# C_2014398EN.01028901.xml

| 12.11.2014 | EN | Official Journal of the European Union | C 398/289 |
| --- | --- | --- | --- |

12.11.2014

EN

Official Journal of the European Union

C 398/289

---

ANNUAL REPORT ON THE ACTIVITIES FUNDED BY THE 8TH, 9TH AND 10TH EUROPEAN DEVELOPMENT FUNDS (EDFs)

(2014/C 398/02)

Annual report on the activities funded by the 8th, 9th and 10th European Development Funds (EDFs)

Annual report on the activities funded by the 8th, 9th and 10th European Development Funds (EDFs)

TABLE OF CONTENTS

| Introduction | 1-10 |
| --- | --- |

| Specific characteristics of the European Development Funds | 2-10 |
| --- | --- |

| Risks to regularity | 6-10 |
| --- | --- |

| Chapter I — Implementation of the 8th, 9th and 10th EDFs | 11-15 |
| --- | --- |

| Financial implementation | 11-14 |
| --- | --- |

| The Commission’s annual report on the financial management of the 8th to 10th EDFs | 15 |
| --- | --- |

| Chapter II — The Court’s Statement of Assurance on the EDFs | 16-44 |
| --- | --- |

| The Court’s Statement of Assurance on the 8th, 9th and 10th EDFs to the European Parliament and the Council — Independent auditor’s report | I-X |
| --- | --- |

| Information in support of the Statement of Assurance | 16-44 |
| --- | --- |

| Audit scope and approach | 16-19 |
| --- | --- |

| Reliability of accounts | 20 |
| --- | --- |

| Regularity of transactions | 21-31 |
| --- | --- |

| Examination of selected control systems | 32-44 |
| --- | --- |

| Conclusion and recommendations | 45-51 |
| --- | --- |

| The conclusion for 2013 | 45-47 |
| --- | --- |

| Recommendations | 48-51 |
| --- | --- |

| Annex 1 — | Results of transaction testing for the European Development Funds |
| --- | --- |

Annex 1 —

| Annex 2 — | Results of examination of selected systems for the European Development Funds and development aid under the EU budget |
| --- | --- |

Annex 2 —

| Annex 3 — | Follow-up of previous recommendations for the European Development Funds |
| --- | --- |

Annex 3 —

| THE COURT’S OBSERVATIONS | |
| --- | --- |
| INTRODUCTION |
| 1. | This annual report presents the Court’s assessment of the European Development Funds (EDFs). Key information on the activities covered and the spending in 2013 is provided in
  Table 1
  . |

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

INTRODUCTION

INTRODUCTION

1.

This annual report presents the Court’s assessment of the European Development Funds (EDFs). Key information on the activities covered and the spending in 2013 is provided in
  Table 1
  .

Table 1

Table 1   — European Development Funds — Key information 2013

Table 1

— European Development Funds — Key information 2013

| (million euro) |
| --- |
| Budget title | Policy area | Description | Payments 2013 |
| European Development Funds | 8th EDF | Operational expenditure | |
| Projects | 20 |
| Budget support | 0 |
| Administrative expenditure | 0 |
| | 20 |
| 9th EDF | Operational expenditure | |
| Projects | 256 |
| Budget support | 1 |
| Administrative expenditure | 2 |
| | 259 |
| 10th EDF | Operational expenditure | |
| Projects | 1  961 |
| Budget Support | 717 |
| Administrative expenditure | 94 |
| | 2  772 |
| |
| | | Total operational expenditure (Projects) | 2  237 |
| | | Total operational expenditure (Budget support) | 718 |
| | | Total administrative expenditure | 96 |
| | | Total payments | 3  051 |
| | | - advances | -  1  753 |
| | | + clearings of advances | 1  314 |
| | | Audited population | 2  612 |
| | | | |
| | | Total individual commitments
   (36) | 3  350 |
| |
| | | Total global commitments
   (36) | 3  923 |

(million euro)

(million euro)

Budget title

Policy area

Description

Payments 2013

European Development Funds

8th EDF

Operational expenditure

Projects

Projects

20

Budget support

Budget support

0

Administrative expenditure

0

20

20

9th EDF

Operational expenditure

Projects

Projects

256

Budget support

Budget support

1

Administrative expenditure

2

259

259

10th EDF

Operational expenditure

Projects

Projects

1  961

Budget Support

Budget Support

717

Administrative expenditure

94

2  772

2  772

Total operational expenditure (Projects)

2  237

2  237

Total operational expenditure (Budget support)

718

Total administrative expenditure

96

Total payments

Total payments

3  051

3  051

- advances

advances

-  1  753

-  1  753

- clearings of advances

- clearings of advances

1  314

1  314

Audited population

Audited population

2  612

2  612

Total individual commitments
   (36)

Total individual commitments

36

3  350

3  350

Total global commitments
   (36)

Total global commitments

36

3  923

3  923

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

Specific characteristics of the European Development Funds

Specific characteristics of the European Development Funds

| 2. | The EDFs are the main instrument for providing European Union aid for development cooperation to the African, Caribbean and Pacific (ACP) States and overseas countries and territories (OCTs). The partnership agreement signed in Cotonou on 23 June 2000 for a period of 20 years (‘the Cotonou Agreement’) is the current framework for the European Union’s relations with ACP States and OCTs. Its main focus is on reducing and eventually eradicating poverty. |
| --- | --- |

2.

The EDFs are the main instrument for providing European Union aid for development cooperation to the African, Caribbean and Pacific (ACP) States and overseas countries and territories (OCTs). The partnership agreement signed in Cotonou on 23 June 2000 for a period of 20 years (‘the Cotonou Agreement’) is the current framework for the European Union’s relations with ACP States and OCTs. Its main focus is on reducing and eventually eradicating poverty.

| 3. | The EDFs are funded by the Member States, governed by their own financial regulations and managed, by the European Commission, outside the framework of the EU general budget. The European Investment Bank (EIB) manages the investment facility, which is not covered by the Court's Statement of Assurance or the European Parliament's discharge procedure (1)
   (2). |
| --- | --- |

3.

The EDFs are funded by the Member States, governed by their own financial regulations and managed, by the European Commission, outside the framework of the EU general budget. The European Investment Bank (EIB) manages the investment facility, which is not covered by the Court's Statement of Assurance or the European Parliament's discharge procedure (1)
   (2).

1

2

| 4. | The EDFs are managed almost entirely by the Commission’s Directorate-General for Development and Cooperation (EuropeAid), which also manages a wide range of expenditure from the EU budget (3)
   (4). |
| --- | --- |

4.

The EDFs are managed almost entirely by the Commission’s Directorate-General for Development and Cooperation (EuropeAid), which also manages a wide range of expenditure from the EU budget (3)
   (4).

3

4

| 5. | EDF interventions are implemented through projects and budget support (5) under three main arrangements. In 2013, 42 % of payments were made under centralised management, 32 % under decentralised management and 26 % under joint management (6). |
| --- | --- |

5.

EDF interventions are implemented through projects and budget support (5) under three main arrangements. In 2013, 42 % of payments were made under centralised management, 32 % under decentralised management and 26 % under joint management (6).

5

6

Risks to regularity

Risks to regularity

| 6. | The expenditure covered in this report is made under a wide range of delivery methods, put into action in 79 countries. Rules and procedures are often complex, including those for tendering and the award of contracts. The Court has assessed the risk as inherently high. |
| --- | --- |

6.

The expenditure covered in this report is made under a wide range of delivery methods, put into action in 79 countries. Rules and procedures are often complex, including those for tendering and the award of contracts. The Court has assessed the risk as inherently high.

| 7. | In two areas — budget support (7) and EU contributions to multi-donor projects carried out by international organisations (8) such as the United Nations (UN) — the nature of the instruments and of the payment conditions limit the extent to which transactions are prone to errors. |
| --- | --- |

7.

In two areas — budget support (7) and EU contributions to multi-donor projects carried out by international organisations (8) such as the United Nations (UN) — the nature of the instruments and of the payment conditions limit the extent to which transactions are prone to errors.

7

8

| 8. | Budget support contributes to a state’s general budget or its budget for a specific policy or objective. The Court examines whether the Commission has respected the specific conditions for making budget support payments to the partner country concerned and has verified that general eligibility conditions (such as progress in public sector financial management) have been complied with. |
| --- | --- |

8.

Budget support contributes to a state’s general budget or its budget for a specific policy or objective. The Court examines whether the Commission has respected the specific conditions for making budget support payments to the partner country concerned and has verified that general eligibility conditions (such as progress in public sector financial management) have been complied with.

| 9. | However the Commission has considerable flexibility in deciding whether these general conditions have been met. The Court’s audit of regularity cannot go beyond the stage at which aid is paid to a partner country. The funds transferred are then merged with the recipient country’s budget resources. Any weaknesses in its financial management will not generate errors in the Court’s audit of regularity. |
| --- | --- |

9.

However the Commission has considerable flexibility in deciding whether these general conditions have been met. The Court’s audit of regularity cannot go beyond the stage at which aid is paid to a partner country. The funds transferred are then merged with the recipient country’s budget resources. Any weaknesses in its financial management will not generate errors in the Court’s audit of regularity.

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

THE COMMISSION’S REPLIES

THE COMMISSION’S REPLIES

| 10. | The Commission’s contributions to multi-donor projects are pooled with those of other donors and are not earmarked for specific identifiable items of eligible expenditure. Under the so-called ‘notional approach’ the Commission assumes that underlying transactions are regular as long as the pooled amount includes sufficient eligible expenditure to cover the EU contribution. Should other donors follow the same approach and apply the same eligibility criteria for their contribution, there is a risk that overall spending does not meet the combined conditionality requirements of the Commission and the other donors. |
| --- | --- |

10.

The Commission’s contributions to multi-donor projects are pooled with those of other donors and are not earmarked for specific identifiable items of eligible expenditure. Under the so-called ‘notional approach’ the Commission assumes that underlying transactions are regular as long as the pooled amount includes sufficient eligible expenditure to cover the EU contribution. Should other donors follow the same approach and apply the same eligibility criteria for their contribution, there is a risk that overall spending does not meet the combined conditionality requirements of the Commission and the other donors.

| 10. | The Commission believes that the internal control measures put in place, together with those of the international organisations, limit this theoretical risk to a level which is indeed acceptable. The Commission is not aware of any specific problems with the ‘notional approach’ (which has been developed to allow the Commission to participate in multi-donor actions including trust funds). This approach guarantees that the legal requirements applicable to EU funding in external actions are met (by ensuring that the amount contributed by other donors is sufficient to pay for any activities which are ineligible under EU rules) while spending EU funds in the most efficient way (through donor coordination), in accordance with the principle of sound financial management. |
| --- | --- |

10.

10.

The Commission believes that the internal control measures put in place, together with those of the international organisations, limit this theoretical risk to a level which is indeed acceptable. The Commission is not aware of any specific problems with the ‘notional approach’ (which has been developed to allow the Commission to participate in multi-donor actions including trust funds). This approach guarantees that the legal requirements applicable to EU funding in external actions are met (by ensuring that the amount contributed by other donors is sufficient to pay for any activities which are ineligible under EU rules) while spending EU funds in the most efficient way (through donor coordination), in accordance with the principle of sound financial management.

The Commission limits this risk by assessing the accounting, audit, internal control, procurement, ex post publication of information and protection of personal data procedures of the partner international organisations in advance of any joint working, the presence of its staff in the field (and participation in steering groups) and the rigorous overall financial reporting required of the international organisation. In addition, during the implementation of external actions programmes, systems are regularly reviewed through the performance of verification missions undertaken by external auditors.

The Commission limits this risk by assessing the accounting, audit, internal control, procurement, ex post publication of information and protection of personal data procedures of the partner international organisations in advance of any joint working, the presence of its staff in the field (and participation in steering groups) and the rigorous overall financial reporting required of the international organisation. In addition, during the implementation of external actions programmes, systems are regularly reviewed through the performance of verification missions undertaken by external auditors.

The audits carried out by the Commission have not to date evidenced any ‘specific risks’ of this nature, nor is the Commission aware of any other donor with ‘the same eligibility criteria’.

The audits carried out by the Commission have not to date evidenced any ‘specific risks’ of this nature, nor is the Commission aware of any other donor with ‘the same eligibility criteria’.

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

CHAPTER I — IMPLEMENTATION OF THE 8TH, 9TH AND 10TH EDFs

CHAPTER I — IMPLEMENTATION OF THE 8TH, 9TH AND 10TH EDFs

Financial implementation

Financial implementation

| 11. | EDF agreements are usually concluded for a commitment period of around five years, but payments can be made over a longer period. In 2013, payments were made from the 8th, 9th and 10th EDFs. The 8th EDF (1995-2000) amounts to 12  840 million euro and the 9th EDF (2000-2007) to 13  800 million euro. |
| --- | --- |

11.

EDF agreements are usually concluded for a commitment period of around five years, but payments can be made over a longer period. In 2013, payments were made from the 8th, 9th and 10th EDFs. The 8th EDF (1995-2000) amounts to 12  840 million euro and the 9th EDF (2000-2007) to 13  800 million euro.

| 12. | The 10th EDF (2008-2013) totals 22  682 million euro. Of this amount, 21  967 million euro are allocated to ACP countries and 285 million euro to OCTs. These sums include, respectively, 1  500 million euro and 30 million euro for the investment facility managed by the EIB for the ACP and OCT countries. Finally, 430 million euro are earmarked for the Commission’s expenditure on programming and implementing the EDF. |
| --- | --- |

12.

The 10th EDF (2008-2013) totals 22  682 million euro. Of this amount, 21  967 million euro are allocated to ACP countries and 285 million euro to OCTs. These sums include, respectively, 1  500 million euro and 30 million euro for the investment facility managed by the EIB for the ACP and OCT countries. Finally, 430 million euro are earmarked for the Commission’s expenditure on programming and implementing the EDF.

| 13. | In 2013, the total contributions from the Member States amounted to 3  200 million euro, of which 2  950 million euro for actions managed by the Commission. |
| --- | --- |

13.

In 2013, the total contributions from the Member States amounted to 3  200 million euro, of which 2  950 million euro for actions managed by the Commission.

| 14. | Table 2
  shows the use, during 2013 and cumulatively, of EDF resources. As the funds of the 10th EDF shall no longer be committed beyond 31 December 2013 (9), the Commission managed to achieve higher results than planned in terms of commitments: global and individual commitments were respectively 29 % and 31 % above the initial forecast. As a consequence, payments were 7 % more than initially forecast and outstanding commitments increased by 8 % compared to 2012. |
| --- | --- |

14.

Table 2
  shows the use, during 2013 and cumulatively, of EDF resources. As the funds of the 10th EDF shall no longer be committed beyond 31 December 2013 (9), the Commission managed to achieve higher results than planned in terms of commitments: global and individual commitments were respectively 29 % and 31 % above the initial forecast. As a consequence, payments were 7 % more than initially forecast and outstanding commitments increased by 8 % compared to 2012.

Table 2

9

Table 2 —   Use of EDF resources at 31 December 2013

Table 2 —

Use of EDF resources at 31 December 2013

| (million euro) |
| --- |
| | Situation at end of 2012 | Budgetary implementation during the financial year 2013 (net) (42) | Situation at end of 2013 |
| Total amount | Implement. rate (38) | 8th EDF (39) | 9th EDF (39) | 10th EDF | Total amount | 8th EDF | 9th EDF | 10th EDF | Total amount | Implement. rate (38) |
| A — | RESOURCES
   (37) |

(million euro)

Situation at end of 2012

Budgetary implementation during the financial year 2013 (net) (42)

42

Situation at end of 2013

Total amount

Total amount

Implement. rate (38)

38

8th EDF (39)

39

9th EDF (39)

39

10th EDF

Total amount

Total amount

8th EDF

9th EDF

10th EDF

Total amount

Total amount

Implement. rate (38)

38

A —

A —

RESOURCES

37

48  920

48  920

- 104

- 336

548

108

108

10  481

16  114

22  433

49  028

49  028

| B — | USE |
| --- | --- |

B —

B —

USE

| 1. | Global commitments
   (40) |
| --- | --- |

1.

Global commitments

40

43  991

43  991

89,9 %

89,9 %

- 98

- 72

4  093

3  923

3  923

10  478

16  084

21  351

47  914

47  914

97,7 %

97,7 %

| 2. | Individual commitments
   (41) |
| --- | --- |

2.

Individual commitments

41

38  059

38  059

77,8 %

77,8 %

- 11

- 96

3  457

3  350

3  350

10  437

15  408

15  565

41  410

41  410

84,5 %

84,5 %

| 3. | Payments |
| --- | --- |

3.

Payments

32  417

32  417

66,3 %

66,3 %

18

230

2  715

2  963

2  963

10  363

14  795

10  222

35  380

35  380

72,2 %

72,2 %

| C — | Outstanding commitments (B1 - B3) |
| --- | --- |

C —

C —

Outstanding commitments (B1 - B3)

11  574

11  574

23,7 %

23,7 %

115

1  289

11  129

12  534

12  534

25,6 %

25,6 %

| D — | Available balance (A - B1) |
| --- | --- |

D —

D —

Available balance (A - B1)

4  929

4  929

10,1 %

10,1 %

3

30

1  082

1  114

1  114

2,3 %

2,3 %

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

The Commission’s annual report on the financial management of the 8th to 10th EDFs

The Commission’s annual report on the financial management of the 8th to 10th EDFs

| 15. | The Financial Regulation applicable to the 10th EDF requires the Commission to report each year on the financial management of the EDFs (10). In the Court’s opinion, this report accurately presents relevant financial information. |
| --- | --- |

15.

The Financial Regulation applicable to the 10th EDF requires the Commission to report each year on the financial management of the EDFs (10). In the Court’s opinion, this report accurately presents relevant financial information.

10

CHAPTER II — THE COURT’S STATEMENT OF ASSURANCE ON THE EDFs

CHAPTER II — THE COURT’S STATEMENT OF ASSURANCE ON THE EDFs

The Court’s Statement of Assurance on the 8th, 9th and 10th EDFs to the European Parliament and the Council — Independent auditor’s report

The Court’s Statement of Assurance on the 8th, 9th and 10th EDFs to the European Parliament and the Council — Independent auditor’s report

| I — | Pursuant to the provisions of article 287 of the Treaty on the functioning of the European Union (TFEU) and Article 141 of the Financial Regulation applicable to the 10th EDF, which also applies to previous EDFs, the Court has audited:






  (a) | the annual accounts of the 8th, 9th and 10th European Development Funds which comprise the balance sheet, the economic outturn account, the statement of cash flow, the statement of changes in net assets and the table of items payable to the European Development Funds and the report on financial implementation for the financial year ended 31 December 2013 approved by the Commission on 17 July 2014; and |
| --- | --- | --- |

I —

Pursuant to the provisions of article 287 of the Treaty on the functioning of the European Union (TFEU) and Article 141 of the Financial Regulation applicable to the 10th EDF, which also applies to previous EDFs, the Court has audited:

(a)

the annual accounts of the 8th, 9th and 10th European Development Funds which comprise the balance sheet, the economic outturn account, the statement of cash flow, the statement of changes in net assets and the table of items payable to the European Development Funds and the report on financial implementation for the financial year ended 31 December 2013 approved by the Commission on 17 July 2014; and

| (b) | the legality and regularity of the transactions underlying those accounts within the legal framework of the EDFs in respect of the part of the EDF resources for whose financial management the Commission is responsible (11). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts within the legal framework of the EDFs in respect of the part of the EDF resources for whose financial management the Commission is responsible (11).

11

Management's responsibility

Management's responsibility

| II — | In accordance with Articles 310 to 325 of the TFEU and the Financial Regulations applicable to the 8th, 9th and 10th EDFs, management is responsible for the preparation and presentation of the annual accounts of the EDFs on the basis of internationally accepted accounting standards for the public sector (12) 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 EDFs (Article 317 of the TFEU). |
| --- | --- |

II —

In accordance with Articles 310 to 325 of the TFEU and the Financial Regulations applicable to the 8th, 9th and 10th EDFs, management is responsible for the preparation and presentation of the annual accounts of the EDFs on the basis of internationally accepted accounting standards for the public sector (12) 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 EDFs (Article 317 of the TFEU).

12

Auditor's responsibility

Auditor's responsibility

| III — | The Court's responsibility is to provide, on the basis of its audit, the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. The Court conducted its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require that the Court plans and performs the audit to obtain reasonable assurance as to whether the annual accounts of the EDFs are free from material misstatement and the transactions underlying them are legal and regular. |
| --- | --- |

III —

The Court's responsibility is to provide, on the basis of its audit, the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. The Court conducted its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require that the Court plans and performs the audit to obtain reasonable assurance as to whether the annual accounts of the EDFs 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 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 accounts and of material non-compliance of the underlying transactions with the requirements of the legal framework of the EDFs, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts, and supervisory and control systems implemented to ensure legality and regularity of underlying transactions, are 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 accounts. |
| --- | --- |

IV —

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 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 accounts and of material non-compliance of the underlying transactions with the requirements of the legal framework of the EDFs, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts, and supervisory and control systems implemented to ensure legality and regularity of underlying transactions, are 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 accounts.

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

V —

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

Reliability of the accounts

Reliability of the accounts

Opinion on the reliability of accounts

Opinion on the reliability of accounts

| VI — | In the Court's opinion, the annual accounts of the 8th, 9th and 10th EDFs for the year ended 31 December 2013 present fairly, in all material respects, the financial position as at 31 December 2013, the results of their operations, their cash flows and the changes in net assets for the year then ended, in accordance with the EDF Financial Regulation and with internationally accepted accounting standards for the public sector. |
| --- | --- |

VI —

In the Court's opinion, the annual accounts of the 8th, 9th and 10th EDFs for the year ended 31 December 2013 present fairly, in all material respects, the financial position as at 31 December 2013, the results of their operations, their cash flows and the changes in net assets for the year then ended, in accordance with the EDF Financial Regulation and with internationally accepted accounting standards for the public sector.

Legality and regularity of the transactions underlying the accounts

Legality and regularity of the transactions underlying the accounts

Revenue

Revenue

Opinion on the legality and regularity of revenue underlying the accounts

Opinion on the legality and regularity of revenue underlying the accounts

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

VII —

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

Commitments

Commitments

Opinion on the legality and regularity of commitments underlying the accounts

Opinion on the legality and regularity of commitments underlying the accounts

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

VIII —

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

Payments

Payments

Basis for adverse opinion on the legality and regularity of payments underlying the accounts

Basis for adverse opinion on the legality and regularity of payments underlying the accounts

| IX — | The Court concludes that the supervisory and control systems are partially effective in ensuring the legality and regularity of payments underlying the accounts. The Court’s estimate for the most likely error rate for expenditure transactions from the 8th, 9th and 10th EDFs is 3,4 %. |
| --- | --- |

IX —

The Court concludes that the supervisory and control systems are partially effective in ensuring the legality and regularity of payments underlying the accounts. The Court’s estimate for the most likely error rate for expenditure transactions from the 8th, 9th and 10th EDFs is 3,4 %.

Adverse opinion on the legality and regularity of payments underlying the accounts

Adverse opinion on the legality and regularity of payments underlying the accounts

| X — | 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. |
| --- | --- |

X —

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.

4 September 2014

Vítor Manuel da SILVA CALDEIRA

President

President

European Court of Auditors

12, rue Alcide De Gasperi, 1615 Luxembourg, LUXEMBOURG

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

Information in support of the Statement of Assurance

Information in support of the Statement of Assurance

Audit scope and approach

Audit scope and approach

| 16. | Annex 1.1
  of chapter 1 of the 2013 annual report of the Court of Auditors on the implementation of the budget describes the Court’s overall approach and methodology. For the audit of the EDFs, the following specific points should be noted. |
| --- | --- |

16.

Annex 1.1
  of chapter 1 of the 2013 annual report of the Court of Auditors on the implementation of the budget describes the Court’s overall approach and methodology. For the audit of the EDFs, the following specific points should be noted.

Annex 1.1

| 17. | The Court’s observations regarding the reliability of the EDF accounts concern the financial statements (13) and the report on the financial implementation of the 8th, 9th and 10th EDFs (14) approved by the Commission in compliance with the EDF Financial Regulation (15) and received, together with the accounting officer’s letter of representation, by the Court on 17 July 2014. The audit involved the testing of amounts and disclosures and the assessment of the accounting principles used, significant estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

17.

The Court’s observations regarding the reliability of the EDF accounts concern the financial statements (13) and the report on the financial implementation of the 8th, 9th and 10th EDFs (14) approved by the Commission in compliance with the EDF Financial Regulation (15) and received, together with the accounting officer’s letter of representation, by the Court on 17 July 2014. The audit involved the testing of amounts and disclosures and the assessment of the accounting principles used, significant estimates made by the management and the overall presentation of the accounts.

13

14

15

| 18. | The audit of the regularity of transactions involved: |
| --- | --- |

18.

The audit of the regularity of transactions involved:

| (a) | an examination of all contributions from Member States and a sample of other types of revenue transactions; |
| --- | --- |

(a)

an examination of all contributions from Member States and a sample of other types of revenue transactions;

| (b) | an examination of a sample of 30 commitments (16); |
| --- | --- |

(b)

an examination of a sample of 30 commitments (16);

16

| (c) | an examination of a sample of 165 transactions (17). The sample is designed to be representative of the entire range of payments within the EDFs. It consisted of 93 payments approved by 10 EU delegations (18) and 72 payments approved by the Commission headquarters (19); |
| --- | --- |

(c)

an examination of a sample of 165 transactions (17). The sample is designed to be representative of the entire range of payments within the EDFs. It consisted of 93 payments approved by 10 EU delegations (18) and 72 payments approved by the Commission headquarters (19);

17

18

19

| (d) | where errors were detected, the relevant control systems were analysed to identify the specific system weaknesses involved; |
| --- | --- |

(d)

where errors were detected, the relevant control systems were analysed to identify the specific system weaknesses involved;

| (e) | an assessment of control systems examined at EuropeAid and EU delegations, covering: |
| --- | --- |

(e)

an assessment of control systems examined at EuropeAid and EU delegations, covering:

| | (i) | ex ante checks by Commission staff, external auditors or supervisors before payments are made; |
| --- | --- | --- |

(i)

ex ante checks by Commission staff, external auditors or supervisors before payments are made;

| | (ii) | monitoring and supervision, notably the follow-up of external audits, verification missions, monitoring visits, and EuropeAid’s 2012 and 2013 residual error rate (RER) studies; and |
| --- | --- | --- |

(ii)

monitoring and supervision, notably the follow-up of external audits, verification missions, monitoring visits, and EuropeAid’s 2012 and 2013 residual error rate (RER) studies; and

| | (iii) | internal audit; |
| --- | --- | --- |

(iii)

internal audit;

| (f) | a review of the annual activity report (AAR) by the Director-General of EuropeAid; and |
| --- | --- |

(f)

a review of the annual activity report (AAR) by the Director-General of EuropeAid; and

| (g) | a follow-up of previous Court recommendations. |
| --- | --- |

(g)

a follow-up of previous Court recommendations.

| 19. | As indicated in paragraph 4, EuropeAid implements most of the external assistance instruments financed from the general budget and the EDFs. The Court’s observations concerning both the effectiveness of supervisory and control systems and the reliability of the AAR and the Director-General’s declaration for 2013 refer to EuropeAid’s entire area of responsibility. |
| --- | --- |

19.

As indicated in paragraph 4, EuropeAid implements most of the external assistance instruments financed from the general budget and the EDFs. The Court’s observations concerning both the effectiveness of supervisory and control systems and the reliability of the AAR and the Director-General’s declaration for 2013 refer to EuropeAid’s entire area of responsibility.

Reliability of accounts

Reliability of accounts

| 20. | The economic outturn account includes as revenue interest on pre-financing (5,7 million euro) in respect of pre-financing payments to beneficiaries of more than 2 50  000 euro. For pre-financing payments over 7 50  000 euro, the Commission is required to recover interest on an annual basis (20). The Court found some improvement compared with 2012 as the number and value of recoveries increased (21). However, authorising officers by sub-delegation still do not comply systematically with this rule and the amount of interest revenue disclosed in the accounts is partly based on estimates. Furthermore, the interest earned on pre-financing between 2 50  000 and 7 50  000 euro is still not recognised as financial revenue in the financial statements because the Commission has not yet completed the development of the CRIS system. |
| --- | --- |

20.

The economic outturn account includes as revenue interest on pre-financing (5,7 million euro) in respect of pre-financing payments to beneficiaries of more than 2 50  000 euro. For pre-financing payments over 7 50  000 euro, the Commission is required to recover interest on an annual basis (20). The Court found some improvement compared with 2012 as the number and value of recoveries increased (21). However, authorising officers by sub-delegation still do not comply systematically with this rule and the amount of interest revenue disclosed in the accounts is partly based on estimates. Furthermore, the interest earned on pre-financing between 2 50  000 and 7 50  000 euro is still not recognised as financial revenue in the financial statements because the Commission has not yet completed the development of the CRIS system.

20

21

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

THE COMMISSION’S REPLIES

THE COMMISSION’S REPLIES

Regularity of transactions

Regularity of transactions

Revenue

Revenue

| 21. | The Court’s audit of revenue transactions found them to be free from material error. |
| --- | --- |

21.

The Court’s audit of revenue transactions found them to be free from material error.

Commitments

Commitments

| 22. | The Court’s audit of commitments found them to be free from material error. |
| --- | --- |

22.

The Court’s audit of commitments found them to be free from material error.

Payments

Payments

| 23. | Annex 1
  contains a summary of the results of payment transaction testing. Out of the 165 payment transactions audited by the Court, 45 (27 %) were affected by error. On the basis of the 32 errors which it has quantified, the Court estimates the most likely error to be 3,4 % (22)
   (23). |
| --- | --- |

23.

Annex 1
  contains a summary of the results of payment transaction testing. Out of the 165 payment transactions audited by the Court, 45 (27 %) were affected by error. On the basis of the 32 errors which it has quantified, the Court estimates the most likely error to be 3,4 % (22)
   (23).

Annex 1

22

23

| 23. | The Commission does not share the Court’s analysis of two procurement errors with a significant impact on the Court’s estimated error rate. See also the Commission reply to paragraph 26(b). |
| --- | --- |

23.

23.

The Commission does not share the Court’s analysis of two procurement errors with a significant impact on the Court’s estimated error rate. See also the Commission reply to paragraph 26(b).

Projects

Projects

| 24. | Of the 130 payment transactions audited by the Court, 42 (32 %) were affected by error, of which 30 (71 %) were quantifiable errors. Of the 30 payment transactions affected by quantifiable errors, 17 were final transactions authorised after all ex ante checks had been performed. |
| --- | --- |

24.

Of the 130 payment transactions audited by the Court, 42 (32 %) were affected by error, of which 30 (71 %) were quantifiable errors. Of the 30 payment transactions affected by quantifiable errors, 17 were final transactions authorised after all ex ante checks had been performed.

| 25. | As was the case in 2012 (24), errors were more frequently found in transactions relating to programme estimates, grants and contribution agreements between the Commission and international organisations than in other forms of support. Of the 72 transactions of this type audited, 32 (44 %) were affected by error. |
| --- | --- |

25.

As was the case in 2012 (24), errors were more frequently found in transactions relating to programme estimates, grants and contribution agreements between the Commission and international organisations than in other forms of support. Of the 72 transactions of this type audited, 32 (44 %) were affected by error.

24

| 26. | The main types of quantifiable errors detected by the Court in payment transactions related to projects concerned: |
| --- | --- |

26.

The main types of quantifiable errors detected by the Court in payment transactions related to projects concerned:

26.

26.

| (a) | absence of supporting documents to justify that eligible activity occurred (12 transactions); |
| --- | --- |

(a)

absence of supporting documents to justify that eligible activity occurred (12 transactions);

| (b) | non-compliance by the beneficiary with procurement rules (eight transactions) (23); |
| --- | --- |

(b)

non-compliance by the beneficiary with procurement rules (eight transactions) (23);

23

| (b) | The Commission does not share the Court’s analysis of one quantifiable error. The Commission considers that the technical specifications as defined by the contracting authority, in accordance with its broad discretional power, a principle acknowledged by the Court of Justice, were not disproportionate and did not distort competition. This principle provides legal certainty for the contracting authorities without which any future procurement procedure could be compromised.

  For another error linked to tender, the Commission considers that it reflects a very strict interpretation of rules. |
| --- | --- |

(b)

(b)

The Commission does not share the Court’s analysis of one quantifiable error. The Commission considers that the technical specifications as defined by the contracting authority, in accordance with its broad discretional power, a principle acknowledged by the Court of Justice, were not disproportionate and did not distort competition. This principle provides legal certainty for the contracting authorities without which any future procurement procedure could be compromised.

The Commission does not share the Court’s analysis of one quantifiable error. The Commission considers that the technical specifications as defined by the contracting authority, in accordance with its broad discretional power, a principle acknowledged by the Court of Justice, were not disproportionate and did not distort competition. This principle provides legal certainty for the contracting authorities without which any future procurement procedure could be compromised.

For another error linked to tender, the Commission considers that it reflects a very strict interpretation of rules.

| (c) | ineligible expenditure such as expenditure relating to activities not covered by the contract (five transactions), ineligible VAT (three transactions), expenditure incurred outside the implementation period (two transactions) or non-compliant with the rule of origin (one transaction); |
| --- | --- |

(c)

ineligible expenditure such as expenditure relating to activities not covered by the contract (five transactions), ineligible VAT (three transactions), expenditure incurred outside the implementation period (two transactions) or non-compliant with the rule of origin (one transaction);

| (d) | expenditure not incurred by beneficiaries (seven transactions); |
| --- | --- |

(d)

expenditure not incurred by beneficiaries (seven transactions);

| (e) | incorrect calculation of expenditure claimed (five transactions). |
| --- | --- |

(e)

incorrect calculation of expenditure claimed (five transactions).

| 27. | Graph 1
  provides an overview of the contribution of the different types of errors to the overall estimated error. Errors relating to non-compliance with procurement procedures by beneficiaries and the absence of supporting documents account for 70 % of the most likely error. |
| --- | --- |

27.

Graph 1
  provides an overview of the contribution of the different types of errors to the overall estimated error. Errors relating to non-compliance with procurement procedures by beneficiaries and the absence of supporting documents account for 70 % of the most likely error.

Graph 1

Graph 1
  —   Contribution by type of error to the most likely error

Graph 1

—

Contribution by type of error to the most likely error

Image

Box 1 —   Examples of quantifiable errors in project transactions

Box 1 —

Examples of quantifiable errors in project transactions

Box 1 —
     
  Examples of quantifiable errors in project transactions

Box 1 —

Examples of quantifiable errors in project transactions

Absence of supporting documents to justify expenditure

Absence of supporting documents to justify expenditure

The Court examined the final clearance of expenditure incurred under the ‘Support to peacebuilding and transition activities’ programme implemented by an international organisation in sub-Saharan Africa. The Court tested 25 expenditure items. For four items, relating to staff salaries and travel costs amounting to 18  200 euro the essential supporting documents to justify the expenditure (e.g. employment contract, salary slip, proof of payment for staff salaries, invoice, boarding passes, proof of payment for travel costs) were not provided to the Court.

Failure by the beneficiary to comply with procurement procedures

Failure by the beneficiary to comply with procurement procedures

The Court examined the final clearance of expenditure incurred under the ‘Assistance to Micro and Small Enterprises’ programme in Africa and found an error in the procurement of IT equipment to a business information centre amounting to 23  398 euro. According to the tender notice, the contract award criterion was the lowest price. The evaluation report did not correctly reflect the financial offers made by the bidders. As a result, the bid offering the lowest price was not awarded the contract.

The error was not detected by the Commission’s framework auditor performing a financial audit of this programme.

Ineligible expenditure and expenditure not incurred by the beneficiary

Ineligible expenditure and expenditure not incurred by the beneficiary

The Court examined the final clearance of expenditure incurred under the ‘All ACP Agricultural Commodities Programme’ implemented by an international organisation. The expenditure of 2 54  000 USD claimed by an implementing partner included 17  675 USD of overhead costs which were not allowed for in the contract and were therefore ineligible.

In addition, there was a difference of 3  862 USD between the amount paid by the international organisation to the implementing partner as advance payments and the expenditure actually incurred.

The error points to a weakness in the checks by the international organisation on compliance with contractual provisions and the use of advance payments.

Ineligible expenditure and expenditure not incurred by the beneficiary

Ineligible expenditure and expenditure not incurred by the beneficiary

The Commission has reminded the organisation about the applicable rules and obligations. The ineligibilities detected by the Court will allow the Commission to recalculate the amount of the EU contribution. In the future, enhanced verification missions will be carried out for the programmes managed by this organisation.

The Commission has reminded the organisation about the applicable rules and obligations. The ineligibilities detected by the Court will allow the Commission to recalculate the amount of the EU contribution. In the future, enhanced verification missions will be carried out for the programmes managed by this organisation.

| 28. | Non-quantifiable errors concerned shortcomings in the procurement procedures followed (six transactions), insufficient supporting documents to justify the correctness of the amount paid (three transactions) and insufficient information to enable the Court to quantify the error relating to the eligibility of expenditure (three transactions). |
| --- | --- |

28.

Non-quantifiable errors concerned shortcomings in the procurement procedures followed (six transactions), insufficient supporting documents to justify the correctness of the amount paid (three transactions) and insufficient information to enable the Court to quantify the error relating to the eligibility of expenditure (three transactions).

Budget support

Budget support

| 29. | For the 35 budget support transactions tested, three (9 %) were affected by errors, of which two (67 %) were quantifiable errors. |
| --- | --- |

29.

For the 35 budget support transactions tested, three (9 %) were affected by errors, of which two (67 %) were quantifiable errors.

| 29. | The Commission notes that the number of budget support-related errors has decreased by 82 % from 2011 to 2013. |
| --- | --- |

29.

29.

The Commission notes that the number of budget support-related errors has decreased by 82 % from 2011 to 2013.

| 30. | The quantifiable errors detected by the Court in budget support transactions concerned the incorrect application of the scoring method for determining whether or not recipients had met the conditions for a performance-based variable tranche (one transaction) and an incorrect exchange rate used to convert a budget support disbursement to local currency (one transaction). |
| --- | --- |

30.

The quantifiable errors detected by the Court in budget support transactions concerned the incorrect application of the scoring method for determining whether or not recipients had met the conditions for a performance-based variable tranche (one transaction) and an incorrect exchange rate used to convert a budget support disbursement to local currency (one transaction).

| 31. | The Court also identified one non-quantifiable error. The Commission had not required the recipient to provide evidence that the correct exchange rate was used to convert the disbursement to local currency. |
| --- | --- |

31.

The Court also identified one non-quantifiable error. The Commission had not required the recipient to provide evidence that the correct exchange rate was used to convert the disbursement to local currency.

Box 2 —   Example of a quantifiable error in a budget support transaction

Box 2 —

Example of a quantifiable error in a budget support transaction

Incorrect application of the scoring method for a performance-based variable tranche

Incorrect application of the scoring method for a performance-based variable tranche

The Court examined a performance-based variable tranche of 4 1 81  250 euro under the ‘Programme d’appui au plan de développement territorial’ in Mayotte. According to the financing agreement, the Commission should assess the progress made in respect of budget credibility separately for each selected budget chapter. Instead, the Commission made an overall assessment based on the total amount of the budget chapters, which meant that positive and negative variations on individual budget chapters cancelled each other out when added up. The failure to comply with the scoring method set out in the financing agreement resulted in an overpayment of 2 22  861 euro (5,33 %).

Programme d’appui au plan de développement territorial

Box 2 —
     
  Example of a quantifiable error in a budget support transaction

Box 2 —

Example of a quantifiable error in a budget support transaction

Incorrect application of the scoring method for a performance-based variable tranche

Incorrect application of the scoring method for a performance-based variable tranche

The Commission corrected this for the subsequent disbursement and established a recovery order.

The Commission corrected this for the subsequent disbursement and established a recovery order.

Examination of selected control systems

Examination of selected control systems

| 32. | Annex 2
  contains a summary of the results of EuropeAid’s systems examined by the Court. |
| --- | --- |

32.

Annex 2
  contains a summary of the results of EuropeAid’s systems examined by the Court.

Annex 2

Ex ante checks

Ex ante checks

| 33. | Given the high-risk environment (see paragraph 6), EuropeAid relies mainly on ex ante checks (checks by Commission staff, external supervisors or external auditors before project payments are made) in order to prevent or detect and correct irregular payments. As in previous years, the frequency of errors found by the Court, including some affecting final claims which had been subject to external audits and expenditure verifications, point to weaknesses in these ex ante checks. |
| --- | --- |

33.

Given the high-risk environment (see paragraph 6), EuropeAid relies mainly on ex ante checks (checks by Commission staff, external supervisors or external auditors before project payments are made) in order to prevent or detect and correct irregular payments. As in previous years, the frequency of errors found by the Court, including some affecting final claims which had been subject to external audits and expenditure verifications, point to weaknesses in these ex ante checks.

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

| 34. | In May 2013, EuropeAid adopted an action plan to address weaknesses identified in the implementation of EuropeAid’s control system (25). The action plan addresses a number of recommendations made by the Court in its previous annual reports, as well as the issues identified by the 2012 and 2013 EuropeAid RER studies. It includes awareness-raising, training and provision of guidance on the main types of error and how to avoid them. It also sets out actions aimed at improving the quality of external audits (26), which are a key component of EuropeAid’s supervisory and control systems, and at reinforcing cooperation with international organisations as regards control of regularity (see paragraph 39). |
| --- | --- |

34.

In May 2013, EuropeAid adopted an action plan to address weaknesses identified in the implementation of EuropeAid’s control system (25). The action plan addresses a number of recommendations made by the Court in its previous annual reports, as well as the issues identified by the 2012 and 2013 EuropeAid RER studies. It includes awareness-raising, training and provision of guidance on the main types of error and how to avoid them. It also sets out actions aimed at improving the quality of external audits (26), which are a key component of EuropeAid’s supervisory and control systems, and at reinforcing cooperation with international organisations as regards control of regularity (see paragraph 39).

25

26

Monitoring and supervision

Monitoring and supervision

| 35. | As indicated in the Court’s previous annual reports (27), there are shortcomings in EuropeAid’s management information system on the results and the follow-up of external audits, expenditure verifications and monitoring visits. These make it difficult for the Director-General to hold heads of unit or heads of EU delegations accountable for the timely follow-up and correction of the system weaknesses and errors identified. EuropeAid is developing new functions in the audit module of its CRIS information system to improve the follow-up of audit reports. |
| --- | --- |

35.

As indicated in the Court’s previous annual reports (27), there are shortcomings in EuropeAid’s management information system on the results and the follow-up of external audits, expenditure verifications and monitoring visits. These make it difficult for the Director-General to hold heads of unit or heads of EU delegations accountable for the timely follow-up and correction of the system weaknesses and errors identified. EuropeAid is developing new functions in the audit module of its CRIS information system to improve the follow-up of audit reports.

27

| 36. | EuropeAid is also developing a tool to help EU delegations to screen their portfolio of projects more effectively and prioritise visits to those in particular need of monitoring based on risk assessments. |
| --- | --- |

36.

EuropeAid is also developing a tool to help EU delegations to screen their portfolio of projects more effectively and prioritise visits to those in particular need of monitoring based on risk assessments.

2013 RER study

2013 RER study

| 37. | EuropeAid carried out its second RER study to measure the level of error which has evaded all management checks to prevent, detect and correct errors. The study consisted of an examination of a representative sample of transactions relating to contracts closed between September 2012 and August 2013 in order to estimate the most likely error in the population of closed contracts. |
| --- | --- |

37.

EuropeAid carried out its second RER study to measure the level of error which has evaded all management checks to prevent, detect and correct errors. The study consisted of an examination of a representative sample of transactions relating to contracts closed between September 2012 and August 2013 in order to estimate the most likely error in the population of closed contracts.

| 38. | The results of the 2013 RER study are presented in the AAR (28). The study estimates the RER at 3,35 %, i.e. above the 2 % materiality level set by the Commission. The main types of errors identified by the study are: |
| --- | --- |

38.

The results of the 2013 RER study are presented in the AAR (28). The study estimates the RER at 3,35 %, i.e. above the 2 % materiality level set by the Commission. The main types of errors identified by the study are:

28

| (a) | absence of satisfactory documentation demonstrating eligibility provided by beneficiary organisations (51,63 % of the RER); |
| --- | --- |

(a)

absence of satisfactory documentation demonstrating eligibility provided by beneficiary organisations (51,63 % of the RER);

| (b) | errors which were estimated because insufficient evidence was available to check the regularity of transactions (17,82 % of the RER); |
| --- | --- |

(b)

errors which were estimated because insufficient evidence was available to check the regularity of transactions (17,82 % of the RER);

| (c) | non-compliance with public procurement procedures (12,45 % of the RER); |
| --- | --- |

(c)

non-compliance with public procurement procedures (12,45 % of the RER);

| (d) | unrecovered and uncorrected amounts (8,71 % of the RER); |
| --- | --- |

(d)

unrecovered and uncorrected amounts (8,71 % of the RER);

| (e) | other types of errors (9,39 %). |
| --- | --- |

(e)

other types of errors (9,39 %).

| 39. | Transactions implemented by international organisations account for a fifth of all transactions sampled but they account for 29,18 % of the residual error rate. |
| --- | --- |

39.

Transactions implemented by international organisations account for a fifth of all transactions sampled but they account for 29,18 % of the residual error rate.

| 40. | As indicated by the Court in its 2012 annual report (29), the design of the RER methodology is overall appropriate. For this second study, refinements were made in the calculation of error rates on individual transactions and the treatment of transactions for which no information was readily available. |
| --- | --- |

40.

As indicated by the Court in its 2012 annual report (29), the design of the RER methodology is overall appropriate. For this second study, refinements were made in the calculation of error rates on individual transactions and the treatment of transactions for which no information was readily available.

29

THE COURT’S OBSERVATIONS

THE COURT’S OBSERVATIONS

THE COMMISSION’S REPLIES

THE COMMISSION’S REPLIES

| 41. | The AAR indicates (30) that the RER methodology ‘results in an accurate assessment of the volume of errors not detected by the overall control system’ and that ‘the result of the overall error evaluation was then expressed as an actual level of error with a 95 % confidence level’. This is not a fully accurate presentation of the RER study results: |
| --- | --- |

41.

The AAR indicates (30) that the RER methodology ‘results in an accurate assessment of the volume of errors not detected by the overall control system’ and that ‘the result of the overall error evaluation was then expressed as an actual level of error with a 95 % confidence level’. This is not a fully accurate presentation of the RER study results:

30

41.

41.

| (a) | the RER methodology reflects valid cost-effectiveness considerations, notably as regards the degree of reliance placed upon previous audit or verification reports and the extent of substantive testing performed. This involves a limitation of scope which should be disclosed to allow for a correct understanding of the RER study results; |
| --- | --- |

(a)

the RER methodology reflects valid cost-effectiveness considerations, notably as regards the degree of reliance placed upon previous audit or verification reports and the extent of substantive testing performed. This involves a limitation of scope which should be disclosed to allow for a correct understanding of the RER study results;

| (a) | In order to promote an efficient and cost effective study, the RER methodology foresees reliance on previous control work, including: financial and technical audits, the DAS, verifications, evaluations and technical supervisors’ reports.

  This aspect of the RER methodology is founded on the presumption that RER procedures will not produce benefits exceeding those already provided by comprehensive, diligent previous control work. Previous control work typically will have been performed with greater intensity and higher cost than RER procedures. |
| --- | --- |

(a)

(a)

In order to promote an efficient and cost effective study, the RER methodology foresees reliance on previous control work, including: financial and technical audits, the DAS, verifications, evaluations and technical supervisors’ reports.

In order to promote an efficient and cost effective study, the RER methodology foresees reliance on previous control work, including: financial and technical audits, the DAS, verifications, evaluations and technical supervisors’ reports.

This aspect of the RER methodology is founded on the presumption that RER procedures will not produce benefits exceeding those already provided by comprehensive, diligent previous control work. Previous control work typically will have been performed with greater intensity and higher cost than RER procedures.

| (b) | on the basis of the 2013 RER study, 3,35 % is indeed the estimated most likely error rate, but the 95 % confidence level means that the error rate lies between lower and upper error limits, which are however not disclosed. |
| --- | --- |

(b)

on the basis of the 2013 RER study, 3,35 % is indeed the estimated most likely error rate, but the 95 % confidence level means that the error rate lies between lower and upper error limits, which are however not disclosed.

| (b) | The disclosure of the upper and lower error limits in the 2013 AAR has not been explicitly foreseen by the instructions given by the Central Commission Services. |
| --- | --- |

(b)

(b)

The disclosure of the upper and lower error limits in the 2013 AAR has not been explicitly foreseen by the instructions given by the Central Commission Services.

The disclosure of the upper and lower error limits in the 2013 AAR has not been explicitly foreseen by the instructions given by the Central Commission Services.

Internal audit

Internal audit

| 42. | In its 2011 annual report (31), the Court indicated that the Commission reorganisation that took place in 2011 had a major impact on the activity of the Internal Audit Capability (IAC) (32). In its reply to the Court’s 2011 annual report, the Commission committed itself to assessing the capacity of the IAC and would consider strengthening it if necessary (33). This has not been done and there was no significant improvement in the functioning of the IAC in 2013. |
| --- | --- |

42.

In its 2011 annual report (31), the Court indicated that the Commission reorganisation that took place in 2011 had a major impact on the activity of the Internal Audit Capability (IAC) (32). In its reply to the Court’s 2011 annual report, the Commission committed itself to assessing the capacity of the IAC and would consider strengthening it if necessary (33). This has not been done and there was no significant improvement in the functioning of the IAC in 2013.

31

32

33

| 42. | The Commission has initiated some actions to improve the capacity of the IAC. |
| --- | --- |

42.

42.

The Commission has initiated some actions to improve the capacity of the IAC.

Review of annual activity report

Review of annual activity report

| 43. | In his declaration of assurance, the Director-General makes a reservation concerning the legality and regularity of transactions, since the amount considered at risk (228,55 million euro) represents more than 2 % of payments made by EuropeAid in 2013. However, the Director-General also states that the control procedures in place give the necessary guarantees concerning the legality and regularity of the underlying transactions. The Court considers that this is not a logical conclusion because controls systems are not effective when they fail to prevent, detect and correct material error. |
| --- | --- |

43.

In his declaration of assurance, the Director-General makes a reservation concerning the legality and regularity of transactions, since the amount considered at risk (228,55 million euro) represents more than 2 % of payments made by EuropeAid in 2013. However, the Director-General also states that the control procedures in place give the necessary guarantees concerning the legality and regularity of the underlying transactions. The Court considers that this is not a logical conclusion because controls systems are not effective when they fail to prevent, detect and correct material error.

| 43. | Given the risk environment DG DEVCO operates in, and the fact that the residual error is not a consequence of the design of the control system, but rather of weaknesses in its implementation, it is still reasonable to conclude that the control procedures in place give the necessary guarantees concerning legality and regularity of the underlying transactions. |
| --- | --- |

43.

43.

Given the risk environment DG DEVCO operates in, and the fact that the residual error is not a consequence of the design of the control system, but rather of weaknesses in its implementation, it is still reasonable to conclude that the control procedures in place give the necessary guarantees concerning legality and regularity of the underlying transactions.

| 44. | The reservation relates to the legality and regularity of the whole expenditure managed by EuropeAid. A reservation is appropriate when control weaknesses relate to defined areas of revenue or expenditure (34), but not when they affect the operation of the control system as a whole and the financial impact exceeds the materiality threshold for the whole budget under the Director-General’s responsibility. However, the Commission’s standing instructions for 2013 AARs do not clearly address such a situation. |
| --- | --- |

44.

The reservation relates to the legality and regularity of the whole expenditure managed by EuropeAid. A reservation is appropriate when control weaknesses relate to defined areas of revenue or expenditure (34), but not when they affect the operation of the control system as a whole and the financial impact exceeds the materiality threshold for the whole budget under the Director-General’s responsibility. However, the Commission’s standing instructions for 2013 AARs do not clearly address such a situation.

34

CONCLUSION AND RECOMMENDATIONS

CONCLUSION AND RECOMMENDATIONS

The conclusion for 2013

The conclusion for 2013

| 45. | Based on its audit work, the Court concludes that the EDFs’ accounts for the financial year ending 31 December 2013 present fairly, in all material respects, the financial position of the EDFs as of 31 December 2013, and the results of their operations and cash flows for the year then ended, in accordance with the provisions of the EDF Financial Regulation and the accounting rules adopted by the accounting officer. |
| --- | --- |

45.

Based on its audit work, the Court concludes that the EDFs’ accounts for the financial year ending 31 December 2013 present fairly, in all material respects, the financial position of the EDFs as of 31 December 2013, and the results of their operations and cash flows for the year then ended, in accordance with the provisions of the EDF Financial Regulation and the accounting rules adopted by the accounting officer.

| 46. | The Court concludes that, for the financial year ending 31 December 2013:






  (a) | the revenue of the EDFs was free from material error; |
| --- | --- | --- |

46.

The Court concludes that, for the financial year ending 31 December 2013:

(a)

the revenue of the EDFs was free from material error;

| (b) | the commitments entered into by the EDFs were free from material error; |
| --- | --- |

(b)

the commitments entered into by the EDFs were free from material error;

| (c) | EDF payment transactions were affected by material error (see paragraphs 23 to 31). |
| --- | --- |

(c)

EDF payment transactions were affected by material error (see paragraphs 23 to 31).

| 47. | The examined systems of EuropeAid are assessed as partially effective (see paragraphs 19 and 32 to 38) (35). However, in May 2013 EuropeAid adopted an action plan to address the main weaknesses identified. |
| --- | --- |

47.

The examined systems of EuropeAid are assessed as partially effective (see paragraphs 19 and 32 to 38) (35). However, in May 2013 EuropeAid adopted an action plan to address the main weaknesses identified.

35

| 47. | The Commission agrees that, while the design of the control system is broadly consistent and sound, progress still has to be made on the implementation of the control mechanisms. The Action Plan is already progressing in this direction. |
| --- | --- |

47.

47.

The Commission agrees that, while the design of the control system is broadly consistent and sound, progress still has to be made on the implementation of the control mechanisms. The Action Plan is already progressing in this direction.

Recommendations

Recommendations

| 48. | Annex 3
  shows the result of the Court’s review of progress in addressing recommendations made in previous annual reports. In the 2010 and 2011 annual reports, the Court presented 14 recommendations. Out of these recommendations, EuropeAid fully implemented three recommendations, while four were implemented in most respects, five were implemented in some respects and two were not implemented. |
| --- | --- |

48.

Annex 3
  shows the result of the Court’s review of progress in addressing recommendations made in previous annual reports. In the 2010 and 2011 annual reports, the Court presented 14 recommendations. Out of these recommendations, EuropeAid fully implemented three recommendations, while four were implemented in most respects, five were implemented in some respects and two were not implemented.

Annex 3

| 49. | As regards the recommendations not implemented, EuropeAid has not made compulsory the guidelines on risk analysis for the preparation of annual audit plans and has not assessed the IAC’s capacity to perform its task effectively. |
| --- | --- |

49.

As regards the recommendations not implemented, EuropeAid has not made compulsory the guidelines on risk analysis for the preparation of annual audit plans and has not assessed the IAC’s capacity to perform its task effectively.

| 49. | The Commission has initiated some actions to improve the capacity of the IAC. |
| --- | --- |

49.

49.

The Commission has initiated some actions to improve the capacity of the IAC.

| 50. | As regards the recommendations implemented in some respects only, EuropeAid is taking action: |
| --- | --- |

50.

As regards the recommendations implemented in some respects only, EuropeAid is taking action:

50.

50.

| (a) | EuropeAid participated in a working group headed by DG Budget to review the cost-effectiveness of its overall control architecture. In the 2013 AAR, for the first time, it provided data on estimated control costs and benefits. While this shows that EuropeAid paid due attention to the need to monitor the efficiency of its supervisory and control systems, the Court found some weaknesses as regards the quantification of benefits, which affect the reliability of cost/benefit ratios. |
| --- | --- |

(a)

EuropeAid participated in a working group headed by DG Budget to review the cost-effectiveness of its overall control architecture. In the 2013 AAR, for the first time, it provided data on estimated control costs and benefits. While this shows that EuropeAid paid due attention to the need to monitor the efficiency of its supervisory and control systems, the Court found some weaknesses as regards the quantification of benefits, which affect the reliability of cost/benefit ratios.

| (a) | Guidance on possible approaches to calculate or estimate benefits and costs of the most common internal control systems in the Commission has been proposed, in combination with the related Internal Control Templates.

  Each DG is expected to apply the approaches for estimating the benefits and costs of its concerned internal control strategies for the corresponding expenditure — including its best estimate of both the quantifiable and the non-quantifiable benefits of the controls.
  In line with the commitments made in the synthesis report, DG Budget shall continue to develop further guidance, identifying a limited number of cost-effectiveness indicators which could be used across the Commission, and define more precisely the methodology to be used to calculate them. |
| --- | --- |

(a)

(a)

Guidance on possible approaches to calculate or estimate benefits and costs of the most common internal control systems in the Commission has been proposed, in combination with the related Internal Control Templates.

Guidance on possible approaches to calculate or estimate benefits and costs of the most common internal control systems in the Commission has been proposed, in combination with the related Internal Control Templates.

Each DG is expected to apply the approaches for estimating the benefits and costs of its concerned internal control strategies for the corresponding expenditure — including its best estimate of both the quantifiable and the non-quantifiable benefits of the controls.

In line with the commitments made in the synthesis report, DG Budget shall continue to develop further guidance, identifying a limited number of cost-effectiveness indicators which could be used across the Commission, and define more precisely the methodology to be used to calculate them.

| (b) | EuropeAid is developing tools and guidance for EU delegations to better prioritise their monitoring visits to projects and assess the quality of audit reports. |
| --- | --- |

(b)

EuropeAid is developing tools and guidance for EU delegations to better prioritise their monitoring visits to projects and assess the quality of audit reports.

| (c) | EuropeAid is developing new functions in the audit module of its CRIS information system to improve the follow-up of audit reports (see paragraph 35). |
| --- | --- |

(c)

EuropeAid is developing new functions in the audit module of its CRIS information system to improve the follow-up of audit reports (see paragraph 35).

| 51. | Following this review and the findings and conclusions for 2013, the Court recommends that EuropeAid: |
| --- | --- |

51.

Following this review and the findings and conclusions for 2013, the Court recommends that EuropeAid:

51.

51.

| — | Recommendation 1: ensures that all authorising officers by sub-delegation recover interest generated by pre-financing over 7 50  000 euro annually; |
| --- | --- |

—

Recommendation 1: ensures that all authorising officers by sub-delegation recover interest generated by pre-financing over 7 50  000 euro annually;

Recommendation 1

The Commission accepts this recommendation. The actions taken by the Commission have already produced good results. The Commission will intensify these actions in 2014.

The Commission accepts this recommendation. The actions taken by the Commission have already produced good results. The Commission will intensify these actions in 2014.

| — | Recommendation 2: by the end of 2014, completes the development of the CRIS system to allow interest on pre-financing of between 2 50  000 and 7 50  000 euro to be recognised as financial revenue; |
| --- | --- |

—

Recommendation 2: by the end of 2014, completes the development of the CRIS system to allow interest on pre-financing of between 2 50  000 and 7 50  000 euro to be recognised as financial revenue;

Recommendation 2

The Commission accepts this recommendation. Due to the implementation of the new Financial Regulation and the related ABAC release, it was not possible to implement that feature as planned. The finalization is now scheduled for the last quarter of 2014.

The Commission accepts this recommendation. Due to the implementation of the new Financial Regulation and the related ABAC release, it was not possible to implement that feature as planned. The finalization is now scheduled for the last quarter of 2014.

| — | Recommendation 3: revises the quantification of benefits of controls implemented; |
| --- | --- |

—

Recommendation 3: revises the quantification of benefits of controls implemented;

Recommendation 3

The Commission accepts this recommendation and will continue to improve the quantification of benefits of controls in line with the guidelines provided by the Commission Central Services.

The Commission accepts this recommendation and will continue to improve the quantification of benefits of controls in line with the guidelines provided by the Commission Central Services.

| — | Recommendation 4: reports in the AAR on progress in the implementation of the action plan to address weaknesses in the control system; and |
| --- | --- |

—

Recommendation 4: reports in the AAR on progress in the implementation of the action plan to address weaknesses in the control system; and

Recommendation 4

The Commission accepts this recommendation.

The Commission accepts this recommendation.

| — | Recommendation 5: discloses in the AAR the scope of the RER study and the estimated lower and upper error limits. |
| --- | --- |

—

Recommendation 5: discloses in the AAR the scope of the RER study and the estimated lower and upper error limits.

Recommendation 5

The Commission agrees with this recommendation and will further discuss with the Court how to implement it. The definition of the RER and calculation of an amount at risk will remain based on the Most Likely Error (MLE).

The Commission agrees with this recommendation and will further discuss with the Court how to implement it. The definition of the RER and calculation of an amount at risk will remain based on the Most Likely Error (MLE).

---

(1)  See Articles 118, 125 and 134 of Council Regulation (EC) No 215/2008 of 18 February 2008 on the Financial Regulation applicable to the 10th European Development Fund (OJ L 78, 19.3.2008, p. 1) and the Court’s opinion No 9/2007 on the proposal for this Regulation (OJ C 23, 28.1.2008, p. 3).

1

(2)  In 2012 a tripartite agreement between the EIB, the Commission and the Court (Article 134 of Regulation (EC) No 215/2008) set out rules for the audit of these operations by the Court.

2

(3)  The Directorate-General for Humanitarian Aid and Civil Protection (DG ECHO) manages 1,7 % of expenditure from the EDFs.

3

(4)  See chapter 7 "External relations, aid and enlargement" of the Court's 2013 annual report on the implementation of the EU budget.

4

(5)  Budget support involves the transfer of funds by the Commission to the national treasury of the partner country. It provides additional budgetary resources to support a national development strategy.

5

(6)  Under centralised management, aid is implemented directly by the Commission’s services (headquarters or delegations) or indirectly through national bodies (e.g. a development agency of an EU Member State). Under decentralised management, implementation is delegated to a third country. Under joint management, implementation is delegated to an international organisation.

6

(7)  Gross budget support payments made from the EDFs in 2013 amounted to 718 million euro.

7

(8)  Gross payments from the EDFs in 2013 to multi-donor projects carried out by international organisations amounted to 458 million euro.

8

(9)  Article 1(5) of the Internal Agreement between the Representatives of Governments of the Member States, meeting within the Council, on the financing of Community aid under the multiannual financial framework for the period 2008 to 2013 in accordance with the ACP-EC Partnership Agreement and on the allocation of financial assistance for the Overseas Countries and Territories to which Part Four of the EC Treaty applies (OJ L 247, 9.9.2006, p. 32).

9

(10)  Articles 118, 124 and 156 of Regulation (EC) No 215/2008.

10

(11)  Pursuant to Articles 2, 3, 4, 125(4) and 134 of the Financial Regulation applicable to the tenth EDF this Statement of Assurance does not extend to the part of the EDFs resources that are managed by the EIB and for which it is responsible.

11

(12)  The accounting rules and methods adopted by the EDF accounting officer are drawn up on the basis of International Public Sector Accounting Standards (IPSAS) or by default, International Financial Reporting Standards (IFRS) as respectively issued by the International Federation of Accountants and the International Accounting Standards Board.

12

(13)  See Article 122 of Regulation (EC) No 215/2008: the financial statements comprise the balance sheet, the statement of economic outturn, the statement of cash flow, the statement of changes in net assets and the table of items payable to the EDFs.

13

(14)  See Article 123 of Regulation (EC) No 215/2008: the reports on financial implementation include tables of appropriations, commitments and payments.

14

(15)  See Article 125 of Regulation (EC) No 215/2008.

15

(16)  Global financial commitments and the corresponding legal commitments (financing agreements) following the adoption of a financing decision by the Commission.

16

(17)  As defined in
  Annex 1.1
  , paragraph 7, of the 2013 annual report of the Court of Auditors on the implementation of the budget.

17

Annex 1.1

(18)  African Union, Cameroon, DR Congo, Ivory Coast, Kenya, Lesotho, Mozambique, Nigeria, Rwanda and Zimbabwe.

18

(19)  EuropeAid: 34 project and 35 budget support payments; DG ECHO: three project payments on humanitarian aid.

19

(20)  Article 8(3) of Regulation (EC) No 215/2008.

20

(21)  24 recoveries totalling 4,7 million euro in 2013, compared to 13 recoveries totalling 1,3 million euro in 2012.

21

(22)  The Court calculates its estimate of error from a representative sample. The figure quoted is the best estimate. The Court has 95 % confidence that the rate of error in the population lies between 1,4 % and 5,4 % (the lower and upper error limits respectively).

22

(23)  As regards the two errors contested by the Commission, in one case the very detailed technical specifications set in the tender notice were not justified by the intended use of the vehicles and excluded de facto a number of potential tenderers which creates an obstacle to competitive tendering. In the other case, there was no valid justification for splitting the procurement into three local open tenders instead of using an international open tender. These errors point to weaknesses in the checks performed by the EU delegations, which had given their prior approval to these procurement procedures.

23

(24)  Paragraph 26 of the Court’s 2012 annual report.

24

(25)  See EuropeAid’s 2013 annual activity report, pp. 188-190 and 195-196.

25

(26)  Contract templates have been revised so that the Commission can have an influence on the choice of external auditors. Quality grids are to be designed to assess the reliability of audit reports and to provide guidance in case of non-compliance. Risk-based audit planning methodology is to be made compulsory.

26

(27)  Paragraph 42 of the Court’s 2010 annual report, paragraph 43 of the Court’s 2011 annual report and paragraph 35 of the Court’s 2012 annual report.

27

(28)  Pp. 140-142.

28

(29)  Paragraph 39.

29

(30)  Page 141.

30

(31)  Paragraph 50 of the Court’s 2011 annual report.

31

(32)  The IAC is a unit of a Commission directorate-general. It is managed by a Head of Unit who reports directly to the Director-General. Its task is to provide independent assurance on the effectiveness of the internal control system with a view to improving the directorate-general’s operations.

32

(33)  Commission’s reply to paragraph 59(e) of the Court’s 2011 annual report.

33

(34)  See article 66(9) of Regulation (EU, Euratom) No 966/2012 of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1), and article 38 of Regulation (EC) No 215/2008.

34

(35)  The conclusion on systems is limited to the systems selected for examination as defined in the audit scope in paragraph 18(e).

35

(36)  Global commitments relate to financing decisions. Individual commitments relate to individual contracts.

36

Source: 2013 accounts of the 8th, 9th and 10th EDFs.

Source:

(37)  Include initial allocations to the 8th, 9th and 10th EDFs, co-financing, interest, sundry resources and transfers from previous EDFs.

37

(38)  As a percentage of resources.

38

(39)  Negative amounts correspond to decommitments.

39

(40)  Global commitments relate to financing decisions.

40

(41)  Individual commitments relate to individual contracts.

41

(42)  Net commitments after decommitments. Net payments after recoveries.

42

Source: Court of Auditors, based on the EDF reports on financial implementation and financial statements at 31 December 2013.

Source:

---

ANNEX 1

RESULTS OF TRANSACTION TESTING FOR THE EUROPEAN DEVELOPMENT FUNDS

| | 2013 | 2012 | 2011 | 2010 |
| --- | --- | --- | --- | --- |
| Projects | Budget support | Total |
| |
| SIZE AND STRUCTURE OF THE SAMPLE |
| Total transactions: | 130 | 35 | 165 | 167 | 163 | 165 |
| |
| RESULTS OF TESTING
   (1)
   (2) |
| |
| Proportion (number) of transactions tested found to be: |
| |
| Free of error | 68 % | (88) | 91 % | (32) | 73 % | (120) | 74 % | 67 % | 73 % |
| Affected by one or more errors | 32 % | (42) | 9 % | (3) | 27 % | (45) | 26 % | 33 % | 27 % |
| |
| Analysis of transactions affected by error |
| |
| Analysis by type of error |
| |
| | Other compliance issues and non-quantifiable errors: | 29 % | (12) | 33 % | (1) | 29 % | (13) | 32 % | 46 % | 49 % |
| | Quantifiable errors: | 71 % | (30) | 67 % | (2) | 71 % | (32) | 68 % | 54 % | 51 % |
| |
| ESTIMATED IMPACT OF QUANTIFIABLE ERRORS |
| |
| Most likely error rate | | | | | 3,4 % | 3,0 % | 5,1 % | 3,4 % |
| |
| | Upper Error Limit (UEL) | | | | | 5,4 % | | | |
| | Lower Error Limit (LEL) | | | | | 1,4 % | | | |

2013

2012

2011

2010

Projects

Budget support

Total

SIZE AND STRUCTURE OF THE SAMPLE

Total transactions:

130

35

165

167

163

165

RESULTS OF TESTING
   (1)
   (2)

Proportion (number) of transactions tested found to be:

Free of error

68 %

(88)

91 %

(32)

73 %

(120)

74 %

67 %

73 %

Affected by one or more errors

32 %

(42)

9 %

(3)

27 %

(45)

26 %

33 %

27 %

Analysis of transactions affected by error

Analysis by type of error

Other compliance issues and non-quantifiable errors:

29 %

(12)

33 %

(1)

29 %

(13)

32 %

46 %

49 %

Quantifiable errors:

71 %

(30)

67 %

(2)

71 %

(32)

68 %

54 %

51 %

ESTIMATED IMPACT OF QUANTIFIABLE ERRORS

Most likely error rate

3,4 %

3,0 %

5,1 %

3,4 %

Upper Error Limit (UEL)

5,4 %

Lower Error Limit (LEL)

1,4 %

---

(1)  To improve insight into areas with different risk profiles within the policy group, the sample was split up into segments.

(2)  Numbers quoted in brackets represent the actual number of transactions.

---

ANNEX 2

RESULTS OF EXAMINATION OF SELECTED SYSTEMS FOR THE EUROPEAN DEVELOPMENT FUNDS AND DEVELOPMENT AID UNDER THE EU BUDGET

Assessment of the systems examined

| System concerned | Ex ante controls | Monitoring and supervision | Internal audits | Overall assessment |
| --- | --- | --- | --- | --- |
| EuropeAid | Partially effective | Partially effective | Partially effective | Partially effective |

System concerned

Ex ante controls

Monitoring and supervision

Internal audits

Overall assessment

EuropeAid

Partially effective

Partially effective

Partially effective

Partially effective

---

ANNEX 3

FOLLOW-UP OF PREVIOUS RECOMMENDATIONS FOR THE EUROPEAN DEVELOPMENT FUNDS

| Year | Court recommendation | Court's analysis of the progress made | Commission reply |
| --- | --- | --- | --- |
| Fully implemented | Being implemented | Not implemented | Not applicable | Insufficient evidence |
| In most respects | In some respects |
| 2011 | Recommendation 1: EuropeAid should improve the management of contract awarding procedures, by setting out clear selection criteria and better documenting the evaluation process (2011 annual report, paragraph 59(a)). | | X | | | | | |
| Recommendation 2: EuropeAid should introduce documented risk-based planning and systematic follow-up for verification visits and on-the-spot monitoring visits (2011 annual report, paragraph 59(b)). | | | X | | | | The Commission is striving to improve planning for project visits, based on the risks attached to the projects. The Commission services are working on a portfolio management tool to help Delegations better screen their portfolio of projects and give priority to visits to projects in particular need of monitoring.


  Given the current resource constraints — that will probably increase in the future — the Commission needs to keep in mind cost-effectiveness aspects.


  One should also keep in mind possible security constraints; in some of the recipient countries on-the-spot checks may put the designated staff at risk, or be very difficult to carry out.


  In its reply to the original recommendation, the Commission stated that it would ‘consider making EuropeAid’s audit planning risk analysis methodology compulsory for the 2013 period onwards.’


  Accordingly, internal consideration has provided positive results and risk analysis will be made compulsory in the Audit Plans from 2015 onwards. |
| 2011 | Recommendation 3: EuropeAid should render compulsory the guidelines on risk analysis for the preparation of annual audit plans by delegations and EuropeAid’s headquarters (2011 annual report, paragraph 59(c)). | | | | X | | | |
| Recommendation 4: EuropeAid should review the design of KPIs to ensure that they are unambiguous and easy to interpret (2011 annual report, paragraph 59(d)). | | X | | | | | |
| Recommendation 5: EuropeAid should assess the IAC’s capacity to perform its task effectively (2011 annual report, paragraph 59(e)). | | | | X | | | The Commission has initiated some actions to improve the capacity of the IAC. |
| 2010 | Recommendation 1: EuropeAid should develop a key indicator for the estimated financial impact of residual errors after all ex ante and ex post controls have been implemented (2010 annual report, paragraph 62(a)). | X | | | | | | |
| Recommendation 2: EuropeAid should assess the cost-effectiveness of the various controls, notably of the transactions ex post control systems (2010 annual report, paragraph 62(b)). | | | X | | | | Since EuropeAid, in its AAR for 2013, has assessed the cost-effectiveness of its controls on the basis of the guidance provided by the Commission Central Services, EuropeAid considers that this recommendation has been implemented |
| Recommendation 3: EuropeAid should strengthen the effectiveness of project monitoring, including on-the-spot visits, on the basis of multiannual monitoring and evaluation plans (2010 annual report, paragraph 62(c)). | | | X | | | | |
| 2010 | Recommendation 4: EuropeAid should review the reliability of certificates from external supervisors, audits and expenditure verifications (2010 annual report, paragraph 63(a)). | | | X | | | | Even if this recommendation was accepted by the Commission, further reflection led to the conclusion that it was not the role of the Commission to provide such verifications of reliability.


  The action plan for correcting the weaknesses in the implementation of the internal control system includes measures aimed at enhancing the quality and effectiveness of external audits and expenditure checks.


  The contract templates have been revised so that the Commission could have an influence on the choice of external auditors.


  The verification reports’ weaknesses have already been analysed and quality grids are due to be produced by the end of 2014 in order to make it possible to assess their reliability and provide guidance in case of non-compliance. |
| Recommendation 5: EuropeAid should introduce management information systems which allow the Director-General and the Heads of Delegation to better monitor the follow-up of results from on-the-spot visits, external audits and expenditure verifications (2010 annual report, paragraph 63(b)). | | | X | | | | As indicated by the Court in paragraph 50, work is ongoing. |
| Recommendation 6: EuropeAid should link the CRIS Audit and CRIS Recovery Orders information systems (2010 annual report, paragraph 63(c)). | X | | | | | | |
| Recommendation 7: EuropeAid should continue its efforts to ensure that data are recorded in an accurate, comprehensive and timely manner in the CRIS information system (2010 annual report, paragraph 63(d)). | | X | | | | | |
| 2010 | Recommendation 8: EuropeAid should ensure that Delegations consistently apply the new format and scheme for Delegations’ annual reporting on reforms of public finance management systems in recipient countries so as to provide a structured and formalised demonstration of public finance management progress (2010 annual report, paragraph 64(a)). | | X | | | | | |
| Recommendation 9: EuropeAid should promote through policy dialogue the setting of clear assessment frameworks in recipient countries’ reform programmes on public finance management (2010 annual report, paragraph 64(b)). | X | | | | | | |

Year

Court recommendation

Court's analysis of the progress made

Commission reply

Fully implemented

Being implemented

Not implemented

Not applicable

Insufficient evidence

In most respects

In some respects

2011

Recommendation 1: EuropeAid should improve the management of contract awarding procedures, by setting out clear selection criteria and better documenting the evaluation process (2011 annual report, paragraph 59(a)).

X

Recommendation 2: EuropeAid should introduce documented risk-based planning and systematic follow-up for verification visits and on-the-spot monitoring visits (2011 annual report, paragraph 59(b)).

X

The Commission is striving to improve planning for project visits, based on the risks attached to the projects. The Commission services are working on a portfolio management tool to help Delegations better screen their portfolio of projects and give priority to visits to projects in particular need of monitoring.

Given the current resource constraints — that will probably increase in the future — the Commission needs to keep in mind cost-effectiveness aspects.

One should also keep in mind possible security constraints; in some of the recipient countries on-the-spot checks may put the designated staff at risk, or be very difficult to carry out.

In its reply to the original recommendation, the Commission stated that it would ‘consider making EuropeAid’s audit planning risk analysis methodology compulsory for the 2013 period onwards.’

Accordingly, internal consideration has provided positive results and risk analysis will be made compulsory in the Audit Plans from 2015 onwards.

2011

Recommendation 3: EuropeAid should render compulsory the guidelines on risk analysis for the preparation of annual audit plans by delegations and EuropeAid’s headquarters (2011 annual report, paragraph 59(c)).

X

Recommendation 4: EuropeAid should review the design of KPIs to ensure that they are unambiguous and easy to interpret (2011 annual report, paragraph 59(d)).

X

Recommendation 5: EuropeAid should assess the IAC’s capacity to perform its task effectively (2011 annual report, paragraph 59(e)).

X

The Commission has initiated some actions to improve the capacity of the IAC.

2010

Recommendation 1: EuropeAid should develop a key indicator for the estimated financial impact of residual errors after all ex ante and ex post controls have been implemented (2010 annual report, paragraph 62(a)).

X

Recommendation 2: EuropeAid should assess the cost-effectiveness of the various controls, notably of the transactions ex post control systems (2010 annual report, paragraph 62(b)).

X

Since EuropeAid, in its AAR for 2013, has assessed the cost-effectiveness of its controls on the basis of the guidance provided by the Commission Central Services, EuropeAid considers that this recommendation has been implemented

Recommendation 3: EuropeAid should strengthen the effectiveness of project monitoring, including on-the-spot visits, on the basis of multiannual monitoring and evaluation plans (2010 annual report, paragraph 62(c)).

X

2010

Recommendation 4: EuropeAid should review the reliability of certificates from external supervisors, audits and expenditure verifications (2010 annual report, paragraph 63(a)).

X

Even if this recommendation was accepted by the Commission, further reflection led to the conclusion that it was not the role of the Commission to provide such verifications of reliability.

The action plan for correcting the weaknesses in the implementation of the internal control system includes measures aimed at enhancing the quality and effectiveness of external audits and expenditure checks.

The contract templates have been revised so that the Commission could have an influence on the choice of external auditors.

The verification reports’ weaknesses have already been analysed and quality grids are due to be produced by the end of 2014 in order to make it possible to assess their reliability and provide guidance in case of non-compliance.

Recommendation 5: EuropeAid should introduce management information systems which allow the Director-General and the Heads of Delegation to better monitor the follow-up of results from on-the-spot visits, external audits and expenditure verifications (2010 annual report, paragraph 63(b)).

X

As indicated by the Court in paragraph 50, work is ongoing.

Recommendation 6: EuropeAid should link the CRIS Audit and CRIS Recovery Orders information systems (2010 annual report, paragraph 63(c)).

X

Recommendation 7: EuropeAid should continue its efforts to ensure that data are recorded in an accurate, comprehensive and timely manner in the CRIS information system (2010 annual report, paragraph 63(d)).

X

2010

Recommendation 8: EuropeAid should ensure that Delegations consistently apply the new format and scheme for Delegations’ annual reporting on reforms of public finance management systems in recipient countries so as to provide a structured and formalised demonstration of public finance management progress (2010 annual report, paragraph 64(a)).

X

Recommendation 9: EuropeAid should promote through policy dialogue the setting of clear assessment frameworks in recipient countries’ reform programmes on public finance management (2010 annual report, paragraph 64(b)).

X

---