consist of public members, typically the European Union (represented by

the Commission), private members, which are from industry and research, and in somecases participating Member States and international organisations. JUs, with the
exception of F4E, adopt their own research agendas and work plans and award funding
mainly through open calls for proposals.

JUs operating under H2020

04 Currently, eight JUs are implementing H2020 projects and are planned to be

operational until 2024, with the exception of the European High-Performance
Computing joint Undertaking (EuroHPC), which will remain operational until the end of2026.

05 Figure 1 presents an overview of the evolution of the JUs under the H2020
programme.

9

Figure 1 – Evolution of European Joint Undertakings

Source: EC based on the Council Regulations establishing the JUs, modified by ECA.

06 Seven JUs implement specific actions of FP7 and H2020 activitiesoClean Sky (CS);oSingle European Sky Air Traffic Management Research (SESAR);oFuel Cells and Hydrogen (FCH);oInnovative Medicines Initiative (IMI);oElectronic Components and Systems for European Leadership (ECSEL), which wasestablished in 2014 by a merger of two JUs: Nanoelectronics (ENIAC) andEmbedded Systems (ARTEMIS);o

Bio-Based Industries (BBI), andoShift2Rail (S2R).

07 These actions are in the areas of transport (CS, S2R, and SESAR), transport/energy(FCH), health (IMI), bio-based industries (BBI) and electronic components and systems(ECSEL).

10

08 In addition, in November 2018, the Council established an eighth JU in the digital

research area, EuroHPC, through a joint initiative between the EU and other European
countries, the purpose of which is to develop a world-class supercomputing ecosystem
in Europe. We will audit the accounts of this JU for the first time, in 2020.

F4E is operating under Euratom to establish ITER

09 In 2007, under the Euratom Treaty, the EU established the ‘Fusion for Energy’(F4E) JU for a period of 35 years. It is responsible for providing Europe’s contribution to
the International Thermonuclear Experimental Reactor (ITER), a global scientificpartnership that aims to demonstrate that nuclear fusion can provide a viable andsustainable source of energy 1. The founding members of F4E are Euratom, represented
by the Commission, the Euratom Member States, and Switzerland.

10 Europe has taken the lead for the ITER project, with a 45 % share of theconstruction costs, of which 80 % is funded from the EU budget and 20 % by France as
the ITER host country. The other ITER members’ share is around 9 % each. F4E ismainly funded by Euratom and its Member States. The total Euratom funds dedicatedto F4E are limited to 6,6 billion euros until the end of 2020.

JUs are located in the European Union

11 All H2020 JUs are based in Brussels (Belgium), with the exception of EuroHPC,

which is located in Luxembourg. F4E is located in Barcelona (Spain), whereas the main
fusion facilities are being built in Cadarache, France (see Figure 2)

1

The ITER project to build and operate an experimental facility to demonstrate the scientificviability of fusion as a future sustainable energy source was formally agreed at the end of
2006. It involves seven global partners (the EU represented by the European Atomic Energy
Community (Euratom), the United States, Russia, Japan, China, South Korea and India).

11

Figure 2 – Joint Undertakings in the European Union in 2019

Belgium, Brussels
SESAR
CLEAN SKY
IMI
FCH
ECSEL
BBI
S2R

Luxembourg
EUROHPC

France, Cadarache
ITER
Spain, Barcelona
F4E

Source: ECA.

JUs’ governance models

12 Most JUs follow a bipartite model, with the Commission and industry (and insome cases research) participating in the governing board and contributing to the JU’s
activities (CS, IMI, FCH, BBI, S2R). Some follow a tripartite model, in which the Member
States or intergovernmental organisations, the Commission, and industry participate in
the governing board and contribute to the JU’s activities (ECSEL, SESAR, and EuroHPC).

12

JUs’ FP7 and H2020 research activities are financed by both the
EU and the industry and research partners

13 For the JUs implementing FP7 and H2020 projects, both the EU and industry andresearch partners contribute to funding the JUs’ research and innovation activities:o

The EU (represented by the Commission) provides cash funds from the FP7 andthe H2020 programmes to co-fund the JUs’ research and innovation projects 2.

o

The private partners from industry and research provide in-kind contributions bydelivering the research and innovation activities in which they invested their own
financial resources, human resources, assets and technologies.

oBoth the EU and private partners equally finance the JUs’ administrative costs.

14 As to the previous MFF 2007-2013, JUs implement around 3,6 billion euros orabout 7 % of the global FP7 budget. As the amount of private partners’ in-kind
contributions has at least to equal the amount of EU co-financing, the EU funding of
3,6 billion euros leverages about 8,7 billion euros of FP7 research and innovation
projects.

15 For the current MFF 2014-2020, JUs manage around 7,2 billion euros or 10 % of

the global H2020 budget. As illustrated in Figure 3, this EU funding, however, leverages
about 17 billion euros of research and innovation projects in the H2020 areas assigned
to JUs.

2

SESAR also received funding from the Trans-European Transport Network (TEN-T)
programme under the previous multiannual financial framework (MFF 2007-2013) and fromthe Connecting Europe Facility (CEF) under the current MFF 2014-2020.

13

Figure 3 – JU co-funding and leverage of private members’ in-kind
contributions under H2020

Horizon 2020
€76,4 bnEU
cash contribution€7,2 bn
Private Members’
IKOP€6,7 bn
Private Members’
IKAA€3,1 bn
Source: ECA.

16 For H2020 activities, the respective JU founding regulations define the amount ofboth EU cash contributions and private partners’ in-kind contributions for H2020
research and innovation projects, as shown in Figure 4.

14

Figure 4 – Members’ contributions over JU lifetime (in million euros)
Horizon 2020

FP7 and TEN-T
0

500

1 000

1 500

2 000

2 500

0

3 000

SESAR

SESAR

CS

CS

IMI

IMI

FCH

FCH

Artemis

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

ECSEL

Eniac

BBI
S2R

Max EU contribution

Source: ECA.

Min Industry contribution to JU activities (IKOP)Min Industry contribution to additional activities (IKAA)

Other Partners contribution

15

17 Under H2020, there are two types of private members’ contributions. For all JUs,

the private members have to contribute a minimum amount to the total costs of the
JU research and innovation projects. This contribution is defined as the difference
between the total project costs and the EU co-funding. In the case of four JUs (CS, FCH,
BBI and S2R), the private members have to also provide a minimum amount of in-kind
contributions to fund activities performed outside the JUs’ work plans but fallingwithin the scope of the JUs’ objectives.

18 In 2019, the total payments budget for all JUs amounted to some 1,9 billion euros(2018: 2 billion euros). The 2019 payments budget for the seven JUs implementing
research programme activities was 1,2 billion euros (2018: 1,2 billion euros), and0,7 billion euros for F4E (2018: 0,8 billion euros).

19 At the end of 2019, JUs operating under H2020 employed 229 staff (temporary

and contract agents) and eight seconded national experts, SNEs (2018: 225 staff andseven SNEs). F4E employed 437 staff (officials, temporary and contract agents) andtwo SNEs (2018: 442 staff).

Discharge procedure

20 The timeline of the annual discharge procedure is shown in Figure 5.
Figure 5 – Annual discharge procedure
ECA adopts JUs
preliminary
observations

ECA transmits its Annual reporton JUs to the EP and theCouncil including thestatement of assurance

the Council adopts its
recommendations on theJUs’ discharge and transmits
them to the EP

By 1 June n+1

By 15 November n+1

By mid-February n+2

By 1 March n+1

By 1 July n+1

JUs transmit theirprovisional accounts
to the ECA

JUs adopt their
final accounts

Source: ECA.

Between December n+1
and end of January n+2
hearings of the JUs’ directors
before the EP’s Committee on
Budgetary Control (CONT) andthe Council's Budget Committee

By end March n+2
adoption of the EP
reports in the Plenary
session - EP decides
whether to grant or
postpone discharge

16

Our audit
21 As required by Article 287 of the TFEU, we audited the accounts of eight JUs(SESAR, CS, IMI, FCH, ECSEL, BBI, S2R and F4E) for the financial year ended
31 December 2019 and the legality and regularity (compliance) of the transactions
underlying those accounts.

Using the work of others

22 For the audit of the reliability of the JU accounts, we based our opinion on the

final audit reports of the independent external auditor contracted by the JU. For eachJU, we examined the quality of the external auditors’ work for the most risk prone
areas.

23 For the audit of the compliance of the underlying payments, we took account of

the work performed by other auditors. Therefore, we assessed and tested the JUs’internal control systems and considered the results of the ECA’s reviews of the ex post
audits performed by the Commission’s Internal Audit Service (IAS) for H2020 grant
payments.

Our risk assessment

24 The 2019 annual audit of the JUs’ accounts and underlying transactions took into

consideration our risk assessment of the JUs, which is briefly presented below:oOverall, we consider the risk to the reliability of the annual accounts to be low.
However, due to an important change in accounting policy in 2018, the risk for
F4E was reassessed as medium. The JUs’ accounts are established by applying theaccounting rules adopted by the Commission’s accounting officer. These arebased on internationally accepted accounting standards for the public sector. The
number of material errors found in the past was small.

o

The risk related to the legality and regularity of payments was considered as low
for staff and administrative payments. Salaries are administered by theCommission’s Office for Administration and Payment of individual entitlements(PMO), which we audit within the framework of its specific assessments ofadministrative expenditure. We have found no material errors in relation to staff
expenditure in recent years.

17o

The risk to the legality and regularity of recruitment procedures was low in
general, but medium for the F4E JU, where serious weaknesses in recruiting
procedures were found in the past. Special attention was also given to the JUs’
use of interim staff during 2019.

o

For interim and final grant payments, the risk was assessed to be medium ingeneral, as they are based on beneficiaries’ cost declarations that are generally
complex. Moreover, for H2020 grant payments, certificates on financial
statements (CFS) are only required from the beneficiary for final payments (trust
principle).

o

For contract payments and public procurement procedures, the risk was assessed
as low for those JUs implementing FP7 and H2020 activities, given the limited
number of such procedures run by them. The risk was assessed as medium for the
F4E JU, which mainly operates complex procurement procedures for high-value
contracts, and for EuroHPC, which only established its procurement process in
2019.

o

For the budget management, the risk was assessed as low to medium because of
the multiannual nature and complexity of the H2020 grant actions and the ITER
project. For the sound financial management, it was also assessed as low to
medium and the main risk area identified was the grant design and the F4E’shuman resources and project management.

18

Overall results from the JUs’ annual
audits for the financial year 2019
Unqualified (“clean”) opinions for all JUs…
… on the annual accounts, but emphasis of matter for F4E related to the
EU contribution to ITER

25 We issued unqualified audit opinions on the annual accounts of all JUs. In our

opinion, these accounts present fairly, in all material respects, the JUs’ financial
positions as of 31 December 2019 and the results of their operations and their cash
flows for the year then ended, in accordance with the provisions of the applicablefinancial regulations and the accounting rules adopted by the Commission’s
Accounting Officer.

26 As in previous years, our audit opinion on the 2019 annual accounts of F4E isaccompanied by an emphasis of matter 3 to draw attention to the following:o

In November 2016, the ITER Council approved a new ITER project baseline. The
new ITER baseline estimates the deadlines for the achievement of First Plasma 4,
the start of the operational phase in 2025 and the completion of the construction
phase in 2035. The new baseline is considered the earliest possible technicallyachievable date. The previous 2010 baseline had estimated that the construction
phase would be completed in 2020.

o

The F4E JU recalculated its contribution to the project construction phase at
12 billion euros (in 2008 values), up from the 6,6 billion euros (in 2008 values)
approved by the EU Council in 2010. These recent estimates do not include
contingencies, even though the Commission suggested that a contingency of up

3

An emphasis of matter draws attention to a matter, which is not materially misstated in theaccounts, but which is of such importance that it is fundamental to the users’
understanding of the accounts.

4

First Plasma represents the stage in the construction of the fusion machine that will allow
testing the essential components of the machine; it is also the point where the operation
phase starts.

19
to 24 months in terms of schedule and 10-20 % in terms of budget would beappropriate.
o

In April 2018 5, the Council of the EU mandated the Commission to approve the
new ITER baseline on behalf of Euratom and reaffirmed the commitment to makeresources available within the limits of the next MFF, but without prejudice to any
subsequent MFF negotiations to determine the details of the future funding.

oOn 31 January 2020, the United Kingdom withdrew from the EU and Euratom. The
transition period for negotiating a new partnership agreement with Euratom ends
on 31 December 2020. The negotiation outcome may have a significant effect on
the post-2020 activities of the F4E JU and the ITER project.

oWhile positive steps have been taken to improve the management and control of
the JU’s contribution to the project construction phase, there remains a risk offurther cost increases and delays in project implementation compared to thecurrent approved baseline.

… on the revenue underlying the JUs’ accounts

27 For all JUs, we issued unqualified (“clean”) audit opinions on the legality andregularity of the revenue underlying the annual accounts for the year ended
31 December 2019. In our opinion, transactions were legal and regular in all material
respects.

… on the payments underlying the JUs’ accounts

28 For all JUs, we issued unqualified (“clean”) audit opinions on the legality andregularity of the payments underlying the annual accounts for the year ended
31 December 2019. In our opinion, transactions were legal and regular in all material
respects.

29 Figure 6 gives an overview of the ECA’s opinions on the JUs’ annual accounts andon the legality and regularity of the underlying transactions (revenue and payments)from 2017 to 2019.

5

The amount of 6,6 billion euros (in 2008 values) adopted by the Council of the EU in 2010
currently serves as a ceiling for the Joint Undertaking’s spending up to 2020.

20

Figure 6 – Evolution of ECA’s opinions on JUs from 2017 to 20198 JUs opinions
Payments
Revenue
Accounts

2017

2018

2019
Opinions
Unqualified “clean”
Qualified
Adverse

Source: ECA.

Our observations address areas for improvement

30 Without calling our opinions into question, we also observed various mattersneeding improvement in the areas of budgetary and financial management, in-kind
contributions, the internal control and monitoring framework for grant payments,
procurement procedures, human resources and sound financial management.

Shortcomings remain in the annual planning of payments

31 The JUs’ need to plan for important multiannual research grant projects

continued to be the main difficulty in the planning and monitoring of payment
appropriations. Given the needs of the JUs, unused payment appropriations may be
included in the budget in the subsequent three financial years. Regarding BBI thesignificant increase in unused payment appropriations for H2020 projects at the end of2019 was mainly caused by unexpected project delays in 2019. Regarding ECSEL’s
payment budget for FP7 projects, the low implementation rate of less than 50 % was
mainly due to the delay by national funding authorities (NFAs) in providing end-ofproject certificates for ongoing FP7 activities.

21

JUs achieved an implementation rate of 90 % for their FP7 and TEN-T
activities

32 The JUs implementing activities under the FP7 and TEN-T programmes (2007-2013 MFF) are SESAR, CS, IMI, FCH, and ECSEL. In 2019, only three JUs (IMI, FCH andECSEL) were still in the closing phase for the implementation of their respective FP7
actions. At the end of 2019, members’ contributions for such activities represented on
average, 90 % of the contribution targets set by the JUs’ founding regulations(see Table 1).

22

Table 1 – FP7 and TEN-T – Members’ contributions (in million euros)

EU

Other
members

700,0
800,0
1 000,0470,01 284,3600,0
1 000,0
470,0

655,5

1 784,4

3 625,5

5 138,7

Source: Data provided by the JUs.

Total

Members' contributions(as at 31.12.2019)

JUs under FP7

SESAR 1
CS 1
IMI 1
FCH 1
ECSEL (for2 439,9Artemis/Eniac)
8 764,2
Total
1 984,3
1 400,0
2 000,0
940,0

EU

Other
members

Total

Implementation
rate

Members' contributions(as per Founding Regulation)

634,1
800,0
924,8
421,5

1 100,5
607,9
780,2
450,4

1 734,6
1 407,9
1 705,0
871,9

87 %
101 %
85 %
93 %

655,5

1 551,92 207,490 %3 435,94 491,0

7 926,990 %23

33 For SESAR, the excess in members’ cash contribution at the end of 2019

amounted to 30,7 million euros. Of this, 23,8 million euros represent unused cash
contributions from FP7 funds. In the absence of a pragmatic solution for an early
reimbursement, these funds remain with the JU, without being used for research
projects.

Some JUs lost momentum for the implementation of their H2020
activities

34 The seven JUs implementing H2020 activities are SESAR, CS, IMI, FCH, ECSEL, BBI,

and S2R, with a life span of 10 years (2014-2024). At the end of 2019, beyond the
middle of implementation of their H2020 activities, these JUs had implemented on
average, 51 % of their H2020 and related additional activities and 44 %, if theadditional activities are excluded. Some JUs, however, did not achieve the expected
programme progress and were therefore falling behind the contribution targets set by
their respective founding regulations (see Table 2).

35 In the case of four JUs (CS, FCH, BBI, S2R), the respective founding regulation

provides for in-kind contributions by private members in the form of additional
activities performed outside the JUs’ work plans but within the scope of the JU’s
objectives (IKAA), and sets a minimum level to be contributed by the end of the H2020
programme. As shown in Table 2, by the end of 2019, the private members’
contributions mainly consisted of the declaration of own costs for these activities.
Since there is no obligation to disclose the corresponding IKAA in the annual accounts,
they are outside our audit scope.

36 At the end of 2019, the private partners’ contributions amounted to5,1 billion euros (or 52 % of the agreed total contribution of 9,8 billion euros). This
amount comprised 2,4 billion euros of in-kind contributions to the JUs’ H2020 own
operational activities (IKOP) 6 and 2,7 billion euros of IKAA. Thus, the private members’
implementation rate for IKOP was on average 36 % of the targets defined in the JU
founding regulations, while that for IKAA was close to 85 % (see Table 2).

6

Of this amount only approximately 0,9 billion euros (38 %) was certified at the end of 2019.

24

Table 2 – Horizon 2020 – Members’ contributions (in million euros)

585,0
1 755,0
1 638,0665,01 185,0975,0398,07 201,0

1 000,01 228,5
1 425,095,01 657,5975,0350,06 731,0

N/A
965,3
N/A
285,0
N/A
1 755,0120,03 125,3Total

JUs under
Horizon 2020

EU

1 585,03 948,8
3 063,0
1 045,02 842,5
3 705,0868,017 057,3

SESAR 2020
CS2
IMI2
FCH2
ECSEL
BBI
S2R
Total

331,0
1 139,7
423,7
420,0
681,5
414,6
221,7
3 632,2(1) In-kind contributions to the JU's operational activities(2) In-kind contributions to additional activities outside of the JU's work plan
Source: Data provided by the JUs.

IKOP
IKOP reported
notvalidated
validated
186,5
292,7
232,1
5,4
117,4
29,9
76,8
940,8

179,3
320,1
144,2
32,7
705,4
52,0
74,6
1 508,3

IKAA

Total

Implementation
rate without
IKAA

EU

Other
Other
members' members'
IKOP (1) IKAA (2)Implementation
rate with IKAA

Members' contributions(as at 31.12.2019)

Members' contributions(as per Founding Regulation)

N/A
899,9
N/A
667,0
N/A
916,1
182,5
2 665,5696,8
2 652,4800,0
1 125,1
1 504,3
1 412,6555,7
8 746,9

44 %
67 %
26 %
108 %
53 %
38 %
64 %
51 %

44 %
59 %
26 %
60 %
53 %
25 %
50 %
44 %

25

37 With regard to the BBI, although its founding regulation was expressly amended

in 2018 to enable industry members to account for their cash contributions at projectlevel, there is still a high risk that the industry members will not achieve the minimum
required amount of operational cash contributions of 182,5 million euros by the end of
the BBI programme. As a result, the Commission (DG RTD) decided at the end of 2018
to reduce the JU’s 2020 budget of 205 million euros by 140 million euros.

38 At the end of 2019, the JUs had already completed most of the call proceduresfor the implementation of the H2020 activities assigned to them (see Table 3).

Table 3 – Horizon 2020 – Committed JU co-funding (in million euros)
EU contributions(as per Founding Regulations)
EU totalJUadministration

max JU cofunding

585,0
1 755,0
1 638,0665,01 185,0975,0398,07 201,0

29,3
39,0
42,6
19,0
15,3
29,3
13,5
187,9

555,8
1 716,0
1 595,4646,0
1 169,7945,8384,5
7 013,1

Grant agreements awarded/signed(as at 31.12.2019)
Programme
committed JU coJUs under
implementation
funding
Horizon 2020
rate
SESAR 2020
498,5
90 %
1 523,789 %CS2
1 190,6
75 %
IMI2
FCH2
536,7
83 %
ECSEL
832,8
71 %
BBI
594,3
63 %
S2R
300,2
78 %
Total
5 476,878 %Source: Data provided by the JUs.

Internal controls in respect of grant payments were generally effective

39 The JUs have set up reliable ex-ante control procedures based on financial andoperational desk reviews. The JUs are obliged to implement the Commission’s newinternal control framework (ICF), which is based on 17 internal control principles. At
the end of 2019, the JUs (with the exception of ECSEL), had implemented the new ICF
and developed key control indicators for all control principles, to assess theeffectiveness of their control activities and detect control weaknesses. The established
ICF, however, should be regarded as an ongoing process, whose quality depends onthe continuous improvement of the JUs’ key control indicators and annual selfassessments.

40 For FP7 grant payments, the JUs (with the exception of ECSEL) reported residual

error rates below the materiality level of 2 %, based on the ex post audit results at theend of 2019. Where ECSEL is concerned, the significant variation in the methodologies

26
and procedures used by the participating states’ NFAs does not allow the calculation ofa single residual error rate for FP7 payments. However, the residual error rateestablished by DG RTD for the whole FP7 programme was 3,52 % at the end of 2019.
Given the low percentage of FP7 payments in 2019 (around 11 %), the residual error
rate for ECSEL’s total operational payments made in 2019, is considered to be below
the materiality threshold.

41 For H2020 grant payments, all JUs implementing H2020 projects reported aresidual error rate below the materiality threshold of 2 %, based on ex-post audit
results of the Common Audit Service (CAS) of the Commission at the end of 2019.

Our audit of a sample of 2019 grant payments at the beneficiaries
confirmed the ex post audit results for declared personnel cost

42 In 2018 and 2019, the ECA reviewed on a sample basis, the ex post audits carriedout by CAS and its contracted external auditors. These reviews revealed
methodological differences and audit quality weaknesses, as reported in the respective
chapter of the ECA annual reports for 2018 and 2019 7, understating the error rate for
H2020 payments. Moreover, the residual error rate reported by the seven H2020 JUs
in their respective annual activity reports is not directly comparable with the error rate
published in the 2019 ECA annual report for the Commission’s research expenditure 8.

43 Therefore, we adjusted our JU audit approach for 2019 and supplemented theassurance sought from ex post audits with a detailed audit at the beneficiaries(substantive testing) for a sample of JU payment transactions. These transactions wererandomly selected (MUS-based sample) from a population of all interim and final grant
payments made in 2019 by the seven JUs implementing FP7 and H2020 projects. Our

7

See ECA annual report 2018, Chapter 5 (paragraphs 5.31 – 5.34) and ECA annual report
2019, Chapter 4 (paragraphs 4.28 and 4.29), which reported that in contrast to the ECA
calculation method, the CAS representative error percentage for each audited H2020
transaction is calculated based on the total amount of the cost declaration, rather than on
the amount of the cost items sampled for detailed audits and reperformances.

8

In contrast to the error rate calculated by the ECA, the residual error rate calculated by theJUs (based on the ex post audit results and in line with the CAS’ H2020 ex post audit
strategy formula), includes the correction of all errors detected in audited payments, aswell as the correction of systemic errors in the non-audited payments of audited
beneficiaries (so-called “extension”).

27
detailed audits confirmed systemic errors in relation to the declared personnel costs,
which had also been detected and reported by the ex post auditors.

F4E’s weaknesses in procurement, human resource and project
management place its operational effectiveness at risk

44 Our compliance audit of F4E procurement procedures for high-value contracts

revealed shortcomings in the procurement planning and evaluation process that may
have deterred potential contractors from submitting a tender.

45 In the framework of the eighth annual assessment of F4E, the expert panel

identified several problems and risks at senior management and corporate culture
level. In addition, it observed that F4E increasingly uses contracted or insourced
resources to overcome restrictions of its establishment plan for statutory staff,
including for positions considered as core competencies. In 2019, the level of theseresources was around 289 persons (or 62 %) of the statutory staff, fixed in theestablishment plan.

46 In 2019, an ad-hoc group appointed by the F4E Governing Board reviewed thecurrent F4E reporting system and proposed the introduction of an earned value
management (EVM) system 9, which was endorsed by the F4E Governing Board.
The proposed EVM system, however, does not take into account all the independent
experts’ recommendations and does not provide clear information on what technicalprogress was achieved against costs incurred to-date, regarding the total of the F4E
JU’s delivery obligations for the ITER project.

Follow up on previous years’ audit findings

47 In most cases, the JUs have taken corrective action to follow up the observations

and comments in our specific annual reports from previous years. Figure 7 shows forthe 26 observations not addressed at the end of 2018, corrective action was taken in
2019, so that 20 observations (77 %) could be completed while six observations (23 %)9

EVM helps project managers to measure project performance. It is a systematic projectmonitoring process used to find deviations in project progress based on the comparison ofwork performed and work planned. It is used on the cost and time schedule control and toprovide quantitative data for project decision-making. The project baseline is an essential
component of EVM and serves as a reference point for all EVM-related activities.

28
remained ongoing at the end of 2019 10. Further details can be found in the annexes to
Chapter 3 of the full report.

Figure 7 – JUs’ efforts to follow-up previous years’ observations
Ongoing
23 %Completed
77 %Completed

Ongoing

Source: ECA.

10

Note: For CS, IMI, FCH and F4E, all previous years’ observations were completed because of
the JUs’ corrective actions taken during the 2019 audit.

29

Other JU-related audits and reviews
48 Apart from the annual audit report related to the JUs’ annual accounts, in thecourse of 2019 we also issued a number of special reports and reviews, which referred
to JUs (see Figure 8).

30

Figure 8 – Audit results from other JU-related products recently issued by ECA
Briefing paper 2019:
EU support for energy storage: challenges tobe addressed

This briefing paper describes and analyses what the EU doesin the field of energy storage technologies which provide a
flexible response to the imbalances caused by an increased
share of variable renewable energy sources, such as solar andwind, in the power grid. We focused on the investments
funded from the EU budget and We identified seven main
challenges to the EU support to the development anddeployment of energy storage technologies.
The Commission recognises the importance of effective
research and innovation in accelerating the transformation of
the EU’s energy system and bringing promising new lowcarbon technologies to the market. Between 2014 andOctober 2018, Horizon 2020, the principal research
programme of the Commission, had granted €1.34 billion toprojects for grid energy storage or for low carbon mobility.
We found that the Commission has taken steps to simplify
Horizon 2020, but there remains scope to reduce further thecomplexity of EU research funding and increase participation
by innovative companies. There is also a risk that the EU has
not sufficiently supported the market deployment ofinnovative energy storage solutions.

The details on the audit conclusions, related
recommendations and the auditee’s reply can be
consulted on the ECA website eca.europa.eu.

Source: ECA.

ECA special report 11/2019:
The EU’s regulation for the modernisation of
air traffic management has added value –but the funding was largely unnecessary SESAR - deployment
In 2005, the EU launched a programme known as SESAR toharmonise and modernise air traffic management (ATM)systems and procedures across Europe. These systems havetraditionally been developed at a national level. Overall, theEU has committed €3.8 billion to SESAR between 2005 and2020, of which 2.5 billion euro was earmarked to support the
deployment of such systems and procedures.
In this audit, we reviewed the EU’s intervention in the
deployment phase of SESAR, the technological pillar of the
EU’s Single European Sky (SES) initiative. We concluded that
the EU’s regulatory intervention in the form of common
projects has added value. However, we also found that EU
funding in support of ATM modernisation was largely
unnecessary, and that the management of the funding isaffected by some shortcomings. We also made a number ofrecommendations to the European Commission to help
improve its support for ATM modernisation.

The details on the audit conclusions, related
recommendations and the auditee’s reply can be
consulted on the ECA website eca.europa.eu.

ECA special report 2/2020:
The SME Instrument in action: an effective
and innovative programme facing challenges

The SME Instrument was set up under the Horizon 2020
research framework programme to support innovation insmall and medium-sized enterprises (SMEs). Its objective is todevelop and capitalise on the potential of SMEs by filling the
gap in funding for early stage high-risk projects and increasing
private-sector commercialisation of research results. It istargeted towards innovative SMEs in the EU and 16
associated countries. With an overall budget of €3 billion forthe period 2014-2020, the instrument provides grants tohigh-potential companies.
We examined if it has targeted the right type of SMEs,
achieved wide geographic coverage, the selection process
was effective, and if the Commission adequately monitored
the instrument.
We found that it provides effective support to SMEs indeveloping their innovation project but we identified a riskthat the instrument funds some SMEs that could have been
financed by the market, that participation in the Instrument
varies markedly between participating countries, andresubmission of unsuccessful proposals is an increasing drainon management and evaluation resources without providing
added value.
The details on the audit conclusions, related
recommendations and the auditee’s reply can be
consulted on the ECA website eca.europa.eu.

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