# Official Journal C 452/14 D

| | ISSN 1977-091X |
| --- | --- |
| Official Journal
  of the European Union | C 452 |
| | |
| English edition | Information and Notices | Volume 6114 December 2018 |

ISSN 1977-091X

Official Journal

of the European Union

C 452

English edition

Information and Notices

Volume 6114 December 2018

---

| Contents | page |
| --- | --- |
| | IV   Notices |
| | NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES |
| | Court of Auditors |
| 2018/C 452/01 | Summary of results from the ECA’s 2017 annual audit of the European research Joint Undertakings | 1 |
| 2018/C 452/02 | Report on the annual accounts of the Bio-based Industries Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 10 |
| 2018/C 452/03 | Report on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 18 |
| 2018/C 452/04 | Report on the annual accounts of the Electronic Components and Systems for European Leadership Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 27 |
| 2018/C 452/05 | Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2017, together with the Joint Undertaking’s reply | 36 |
| 2018/C 452/06 | Report on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 48 |
| 2018/C 452/07 | Report on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 57 |
| 2018/C 452/08 | Report on the annual accounts of the Single European Sky Air Traffic Management Research Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 66 |
| 2018/C 452/09 | Report on the annual accounts of the Shift2Rail Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply | 76 |

Contents

page

IV   Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES

Court of Auditors

2018/C 452/01

Summary of results from the ECA’s 2017 annual audit of the European research Joint Undertakings

1

2018/C 452/02

Report on the annual accounts of the Bio-based Industries Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

10

2018/C 452/03

Report on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

18

2018/C 452/04

Report on the annual accounts of the Electronic Components and Systems for European Leadership Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

27

2018/C 452/05

Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2017, together with the Joint Undertaking’s reply

36

2018/C 452/06

Report on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

48

2018/C 452/07

Report on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

57

2018/C 452/08

Report on the annual accounts of the Single European Sky Air Traffic Management Research Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

66

2018/C 452/09

Report on the annual accounts of the Shift2Rail Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

76

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| EN | |
| --- | --- |

EN

---

IV Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES

Court of Auditors

| 14.12.2018 | EN | Official Journal of the European Union | C 452/1 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/1

---

Summary of results from the ECA’s 2017 annual audit of the European research Joint Undertakings

(2018/C 452/01)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-10 | 2 |
| Background information | 1-2 | 2 |
| Research Joint Undertakings — public-private partnerships of the EU with industry, research groups and Member States | 3-5 | 2 |
| Joint Undertakings’ budget | 6-7 | 2 |
| Audit approach | 8-10 | 3 |
| AUDIT RESULTS | 11-44 | 3 |
| ‘Clean’ opinions on the reliability of the accounts for all JUs | 11 | 3 |
| ‘Clean’ opinions on the legality and regularity of the underlying transactionsfor seven out of eight JUs | 12-13 | 3 |
| Emphasis of matter related to the EU contribution to the ITER project costs | 14-19 | 3 |
| Other comments | 20-43 | 4 |
| Follow-up of previous years’ comments | 44 | 7 |
| ANNEX I — | JOINT UNDERTAKINGS’ ACTIVITIES, BUDGET AND STAFF |

Paragraph

Page

INTRODUCTION

1-10

2

Background information

1-2

2

Research Joint Undertakings — public-private partnerships of the EU with industry, research groups and Member States

3-5

2

Joint Undertakings’ budget

6-7

2

Audit approach

8-10

3

AUDIT RESULTS

11-44

3

‘Clean’ opinions on the reliability of the accounts for all JUs

11

3

‘Clean’ opinions on the legality and regularity of the underlying transactionsfor seven out of eight JUs

12-13

3

Emphasis of matter related to the EU contribution to the ITER project costs

14-19

3

Other comments

20-43

4

Follow-up of previous years’ comments

44

7

ANNEX I —

JOINT UNDERTAKINGS’ ACTIVITIES, BUDGET AND STAFF

8

| ANNEX II — | JOINT UNDERTAKINGS’ LEVERAGE RATIOS (HORIZON 2020) |
| --- | --- |

ANNEX II —

JOINT UNDERTAKINGS’ LEVERAGE RATIOS (HORIZON 2020)

9

INTRODUCTION

Background information

| 1. | We audited and issued opinions on the reliability of the accounts and on the legality and regularity of the underlying transactions for the financial year ended 31 December 2017 for eight European research Joint Undertakings (JUs):






  — | F4E — Development of Fusion Energy, |
| --- | --- | --- |

1.

—

F4E — Development of Fusion Energy,

| — | BBI — Bio-based Industries, |
| --- | --- |

—

BBI — Bio-based Industries,

| — | CS — Clean Sky — Clean Air Transport Technologies, |
| --- | --- |

—

CS — Clean Sky — Clean Air Transport Technologies,

| — | IMI — Innovative Medicines Initiative, |
| --- | --- |

—

IMI — Innovative Medicines Initiative,

| — | FCH — Fuel Cells and Hydrogen, |
| --- | --- |

—

FCH — Fuel Cells and Hydrogen,

| — | SESAR — Single European Sky Air Traffic Management Research, |
| --- | --- |

—

SESAR — Single European Sky Air Traffic Management Research,

| — | ECSEL — Electronic components and Systems, |
| --- | --- |

—

ECSEL — Electronic components and Systems,

| — | S2R — Shift2Rail Innovative Rail Product Solutions. |
| --- | --- |

—

S2R — Shift2Rail Innovative Rail Product Solutions.

| 2. | This document summarises the audit results published in our 2017 specific annual reports on the JUs and is not a separate audit report or opinion. |
| --- | --- |

2.

Research Joint Undertakings — public-private partnerships of the EU with industry, research groups and Member States

| 3. | Joint Undertakings (JUs) are public-private partnerships, which play an important role in implementing specific aspects of European Union (EU) research policy. The public member the JUs is the Commission representing the EU, the private members of the JUs include various public and private partners from industry and research groupings. All JUs, except ECSEL, follow a bipartite model with the participation of the Commission and private industry or research partners. ECSEL follows a tripartite model which also includes the participation of Member States. |
| --- | --- |

3.

| 4. | The members make contributions to the funding of the Joint Undertakings’ activities. On the one hand, the Commission is providing funds from the Seventh Research Framework programme (FP7) and Horizon 2020 programme. Two JUs (SESAR and S2R) also received funding from the Trans-European Networks Transport programme (TEN-T). On the other hand, the industry and research partners provide in-kind contributions by implementing the JU’s operational activities and cash contributions to administrative and operational costs of the Joint Undertakings. |
| --- | --- |

4.

| 5. | In the case of four JUs (CS, FCH, BBI and S2R), the private members also have to provide a minimum amount of in-kind contributions to ‘additional activities’ which are activities outside the JUs’ work programmes but fall within the scope of the JUs’ objectives. ECA has no right to audit these contributions. Therefore, we can neither provide an opinion on their nature, quality and reality nor assess whether the industry members would have engaged in them anyway. |
| --- | --- |

5.

Joint Undertakings’ budget

| 6. | The total budget (payment appropriations) of the Joint Undertakings in 2017 was 2,1 billion euro (2016: 1,8 billion euro). The total in-kind and cash contributions from industry and research partners were expected to be of a similar amount at the end of the programme period. The Joint Undertakings employed 671 staff at the end of 2017 (2016: 633). |
| --- | --- |

6.

| 7. | Information on the Joint Undertakings’ area of activity, budget and staff numbers is shown in Annex I. |
| --- | --- |

7.

Audit approach

| 8. | In line with Articles 208(4) and 209(2) of the EU financial regulation (1), for all JUs the audit of the reliability of the accounts is outsourced to independent external audit firms. In accordance with international auditing standards, we reviewed the quality of the work done by the external audit firms and obtained sufficient assurance that we could rely on their work in formulating our audit opinions on the reliability of the JUs’ 2017 annual accounts. |
| --- | --- |

8.

| 9. | Regarding the legality and regularity of underlying transactions, for each JU our audit comprised a substantive testing of representative samples of payment and revenue transactions, an analytical review of the main administrative and operational procedures (grant, procurement and recruitment), as well as an assessment of the JUs’ supervisory and internal control systems. In addition, we reviewed a sample of ex post audits finalised by independent external audit firms at the beneficiaries of FP7 grants and analysed the centralised ex post audit system for Horizon 2020 payments at both the JUs and the DG RTD’s Common Audit Service (CAS). Finally, we checked the completeness of JU’s recovery process for the errors detected and the correctness of the error rate calculations. |
| --- | --- |

9.

| 10. | For the seven Joint Undertakings implementing the Seventh Framework programme and the Horizon 2020 programme (SESAR, CS, FCH, IMI, ECSEL, S2R and BBI), the Commission completed in June 2017 evaluation reports on the Joint Undertakings’ performance and added value for the Seventh Framework programme (FP7) and the Horizon 2020 programme. We analysed the interim and final evaluation results and the related action plan of the JUs. |
| --- | --- |

10.

AUDIT RESULTS

‘Clean’ opinions on the reliability of the accounts for all JUs

| 11. | The final accounts of all JUs presented fairly, in all material respects, their financial position as at 31 December 2017 and the results of their operations and their cash flows for the year then ended, in accordance with the provisions of the applicable Financial Regulations and the accounting rules adopted by the Commission’s Accounting Officer. |
| --- | --- |

11.

‘Clean’ opinions on the legality and regularity of the underlying transactions for seven out of eight JUs

| 12. | The transactions underlying the annual accounts for the year ended 31 December 2017 were legal and regular in all material respects for seven JUs (F4E, BBI, CS, IMI, FCH, SESAR and S2R). |
| --- | --- |

12.

| 13. | As in the previous years, we issued a qualified opinion on the legality and regularity of the transactions underlying the accounts of the ECSEL Joint Undertaking. The significant variations in the methodologies and procedures used by the national funding authorities (NFAs) do not allow ECSEL to calculate a single reliable weighted error rate or a residual error rate. Therefore, we were not in a position to conclude whether the ex post audits provide sufficient assurance as to the legality and regularity of the underlying interim and final payments for FP7 projects managed by the JU. This issue is not relevant for the implementation of Horizon 2020 projects, as the Commission’s Common Audit Service (CAS) is responsible for the ex post audits. |
| --- | --- |

13.

Emphasis of matter related to the EU contribution to the ITER project costs

| 14. | As in 2016, our audit opinion on the annual accounts of the F4E Joint Undertaking was accompanied by an emphasis of matter (2) related to the EU contribution to the ITER project costs. |
| --- | --- |

14.

| 15. | In November 2016, the ITER Council endorsed a new schedule and cost estimate for the ITER project, setting December 2025 as the deadline for achieving the first strategic milestone of the construction phase (‘First Plasma’) and December 2035 as the estimated completion date for the whole construction phase, which is a delay of 15 years compared to the original planning. |
| --- | --- |

15.

| 16. | Based on the new project baseline, the F4E Joint Undertaking recalculated the related cost at completion for the construction phase of the ITER project. The results were presented to the Joint Undertaking’s Governing Board in December 2016 and estimated the additional EU funding requirement for the construction phase after 2020 at around 5,4 billion euro (82 % increase on the previously approved 6,6 billion euro). |
| --- | --- |

16.

| 17. | Moreover, the F4E Joint Undertaking must also contribute to the ITER operational phase after 2035 and to the subsequent deactivation and decommissioning phases. The overall contribution to the operational phase after 2035 has not yet been estimated. The deactivation and decommissioning costs were estimated to be 95,5 and 180,2 million euro (in 2001 values). |
| --- | --- |

17.

| 18. | We noted that the new time and cost estimates do not include contingencies. In June 2017, the Commission issued a communication on the EU contribution to the ITER project, suggesting that a contingency of up to 24 months in terms of time schedule and 10-20 % in terms of budget would be appropriate. Until a decision is taken by the EU Council, the 6,6 billion euro already adopted by the EU Council in 2010 serve as a ceiling for the JU’s spending up to 2020. F4E took several measures to respect the threshold including postponing procurement and installation of components not essential for the First Plasma. |
| --- | --- |

18.

| 19. | We consider that, while positive steps have been taken to improve the management and control of the ITER project construction phase, there remains a risk of further cost increases and delays in project implementation. |
| --- | --- |

19.

Other comments

| 20. | Without calling our opinions into question, we made various comments in our specific annual reports on the JUs, in order to highlight matters of importance and indicate areas for improvement related to budgetary and financial management, internal controls, leverage of contributions, and evaluations by the Commission. |
| --- | --- |

20.

Shortcomings in the budget planning for payment appropriations

| 21. | F4E had to increase significantly the 2017 payment appropriations planned in the initial budget (by around 284 million euro or 52 %) to cover its actual payment needs in 2017. This situation was due to serious shortcomings in the JU’s budget planning process and affected the JU’s 2018 budget. |
| --- | --- |

21.

| 22. | In two cases (SESAR, IMI), the implementation rate for payment appropriations in 2017 was significantly lower than expected. For SESAR this was mainly due to delays in concluding Horizon 2020 grant agreements and the non-consideration of important assigned revenue stemming from recoveries for closed FP7 projects. For IMI, the low rate of budget implementation was mainly linked to a reduction and postponement of clinical trials within some large projects, and to delays in concluding grant agreements for closed calls under Horizon 2020. The fact that the JUs may re-enter unused payment appropriations from previous years into the budget of the next three years, together with a heavy budget planning process, has an increasingly negative impact on the JUs’ budget implementation rates for payments. |
| --- | --- |

22.

Closing of the FP7 programme: JUs achieved an average implementation level of 87 %

| 23. | We reported on the JUs’ multi-annual budgetary implementation of the FP7 and TEN-T programmes (SESAR, CS, IMI, FCH, ECSEL). |
| --- | --- |

23.

| 24. | Regarding the five JUs implementing FP7 activities (SESAR, CS, IMI, FCH, ECSEL), at the end of 2017 (closing phase of the FP7 programme), the EU had made actual total cash contributions to them of 3,1 billion euro out of the agreed maximum cash contributions of 3,6 billion euro. This shows that these JUs had achieved an average implementation level for their FP7 activities of about 87 %. |
| --- | --- |

24.

Midway through the Horizon 2020 programme: JUs showed implementing delays

| 25. | We reported on the JUs’ multi-annual budgetary implementation of the Horizon 2020 programme. |
| --- | --- |

25.

| 26. | Regarding the seven JUs implementing Horizon 2020 activities (SESAR, CS, IMI, FCH, ECSEL, BBI, S2R), at the end of 2017 (mid-term of the Horizon 2020 programme), the EU actually contributed in cash 1,6 billion euro of the agreed total maximum EU cash contributions to all JUs implementing Horizon 2020 programme of 7,2 billion euro. This shows that these JUs currently achieved an average implementation level for their Horizon 2020 activities of about 23 %. The current implementation level for Horizon 2020 activities was lower for IMI (11 %) mainly caused by the long time required by project consortia to conclude Horizon 2020 grant agreements, and for BBI (15 %). |
| --- | --- |

26.

In-kind contributions to additional activities outside the JU work programme represented the largest part of the contributions from private members

| 27. | By the end of 2017, the industry and research partners of the seven JUs implementing Horizon 2020 activities have actually contributed 2,9 billion euro or 39 % percent of the agreed total contributions of 7,5 billion euro. This amount is composed of 1 billion euro (3) of in-kind contributions to the JUs’ Horizon 2020 own operational activities (34 %) and of 1,9 billion euro of in-kind contributions to additional activities outside of the JUs’ work programme (66 %). Despite of their importance, there is, however, no obligation to disclose the in-kind contributions to additional activities in the annual accounts and we have no mandate to audit them. Consequently, we cannot provide an opinion on their nature, quality and quantity (CS, FCH, BBI, S2R). |
| --- | --- |

27.

| 28. | Regarding BBI, the Commission initiated in February 2017 an amendment of the BBI founding regulation in view to enable industry members also to provide their cash contributions at project level. However, there is a high risk that the industry members will not achieve the minimum amount of operational cash contributions (182,5 million euro) by the end of the programme. |
| --- | --- |

28.

| 29. | Further information on multiannual budgetary implementation may be found in the JUs’ 2017 annual activity report. |
| --- | --- |

29.

Internal controls for payments were generally effective and kept the error rates below materiality

| 30. | The Joint Undertakings have set up reliable ex ante control procedures based on financial and operational desk reviews. For FP7 interim and final payments, independent external audit firms contracted by the JUs perform ex post audits at beneficiaries, whilst for Horizon 2020 cost claims the Commission’s CAS is responsible for the ex post audits at beneficiaries. All JUs effectively used these key controls for assessing the legality and regularity of the underlying payment transactions. |
| --- | --- |

30.

| 31. | For FP7 grant payments, all the Joint Undertakings (except ECSEL) calculated and reported residual error rates below 2 % based on the ex post audit results at the end of 2017. This was confirmed by our own substantive testing and the reviews of the work of the external audit firms. |
| --- | --- |

31.

| 32. | For Horizon 2020 grant payments, only three out of the seven JUs implementing Horizon 2020 projects (CS, IMI, and SESAR) could calculate and report an error rate based on sufficient ex post audits completed by CAS. For SESAR, the residual error rate for Horizon 2020 payments was 2,8 %. However, taking into account the rather low amount of total Horizon 2020 payments compared to the total amount of SESAR payments in 2017, the overall residual error rate remained below materiality. |
| --- | --- |

32.

| 33. | The remaining JUs (FCH, ECSEL, S2R, BBI) will have first ex post audit results in 2018 as in 2017 their Horizon 2020 projects were still in an early implementation phase and their operational Horizon 2020 payments in 2017 were mainly pre-financings. |
| --- | --- |

33.

Weaknesses remain in the internal control and monitoring framework, procurement, grant and recruitment procedures

| 34. | At the end of 2017, the Commission’s common Horizon 2020 grant management and monitoring tools had not yet provided the specific developments needed for the processing of JUs’ in-kind contributions. This affected the internal control and monitoring framework of four JUs (CS, IMI, SESAR, S2R). |
| --- | --- |

34.

| 35. | Several shortcomings in the application of the internal control standards were found in ECSEL, SESAR, and F4E. In ECSEL, the register of exception was not properly maintained. In SESAR, the departure of key staff and the subsequent work overload in the finance department caused financial control shortcomings. In F4E, significant shortcomings were found in the internal control and monitoring procedures related to the recruitment of a key management staff, follow-up on management’s declarations on interests, as well as internal communication strategies which could not ensure the dissemination of appropriate financial information relevant for the annual accounts. |
| --- | --- |

35.

| 36. | For three JUs (ECSEL, S2R, SESAR) some shortcomings were found in the management of 2017 procurement procedures. |
| --- | --- |

36.

| 37. | For BBI weaknesses were found in the design and management of the 2016 grant call for proposals resulting in a low coverage (50 %) for the call topics in the area of research and innovation actions (RIA). Important RIA topics remained unfunded. |
| --- | --- |

37.

The JU’s capacity to leverage contributions from private members for Horizon 2020

| 38. | One of the main objectives and added value of the JUs is to leverage contributions from private industry and research members in the area of its activities over its lifespan (10 years). As indicator for the JU’s capacity to leverage contributions from private members, we used the minimum leverage ratio calculated on the basis of the member contributions as defined in the respective provisions of the JU’s founding regulation (4). For a reasonable level of leverage, the minimum contributions from private members to the JU’s activities should at least match the EU’s cash contribution. |
| --- | --- |

38.

| 39. | Annex II gives an overview of the minimum leverage ratios for the seven JUs implementing Horizon 2020 activities. In the case of three JUs (CS, FCH, BBI) the founding regulation does not oblige private members to make a minimum of in-kind contributions to the operational activities of the JU. Consequently, for these JUs only one minimum leverage ratio including both the contributions to operational and additional activities was calculated. |
| --- | --- |

39.

The Commission’s evaluations and the JUs’ related action plans

| 40. | In 2017, the Commission completed the final statutory evaluations of the JUs set up under the FP7 programme (SESAR, IMI, FCH, CS, Artemis and ENIAC) and the interim statutory evaluations of the JUs set up under Horizon 2020 (SESAR, IMI2, CS2, FCH2, ECSEL, S2R, BBI). |
| --- | --- |

40.

| 41. | The evaluations were carried out with the assistance of independent experts and covered their performance in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency and research quality. |
| --- | --- |

41.

| 42. | In October 2017, the Commission informed the European Parliament and Council on the evaluation results. Whilst the evaluators considered the JUs’ performance in general as positive, they recommended: to increase the participation of industry, Member States, SMEs and other stakeholders; to improve the coordination with other EU and National Research Programmes; to increase the participation of the new Member States; to further develop an accountable Performance Measurement Framework with key performance indicators to better assess the JUs’ impacts and socioeconomic benefits; to improve dissemination and exploitation of the JUs’ projects results. |
| --- | --- |

42.

| 43. | In response, each JU prepared an action plan and started to implement it in 2018. During its 2018 financial audit, the ECA will follow-up the implementation of the JUs’ action plans. |
| --- | --- |

43.

Follow-up of previous years’ comments

| 44. | In most cases, the JUs took corrective actions to follow-up to comments made in our specific annual reports of previous years. Details can be found in the annexes to our reports. Implementation of previous years’ comments is still ongoing in ECSEL and F4E. |
| --- | --- |

44.

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(1)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

(2)  An emphasis of matter is used to draw attention to a matter which is not materially misstated in the accounts, but is of such importance that it is fundamental to the users’ understanding of the accounts.

(3)  Out of this amount only about 0,2 billion euro (20 %) were certified at the end of 2017.

(4)  Minimum leverage ratio = total of minimum contributions of the private member as defined in the JU’s founding regulation/maximum EU cash contribution to the JU as defined in the JU’s founding regulation.

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ANNEX I

Joint Undertakings' activities, budget and staff

| JOINT UNDERTAKING | Parent DG | Policy Area | Main Activity | Final Budget (million euro) | Staff (employed year-end) |
| --- | --- | --- | --- | --- | --- |
| 2017 | 2016 | 2017 | 2016 |
| BBI | DG RTD | Research | Bio-based products and biofuels research and development | 92 | 66 | 20 | 20 |
| CLEAN SKY | DG RTD | Research | Aeronautical technologies research and development | 244 | 288 | 41 | 41 |
| ECSEL | DG CONNECT | Research | Electronic components and system research and innovation | 290 | 244 | 29 | 29 |
| F4E — FUSION FOR ENERGY | DG ENER | Research | Nuclear fusion energy research and development | 865 | 720 | 447 | 415 |
| FCH — FUEL CELLS AND HYDROGEN | DG RTD | Research | Fuel cells and hydrogen research and development | 199 | 116 | 26 | 26 |
| IMI — INNOVATIVE MEDICINES INITIATIVE | DG RTD | Research | Pharmaceutical research and development of innovative medicines | 206 | 209 | 49 | 41 |
| SESAR | DG MOVE | Research | Air traffic management system research and development | 192 | 157 | 40 | 44 |
| S2R — SHIFT2RAIL | DG MOVE | Research | Railway sector research and development | 44 | 52 | 19 | 17 |
| Total | 2 131 | 1 852 | 671 | 633 |

JOINT UNDERTAKING

Parent DG

Policy Area

Main Activity

Final Budget (million euro)

Staff (employed year-end)

2017

2016

2017

2016

BBI

DG RTD

Research

Bio-based products and biofuels research and development

92

66

20

20

CLEAN SKY

DG RTD

Research

Aeronautical technologies research and development

244

288

41

41

ECSEL

DG CONNECT

Research

Electronic components and system research and innovation

290

244

29

29

F4E — FUSION FOR ENERGY

DG ENER

Research

Nuclear fusion energy research and development

865

720

447

415

FCH — FUEL CELLS AND HYDROGEN

DG RTD

Research

Fuel cells and hydrogen research and development

199

116

26

26

IMI — INNOVATIVE MEDICINES INITIATIVE

DG RTD

Research

Pharmaceutical research and development of innovative medicines

206

209

49

41

SESAR

DG MOVE

Research

Air traffic management system research and development

192

157

40

44

S2R — SHIFT2RAIL

DG MOVE

Research

Railway sector research and development

44

52

19

17

Total

2 131

1 852

671

633

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ANNEX II

Joint Undertakings' leverage ratios (Horizon 2020)

| JOINT UNDERTAKING | Parent DG | Policy Area | Main Activity | Leverage ratio for operational activities | Leverage ratio for operational + additional activities |
| --- | --- | --- | --- | --- | --- |
| BBI | DG RTD | Research | Bio-based products and biofuels research and development | — | 2,8 |
| CLEAN SKY | DG RTD | Research | Aeronautical technologies research and development | — | 1,25 |
| ECSEL | DG CONNECT | Research | Electronic components and system research and innovation | 1,42 | 1,42 |
| FCH — FUEL CELLS AND HYDROGEN | DG RTD | Research | Fuel cells and hydrogen research and development | — | 0,67 |
| IMI — INNOVATIVE MEDICINES INITIATIVE | DG RTD | Research | Pharmaceutical research and development of innovative medicines | 1 | 1 |
| SESAR | DG MOVE | Research | Air traffic management system research and development | 0,85 | 0,85 |
| S2R — SHIFT2RAIL | DG MOVE | Research | Railway sector research and development | 0,88 | 1,18 |

JOINT UNDERTAKING

Parent DG

Policy Area

Main Activity

Leverage ratio for operational activities

Leverage ratio for operational + additional activities

BBI

DG RTD

Research

Bio-based products and biofuels research and development

—

2,8

CLEAN SKY

DG RTD

Research

Aeronautical technologies research and development

—

1,25

ECSEL

DG CONNECT

Research

Electronic components and system research and innovation

1,42

1,42

FCH — FUEL CELLS AND HYDROGEN

DG RTD

Research

Fuel cells and hydrogen research and development

—

0,67

IMI — INNOVATIVE MEDICINES INITIATIVE

DG RTD

Research

Pharmaceutical research and development of innovative medicines

1

1

SESAR

DG MOVE

Research

Air traffic management system research and development

0,85

0,85

S2R — SHIFT2RAIL

DG MOVE

Research

Railway sector research and development

0,88

1,18

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| 14.12.2018 | EN | Official Journal of the European Union | C 452/10 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/10

---

REPORT

on the annual accounts of the Bio-based Industries Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/02)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-10 | 11 |
| Establishment of the BBI Joint Undertaking | 1-2 | 11 |
| Governance | 3-5 | 11 |
| Objectives | 6 | 11 |
| Resources | 7-9 | 11 |
| The Commission’s evaluation | 10 | 12 |
| OPINIONS | 11-23 | 12 |
| Opinion on the reliability of the accounts | 12 | 12 |
| Opinion on the legality and regularity of revenue underlying the accounts | 13 | 12 |
| Opinion on the legality and regularity of payments underlying the accounts | 14 | 12 |
| Responsibilities of management and those charged with governance | 15-17 | 12 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 18-23 | 13 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 24-30 | 13 |
| Implementation of the 2017 budget | 24 | 13 |
| Multiannual budget implementation under Horizon 2020 | 25-30 | 14 |
| INTERNAL CONTROLS | 31-35 | 14 |
| Internal control framework | 31-34 | 14 |
| 2016 call for proposals | 35 | 15 |
| OTHER ISSUES | 36 | 15 |
| Leverage of contributions from industry members | 36 | 15 |
| INFORMATION ON THE COMMISSION’S EVALUATION | 37-38 | 15 |
| THE JOINT UNDERTAKING’S REPLY | 17 |

Paragraph

Page

INTRODUCTION

1-10

11

Establishment of the BBI Joint Undertaking

1-2

11

Governance

3-5

11

Objectives

6

11

Resources

7-9

11

The Commission’s evaluation

10

12

OPINIONS

11-23

12

Opinion on the reliability of the accounts

12

12

Opinion on the legality and regularity of revenue underlying the accounts

13

12

Opinion on the legality and regularity of payments underlying the accounts

14

12

Responsibilities of management and those charged with governance

15-17

12

Auditor’s responsibilities for the audit of the accounts and underlying transactions

18-23

13

BUDGETARY AND FINANCIAL MANAGEMENT

24-30

13

Implementation of the 2017 budget

24

13

Multiannual budget implementation under Horizon 2020

25-30

14

INTERNAL CONTROLS

31-35

14

Internal control framework

31-34

14

2016 call for proposals

35

15

OTHER ISSUES

36

15

Leverage of contributions from industry members

36

15

INFORMATION ON THE COMMISSION’S EVALUATION

37-38

15

THE JOINT UNDERTAKING’S REPLY

17

INTRODUCTION

Establishment of the BBI Joint Undertaking

| 1. | The Bio-based Industries (BBI) Joint Undertaking, located in Brussels, was set up in May 2014 (1) for a period of 10 years and started working autonomously on 26 October 2015. |
| --- | --- |

1.

| 2. | The BBI Joint Undertaking is a public-private partnership in the bio-based industries sector. The founding members are the European Union (EU), represented by the Commission, and industrial partners represented by the Bio-based Industries Consortium (BIC). |
| --- | --- |

2.

Governance

| 3. | The governance structure of the BBI Joint Undertaking includes the Governing Board, the Executive Director, the Scientific Committee and the States Representatives Group. |
| --- | --- |

3.

| 4. | The Governing Board is composed of five representatives of the Commission, on behalf of the Union; and five representatives of members other than the Union, at least one of which should be a Small and Medium Enterprise (SME) representative. The Governing Board has overall responsibility for the strategic orientation and operations of the Joint Undertaking and supervises the implementation of its activities. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

| 5. | The Scientific Committee and the States Representatives Group are advisory bodies. The Scientific Committee provides advice on the scientific priorities to be addressed in the Joint Undertaking’s annual work plans. The States Representatives Group provides opinions on strategy and achievement of targets. |
| --- | --- |

5.

Objectives

| 6. | The objective of the BBI Joint Undertaking is to implement a programme of research and innovation activities in Europe that will assess the availability of renewable biological resources that can be used for the production of bio-based materials, and on that basis support the establishment of sustainable bio-based value chains. Those activities should be carried out through collaboration between stakeholders along the entire bio-based value chain, including primary production and processing industries, consumer brands, SMEs, research and technology centres, and universities. |
| --- | --- |

6.

Resources

| 7. | The maximum EU contribution to the activities of the BBI Joint Undertaking is 975 million euro, to be funded from Horizon 2020 (2). The industry members of the Joint Undertaking are expected to contribute resources of at least 2 730 million euro over the life span of the Joint Undertaking (3). Of this amount, industry members have to make a minimum of 182,5 million euro of cash contributions to the Joint Undertaking’s operational activities, and to incur costs of a minimum of 1 755 million euro in implementing additional activities outside the work plan of the BBI Joint Undertaking (4). |
| --- | --- |

7.

| 8. | The administrative costs of the BBI Joint Undertaking are limited to 58,5 million euro, to be covered through financial contributions divided equally on an annual basis between the EU and the industry members (5). |
| --- | --- |

8.

| 9. | In 2017, the final budget for the BBI Joint Undertaking was 91,6 million euro (2016: 66 million euro). At 31 December 2017, the Joint Undertaking employed 20 staff (2016: 20) (6). |
| --- | --- |

9.

The Commission’s evaluation

| 10. | The Commission completed the interim evaluation of the Joint Undertaking’s activities in June 2017, which was followed by an action plan prepared by the Joint Undertaking to address the recommendations raised in the evaluation. On this occasion, we include a section related to the Joint Undertaking’s Action Plan in response to the interim evaluation, which is intended only for information purposes and does not form part of our audit opinion or observations. |
| --- | --- |

10.

| OPINIONS









  11. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (7) and the reports on the implementation of the budget (8) for the financial year ended 31 December 2017, and |
| --- | --- | --- |

OPINIONS

11.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (7) and the reports on the implementation of the budget (8) for the financial year ended 31 December 2017, and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 12. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

12.

Opinion on the legality and regularity of revenue underlying the accounts

| 13. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

13.

Opinion on the legality and regularity of payments underlying the accounts

| 14. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

14.

Responsibilities of management and those charged with governance

| 15. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

15.

| 16. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

16.

| 17. | Those in charge with governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

17.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 18. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

18.

| 19. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

19.

| 20. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

20.

| 21. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) other than advances at the point they are made. |
| --- | --- |

21.

| 22. | In preparing this report and opinions, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (9). |
| --- | --- |

22.

| 23. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

23.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 24. | The final 2017 budget included commitment appropriations of 92,9 million euro and payment appropriations of 91,6 million euro. The implementation rates for commitment and payment appropriations were 97 % and 95 %, respectively. Most of the payment appropriations made by the Joint Undertaking were pre-financing of grant agreements resulting from the 2016 call for proposals. |
| --- | --- |

24.

Multiannual budget implementation under Horizon 2020

| 25. | Out of the maximum of 975 million euro of EU cash contribution to be allocated to the BBI Joint Undertaking over its life span, by the end of 2017, the EU contributed in cash a total amount of 150,7 million euro. |
| --- | --- |

25.

| 26. | The industry members are not obliged to make a minimum amount of in-kind contributions to the BBI activities. At the end of 2017, industry members had reported in-kind contributions of 26 million euro for operational activities of which none had been validated yet by the BBI Executive Director. In addition, the Governing Board had validated cash contributions by the industry members to the administrative cost of 5,8 million euro. |
| --- | --- |

26.

| 27. | Out of the minimum of 182,5 million euro of cash contributions to be made by the industry members to the Joint Undertaking’s operational cost over the Joint Undertaking’s life span, only 0,8 million euro have been paid to the Joint Undertaking at the end of 2017. Consequently, the Commission (DG RTD) suspended 50 million euro of its cash contributions to the Joint Undertaking. Although the Commission initiated in February 2017 an amendment of the BBI founding regulation (10) in view to enable industry members also to provide their cash contributions at project level, there is a high risk that the industry members will not achieve the minimum amount of operational cash contributions by the end of the BBI programme. |
| --- | --- |

27.

| 28. | Out of the at least 1 755 million euro of industry members’ contributions to be made to additional activities outside the work programme of the Joint Undertaking, 663,6 million euro had been reported and certified by the end of 2017 (39 %). However, as we have no right to audit the members’ in-kind contributions to additional activities, we cannot provide an opinion on their nature, quality and quantity. |
| --- | --- |

28.

| 29. | Consequently, by the end of 2017, the total contributions from the industry members amounted to 670,2 million euro (of which almost 100 % are contributions to additional activities), compared to the EU cash contribution of 150,7 million euro (see also paragraph 36). |
| --- | --- |

29.

| 30. | Out of the maximum operational and administrative budget for the Joint Undertaking of 1 186,75 million euro (11), by the end of 2017, the Joint Undertaking made commitments of 509,8 million euro and payments of 172,2 million euro. |
| --- | --- |

30.

INTERNAL CONTROLS

Internal control framework

| 31. | The Joint Undertaking has set up reliable ex-ante control procedures based on financial and operational desk reviews. The situation at end of 2017 showed that the most important Internal Control Standards (ICS) were mostly implemented with some standards remaining to be fully implemented in 2018 such as ICS 8 (Processes and procedures), ICS 10 (Business continuity) and ICS 11 (Document management). |
| --- | --- |

31.

| 32. | The Common Audit Service of the Commission (CAS) is responsible for the ex-post audit of Horizon 2020 project cost claims. In 2017, the Joint Undertaking — together with the Common Audit Service (CAS) of DG RTD — launched the first ex-post audit of a random sample of Horizon 2020 interim cost claims of which the results, however, will only be reported in the Joint Undertaking’s annual activity report 2018. |
| --- | --- |

32.

| 33. | Based on an assessment of the Joint Undertaking’s internal control system and substantive testing of revenue, payment, grant and procurement operations, the audit results provided us with reasonable assurance that the overall residual error rate for the Joint Undertaking is below materiality. |
| --- | --- |

33.

| 34. | At the end of 2017, the Commission’s common Horizon 2020 grant management and monitoring tools had not finished the specific developments needed for the processing of the Joint Undertaking’s in-kind contributions. |
| --- | --- |

34.

2016 call for proposals

| 35. | The 2016 call for grant proposals resulted in a relatively low coverage of research and innovation actions (RIA) topics. RIA had a total budget of 50 million euro and contained 12 topics each of which was designed to target the specific challenges arising from the value chain demonstration and realisation activities. All eligible proposals had been evaluated against the Horizon 2020 evaluation criteria and ranked for co-financing under the limits of the common budget line. Most of the grant budget, however, was focused on three topics out of the six being financed whilst the Joint Undertaking could not finance six RIA topics even though for four of them it had proposals that were eligible for co-financing. To ensure an optimal coverage of the most important topics, the Joint Undertaking should consider limiting the number of proposals per topic by defining an indicative budget at topic level in the call. |
| --- | --- |

35.

OTHER ISSUES

Leverage of contributions from industry members

| 36. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry members in the area of its activities (12). The minimum leverage factor for both, operational and additional activities amounts to 2,8 (13). However, BBI’s founding regulation does not oblige industry members to make a minimum amount of in-kind contributions to the operational activities of the Joint Undertaking (14). Consequently, a minimum leverage factor for the in-kind contributions to the operational activities cannot be determined. As we have no right to audit in-kind contributions to additional activities we cannot provide an opinion on the nature, quality or reality of such contributions (15). |
| --- | --- |

36.

INFORMATION ON THE COMMISSION’S EVALUATION

| 37. | The Commission’s Interim Evaluation (16) on BBI Joint Undertaking’s activities covered the period 2014-2016, and was carried out with the assistance of independent experts as foreseen in the BBI Joint Undertaking Council Regulation (17). The evaluation covered the performance of the Joint Undertaking in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency. The results of the evaluation were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (18). |
| --- | --- |

37.

| 38. | In response to the recommendations raised by the evaluators (19), the Joint Undertaking prepared an Action Plan that was endorsed by the BBI Governing Board in March 2018 (20). While broadly accepting the recommendations, the Joint Undertaking has already launched the implementation of a certain number of actions (21) aiming to address the main issues raised in the Interim Evaluation. According to the action plan, most of the actions to be taken in response to the recommendations should be implemented in 2018 and 2019. |
| --- | --- |

38.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  Council Regulation (EU) No 560/2014 of 6 May 2014 establishing the Bio-based Industries Joint Undertaking (OJ L 169, 7.6.2014, p. 130).

1

(2)  Article 3(1) of Regulation (EU) No 560/2014.

2

(3)  Article 4(1) of Regulation (EU) No 560/2014.

3

(4)  As provided for in Article 4(2)(b) of Regulation (EU) No 560/2014, additional activities are contributions in kind for activities outside the work plan and the budget of the Joint Undertaking but contributing to the objectives of the BBI Initiative. In line with Article 4(4) of the same regulation, the cost of additional activities must be certified by an independent external auditor and are not subject to audit by the Joint Undertaking, the ECA or by any other EU body.

4

(5)  Article 12(2) of the Statutes of the BBI Joint Undertaking (Annex I of Regulation (EU) No 560/2014).

5

(6)  Further information about the BBI Joint Undertaking and its activities are available on its website: https://www.bbi-europe.eu.

6

(7)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

7

(8)  The reports on the implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

8

(9)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

9

(10)  Council Regulation (EU) 2018/121 of 23 January 2018 amending Regulation (EU) No 560/2014 establishing the Bio-based Industries Joint Undertaking. (OJ L 22, 26.1.2018, p. 1).

10

(11)  This amount includes the maximum EU cash contribution to the Joint Undertaking’s operational and administrative costs (975 million euro) and the industry members’ cash contribution to the Joint Undertakings’ administrative (29,25 million euro) and operational costs (182,5 million euro). These amounts do not include the industry members’ cash contributions to the Joint Undertaking’s operational costs at project level.

11

(12)  Recital 3 of Regulation (EU) No 560/2014 states that this partnership should be based on a balance contribution from all partners.

12

(13)  Total of minimum contributions of the industry members to the Joint Undertaking’s operational and additional activities (2 730 million euro) divided by the maximum EU cash contribution to the Joint Undertaking (975 million euro).

13

(14)  Article 4(1) and 4(2) of Regulation (EU) No 560/2014 specify that industry and research members should make total contributions of at least 2 730 million euro over the life span of the Joint Undertaking, out of which at least 1 755 million euro should consists of costs incurred by them in implementing additional activities outside the work plan of the Joint Undertaking. In addition, Article 12(4) of the Joint Undertaking’s Statutes annexed to the same regulation states that out of the total amount industry members have to make financial (cash) contributions to the operational costs of the Joint Undertaking of at least 182,5 million euro.

14

(15)  In accordance with Article 4(4) of Regulation (EU) No 560/2014 the cost of additional activities are certified by an independent external auditor appointed by the Joint Undertaking. The cost for such activities shall however, not be audited by the Joint Undertaking or any Union body.

15

(16)  Interim evaluation of the BBI Joint Undertaking (2014-2016) operating under Horizon 2020. https://ec.europa.eu/research/evaluations/pdf/bbi.pdf

16

(17)  Article 11 of Regulation (EU) No 560/2014.

17

(18)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 {SWD(2017) 339 final}.

18

(19)  Specific recommendations arising from the Interim Evaluation include: to increase the participation of EU-13 Member States; to increase the involvement of educational and research institutions; to improve coordination among all EU initiatives boosting the bio economy; to invest in topics able to create wider and long-lasting benefits; to increase and intensify private sector commitment, and to deliver reports that provide a comprehensive description of the actual private and public contributions to the BBI Joint Undertaking delivered so far; to monitor progress by an annual comparison between BBI-specific KPIs projected and achieved; to further promote coordination of bio based initiatives by promoting more Coordination and Support Actions (CSA projects).

19

(20)  The Action plan was prepared in close cooperation with the Bio Based Industries Consortium (BIC) and the European Commission.

20

(21)  Specific actions to be implemented by the Joint Undertaking as presented in the Action Plan include: the promotion of new value chains with the involvement of new actors; to encourage further development of national and regional bio economy strategies among the EU Member States; to monitor and analyse project results to promote their use in future projects; to increase to the maximum possible extent the industry’s financial and in-kind contributions and to ensure that the Annual Activity Report reflects in detail the effectiveness of the reporting and certification of the in-kind operational activities and the additional activities from the private sector; to coordinate with the EC to promote complementarities and avoid overlaps between EU programmes.

21

---

THE JOINT UNDERTAKING’S REPLY

With reference to the specific paragraph numbers of the Court’s observations:

27.

The issue relating to financial contributions being provided only at programme level is well known since the beginning of the initiative due to the concern expressed by the industry partners (with respect to making financial contributions at programme level to be distributed in open calls for proposals). To address this the BBI JU’s Governing Board set up a task force in May 2016 which involved members of BIC, the European Commission and the BBI JU Programme Office. As a result, the European Commission initiated an amendment of the BBI’s founding regulation to allow the private partners to provide financial contributions also at project level. However, as the amendment entered into force only in February 2018, after the closure of four out of the seven calls for proposals planned until 2020 (inclusive), the risk of not achieving the minimum amount of financial (in- cash) contributions by the end of the BBI programme persists. Therefore in 2018 the Governing Board of BBI JU renewed the financial task force mandate to propose different scenarios to achieve the highest amount feasible.

35.

BBI JU clarifies that the possibility to rank eligible proposals and co-finance them within the limits of a common budget line is in conformity with Horizon 2020 rules and extensively applied across the framework programme. BBI JU takes note of the recommendation expressed by the Court to consider limiting the number of proposals per topic by defining an indicative budget at topic level in the calls for proposals. BBI JU will continue to consider such a possibility in the design of future calls for proposals that shall ensure the optimal implementation of the Strategic Research Agenda of the BBI initiative.

---

| 14.12.2018 | EN | Official Journal of the European Union | C 452/18 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/18

---

REPORT

on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/03)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-11 | 19 |
| Establishment of the Clean Sky Joint Undertaking | 1-2 | 19 |
| Governance | 3-5 | 19 |
| Objectives | 6 | 19 |
| Resources | 7-10 | 19 |
| The Commission’s evaluations | 11 | 20 |
| OPINION | 12-24 | 20 |
| Opinion on the reliability of the accounts | 13 | 20 |
| Opinion on the legality and regularity of revenue underlying the accounts | 14 | 20 |
| Opinion on the legality and regularity of payments underlying the accounts | 15 | 21 |
| Responsibilities of management and those in charge of governance | 16-18 | 21 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 19-24 | 21 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 25-35 | 22 |
| Implementation of the 2017 budget | 25-26 | 22 |
| Multiannual budget implementation under FP7 | 27-30 | 22 |
| Multiannual budget implementation under Horizon 2020 | 31-35 | 22 |
| INTERNAL CONTROLS | 36-38 | 23 |
| Internal control framework | 36-38 | 23 |
| OTHER ISSUES | 39 | 23 |
| Leverage of contributions from other members | 39 | 23 |
| INFORMATION ON THE COMMISSION’S EVALUATIONS | 40 | 24 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-11

19

Establishment of the Clean Sky Joint Undertaking

1-2

19

Governance

3-5

19

Objectives

6

19

Resources

7-10

19

The Commission’s evaluations

11

20

OPINION

12-24

20

Opinion on the reliability of the accounts

13

20

Opinion on the legality and regularity of revenue underlying the accounts

14

20

Opinion on the legality and regularity of payments underlying the accounts

15

21

Responsibilities of management and those in charge of governance

16-18

21

Auditor’s responsibilities for the audit of the accounts and underlying transactions

19-24

21

BUDGETARY AND FINANCIAL MANAGEMENT

25-35

22

Implementation of the 2017 budget

25-26

22

Multiannual budget implementation under FP7

27-30

22

Multiannual budget implementation under Horizon 2020

31-35

22

INTERNAL CONTROLS

36-38

23

Internal control framework

36-38

23

OTHER ISSUES

39

23

Leverage of contributions from other members

39

23

INFORMATION ON THE COMMISSION’S EVALUATIONS

40

24

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

25

THE JOINT UNDERTAKING’S REPLY

26

INTRODUCTION

Establishment of the Clean Sky Joint Undertaking

| 1. | The Joint Undertaking for the implementation of the Joint Technology Initiative in Aeronautics (Clean Sky Joint Undertaking), located in Brussels, was set up in December 2007 under the Seventh Research Framework Programme (FP7) for a period of 10 years, and started working autonomously on 16 November 2009 (1). On 6 May 2014, the Council extended the lifetime of the Joint Undertaking for the period up to 31 December 2024 (2). |
| --- | --- |

1.

| 2. | The Clean Sky Joint Undertaking is a public-private partnership for aeronautic research and innovation. The founding members of the Joint Undertaking under the new regulation are the European Union (EU), represented by the Commission, and the private members consisting of the industrial Leaders and Associates of the Integrated Technology Demonstrators (ITDs), Innovative Aircraft Demonstrator Platforms (IADPs) and Transverse Areas (TAs). In addition, the Joint Undertaking cooperates with industrial ’core partners’ selected via open and competitive calls (3). Partners got private member status under the Clean Sky 2 founding regulation. |
| --- | --- |

2.

Governance

| 3. | The governance structure of the Clean Sky Joint Undertaking includes the Governing Board, the Executive Director, the States Representatives Group and the Scientific and Technological Advisory Board. |
| --- | --- |

3.

| 4. | The Governing Board is composed of one representative of the Commission on behalf of the Union, one representative of each industrial Leader, one representative of the Associates per ITD, and one representative of the core partners per ITD and IADP. The Governing Board is the main decision-making body and is responsible for the operations of the Joint Undertaking and oversight of its activities. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

| 5. | The States Representatives Group is a network of national representatives from EU Member States and other countries which provides advice and opinions on the strategic orientation and operations of the Joint Undertaking. The Scientific and Technological Advisory Board is composed of scientists and engineers, and provides advice on technological, environmental and socioeconomic issues. |
| --- | --- |

5.

Objectives

| 6. | The main objectives of the Clean Sky Joint Undertaking are to improve significantly the environmental impact of aeronautical technologies and to enhance the competitiveness of European aviation. |
| --- | --- |

6.

Resources

| 7. | The maximum EU contribution to the first phase of the Clean Sky Joint Undertaking’s administrative costs and research activities (Clean Sky 1 programme) is 800 million euro from the Seventh Research Framework Programme (FP7) (4). Of this amount, a maximum of 400 million euro is to be allocated to the ITD Leaders and up to 200 million euro to the Associates. The ITD Leaders and Associates are to contribute resources at least matching the EU contribution, excluding those allocated through calls for core partners. The remaining amount of at least 200 million euro must be allocated to the partners selected by means of competitive calls for proposals (5). |
| --- | --- |

7.

| 8. | The maximum EU contribution to the Joint Undertaking’s second phase of activities (Clean Sky 2 programme) is 1 755 million euro, to be funded from Horizon 2020 (6). The private members of the Joint Undertaking are expected to contribute resources of at least 2 193,75 million euro over the life span of the Joint Undertaking (7). Of this amount, private members have to incur costs of at least 965,25 million euro in implementing additional activities outside the work plan of the Clean Sky Joint Undertaking (8). |
| --- | --- |

8.

| 9. | The administrative costs for the second phase of the Clean Sky 2 programme are limited to 78 million euro, to be covered through financial contributions divided equally on an annual basis between the EU and the private members (9). |
| --- | --- |

9.

| 10. | In 2017, the final budget for the Clean Sky 2 Joint Undertaking was 243,5 million euro (2016: 287,8 million euro). At 31 December 2017, the Joint Undertaking had 41 staff (2016: 41) (10). |
| --- | --- |

10.

The Commission’s evaluations

| 11. | The Commission completed the final evaluation of the Joint Undertaking’s FP7 activities and the interim evaluation of its Horizon 2020 activities in June 2017, which was followed by respective action plans prepared by the Joint Undertaking to address the recommendations raised in the evaluations. On this occasion, we include a section related to the Joint Undertaking’s Action Plans in response to the evaluations, which is intended only for information purposes and does not form part of our audit opinion or observations. |
| --- | --- |

11.

| OPINION









  12. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (11) and the reports on the implementation of the budget (12) for the financial year ended 31 December 2017, and |
| --- | --- | --- |

OPINION

12.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (11) and the reports on the implementation of the budget (12) for the financial year ended 31 December 2017, and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 13. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

13.

Opinion on the legality and regularity of revenue underlying the accounts

| 14. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

14.

Opinion on the legality and regularity of payments underlying the accounts

| 15. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

15.

Responsibilities of management and those in charge of governance

| 16. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

16.

| 17. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

17.

| 18. | Those in charge of governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

18.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 19. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

19.

| 20. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

20.

| 21. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

21.

| 22. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) other than advances at the point they are made. |
| --- | --- |

22.

| 23. | In preparing this report and Opinion, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (13). |
| --- | --- |

23.

| 24. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

24.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 25. | The final 2017 budget available for the Clean Sky 1 and Clean Sky 2 programme implementation included commitment appropriations of 313,4 million euro and payment appropriations of 243,5 million euro. |
| --- | --- |

25.

| 26. | The implementation rates for commitment and payment appropriations were high with 99,6 % and 98,5 %, respectively. |
| --- | --- |

26.

Multiannual budget implementation under FP7

| 27. | Out of the 800 million euro of FP7 funds allocated to the Clean Sky Joint Undertaking for the implementation of Clean Sky 1, by the end of 2017, the EU had contributed in cash a total amount of 800 million euro. |
| --- | --- |

27.

| 28. | Private members were committed to contribute at least 600 million euro to the Joint Undertaking’s Clean Sky 1 activities. The Clean Sky 1 programme was closed in 2017 and at year-end the Governing Board had validated in-kind contributions from private members of 594,1 million euro. In addition, the private members made cash contributions to the Joint Undertaking’s administrative costs of 14,9 million euro. |
| --- | --- |

28.

| 29. | Consequently, at the end of 2017, the total contribution of the private members to the Clean Sky 1 programme amounted to 609 million euro, compared to the EU cumulative cash contribution of 800 million euro. |
| --- | --- |

29.

| 30. | Out of the total operational and administrative budget of 817,2 million euro for Clean Sky 1 activities (14), by the end of 2017, the Clean Sky 1 Joint Undertaking had made commitments of 815,2 million euro and payments of 815,1 million euro (99,7 % of the available budget). |
| --- | --- |

30.

Multiannual budget implementation under Horizon 2020

| 31. | Out of the maximum of 1 755 million euro of Horizon 2020 funds allocated to the Clean Sky Joint Undertaking for the implementation of the Clean Sky 2 programme, by the end of 2017, the EU had contributed in cash a total amount of 484,8 million euro. |
| --- | --- |

31.

| 32. | The private members are not obliged to make a minimum amount of in-kind and cash contributions to the Joint Undertaking’s Clean Sky 2 activities. At the end of 2017, the private members had reported in-kind contributions of 265,6 million euro, of which 54 million euro had been validated by the Governing Board. In addition, private members made cash contributions to the administrative cost of the Joint Undertaking of 9,5 million euro. |
| --- | --- |

32.

| 33. | Out of the at least 965,25 million euro of private members’ contributions to be made to additional activities outside the work programme of the Joint Undertaking, by the end of 2017, the private members had already reported 594 million euro out of which 423 million euro had been certified. As we have no right to audit members’ in-kind contributions to additional activities, we cannot provide an opinion on their nature, quality and quantity (see also paragraph 39). |
| --- | --- |

33.

| 34. | Consequently, by the end of 2017, the total contributions of the industry members amounted to 477 million euro (of which 89 % are contributions to additional activities), compared to the EU cumulative cash contribution of 484,8 million euro. |
| --- | --- |

34.

| 35. | Out of the maximum operational and administrative budget for Clean Sky 2 of 1 794 million euro (15), by the end of 2017, the Joint Undertaking had made commitments of 1 009,6 million euro and payments of 493 million euro. |
| --- | --- |

35.

INTERNAL CONTROLS

Internal control framework

| 36. | The Clean Sky Joint Undertaking has set up ex-ante control procedures based on financial and operational desk reviews. For FP7 interim and final payments, the Joint Undertaking performs ex-post audits at the beneficiaries whilst for Horizon 2020 project cost claims the Commission’s Common Audit Service (CAS) is responsible for the ex-post audits. The residual error rates for the ex-post audits reported by the Joint Undertaking at the end of 2017 were 1,40 % for FP7 projects and 1,6 % for Horizon 2020 projects (16). |
| --- | --- |

36.

| 37. | Based on an assessment of the Joint Undertaking’s internal control system and substantive testing of revenue, payment, grant and procurement operations and a review of a sample of finalised ex-post audits including recoveries arising from the errors detected, the audit results provided us with reasonable assurance that the overall residual error rate for the Joint Undertaking is below materiality. |
| --- | --- |

37.

| 38. | At the end of 2017, the Commission’s common Horizon 2020 grant management and monitoring tools had not finished the specific developments needed for the processing of the Joint Undertaking’s in-kind contributions. |
| --- | --- |

38.

OTHER ISSUES

Leverage of contributions from other members and risk of double funding

| 39. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry members in the area of its activities (17). The minimum leverage factor for both, operational and additional activities amounts to 1,25 (18). However, Clean Sky 2’s founding regulation does not oblige industry members to make a minimum of in-kind contributions to the operational activities of the Joint Undertaking (19). Consequently, a minimum leverage factor for the in-kind contributions to the operational activities cannot be determined. As we have no right to audit in-kind contributions to additional activities we cannot provide an opinion on the nature, quality or reality of such contributions (20). |
| --- | --- |

39.

INFORMATION ON THE COMMISSION’S EVALUATIONS

| 40. | The Commission’s Final Evaluation on Clean Sky Joint Undertaking operating under FP7 covered the period between 2008 and 2016 (21), while the Interim Evaluation on Clean Sky 2 Joint Undertaking operating under H2020 covered the period from 2014 to 2016 (22). The evaluations were carried out with the assistance of independent experts as foreseen in the Clean Sky Council Regulations (23), and covered the performance of the Joint Undertaking in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency and research quality. The results of the evaluations were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (24). |
| --- | --- |

40.

| 41. | In response to the recommendations raised by the evaluators (25), the Joint Undertaking prepared an Action Plan that was endorsed by the Joint Undertaking Governing Board in April 2018. The action plan includes a wide set of actions to be implemented by the Joint Undertaking (26), for which a certain number of activities have already been initiated (27), while the rest are planned to be implemented in 2018, or in the next programming period (28). |
| --- | --- |

41.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  Council Regulation (EC) No 71/2008 of 20 December 2007 setting up the Clean Sky Joint Undertaking (OJ L 30, 4.2.2008, p. 1).

1

(2)  Council Regulation (EU) No 558/2014 of 6 May 2014 establishing the Clean Sky 2 Joint Undertaking (OJ L 169, 7.6.2014, p. 77).

2

(3)  In 2008, 16 Leaders and 66 Associates joint the first phase of the Clean Sky Joint Undertaking (Clean Sky 1 programme). In line with article 4(6) of the Statutes annexed to the Council Regulation (EU) No 558/2014, Associates under the Clean Sky 1 programme retain their status until completion of their research activities but until 31 December 2017 at the latest. In 2017, after completion of the fourth Call for Core Partners launched in 2016, the Joint undertaking closed the membership selection and accession procedure with in total over 230 legal entities involved in the Clean Sky 2 programme. It includes the 16 Leaders with their associated entities and linked third parties, and the selected Core Partners with their associated entities and linked third parties.

3

(4)  Article 5(1) of Regulation (EC) No 71/2008.

4

(5)  Article 13(1) of the Statutes of the Clean Sky Joint Undertaking — Annex I of Regulation (EC) No 71/2008.

5

(6)  Article 3(1) of Regulation (EU) No 558/2014.

6

(7)  Article 4(1) of Regulation (EU) No 558/2014.

7

(8)  As provided in Article 4(2)(b) of Regulation (EU) No 558/2014, additional activities are activities outside the work plan of the Joint Undertaking but contributing to the objectives of the Clean Sky Joint Technology Initiative. In line with Article 4(4) of the same Regulation, the cost of additional activities must be certified by an independent external auditor and are not subject to audit by the Joint Undertaking, the ECA or by any EU body.

8

(9)  Article 15(2) of the Statutes of the Clean Sky Joint Undertaking — Annex I of Regulation (EU) No 558/2014.

9

(10)  Further information about the Joint Undertaking and its activities are available at its website: http://www.cleansky.eu.

10

(11)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

11

(12)  The reports on implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

12

(13)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

13

(14)  The total of 817,2 million euro is composed of the 800 million euro EU cash contribution funded by the FP7 programme, 14,9 million euro of private members’ cash contribution to cover the administrative costs and 2,3 million euro interest received on the pre-financed FP7 funds.

14

(15)  The total is composed of the 1 755 million euro EU cash contribution funded by the Horizon 2020 programme and a 39 million euro cash contribution to administrative costs from private members.

15

(16)  Clean Sky Joint Undertaking 2017 Annual Activity Report, pages 103-104.

16

(17)  Recital 4 of Regulation (EU) No 558/2014 states that this partnership should be based on a balanced contribution from all partners.

17

(18)  Total of minimum contribution of the industry and research members to the Joint Undertaking’s operational and additional activities (2 193,75 million euro) divided by the maximum EU cash contribution reserved for the industry and research members (1 755 million euro).

18

(19)  Article 4(1) and 4(2) of Regulation (EU) No 558/2014 specify that private members should make total contributions of at least 2 193,75 million euro over the life span of the Joint Undertaking, out of which at least 965,25 million euro should consists of costs incurred by them in implementing additional activities outside the work plan of the Joint Undertaking.

19

(20)  In accordance with Article 4(4) of Regulation (EU) No 558/2014 the cost of additional activities are certified by an independent external auditor appointed by the Joint Undertaking. The cost for such activities shall however, not be audited by the Joint Undertaking or any Union body.

20

(21)  Final Evaluation of the Clean Sky Joint Undertaking operating under FP7 https://ec.europa.eu/research/evaluations/pdf/cs.pdf.

21

(22)  Interim Evaluation of the Clean Sky 2 Joint Undertaking (2014-2016) operating under Horizon 2020 https://ec.europa.eu/research/evaluations/pdf/cs2.pdf.

22

(23)  Commission statutory evaluations in application of Article 11 of Council Regulation (EC) No 71/2008 on Clean Sky Joint Undertaking, and article 11 of Council Regulation (EU) No 558/2014 establishing the Clean Sky 2 Joint Undertaking.

23

(24)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 {SWD(2017) 339 final}.

24

(25)  Recommendations raised by the evaluators relate to the following areas: the appropriateness and optimisation of the EU Framework for Public-Private Partnerships in the field of aeronautics, including the Delegation Agreement with the Commission; the launch of less prescriptive topics in future calls for proposals; the need to stimulate subcontracting to enhance SMEs participation; the need to increase transparency and awareness on the Clean Sky Programme; the need to improve involvement of alternative research technologies within Clean Sky activities; to improve synergies with National research programmes, and to promote economic impact and academia participation. Together with these recommendations, in 2017 the Commission’s Internal Audit Service carried out an audit of the performance framework of the Joint Undertaking, recommending that Clean Sky 2 completes its performance framework by defining criteria and related indicators, quantifying targets for the competitiveness/industrial objectives of the Joint Undertaking, and to develop an appropriate methodology for measuring progress achieved against objectives.

25

(26)  Specific actions to be implemented during 2018 in response to the evaluator’s recommendations include: better coordination with National Research Programmes by improving the effectiveness of the States Representative Groups; to increase the visibility of the Joint Undertaking’s strategic vision by developing a plan for transversal workshops with other sectors on different technologies; a set of actions to address the recommendation of less prescriptive topics in the Clean Sky 2 activities; to promote the economic impact of the activities by performing an analysis of the project results and their planned exploitations; relaunch the Clean Sky Academy Group to increase academia participation.

26

(27)  Activities already include: the replacement of the Associated Members scheme under Clean Sky 1 with the Core Partners scheme in Clean Sky 2 in order to increase participation; the renewal of the Scientific Committee members bringing new competencies on emerging technologies agreed by the Governing Board on December 2017; an analysis to identify where the subcontracting mechanism could be implemented to increase SMEs participation and efficiency while respecting the legal framework and the principles of openness and transparency; a preliminary analysis as regards simplification and derogation measures on the Delegation Agreement with the Commission and Rules for Participation in view of the next programming period; a first analysis by the States Representative Group on future Research Framework funding for aeronautic activities carried out in December 2017; regular meetings with the other relevant Joint Undertakings (SESAR, Shift2Rail, FCH2 and ECSEL); a Report on all technological achievements of the Clean Sky 1 Programme (Outcome of the first European Aeronautics Research Partnership 2008-2017).

27

(28)  Actions considered for further analysis in view of the next programming period concern primarily the legal and operating framework of the Joint Undertaking, including simplification measures, and the scope of research activities to be managed by the Joint Undertaking.

28

---

ANNEX

Follow-up of previous years’ comments

| Year | Court’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding/N/A) |
| --- | --- | --- |
| | Management of Horizon 2020 grants | |
| 2016 | At the end of 2016 — the third year of Horizon 2020 implementation — the Joint Undertaking had only partially completed the integration of its control systems with the Commission’s common Horizon 2020 grant management and monitoring tools. | Completed |
| | Monitoring and clearing of prefinancing | |
| 2016 | At the end of 2016, the Joint Undertaking had not yet cleared any of the pre-financing payments (176 million euro) made to its industrial members for projects under Horizon 2020 grant agreements. Regular clearing of its pre-financing payments against statements of reported costs from the members would decrease the exposure of the Joint Undertaking to financial risk. | Completed |

Year

Court’s comment

Status of corrective action

(Completed/Ongoing/Outstanding/N/A)

Management of Horizon 2020 grants

2016

At the end of 2016 — the third year of Horizon 2020 implementation — the Joint Undertaking had only partially completed the integration of its control systems with the Commission’s common Horizon 2020 grant management and monitoring tools.

Completed

Monitoring and clearing of prefinancing

2016

At the end of 2016, the Joint Undertaking had not yet cleared any of the pre-financing payments (176 million euro) made to its industrial members for projects under Horizon 2020 grant agreements. Regular clearing of its pre-financing payments against statements of reported costs from the members would decrease the exposure of the Joint Undertaking to financial risk.

Completed

---

THE JOINT UNDERTAKING’S REPLY

The Joint Undertaking has taken note of the Court’s report.

---

| 14.12.2018 | EN | Official Journal of the European Union | C 452/27 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/27

---

REPORT

on the annual accounts of the Electronic Components and Systems for European Leadership Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/04)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-10 | 28 |
| Establishment of the ECSEL Joint Undertaking | 1-2 | 28 |
| Governance | 3-5 | 28 |
| Objectives | 6 | 28 |
| Resources | 7-9 | 28 |
| The Commission’s evaluations | 10 | 29 |
| OPINION | 11-28 | 29 |
| Opinion on the reliability of the accounts | 12 | 29 |
| Opinion on the legality and regularity of revenue underlying the accounts | 13 | 29 |
| Basis for a qualified opinion on the legality and regularity of payments underlying the accounts | 14-18 | 29 |
| Qualified opinion on the legality and regularity of payments underlying the accounts | 19 | 30 |
| Responsibilities of management and those in charge of governance | 20-22 | 30 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 23-28 | 31 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 29-35 | 31 |
| Implementation of the 2017 budget | 29 | 31 |
| Multiannual budget implementation under FP7 | 30 | 31 |
| Multiannual budget implementation under Horizon 2020 | 31-35 | 32 |
| INTERNAL CONTROLS | 36-37 | 32 |
| Administrative procedures | 36-37 | 32 |
| OTHER ISSUES | 38 | 32 |
| Leverage of contributions from industry members | 38 | 32 |
| INFORMATION ON THE COMMISSION’S EVALUATIONS | 39-40 | 33 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-10

28

Establishment of the ECSEL Joint Undertaking

1-2

28

Governance

3-5

28

Objectives

6

28

Resources

7-9

28

The Commission’s evaluations

10

29

OPINION

11-28

29

Opinion on the reliability of the accounts

12

29

Opinion on the legality and regularity of revenue underlying the accounts

13

29

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

14-18

29

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

19

30

Responsibilities of management and those in charge of governance

20-22

30

Auditor’s responsibilities for the audit of the accounts and underlying transactions

23-28

31

BUDGETARY AND FINANCIAL MANAGEMENT

29-35

31

Implementation of the 2017 budget

29

31

Multiannual budget implementation under FP7

30

31

Multiannual budget implementation under Horizon 2020

31-35

32

INTERNAL CONTROLS

36-37

32

Administrative procedures

36-37

32

OTHER ISSUES

38

32

Leverage of contributions from industry members

38

32

INFORMATION ON THE COMMISSION’S EVALUATIONS

39-40

33

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

34

THE JOINT UNDERTAKING’S REPLy

35

INTRODUCTION

Establishment of the ECSEL Joint Undertaking

| 1. | The Electronic Components and Systems for European Leadership (ECSEL) Joint Undertaking, located in Brussels, was set up in May 2014 (1) for the period up to 31 December 2024. The ECSEL Joint Undertaking replaced and succeeded the ENIAC and ARTEMIS Joint Undertakings, which closed on 26 June 2014. The ECSEL Joint Undertaking started working autonomously on 27 June 2014. |
| --- | --- |

1.

| 2. | The ECSEL Joint Undertaking is a public-private partnership in nano-electronics and embedded computing systems research. The founding members of the Joint Undertaking are the European Union (EU), represented by the Commission, the ECSEL Participating States (2), and three industry associations (AENEAS, ARTEMISIA and EPoSS) representing companies and research organisations active in the fields of embedded and cyber-physical systems, smart system integration and micro- and nano-electronics. |
| --- | --- |

2.

Governance

| 3. | The governance structure of the ECSEL Joint Undertaking includes the Governing Board, the Executive Director, the Public Authorities Board, and the Private Members Board. |
| --- | --- |

3.

| 4. | The Governing Board is composed of representatives of the members of the Joint Undertaking. It has overall responsibility for the strategic orientation and operations of the ECSEL Joint Undertaking and supervises the implementation of its activities. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

| 5. | The Public Authorities Board is composed of one representative of the Commission and one for each ECSEL Participating State. It decides on the allocation of public funding to selected proposals. The Private Members Board is composed of representatives of the private members of the ECSEL Joint Undertaking and draws up its draft strategic research and innovation agenda. |
| --- | --- |

5.

Objectives

| 6. | The main objective of the ECSEL Joint Undertaking is to contribute to the development of a strong and globally competitive electronics components and systems industry in the EU. It also aims to ensure the availability of electronic components and systems for key markets and for addressing societal challenges, and to maintain and grow semiconductor and smart system manufacturing capability in Europe. The Joint Undertaking seeks to align strategies between Member States to attract private investment and contribute to the effectiveness of public support by avoiding unnecessary duplication and fragmentation of effort, facilitating the participation of actors involved in relevant research and innovation. |
| --- | --- |

6.

Resources

| 7. | The maximum EU contribution to the activities of the ECSEL Joint Undertaking is 1 185 million euro, to be funded from Horizon 2020 (3). At least a similar amount of contribution should come from the ECSEL Participating States (4). The contributions from the industry members should be at least 1 657,5 million euro (5). |
| --- | --- |

7.

| 8. | The administrative costs of the ECSEL Joint Undertaking are to be covered by cash contributions from the members as follows: a maximum of 15,3 million euro from the EU and 1 % of the sum of the total costs of all projects from the industry members (at least 19,7 million euro but not exceeding 48 million euro) (6). |
| --- | --- |

8.

| 9. | In 2017, the final budget of the ECSEL Joint Undertaking was 290,1 million euro (2016: 244 million euro). At 31 December 2017, the Joint Undertaking employed 29 staff (2016: 29) (7). |
| --- | --- |

9.

The Commission’s evaluations

| 10. | The Commission completed the final evaluation of the Joint Undertaking’s FP7 activities and the interim evaluation of its Horizon 2020 activities in June 2017, which was followed by respective action plans prepared by the Joint Undertaking to address the recommendations raised in the evaluations. On this occasion, we include a section related to the Joint Undertaking’s Action Plans in response to the evaluations, which is intended only for information purposes and does not form part of our audit opinion or observations. |
| --- | --- |

10.

| OPINION









  11. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2017, and |
| --- | --- | --- |

OPINION

11.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2017, and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 12. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

12.

Opinion on the legality and regularity of revenue underlying the accounts

| 13. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

13.

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

| 14. | The ECSEL Joint Undertaking has taken over the FP7 projects of the ARTEMIS and ENIAC Joint Undertakings. The payments made for these projects by the ECSEL Joint Undertaking in 2017, against certificates of acceptance of costs issued by the national funding authorities (NFAs) of the ECSEL Participating States, amounted to 76,4 million euro (2016: 118 million euro), which represents 32 % (2016: 54 %) of the total operational payments made by the Joint Undertaking in 2017. |
| --- | --- |

14.

| 15. | Administrative agreements concluded by the ARTEMIS and ENIAC Joint Undertakings with the NFAs have continued to apply since those Joint Undertakings were merged to form the ECSEL Joint Undertaking. Under these agreements, the NFAs perform ex-post audits of FP7 project payments on behalf of the Joint Undertaking. The ARTEMIS and ENIAC Joint Undertakings’ ex-post audit strategies relied heavily on the NFAs to audit project cost claims (10). |
| --- | --- |

15.

| 16. | The ECSEL Joint Undertaking has taken steps to assess the implementation of ex-post audits by the NFAs and has obtained written statements from the NFAs declaring that the implementation of their national procedures provides reasonable assurance on the legality and regularity of transactions. However, the significant variation in the methodologies and procedures used by the NFAs does not allow the ECSEL Joint Undertaking to calculate a single reliable weighted error rate or a residual error rate. |
| --- | --- |

16.

| 17. | Therefore, the Court is not in a position to conclude whether ex-post audits are functioning effectively and whether this key control provides sufficient assurance as to the legality and regularity of the underlying transactions for FP7 projects (11). |
| --- | --- |

17.

| 18. | This issue concerning the variation in the methodologies and procedures used by the NFAs is not relevant for the implementation of Horizon 2020 projects, as the Common Audit Service (CAS) of the Commission is responsible for the ex-post audit (12). In 2017, the Joint Undertaking — together with the Common Audit Service (CAS) of DG RTD — launched the first ex-post audit of a random sample of Horizon 2020 interim cost claims of which the results, however, will only be reported in in the Joint Undertaking’s annual activity report 2018. |
| --- | --- |

18.

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

| 19. | In our opinion, except for the possible effects of the matters described in paragraphs 14 to 18, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

19.

Responsibilities of management and those in charge of governance

| 20. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

20.

| 21. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

21.

| 22. | Those charged with governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

22.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 23. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

23.

| 24. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

24.

| 25. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

25.

| 26. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) at the point they are made. |
| --- | --- |

26.

| 27. | In preparing this report and Opinion, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (13). |
| --- | --- |

27.

| 28. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

28.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 29. | The final 2017 budget included commitment appropriations of 183,9 million euro and payment appropriations of 290,1 million euro. The implementation rates for commitment and payment appropriations were 98 % and 83 % respectively. |
| --- | --- |

29.

Multiannual budget implementation under FP7

| 30. | By their closure in June 2014, the ARTEMIS and ENIAC Joint Undertakings had made commitments of 623 million euro (ARTEMIS 181 million euro and ENIAC 442 million euro) for operational activities to be funded under FP7. The related payments recorded in the ECSEL Joint Undertaking’s accounts amounted to 488 million euro (ARTEMIS 148 million euro and ENIAC 340 million euro) by the end of 2017. |
| --- | --- |

30.

Multiannual budget implementation under Horizon 2020

| 31. | Out of the maximum of 1 185 million euro of Horizon 2020 funds allocated to the ECSEL Joint Undertaking over its life span, by the end of 2017, the EU contributed in cash a total amount of 377 million euro. |
| --- | --- |

31.

| 32. | The 28 ECSEL Participating States are required to make financial contributions of at least 1 170 million euro to the operational activities of the ECSEL Joint Undertaking. At the end of 2017, the Participating States taking part in the 2014, 2015 and 2016 calls for proposals — 19, 21, and 24 States respectively — had made commitments amounting to 404 million euro and payments of 150,5 million euro (13 % of the total required contributions). Notwithstanding the early stage of implementation of the Horizon 2020 projects, the apparently low level of Participating States’ contributions is related to the fact that some Participating States only recognise and report costs at the end of the projects they support. |
| --- | --- |

32.

| 33. | Out of the 1 657,5 million euro of contributions to be made by industry members to the activities of the Joint Undertaking, at the end of 2017, the Joint Undertaking estimated that the industry members had made in-kind contributions of 421 million euro. |
| --- | --- |

33.

| 34. | Consequently, by the end of 2017, the total contributions from the industry members amounted 421 million euro, compared to the EU cash contribution of 377 million euro. |
| --- | --- |

34.

| 35. | Out of the maximum operational and administrative budget for the ECSEL Joint Undertaking of 1 204,7 million euro (14), by the end of 2017, the Joint Undertaking made commitments of 455 million euro and payments of 314 million euro, mostly pre-financing payments for the first wave of Horizon 2020 projects. |
| --- | --- |

35.

INTERNAL CONTROLS

Administrative procedures

| 36. | In 2017, we noticed significant shortcomings in the management of the procurement procedures for administrative services (e.g. selection of inappropriate procurement procedure, incomplete definition of services to be provided, late signature of amendments). |
| --- | --- |

36.

| 37. | In addition, in 2017 the Joint Undertaking had not properly documented in its register of exceptions management overrides of controls nor deviations from established processes and procedures. This situation affects the management’s ability to ensure the effectiveness of the internal control processes and to mitigate quickly procedural shortcomings. |
| --- | --- |

37.

OTHER ISSUES

Leverage of contributions from industry members

| 38. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry members in the area of its activities. The minimum leverage factor to be achieved according to the Joint Undertaking’s founding regulation is 1,42 (15). [If all public funding — stemming from both the Horizon 2020 and the Participating States — is taken together, the minimum leverage factor is 0,7 (16)]. |
| --- | --- |

38.

INFORMATION ON THE COMMISSION’S EVALUATIONS

| 39. | The Commission’s Final Evaluation on ARTEMIS and ENIAC Joint Undertakings operating under FP7 covered the period between 2008 and 2013 (17), while the Interim Evaluation on ECSEL Joint Undertaking operating under H2020 covered the period from 2014 to 2016 (18). The evaluations were carried out with the assistance of independent experts as foreseen in the Joint Undertakings’ Council Regulations (19), and covered the performance of the Joint Undertakings in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency and research quality. The results of the evaluations were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (20). |
| --- | --- |

39.

| 40. | In response to the recommendations raised by the evaluators (21), the Joint Undertaking prepared an Action Plan that was adopted by the ECSEL Joint Undertaking’s Governing Board in April 2018. The action plan includes a wide set of actions to be implemented by the Joint Undertaking (22), for which a certain number of activities have already been initiated (23), the majority should be implemented in 2018 and 2019, while some of them were considered beyond the scope of the ECSEL Joint Undertaking (24). |
| --- | --- |

40.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  Council Regulation (EU) No 561/2014 of 6 May 2014 establishing the ECSEL Joint Undertaking (OJ L 169, 7.6.2014, p. 152).

1

(2)  Austria, Belgium, Bulgaria, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Israel, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

2

(3)  Article 3(1) of Regulation (EU) No 561/2014.

3

(4)  Article 4(1) of Regulation (EU) No 561/2014.

4

(5)  Article 4(2) of Regulation (EU) No 561/2014.

5

(6)  Article 16(2) of the Statutes of the ECSEL Joint Undertaking (Annex I of Regulation (EU) No 561/2014). In line with Article 19 of the same Regulation, the following additional contributions to the administrative costs of the ECSEL Joint Undertaking were paid over the period 2014-2017 to complete the actions launched under Council Regulation (EC) No 72/2008 of 20 December 2007 setting up the ENIAC Joint Undertaking (OJ L 30, 4.2.2008, p. 21) and Council Regulation (EC) No 74/2008 of 20 December 2007 on the establishment of the ARTEMIS Joint Undertaking to implement a Joint Technology Initiative in Embedded Computing Systems (OJ L 30, 4.2.2008, p. 52): (a) 2 050 000 euro by the EU; (b) 1 430 000 euro by the AENEAS Association; (c) 975 000 euro by the ARTEMISIA Association.

6

(7)  Further information on the Joint Undertaking’s activities is available on its website: www.ecsel-ju.eu.

7

(8)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

8

(9)  The reports on implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

9

(10)  According to the ex-post audit strategies adopted by ARTEMIS and ENIAC, the Joint Undertaking must assess at least once a year whether the information received from the Member States provides sufficient assurance as to the regularity and legality of the executed transactions.

10

ex-post

(11)  See also Chapter X of the ECSEL Joint Undertaking 2017 Annual Activity Report.

11

(12)  Article 13(2) of Regulation (EU) No 561/2014.

12

(13)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

13

(14)  This amount includes the maximum EU cash contribution to the Joint Undertaking’s operational and administrative costs (1 185 million euro) and the industry members’ cash contribution to the Joint Undertakings’ administrative costs (19,7 million euro).

14

(15)  The minimum in-kind contributions of the industry members to the operational activities of the Joint Undertaking (1 657,5 million euro) divided by the maximum EU cash contribution to the Joint Undertaking (1 185 million euro).

15

(16)  The minimum in-kind contributions of the industry members to the operational activities of the Joint Undertaking (1 657,5 million euro) divided by the total of EU and Participating States contributions to the Joint Undertaking (2 355 million euro).

16

(17)  Final evaluation of the ARTEMIS and ENIAC Joint Undertakings operating under FP7. https://ec.europa.eu/research/evaluations/pdf/artemis-eniac.pdf

17

(18)  Interim evaluation of the ECSEL Joint Undertaking (2014-2016) operating under Horizon 2020. https://ec.europa.eu/research/evaluations/pdf/ecsel.pdf

18

(19)  Commission statutory evaluations in application of Articles 11 of Regulation (EC) No 74/2008 on ARTEMIS Joint Undertaking, Regulation (EC) No 72/2008 on ENIAC Joint Undertaking, and Regulation (EU) No 561/2014 establishing the ECSEL Joint Undertaking.

19

(20)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 {SWD(2017) 339 final}.

20

(21)  Recommendations raised by the evaluators include: the need to clearly define a long-term research development and innovation strategy in Electronic Components and Systems; to achieve a greater integration of the three ECSEL industry associations; to promote selection of projects emphasizing a vertical integration of the research activities; to increase SMEs participation and explore synergies with other Joint Undertakings; to reduce administration and concentrate on strategy; to streamline the review and reporting processes; to encourage Member States to commit to multi-annual funding of ECSEL activities; to develop appropriate metrics to measure project execution and impact and to facilitate traceability and re-use of project results.

21

(22)  Specific actions raised in the action plan in response to the evaluator’s recommendations include: to promote the use of pilot lines by new actors, in particular SMEs; to promote vertically integrated proposals with an emphasis on the value added in terms of innovation, impact and implementation; to encourage and support more ECSEL participating states to provide more multiannual funding commitments; to collaborate with other Joint Undertakings; to analyse efficient approaches to evaluate project impacts and to identify relevant key performance indicators.

22

(23)  Activities already initiated include: the preparation of the new Electronic and Components System Strategic Research Agenda (SRA) and the Multiannual Strategic Research and Innovation Agenda (MASRIA) and the organisation of the next European Forum for Electronic Components and Systems with the active participation of the three ECSEL associations planned for November 2018.

23

(24)  In particular, the ECSEL Joint Undertaking considered that the evaluator’s recommendation to harmonise the Member States’ participation rules and national reimbursement rates is beyond its remit.

24

---

ANNEX

Follow-up of previous years’ comments

| Year | The ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | Anti-Fraud Strategy | |
| 2015 | The Joint Undertaking Financial Rules state that the Joint Undertaking’s budget should be implemented in compliance with effective and efficient internal control standards, including prevention, detection, correction and follow-up of fraud and irregularities (1).
  Following the Commission’s adoption of an Anti-Fraud Strategy in June 2011, the first common Research Anti-Fraud Strategy was adopted in July 2012, and updated in March 2015 to take account of changes introduced by Horizon 2020 (2). The Research Anti-Fraud Strategy includes an action plan to be implemented by the research Joint Undertakings.
  Internal control procedures are already in place at the ECSEL Joint Undertaking to provide reasonable assurance on the prevention and detection of fraud and irregularities, (ex-ante checks on payments, conflict of interest policy, ex-post audits at beneficiaries of grants). The anti-fraud implementation plan of the ECSEL JU has been adopted on 11 November 2016 and is currently being implemented. | Ongoing |
| | Conflicts of interest | |
| 2016 | The ECSEL Joint Undertaking has adopted rules on the prevention and management of conflicts of interest to mitigate the risks related to its governance structure. However, the Joint Undertaking did not consistently complied with the requirements set out in the Governing Board decision GB.2015.41. | Ongoing |

Year

The ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

Anti-Fraud Strategy

2015

The Joint Undertaking Financial Rules state that the Joint Undertaking’s budget should be implemented in compliance with effective and efficient internal control standards, including prevention, detection, correction and follow-up of fraud and irregularities (1).

Following the Commission’s adoption of an Anti-Fraud Strategy in June 2011, the first common Research Anti-Fraud Strategy was adopted in July 2012, and updated in March 2015 to take account of changes introduced by Horizon 2020 (2). The Research Anti-Fraud Strategy includes an action plan to be implemented by the research Joint Undertakings.

Internal control procedures are already in place at the ECSEL Joint Undertaking to provide reasonable assurance on the prevention and detection of fraud and irregularities, (ex-ante checks on payments, conflict of interest policy, ex-post audits at beneficiaries of grants). The anti-fraud implementation plan of the ECSEL JU has been adopted on 11 November 2016 and is currently being implemented.

Ongoing

Conflicts of interest

2016

The ECSEL Joint Undertaking has adopted rules on the prevention and management of conflicts of interest to mitigate the risks related to its governance structure. However, the Joint Undertaking did not consistently complied with the requirements set out in the Governing Board decision GB.2015.41.

Ongoing

---

(1)  Article 12 of the ECSEL Joint Undertaking Financial Rules.

(2)  For example, the setting-up of a Common Support Centre, with a centralised audit service and harmonised business processes for EU research bodies.

---

THE ECSEL JOINT UNDERTAKING’S REPLY

16.

Like for the exercise 2016, the Joint Undertaking conducted in January an extensive assesmsent of the national assurance systems for the year 2017, taking into account 2 085 End of Project Certificates and 990 Audit Certificates received from the National Funding Authorities(NFAs) for projects funded under FP7. Furthermore, the ECSEL JU has invited from January 2018 the National Authorities to provide it with an annual declaration of assurance. The ECSEL JU has received 20 declarations (out of 25) from the NFAs, which represent 98,54 % of funding, and concluded that the audit report and declaration provide a reasonable protection of the financial interests of its members.

34.

In particular, for the calls 2014 to 2016, we would like to highlight that according with the awarding decisions and the H2020 rules, private beneficiaries committed 1 096 million euro of which 841 are commitments from members of the industry associations (IKOP) and 256 million euro are committments from non-members of the industry associations.

36.

In order to ensure effective management of the procurement procedures for all administrative services, a Budget, Procurement and Contracts Assisstant has been nominated. The role of the Budget, Procurement and Contracts Assisstant will ensure a coordinated approach and will centralise the procurement procedures and contracts management; including monitoring and follow up of contractual obligactions and performance management. Furthermore, specific awareness sessions with relevant units were organised.

37.

The ECSEL JU has taken actions to ensure properly documentation in its register of exception management overrides of controls and deviations from established processes and procedures, in particular the revision of Internal Control Standard 8 on processes and procedures with clear description of roles and responsibilities, including the communication of all exceptions to the Internal Control and Audit Manager. The Register of exceptions is kept centrally and maintained regularly. A training session took place with all ECSEL JU Staff in April 2018 on the procedures to follow. These actions support the management’s ability to ensure the effectiveness of the internal control processes and to mitigate quickly procedural shortcomings.

---

| 14.12.2018 | EN | Official Journal of the European Union | C 452/36 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/36

---

REPORT

on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/05)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-6 | 37 |
| Establishment of the F4E Joint Undertaking | 1-2 | 37 |
| Governance | 3-4 | 37 |
| Objectives | 5 | 37 |
| Resources | 6 | 37 |
| OPINION | 7-29 | 37 |
| Opinion on the reliability of the accounts | 8 | 38 |
| Opinion on the legality and regularity of revenue underlying the accounts | 9 | 38 |
| Opinion on the legality and regularity of payments underlying the accounts | 10 | 38 |
| Emphasis of matter | 11-20 | 38 |
| Responsibilities of management and those in charge of governance | 21-23 | 39 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 24-29 | 40 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 30-31 | 40 |
| Implementation of the 2017 budget | 30-31 | 40 |
| INTERNAL CONTROLS | 32-35 | 41 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-6

37

Establishment of the F4E Joint Undertaking

1-2

37

Governance

3-4

37

Objectives

5

37

Resources

6

37

OPINION

7-29

37

Opinion on the reliability of the accounts

8

38

Opinion on the legality and regularity of revenue underlying the accounts

9

38

Opinion on the legality and regularity of payments underlying the accounts

10

38

Emphasis of matter

11-20

38

Responsibilities of management and those in charge of governance

21-23

39

Auditor’s responsibilities for the audit of the accounts and underlying transactions

24-29

40

BUDGETARY AND FINANCIAL MANAGEMENT

30-31

40

Implementation of the 2017 budget

30-31

40

INTERNAL CONTROLS

32-35

41

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

42

THE JOINT UNDERTAKING’S REPLY

45

INTRODUCTION

Establishment of the F4E Joint Undertaking

| 1. | The European Joint Undertaking for ITER (1) and the Development of Fusion Energy (‘F4E Joint Undertaking’) was set up in March 2007 (2) for a period of 35 years. While the main fusion facilities were to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona. |
| --- | --- |

1.

| 2. | The founding members of the Joint Undertaking are Euratom, represented by the Commission, the Euratom Member States and Switzerland (which has concluded a cooperation agreement with Euratom). |
| --- | --- |

2.

Governance

| 3. | The governance structure of the F4E Joint Undertaking includes the Governing Board, Director and other bodies. The Governing Board is responsible for the supervision of the Joint Undertaking in the pursuit of its objectives. The Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

3.

| 4. | The other governance bodies of the Joint Undertaking are the Bureau, the Technical Advisory Panel, the Procurement and Contracts Committee, the Administration and Management Committee, the Audit Committee and the Internal Review Panel. |
| --- | --- |

4.

Objectives

| 5. | The objectives of the F4E Joint Undertaking are (3):






  (a) | to provide the contribution of the European Atomic Energy Community (Euratom) to the ITER International Fusion Energy Organisation (ITER IO); |
| --- | --- | --- |

5.

(a)

to provide the contribution of the European Atomic Energy Community (Euratom) to the ITER International Fusion Energy Organisation (ITER IO);

| (b) | to provide the contribution of Euratom to Broader Approach activities with Japan for the rapid realisation of fusion energy; |
| --- | --- |

(b)

to provide the contribution of Euratom to Broader Approach activities with Japan for the rapid realisation of fusion energy;

| (c) | to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities, including the International Fusion Materials Irradiation Facility. |
| --- | --- |

(c)

to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities, including the International Fusion Materials Irradiation Facility.

Resources

| 6. | In 2017, the final budget for the F4E Joint Undertaking was 865 million euro (2016: 720 million euro) in payment appropriations and the 589 million euro in commitment appropriations (2016: 459 million euro) (4). At 31 December 2017, the Joint Undertaking employed 447 staff (2016: 415). |
| --- | --- |

6.

| OPINION









  7. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (5) and the reports on the implementation of the budget (6) for the financial year ended 31 December 2017, and |
| --- | --- | --- |

OPINION

7.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (5) and the reports on the implementation of the budget (6) for the financial year ended 31 December 2017, and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 8. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

8.

Opinion on the legality and regularity of revenue underlying the accounts

| 9. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

9.

Opinion on the legality and regularity of payments underlying the accounts

| 10. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

10.

Emphasis of matter

| 11. | Without calling into question the opinions expressed above, we wish to draw attention to the following. The EU Council conclusions adopted on 7 July 2010 (7) approved 6,6 billion euro (in 2008 values) for the Joint Undertaking’s contribution to the ITER construction phase of the project, with completion initially planned for 2020. This figure did not include the 663 million euro proposed by the European Commission in 2010 to cover potential contingencies (8). |
| --- | --- |

11.

| 12. | In November 2016, the ITER Council (9) approved a new ITER project baseline (scope, schedule and cost). The overall project schedule (10) was approved by all ITER Members (11), and the overall project cost was approved ad referendum, meaning that each Member had to seek approval for project costs through their respective government budget process. |
| --- | --- |

12.

| 13. | The new schedule endorsed by the ITER Council set out a four-stage approach, making December 2025 the deadline for achieving the first strategic milestone of the project construction phase (‘First Plasma’) and December 2035 the estimated completion date for the whole construction phase, a delay of 15 years compared to the original baseline. The aim of the new staged approach is to better align the project implementation with the priorities and constraints of all ITER IO Members. |
| --- | --- |

13.

| 14. | Following the approval of the new ITER project baseline, the F4E Joint Undertaking set the new timetable and recalculated the related cost at completion (‘EAC’) of the Joint Undertaking’s contribution to the project construction phase. |
| --- | --- |

14.

| 15. | The results, which were presented to the Joint Undertaking’s Governing Board in December 2016, indicated an expected funding requirement for the construction phase after 2020 of 5,4 billion euro (in 2008 values) which represents 82 % increase in relation to the approved budget of 6,6 billion euro (in 2008 values). The amount of 6,6 billion euro (in 2008 values) adopted by the Council of the EU in 2010 now serves as a ceiling for the Joint Undertaking’s spending up to 2020. |
| --- | --- |

15.

| 16. | It must be noted that, in addition to the construction phase, the Joint Undertaking will have to contribute to the ITER operational phase after 2035 (12) and to the subsequent ITER deactivation and decommissioning phases. The contribution to the operational phase after 2035 is not yet estimated. The contributions of the F4E Joint Undertaking to the deactivation and the decommissioning phases have been estimated by ITER IO in 95,54 million euro (in 2001 value) and in 180,2 million euro (in 2001 value) (13) respectively. |
| --- | --- |

16.

| 17. | While the F4E Joint Undertaking’s forecasts for First Plasma are compatible with the ITER IO timetable for the project, the schedule is considered to be the earliest possible technically-achievable date (14). |
| --- | --- |

17.

| 18. | In June 2017, the Commission issued a communication on the EU contribution to a reformed ITER project (15), seeking the support of the European Parliament and a mandate from the Council of the EU for the Commission to approve the new baseline (16) on behalf of Euratom. |
| --- | --- |

18.

| 19. | Even though the new baseline does not include a contingency, in its communication the Commission suggested that a contingency of up to 24 months in terms of schedule and 10-20 % in terms of budget would be appropriate (17). In addition, the measures taken to respect the 6,6 billion euro capped budget included postponing the procurement and installation of all components not essential to First Plasma. While positive steps have been taken to improve the management and control of the ITER project construction phase, there remains a risk of further cost increases and delays in project implementation compared to the new proposed baseline. |
| --- | --- |

19.

| 20. | On 29 March 2017, the United Kingdom notified the European Council of its decision to withdraw from the EU and Euratom. An agreement setting out the arrangements for its withdrawal will be negotiated. This may have a significant effect on the future activities of the F4E Joint Undertaking and the ITER project. |
| --- | --- |

20.

Responsibilities of management and those in charge of governance

| 21. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

21.

| 22. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

22.

| 23. | Those in charge of governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

23.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 24. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

24.

| 25. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

25.

| 26. | For revenue, we verify the subsidy received from the Commission and other stakeholders and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

26.

| 27. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) other than advances at the point they are made. Advance payments are examined when the recipient of funds provides justification for their proper use and the Joint Undertaking accepts the justification by clearing the advance payment, whether in the same year or later. |
| --- | --- |

27.

| 28. | In preparing this report and Opinion, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (18). |
| --- | --- |

28.

| 29. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

29.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 30. | The final 2017 budget available for implementation included commitment appropriations of 589 million euro and payment appropriations of 865 million euro. The utilisation rates for commitment and payment appropriations were 99,9 % and 96,3 % respectively. |
| --- | --- |

30.

| 31. | Due to serious shortcomings in the budget planning process, the payment appropriations finally needed in 2017 significantly exceeded the payment appropriations of the initial 2017 budget. While the initial operational payment appropriations approved by the GB in February 2017 amounted to 548,6 million euro, the final payment appropriations needed for 2017 amounted to 832,6 million euro, which is a 51,8 % increase. In addition, the Joint Undertaking has estimated a lack of payment appropriations of about 150 million euro potentially affecting the 2018 budget. |
| --- | --- |

31.

INTERNAL CONTROLS

| 32. | The F4E Joint Undertaking has not consistently followed up on the Declarations of Interest from Senior Management (19). |
| --- | --- |

32.

| 33. | Significant shortcomings were found in the internal control and monitoring procedures (20) related to the recruitment of a key management staff. |
| --- | --- |

33.

| 34. | In 2018 the General Court of the European Court of Justice annulled two 2015 employment decisions of the F4E JU due to irregularities in the recruitment process (21). The JU has appealed the decision in April 2018. |
| --- | --- |

34.

| 35. | Significant shortcomings in the internal communication strategies (22) did not ensure the dissemination of appropriate information on the estimated costs of the decommissioning phase within the organisation. Consequently, the Joint Undertaking disclosed no provision for such liability in the accounts of the previous years (23). |
| --- | --- |

35.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  International Thermonuclear Experimental Reactor.

1

(2)  Council Decision 2007/198/Euratom of 27 March 2007 establishing the European Joint Undertaking for ITER and the Development of Fusion Energy and conferring advantages upon it (OJ L 90, 30.3.2007, p. 58), amended by Decision 2013/791/Euratom (OJ L 349, 21.12.2013, p. 100) and Decision (Euratom) 2015/224 (OJ L 37, 13.2.2015, p. 8).

2

(3)  Further information about the F4E Joint Undertaking and its activities are available at its website: http://www.fusionforenergy.europa.eu.

3

(4)  Third amendment to the Budget approved by the Governing Board in December 2017.

4

(5)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

5

(6)  The reports on implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

6

(7)  Council conclusions on ITER status of 7 July 2010 (Ref. 11902/10).

7

(8)  Communication from the Commission to the European Parliament and the Council of 4 May 2010 on ITER status and a possible way forward (COM(2010) 226 final).

8

(9)  19th ITER Council on 16-17 November 2016. The ITER Council is the governing body of the ITER IO.

9

th

(10)  The ITER Council reviewed the complete updated project construction schedule through First Plasma (2025) and up to Deuterium-Tritium operation (2035) as proposed by ITER IO.

10

(11)  The People’s Republic of China, Republic of India, Japan, Republic of Korea, Russian Federation, United States of America and European Union.

11

(12)  The operational phase of the ITER project is expected to last until 2037.

12

(13)  IC-19/07.2.1 Proposal for the Updated Overall Project Cost (OPC) from the Director-General of the ITER IO to the 19th meeting of the ITER Council on 16-17 November 2016.

13

(14)  As stated in the fifth annual assessment by an independent Review Group (31 October 2016) and in the report by the F4E Joint Undertaking’s Head of Project Management to the Governing Board in December 2016.

14

(15)  COM(2017)319 final of 14.6.2017 (accompanied by Commission Staff Working Document SWD(2017) 232 final of 14.6.2017).

15

(16)  The Euratom contribution is without prejudice to the proposals of the Commission, the outcome of the negotiations on the withdrawal of the United Kingdom from Euratom and the Multiannual Financial Framework after 2020.

16

(17)  COM(2017)319 final of 14.6.2017 (accompanied by Commission Staff Working Document SWD(2017) 232 final of 14.6.2017), chapter V ‘ITER: the way forward’.

17

(18)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

18

(19)  Management Standard 3 (Ethical and Organisational Values).

19

(20)  Management Standard 3 (Ethical and Organisational Values) and Management Standard 4 (Human Resources).

20

(21)  Decision dated 25 January 2018 of the General Court of the European Court of Justice on Court Case T-561/16: Selection procedure F4E/CA/ST/FGIV/2015/001.

21

(22)  Management Standard 15 (Information and Communication).

22

(23)  The amount of the provision has been estimated in 85,2 million euro at 31 December 2017.

23

---

ANNEX

Follow-up of previous years’ comments

| Year | Court’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT | |
| | Presentation of the accounts | |
| 2015 | In the notes to the financial statements, the table and the information included under heading 4.3.1.1. ‘ITER Procurement Arrangement (ITER IO)’, reflect the procurement arrangements signed (column 3) and those credited so far (column 4). However, the table does not show the actual degree of advancement of the works in progress. In the 2015 annual accounts, F4E has supplemented this information with an estimate of the work in progress taking into account the total value of spending on contracts linked to PAs, and a chart showing the achievement of milestones for each procurement arrangement signed with ITER IO. Despite the estimate presented in the 2015 accounts, further work is needed to present more accurate information on the status and value of the activities carried out so far by the Joint Undertaking. | Ongoing |
| | COMMENTS ON KEY CONTROLS IN THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS | |
| 2015 | F4E is further developing a central and uniform system for the integration of all the operational, financial and budgeting data, which will allow regular monitoring and control of estimates, costs and deviations. At its meeting of 8-9 June 2015, the Governing Board endorsed a proposal by the Director to implement an Enterprise Resources Planning (ERP) system within two years. | Completed |
| 2015 | The system to provide information on the value of the degree of the implementation of activities (Earned Value Management) is under discussion with ITER IO with a view to improving the distribution of credit milestones during the life of a procurement arrangement. | Ongoing |
| | Operational procurements and grants | |
| 2015 | Negotiated procedures constituted 45 % of the 84 operational tendering procedures launched in 2015 (58 % in 2014). Although the Joint Undertaking reduced the percentage of negotiated procedures in 2015, efforts are needed to increase the competitiveness of its operational procurement procedures. For grants, the average number of proposals received was 1,4 per call.
  Review result: In 2017, negotiated procedures still constituted 47 % of the 47 operational tendering procedures launched in 2017 (2016: 45 %). In 2017, the Joint Undertaking has undertaken initiatives to reduce the percentage of negotiated procedures; however efforts are needed to increase the competitiveness of its operational procurement procedures. For grants, the average number of proposals received was 1 per call. | Ongoing |
| | OTHER MATTERS | |
| | Legal framework | |
| 2015 | On 2 December 2015, the F4E Governing Board finally amended its Financial Regulation and Implementing Rules to align them with the new EU Financial Framework. In February 2016, the European Commission issued a positive opinion on the amendments introduced by F4E in its financial rules, but requested the Joint Undertaking to consider further developing certain provisions in its Implementing Rules relating to specific derogations from the EU Financial Regulation and from the framework financial regulation applicable to the Article 208 bodies. | Completed |
| | Intellectual property rights and industrial policy | |
| 2015 | The Decision on the implementation of the Fusion for Energy Industrial Policy and the policy on intellectual property rights and dissemination of information were adopted by the Joint Undertaking’s Governing Board on 27 June 2013.
  The Joint Undertaking has developed a procurement strategy document for each procurement action. A checklist for monitoring the implementation of the procurement strategy as regards the ownership of the foreground for each procurement action has been drawn up. | Completed |
| An impact assessment on the implementation of these policies is being carried out. | Ongoing |
| | INTERNAL CONTROLS | |
| | Anti-fraud strategy | |
| 2016 | In June 2015, the F4E Joint Undertaking’s Governing Board adopted an anti-fraud strategy and corresponding action plan. Most of the actions were implemented in 2016. However, the Joint Undertaking has not set up a specific tool to facilitate the monitoring of its actions in relation to procurement procedures, in particular those related to risk assessment and the evaluation, negotiation and award phases of the procedures. | Ongoing |

Year

Court’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT

Presentation of the accounts

2015

In the notes to the financial statements, the table and the information included under heading 4.3.1.1. ‘ITER Procurement Arrangement (ITER IO)’, reflect the procurement arrangements signed (column 3) and those credited so far (column 4). However, the table does not show the actual degree of advancement of the works in progress. In the 2015 annual accounts, F4E has supplemented this information with an estimate of the work in progress taking into account the total value of spending on contracts linked to PAs, and a chart showing the achievement of milestones for each procurement arrangement signed with ITER IO. Despite the estimate presented in the 2015 accounts, further work is needed to present more accurate information on the status and value of the activities carried out so far by the Joint Undertaking.

Ongoing

COMMENTS ON KEY CONTROLS IN THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS

2015

F4E is further developing a central and uniform system for the integration of all the operational, financial and budgeting data, which will allow regular monitoring and control of estimates, costs and deviations. At its meeting of 8-9 June 2015, the Governing Board endorsed a proposal by the Director to implement an Enterprise Resources Planning (ERP) system within two years.

Completed

2015

The system to provide information on the value of the degree of the implementation of activities (Earned Value Management) is under discussion with ITER IO with a view to improving the distribution of credit milestones during the life of a procurement arrangement.

Ongoing

Operational procurements and grants

2015

Negotiated procedures constituted 45 % of the 84 operational tendering procedures launched in 2015 (58 % in 2014). Although the Joint Undertaking reduced the percentage of negotiated procedures in 2015, efforts are needed to increase the competitiveness of its operational procurement procedures. For grants, the average number of proposals received was 1,4 per call.

Review result: In 2017, negotiated procedures still constituted 47 % of the 47 operational tendering procedures launched in 2017 (2016: 45 %). In 2017, the Joint Undertaking has undertaken initiatives to reduce the percentage of negotiated procedures; however efforts are needed to increase the competitiveness of its operational procurement procedures. For grants, the average number of proposals received was 1 per call.

Ongoing

OTHER MATTERS

Legal framework

2015

On 2 December 2015, the F4E Governing Board finally amended its Financial Regulation and Implementing Rules to align them with the new EU Financial Framework. In February 2016, the European Commission issued a positive opinion on the amendments introduced by F4E in its financial rules, but requested the Joint Undertaking to consider further developing certain provisions in its Implementing Rules relating to specific derogations from the EU Financial Regulation and from the framework financial regulation applicable to the Article 208 bodies.

Completed

Intellectual property rights and industrial policy

2015

The Decision on the implementation of the Fusion for Energy Industrial Policy and the policy on intellectual property rights and dissemination of information were adopted by the Joint Undertaking’s Governing Board on 27 June 2013.

The Joint Undertaking has developed a procurement strategy document for each procurement action. A checklist for monitoring the implementation of the procurement strategy as regards the ownership of the foreground for each procurement action has been drawn up.

Completed

An impact assessment on the implementation of these policies is being carried out.

Ongoing

INTERNAL CONTROLS

Anti-fraud strategy

2016

In June 2015, the F4E Joint Undertaking’s Governing Board adopted an anti-fraud strategy and corresponding action plan. Most of the actions were implemented in 2016. However, the Joint Undertaking has not set up a specific tool to facilitate the monitoring of its actions in relation to procurement procedures, in particular those related to risk assessment and the evaluation, negotiation and award phases of the procedures.

Ongoing

---

THE JOINT UNDERTAKING’S REPLY

| 31. | F4E agrees with the finding. It should be noted that thanks to the support of Euratom, which provided the additional budget, this lack of payment appropriations in 2017 had no impact on the fulfilment of F4E obligations toward suppliers.
  Internally, the payment forecasting system has been totally redesigned and integrated in the new financial management tool, ECOSYS, and the interaction between the Project Teams and the Procurement Unit managing the contracts has been enhanced.
  Due to the advanced preparation of the forecasts, F4E confirms that the 2018 budget is also impacted with a lack of payment appropriations of about 150 million euro. A request for a transfer is ongoing in the 2018 general EU budget, in order to increase the Euratom contribution to F4E, covering these additional needs.
  The request for the draft budget 2019 and the forecasts for the following budgets have already been re-evaluated, based on the advanced forecasting methodology and with the new planning and reporting tool ECOSYS. |
| --- | --- |

31.

Internally, the payment forecasting system has been totally redesigned and integrated in the new financial management tool, ECOSYS, and the interaction between the Project Teams and the Procurement Unit managing the contracts has been enhanced.

Due to the advanced preparation of the forecasts, F4E confirms that the 2018 budget is also impacted with a lack of payment appropriations of about 150 million euro. A request for a transfer is ongoing in the 2018 general EU budget, in order to increase the Euratom contribution to F4E, covering these additional needs.

The request for the draft budget 2019 and the forecasts for the following budgets have already been re-evaluated, based on the advanced forecasting methodology and with the new planning and reporting tool ECOSYS.

| 32. | F4E will improve its current internal procedure to follow up on the Declarations of Interest from Senior Management. This improvement will imply that the updates of General Declarations of Interest (GDoIs) or any other declarations of conflicts of interest will be formally reviewed by the respective Reporting Officers, including the Chair of the Governing Board in the case of the F4E Director. |
| --- | --- |

32.

| 33. | F4E is enhancing the process and selection procedures through an improvement project that is being implemented. In that context, F4E will reinforce its procedural aspects to take into account the Court’s observations, with the objective of enhancing the internal control and the quality of the recruitment process. |
| --- | --- |

33.

| 34. | As for the 2018 court ruling annulling one F4E selection procedure, F4E should like to make clear that while it has needed to implement the ruling, it also filed an appeal against it. It is to be noted that this case also involved an action before the European Ombudsman, who determined the complaint was unfounded and ruled in F4Es favor. |
| --- | --- |

34.

| 35. | In agreement with the Court of Auditors, F4E has recognized the provision for the decommissioning costs in its 2017 Final accounts.
  In relation to the shortcomings in the internal communication, F4E will tackle this through the following actions:






  — | The F4E internal process ‘Annual accounts — opening/closure of financial year’ will be updated in view to clarify the information needed for the accounts in relation to provisions and contingent liabilities. In particular, a yearly update will be requested to the Project Management Department and to the Budget group regarding the status of the decommissioning and deactivation costs and any other event or information that may have an impact on the accounts. |
| --- | --- | --- |

35.

In relation to the shortcomings in the internal communication, F4E will tackle this through the following actions:

—

The F4E internal process ‘Annual accounts — opening/closure of financial year’ will be updated in view to clarify the information needed for the accounts in relation to provisions and contingent liabilities. In particular, a yearly update will be requested to the Project Management Department and to the Budget group regarding the status of the decommissioning and deactivation costs and any other event or information that may have an impact on the accounts.

| — | Senior Management (and mainly the Head of the Commercial Department) will transmit to the F4E Accounting Officer any relevant information and more particularly the MAC (Management Advisory Committee) and ITER Council decisions. |
| --- | --- |

—

Senior Management (and mainly the Head of the Commercial Department) will transmit to the F4E Accounting Officer any relevant information and more particularly the MAC (Management Advisory Committee) and ITER Council decisions.

Follow-up of previous years’ comments

2015 — Presentation of the accounts

F4E is currently using the ITER credit as its Earned Value Management (EVM) system and it is one of the methods, together with milestones monitoring and trend analysis, to monitor the progress in its activities.

At the end of 2017, the Governing Board appointed a Working Group (WG) with the task of defining an improved way of reporting from F4E, including the task of defining a suitable EVM system. Work is ongoing and the WG Chair is due to report the progress at the July 2018 GB meeting.

2015 — Comments on key controls in the Joint Undertaking’s supervisory and control systems

Second paraghaph: An update of the credit profile along the procurement was launched with the ITER Organization so that it could be closer to the value of the real work done through the various project phases (i.e. design, manufacturing, delivery, installation). Some delays have affected this work and the new forecast completion date for this action is the end of December 2018.

2015 — Operational procurement and grants

In spite of renewed communication and dissemination efforts, notably in the context of integrating the new Financial Regulation, the figures for negotiated procedures remained during 2017 similar to previous years (47 % of total in 2017, versus 49 % in 2016, 45 % in 2015 and 58 % in 2014).

Nevertheless, it has to be noted that the majority of these procedures were for low value negotiated procedures performed below the Directive’s publication threshold and fully in line with the F4E Financial Regulations. These low value negotiated procedures represent a long term average of around 40 % of F4E’s yearly number of contracts but only correspond to less than 1 % of the annual commitment budget.

Using negotiated procedures in these cases (within the limits imposed by F4E’s Financial Regulations) responds to a concern of sound financial management, as this allows F4E to reduce time-to-contract, reacting more swiftly to the project needs and more effectively focusing use of internal resources on high value procurements. Therefore, F4E considers that no action is needed to further reduce low value negotiated procedures, which remain in compliance with the Financial Regulations principles and provisions.

The remaining negotiated procedures, typically higher value contracts (about 5 % of the total number of procedures as long term average), are an expression of the complex and innovative context in which F4E operates. The characteristics of the fusion technology market are such that in many cases very limited capacity is present in Member States or worldwide. This often results in low competition levels, duopolies/monopolies or even lack of participation to calls for tender.

Since 2012, F4E increased its dissemination efforts but participation to its operational calls remained in average lower than desirable. In F4E’s opinion, the main root cause is not lack of visibility but rather the sporadic and specific nature of F4E purchases. Through discussion with other large science infrastructure buyers in Europe F4E came to the conclusion that the nature of the activities related to the scope of large science and technology projects is such that limited competition is regrettably a matter of fact, on which a single contracting authority can have only a modest impact. This conclusion is shared by other contracting authorities managing similar projects in Europe.

As a consequence, during 2016 F4E initiated a forum comprising most similar, first of a kind high-tech frontier projects in Europe. Through this forum different organizations with similar project challenges (in particular in relation to low industrial engagement and participation) began working together to address them in a more coordinated and effective way. Among the key ideas generated through this forum is to foster a single market for large scientific projects, which is more stable and larger and therefore more capable of attracting companies’ interest.

The forum’s first event targeting industry took place in Denmark at the end of February 2018, with participation of 1 037 delegates representing 530 companies and public organisations from 29 countries. The feedback from industry and public participants after the event was very positive, and in June 2018 the forum participants (F4E, ESA, ESO, CERN, EMBL, ESRF, ESS, XFEL, ILL) voted unanimously to accept candidatures for the organization of a second large event in 2020 and to extend forum membership to other organizations of European interest with similar large scale, high-technology projects.

2015 — Intellectual property rights and industrial policy

Second paragraph: F4E has actively cooperated with Trinomics and Cambridge Econometrics, an independent economic policy consultancy, which has produced a study for the European Commission on the ‘Impact of ITER activities in the EU’. The study was completed in April 2018. Its main results are summarized below.

| — | As concerns the effectiveness of F4E’s Industrial Policy, results from econometric modelling show that spending on ITER has generated around 34 000 job years between 2008 and 2017. The positive effect will continue in the future, until end of the ITER construction.
  Comparing the ITER economic return and job creation to an alternative EU spending scenario (with a neutral expenditure distribution to all economic sectors) it is estimated that ITER will generate between 2008 and 2030 a total net gain to EU Member States of 586 million euro. |
| --- | --- |

—

As concerns the effectiveness of F4E’s Industrial Policy, results from econometric modelling show that spending on ITER has generated around 34 000 job years between 2008 and 2017. The positive effect will continue in the future, until end of the ITER construction.

Comparing the ITER economic return and job creation to an alternative EU spending scenario (with a neutral expenditure distribution to all economic sectors) it is estimated that ITER will generate between 2008 and 2030 a total net gain to EU Member States of 586 million euro.

| — | For what concerns intellectual property and dissemination of information, the study concludes that the above referred net benefits may be significantly increased by spin-offs and further innovation stimulated by firms working on ITER and developing new technologies and products. Whilst the modelling results are indicative, they suggest that the economic impact increases by a further 25-60 % or more due to these effects. |
| --- | --- |

—

For what concerns intellectual property and dissemination of information, the study concludes that the above referred net benefits may be significantly increased by spin-offs and further innovation stimulated by firms working on ITER and developing new technologies and products. Whilst the modelling results are indicative, they suggest that the economic impact increases by a further 25-60 % or more due to these effects.

In order to receive the maximum benefit from these additional effects, the study suggests that technology transfer activities should be reinforced around the ITER project. Experience from both CERN and ESA demonstrates that setting up an effective technology transfer system takes time but is crucial to enhance the impact of the public investment.

F4E had already initiated during 2017 the preliminary activities to set-up a technology transfer programme in cooperation with EUROfusion, taking inspiration from the ESA model. During 2018 the first phase of this programme is planned to start.

2016 — Anti-fraud Strategy

Following Recommendation 3.5 of its Anti-Fraud Strategy, in February 2018, F4E has adopted its own set of procurement fraud risk indicators: Red Flags. The purpose of the Red flags list is to define the indicators specific to F4E procurement activities, based on the characteristics for tenders, market analysis and procurement systems in order to raise awareness among staff involved in procurement of key points to be verified through the procurement process.

The list of indicators was considered a prerequisite to the development of the Anti-Fraud IT tool that was envisaged to facilitate the monitoring of F4E’s actions in relation to procurement procedures. However, in January 2018, an assessment of the complexity to develop a tool providing all the required functionalities revealed that it would be too heavy for F4E as a single EU agency.

Consequently, other, simpler and quicker solutions, still providing sufficient level of assurance were considered and F4E decided to design its internal Anti-Fraud checklist on the basis of its list of Procurement Fraud Risk Indicators — Red Flags. The Anti-Fraud Checklist has just been adopted in May 2018 and becomes effective as of 1 July 2018. When applicable, the checklist will be filled and signed at least twice in the life cycle of the procurement (at award and at contract closure stage) by two different actors, independently, both the Technical Project Officer and the Contracts and Procurement Officer, in order to provide full transparency. If necessary, the checklist may also be used by any F4E staff to raise a red flag at any stage of procurement lifecycle. The use of the checklist is now being introduced in F4E’s internal processes, in parallel with all other changes related to the Improvement Procurement Project.

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| 14.12.2018 | EN | Official Journal of the European Union | C 452/48 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/48

---

REPORT

on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/06)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-13 | 49 |
| Establishment of the FCH Joint Undertaking | 1-2 | 49 |
| Governance | 3-6 | 49 |
| Objectives | 7 | 49 |
| Resources | 8-12 | 49 |
| The Commission’s evaluations | 13 | 50 |
| OPINION | 14-26 | 50 |
| Opinion on the reliability of the accounts | 15 | 50 |
| Opinion on the legality and regularity of revenue underlying the accounts | 16 | 50 |
| Opinion on the legality and regularity of payments underlying the accounts | 17 | 50 |
| Responsibilities of management and those in charge of governance | 18-20 | 51 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 21-26 | 51 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 27-36 | 52 |
| Implementation of the 2017 budget | 27 | 52 |
| Multiannual budget implementation under FP7 | 28-31 | 52 |
| Multiannual budget implementation under Horizon 2020 | 32-36 | 52 |
| INTERNAL CONTROLS | 37-39 | 53 |
| Internal control framework | 37-39 | 53 |
| OTHER ISSUES | 40 | 53 |
| Leverage of contributions from other members | 40 | 53 |
| INFORMATION ON THE COMMISSION’S EVALUATIONS | 41-42 | 54 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-13

49

Establishment of the FCH Joint Undertaking

1-2

49

Governance

3-6

49

Objectives

7

49

Resources

8-12

49

The Commission’s evaluations

13

50

OPINION

14-26

50

Opinion on the reliability of the accounts

15

50

Opinion on the legality and regularity of revenue underlying the accounts

16

50

Opinion on the legality and regularity of payments underlying the accounts

17

50

Responsibilities of management and those in charge of governance

18-20

51

Auditor’s responsibilities for the audit of the accounts and underlying transactions

21-26

51

BUDGETARY AND FINANCIAL MANAGEMENT

27-36

52

Implementation of the 2017 budget

27

52

Multiannual budget implementation under FP7

28-31

52

Multiannual budget implementation under Horizon 2020

32-36

52

INTERNAL CONTROLS

37-39

53

Internal control framework

37-39

53

OTHER ISSUES

40

53

Leverage of contributions from other members

40

53

INFORMATION ON THE COMMISSION’S EVALUATIONS

41-42

54

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

55

THE JOINT UNDERTAKING’S REPLY

56

INTRODUCTION

Establishment of the FCH Joint Undertaking

| 1. | The Joint Undertaking for the implementation of the Joint Technology Initiative on Fuel Cells and Hydrogen (FCH Joint Undertaking), located in Brussels, was set up in May 2008 for the period up to 31 December 2017 and started working autonomously on 15 November 2010 (1). In May 2014, the Council extended the lifetime of the Joint Undertaking for the period up to 31 December 2024 (2). |
| --- | --- |

1.

| 2. | The FCH Joint Undertaking is a public-private partnership in the field of hydrogen and fuel cells technology research and innovation. The founding members of the Joint Undertaking are the European Union (EU), represented by the Commission, the Industry Grouping (Hydrogen Europe) and the Research Grouping (Hydrogen Europe Research). |
| --- | --- |

2.

Governance

| 3. | The governance structure of the FCH Joint Undertaking includes the following bodies: the Governing Board, the Executive Director, the Scientific Committee, the FCH States Representatives Group and the Stakeholder Forum. |
| --- | --- |

3.

| 4. | The Governing Board is composed of ten members, with six representatives from the Industry Grouping, three from the Commission and one from the Research Grouping. It is responsible for the strategic orientation and operations of the Joint Undertaking and supervises the implementation of its activities. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

| 5. | The Scientific Committee is composed of up to nine members reflecting a balanced representation of expertise from academia, industry and regulatory bodies. It provides advice on the scientific priorities to be addressed by the annual work plans and on the scientific achievements described in the annual activity report. |
| --- | --- |

5.

| 6. | The FCH States Representatives Group consists of one representative of each Member State and country associated with Horizon 2020 and gives its opinion on the Joint Undertaking’s strategic orientation and achievement of Horizon 2020 targets. The Stakeholder Forum is an annual event, where FCH stakeholders discuss FCH’s activities and may provide comments. |
| --- | --- |

6.

Objectives

| 7. | The objective of the FCH Joint Undertaking is to demonstrate by 2020 fuel cell and hydrogen technologies as one of the pillars of future European energy and transport systems. The Joint Undertaking seeks to foster the development of a strong, sustainable and globally competitive fuel cell and hydrogen sector in the EU. |
| --- | --- |

7.

Resources

| 8. | The maximum EU contribution to the FCH Joint Undertaking’s first phase of activities (FCH 1) is 470 million euro from FP7 (3). Contributions from the other members must be at least equal to the EU contribution. |
| --- | --- |

8.

| 9. | The maximum EU contribution to the FCH Joint Undertaking’s second phase of activities (FCH 2) is 665 million euro funded from Horizon 2020. Of this amount, a maximum of 570 million euro can be used to match the minimum contribution of the members from the Industry and Research Groupings (set at 380 million euro), and up to 95 million euro can be used to match any additional contribution from the members exceeding the minimum contribution (4). |
| --- | --- |

9.

| 10. | The members from the Industry and Research Groupings are expected to contribute resources of at least 380 million euro over the life span of the Joint Undertaking (5). Of this amount, industry and research members have to incur costs of at least 285 million euro in implementing additional activities outside the work plan of the FCH Joint Undertaking (6). |
| --- | --- |

10.

| 11. | The administrative costs of the FCH Joint Undertaking are limited to 38 million euro, to be covered through financial contributions divided equally on an annual basis between the EU and the members from the Industry and Research Groupings (7). |
| --- | --- |

11.

| 12. | In 2017, the final budget for the FCH Joint Undertaking was 198,6 million euro (2016: 115,5 million euro). At 31 December 2017, the Joint Undertaking had 26 staff (2016: 26) (8). |
| --- | --- |

12.

The Commission’s evaluations

| 13. | The Commission completed the final evaluation of the Joint Undertaking’s FP7 activities and the interim evaluation of its Horizon 2020 activities in June 2017, which was followed by respective action plans prepared by the Joint Undertaking to address the recommendations raised in the evaluations. On this occasion, we include a section related to the Joint Undertaking’s Action Plans in response to the evaluations, which is intended only for information purposes and does not form part of our audit opinion or observations. |
| --- | --- |

13.

| OPINION









  14. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (9) and the reports on the implementation of the budget (10) for the financial year ended 31 December 2017; and |
| --- | --- | --- |

OPINION

14.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (9) and the reports on the implementation of the budget (10) for the financial year ended 31 December 2017; and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 15. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

15.

Opinion on the legality and regularity of revenue underlying the accounts

| 16. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

16.

Opinion on the legality and regularity of payments underlying the accounts

| 17. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

17.

Responsibilities of management and those in charge of governance

| 18. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

18.

| 19. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

19.

| 20. | Those charged with governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

20.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 21. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

21.

| 22. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

22.

| 23. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

23.

| 24. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) other than advances at the point they are made. |
| --- | --- |

24.

| 25. | In preparing this report and Opinion, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (11). |
| --- | --- |

25.

| 26. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

26.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 27. | The final 2017 budget available for the Joint Undertaking’s FP7 and Horizon 2020 programme implementation included commitment appropriations of 127,8 million euro in and in payments appropriation of 198,6 million euro. The implementation rates for commitment and payment appropriations were 96 % and 89 %, respectively. The payment appropriations were mainly used to pay pre-financing for the 2016 and 2017 calls. |
| --- | --- |

27.

Multiannual budget implementation under FP7

| 28. | Out of the maximum of 470 million euro of FP7 funds allocated to the FCH Joint Undertaking for the implementation of FCH 1, by the end of 2017, the EU had made cash contributions of a total amount of 386,7 million euro, and in-kind contributions of a total amount of 19,1 million euro. |
| --- | --- |

28.

| 29. | Out of the minimum of 470 million euro of in-kind and cash contributions to be made by the Industry and Research Grouping members to the operational activities of the FCH Joint Undertaking, by the end of 2017, the Governing board had validated contributions of 396,2 million euro. In addition, in-kind contributions to operational activities of 55,8 million euro had been reported to the FCH Joint Undertaking by the end of 2017. |
| --- | --- |

29.

| 30. | Consequently, at the end of 2017, the total contribution of the Industry and Research Grouping members to the Joint Undertaking amounted to 452 million euro, compared to the cumulative EU contribution of 405,8 million euro. |
| --- | --- |

30.

| 31. | Out of the total operational and administrative budget of 490 million euro for FCH 1 activities (12), by the end of 2017, the Joint Undertaking had made commitments of 481,7 million euro (98,3 % of the available budget) and payments of 418,5 million euro. According to the Joint Undertaking’s payment plan for the on-going FP7 projects, another 25,7 million euro will be paid in 2018 and 17,4 million euro in the subsequent years. Hence, the final implementation ratio for the FCH 1 programme is estimated at 94,3 % of the total FCH 1 budget. |
| --- | --- |

31.

Multiannual budget implementation under Horizon 2020

| 32. | Out of the maximum of 665 million euro of Horizon 2020 funds allocated to the FCH Joint Undertaking for the implementation of FCH 2, by the end of 2017, the EU had contributed in cash a total amount of 234,3 million euro. |
| --- | --- |

32.

| 33. | The members from the Industry and Research Groupings are not obliged to make a minimum amount of in-kind contributions to the Joint Undertaking’s FCH 2 activities. At the end of 2017, the industry and research members had reported in-kind contributions of 25,1 million euro for operational activities (13), of which 0,6 million euro had been validated by FCH Governing Board. This reflects the fact that in 2017 the FCH 2 projects were still in their early stages. The committed in-kind contributions according to the signed grant agreements as at 31.12.2017 amount to 137,4 million euro (14). In addition, the Governing Board had validated cash contributions by the industry and research members to the Joint Undertaking’s administrative cost of 1,3 million euro. |
| --- | --- |

33.

| 34. | Out of the at least 285 million euro of industry and research members’ contributions to be made to additional activities outside the work programme of the Joint Undertaking, by the end of 2017, the members had already reported 558,5 million euro (15), of which 382,2 million euro had been certified, and therefore the target was exceeded by far. However, as we have no right to audit the members’ in-kind contributions to additional activities, we cannot provide an opinion on their nature, quality and reality. |
| --- | --- |

34.

| 35. | Consequently, by the end of 2017, the total contributions from the industry and research members amounted to 585 million euro (of which 95,5 % are contributions to additional activities), compared to the EU cash contribution of 234,3 million euro (see also paragraph 41). |
| --- | --- |

35.

| 36. | Out of the maximum operational and administrative budget for FCH 2 of 684 million euro (16), by the end of 2017, the Joint Undertaking had made commitments of 407,2 million euro and payments of 223,3 million euro. |
| --- | --- |

36.

INTERNAL CONTROLS

Internal control framework

| 37. | The Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews. For FP7 interim and final payments, the Joint Undertaking performs ex post audits at the beneficiaries, whilst for Horizon 2020 project cost claims the Commission’s Common Audit Service (CAS) is responsible for the ex post audits. |
| --- | --- |

37.

| 38. | For FP7 payments, the residual error rate for the ex post audits reported by the Joint Undertaking at the end of 2017 was 1,13 % (17). In 2017, the Joint Undertaking — together with the Common Audit Service (CAS) of DG RTD — launched the first ex post audit of a random and risk-based sample of Horizon 2020 interim cost claims of which the results will be reported in the Joint Undertaking’s annual activity report 2018. |
| --- | --- |

38.

| 39. | Based on an assessment of the Joint Undertaking’s internal control system and substantive testing of revenue, payment, grant and procurement operations and a review of a sample of finalised ex post audits including recoveries arising from the errors detected, the audit results provided us with reasonable assurance that the overall residual error rate for the Joint Undertaking is below materiality. |
| --- | --- |

39.

OTHER ISSUES

Leverage of contributions from other members

| 40. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry members in the area of its activities (18). According to the FCH2’s founding regulation, the minimum leverage factor for both, operational and additional activities amounts to 0,67 (19). The leverage factor, as defined in the interim evaluation report, achieved by the Joint Undertaking by the end of 2017 amounted to 1,32 (20) taking into account both operational and additional activities (including 0,35 (21) for the in-kind contributions to the operational activities alone). FCH 2’s founding regulation does not oblige industry members to make a minimum amount of in-kind contributions to the operational activities of the Joint Undertaking (22). The final leverage factor for the in-kind contributions to the operational and additional activities will be calculated at the end of the Horizon 2020 programme. As we have no right to audit in-kind contributions to additional activities we cannot provide an opinion on the nature, quality or reality of such contributions (23). |
| --- | --- |

40.

INFORMATION ON THE COMMISSION’S EVALUATIONS

| 41. | The Commission’s Final Evaluation on FCH Joint Undertaking operating under FP7 covered the period between 2008 and 2016 (24), while the Interim Evaluation on FCH 2 Joint Undertaking operating under H2020 covered the period from 2014 to 2016 (25). The evaluations were carried out with the assistance of independent experts as foreseen in the FCH Council Regulations (26), and covered the performance of the Joint Undertaking in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency and research quality. The results of the evaluations were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (27). |
| --- | --- |

41.

| 42. | In response to the recommendations raised by the evaluators (28), the Joint Undertaking prepared an Action Plan that was endorsed by the FCH 2 Governing Board in March 2018. The action plan includes a wide set of actions to be implemented by the Joint Undertaking (29), for which a certain number of activities have already been initiated (30), the majority should be implemented in 2018 and 2019, while a small number will be taken under consideration for the next programming period (31). |
| --- | --- |

42.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  Council Regulation (EC) No 521/2008 of 30 May 2008 setting up the Fuel Cells and Hydrogen Joint Undertaking (OJ L 153, 12.6.2008, p. 1) amended by Regulation (EU) No 1183/2011 (OJ L 302, 19.11.2011, p. 3).

1

(2)  Council Regulation (EU) No 559/2014 of 6 May 2014 establishing the Fuel Cells and Hydrogen 2 Joint Undertaking (OJ L 169, 7.6.2014, p. 108).

2

(3)  Article 5(1) of Regulation (EC) No 521/2008.

3

(4)  Article 3(1) of Regulation (EU) No 559/2014.

4

(5)  Article 4(1) of Regulation (EU) No 559/2014.

5

(6)  As provided for in Article 4(2)(b) of Regulation (EU) No 559/2014, additional activities are contributions in kind for activities outside the work plan and the budget of the Joint Undertaking but contributing to the objectives of the FCH Joint Technology Initiative. The corresponding activities should be set out in an annual additional activities plan indicating the estimated value of those contributions. In line with Article 4(4) of the same regulation, the costs of additional activities must be certified by an independent external auditor and are not subject to audit by the Joint Undertaking, the ECA or by any EU body.

6

(7)  Article 13(2) of the Statutes of the FCH 2 Joint Undertaking (Annex I of Regulation (EU) No 559/2014).

7

(8)  Further information about the FCH Joint Undertaking and its activities are available at its website http://www.fch.europa.eu

8

(9)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

9

(10)  The reports on implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

10

(11)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

11

(12)  The total is composed of the 470 million euro EU cash contribution funded by the FP7 programme and a 20 million euro cash contribution to administrative costs from other members.

12

(13)  FCH Joint Undertaking Annual Activity Report, p. 36.

13

(14)  FCH Joint Undertaking Annual Activity Report, p. 13, Table 1.1.2.

14

(15)  FCH Joint Undertaking Annual Activity Report, p. 14, Table 1.1.3.

15

(16)  The total is composed of the 665 million euro EU cash contribution funded by the Horizon 2020 programme and a 19 million euro cash contribution to administrative costs from industry and research members.

16

(17)  FCH Joint Undertaking Annual Activity Report, p. 69 and 74.

17

(18)  Recital 4 of Regulation (EU) No 559/2014 states that this partnership should be based on a balanced contribution from all partners.

18

(19)  Total of minimum contributions of the industry members to the Joint Undertaking’s operational and additional activities (380 million euro) divided by the maximum EU cash contribution to the Joint Undertaking (570 million euro).

19

(20)  This estimated leverage takes into account the private members’ cash contributions actually paid (1,3 million euro) plus the in-kind contributions of private members (137,4 million euro) committed in the signed grant agreements plus the certified in-kind contributions to additional activities (382,2 million euro), divided by the cash contributions committed by the Commission in the signed grant agreements (395,6 million euro).

20

(21)  This estimated leverage takes into account the private members’ cash contributions actually paid (1,3 million euro) plus the in-kind contributions of private members (137,4 million euro) committed in the signed grant agreements, divided by the cash contributions committed by the Commission in the signed grant agreements (395,6 million euro).

21

(22)  Article 4(1) and 4(2) of Regulation (EU) No 559/2014 specify that industry and research members should make total contributions of at least 380 million euro over the life span of the Joint Undertaking, out of which at least 285 million euro should consists of costs incurred by them in implementing additional activities outside the work plan of the Joint Undertaking.

22

(23)  In accordance with Article 4(4) of Regulation (EU) No 559/2014 the cost of additional activities are certified by an independent external auditor appointed by the Joint Undertaking. The cost for such activities shall however, not be audited by the Joint Undertaking or any Union body.

23

(24)  Final evaluation of the FCH Joint Undertaking operating under FP7: https://ec.europa.eu/research/evaluations/pdf/fch.pdf

24

(25)  Interim evaluation of the FCH 2 Joint Undertaking (2014-2016) operating under Horizon 2020: https://ec.europa.eu/research/evaluations/pdf/fch2.pdf

25

(26)  Commission statutory evaluations in application of Article 11 of Regulation (EC) No 521/2008 on FCH Joint Undertaking, and Article 11 of Regulation (EU) No 559/2014 establishing the FCH 2 Joint Undertaking.

26

(27)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 (SWD(2017) 339 final).

27

(28)  Recommendations include: the need to improve the role of the States Representatives Group and of the advisory bodies; coherence with other EU programmes; the need to enhance projects at lower Technology Readiness Level (TRL); enhance participation of countries less active in FCH projects and fostering more participation of regions and Institutes of Higher Education; provide assistance on financial issues (most suitable funding options), and support the commercial deployment and better exploitation of EU intellectual property rights; improve communication with stakeholders, decision makers, regions and public to increase public awareness of FCH technologies.

28

(29)  Specific actions included in the action plan in response to the evaluator’s recommendations include: reinforce and enhance the role of the States Representatives Group; increase regions’ and cities’ participation; improve interactions with external stakeholders for future stakeholders’ fora; links with European Commission to be strengthened for a better coordination with other EU initiatives; to reinforce the dissemination and exploitation of results.

29

(30)  Activities already initiated include: analysis of the Multi-Annual Work Programme with the States Representative Group to identify gaps, and address collaboration with regions and cities; to review the tasks of the FCH 2 Financial Engineering Officer to seek synergies with other EU instruments (in particular of the Risk-Sharing Finance Facility of the EIB); a study launched in March 2017 to explore areas of highest added-value on EU value chains; discussions at Governing Board level on lower TRL activities in view of their inclusion in the next revision of the Multi-annual Work Programme.

30

(31)  In particular, the coherence and complementarities with other EU programmes in the areas of Transport and Energy.

31

---

ANNEX

Follow-up of previous years’ comments

| Year | Court’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding/N/A) |
| --- | --- | --- |
| | Conflicts of interest | |
| 2015 | In July 2015, the Commission issued guidelines to the Joint Undertakings related to rules on conflicts of interest, including a common template for the declaration of absence of a conflict of interest, which should be incorporated by the Joint Undertaking into its procedures. | Completed |

Year

Court’s comment

Status of corrective action

(Completed/Ongoing/Outstanding/N/A)

Conflicts of interest

2015

In July 2015, the Commission issued guidelines to the Joint Undertakings related to rules on conflicts of interest, including a common template for the declaration of absence of a conflict of interest, which should be incorporated by the Joint Undertaking into its procedures.

Completed

---

THE JOINT UNDERTAKING’S REPLY

40.

The FCH 2 JU acknowledges that in accordance with the Council Regulation (EU) 559/2014 of 6 May 2014 establishing the Fuel Cells and Hydrogen 2 Joint Undertaking (1), the Court has no right to audit in-kind contributions in additional activities. It would like to stress that the JU has developed a methodology agreed by its Governing Board on 9 December 2016 (2), which provides for robust controls for the collection, reporting and certification of additional activities and includes a model audit programme and audit certificate for the certification by independent external auditors.

---

(1)  OJ L 169, 7.6.2014, p. 108.

1

(2)  https://www.fch.europa.eu/page/in-kind-additional-activities

2

---

| 14.12.2018 | EN | Official Journal of the European Union | C 452/57 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/57

---

REPORT

on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/07)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-12 | 58 |
| Establishment of the IMI Joint Undertaking | 1-2 | 58 |
| Governance | 3-5 | 58 |
| Objectives | 6 | 58 |
| Resources | 7-11 | 58 |
| The Commission’s evaluations | 12 | 59 |
| OPINION | 13-25 | 59 |
| Opinion on the reliability of the accounts | 14 | 59 |
| Opinion on the legality and regularity of revenue underlying the accounts | 15 | 59 |
| Opinion on the legality and regularity of payments underlying the accounts | 16 | 59 |
| Responsibilities of management and those in charge of governance | 17-19 | 60 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 20-25 | 60 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 26-36 | 61 |
| Implementation of the 2017 budget | 26-27 | 61 |
| Multiannual budget implementation under FP7 | 28-32 | 61 |
| Multiannual budget implementation under Horizon 2020 | 33-36 | 61 |
| INTERNAL CONTROLS | 37-39 | 62 |
| Internal control framework | 37-39 | 62 |
| OTHER ISSUES | 40 | 62 |
| Leverage of contributions from industry members | 40 | 62 |
| INFORMATION ON THE COMMISSION’S EVALUATIONS | 41-42 | 63 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-12

58

Establishment of the IMI Joint Undertaking

1-2

58

Governance

3-5

58

Objectives

6

58

Resources

7-11

58

The Commission’s evaluations

12

59

OPINION

13-25

59

Opinion on the reliability of the accounts

14

59

Opinion on the legality and regularity of revenue underlying the accounts

15

59

Opinion on the legality and regularity of payments underlying the accounts

16

59

Responsibilities of management and those in charge of governance

17-19

60

Auditor’s responsibilities for the audit of the accounts and underlying transactions

20-25

60

BUDGETARY AND FINANCIAL MANAGEMENT

26-36

61

Implementation of the 2017 budget

26-27

61

Multiannual budget implementation under FP7

28-32

61

Multiannual budget implementation under Horizon 2020

33-36

61

INTERNAL CONTROLS

37-39

62

Internal control framework

37-39

62

OTHER ISSUES

40

62

Leverage of contributions from industry members

40

62

INFORMATION ON THE COMMISSION’S EVALUATIONS

41-42

63

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

64

THE JOINT UNDERTAKING’S REPLY

65

INTRODUCTION

Establishment of the IMI Joint Undertaking

| 1. | The Initiative on Innovative Medicines (IMI) Joint Undertaking, located in Brussels, was set up in December 2007 (1) for a period of 10 years and started working autonomously on 16 November 2009. In May 2014, the Council adopted a new founding Regulation and extended the lifetime of the Joint Undertaking to 31 December 2024 (2). |
| --- | --- |

1.

| 2. | The IMI Joint Undertaking is a public-private partnership for health research and innovation. The founding members of the Joint Undertaking are the European Union (EU), represented by the Commission, and the pharmaceutical sector, represented by the European Federation of Pharmaceutical Industries and Associations (EFPIA). |
| --- | --- |

2.

Governance

| 3. | The governance structure of the IMI Joint Undertaking includes the Governing Board, the Executive Director, the Scientific Committee, the States Representatives Group, the Strategic Governing Groups and the Stakeholder Forum. |
| --- | --- |

3.

| 4. | The Governing Board is the main decision-making body and is responsible for the operations of the Joint Undertaking and oversight of its activities. The Board is composed of ten members representing the two founding members equally. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

| 5. | The Scientific Committee, the States Representatives Group, the Strategic Governing Groups and the Stakeholder Forum are advisory bodies. The Scientific Committee is made up of scientific experts from diverse fields and provides recommendations to the Governing Board. The States Representatives Group, consisting of representatives of the EU Member States and the countries associated with the EU’s research programmes, provides strategic opinions to the Governing Board. The Strategic Governing Groups, which comprise representatives of pharmaceutical companies, the European Commission and the Scientific Committee, coordinate IMI projects among themselves and with the EU’s wider research programmes. The Stakeholder Forum is an annual event, where IMI stakeholders discuss the IMI’s latest activities and plans. |
| --- | --- |

5.

Objectives

| 6. | The objective of the IMI Joint Undertaking is to improve health by speeding up the development of, and patient access to innovative medicines, particularly in areas where there is an unmet medical or social need. The Joint Undertaking seeks to facilitate collaboration between the key players in healthcare research, including universities, the pharmaceutical and other industries, small- and medium-sized enterprises (SMEs), patient organisations and medicine regulators. |
| --- | --- |

6.

Resources

| 7. | The maximum EU contribution to the activities of the IMI1 programme (2008-2013) is one billion euro, funded from the Seventh Research Framework Programme (FP7) (3). Contributions from pharmaceutical sector members must be equal to the EU contribution. |
| --- | --- |

7.

| 8. | The maximum EU contribution to the activities of the IMI2 programme (2014-2024) is 1 638 million euro, to be funded from the Horizon 2020 programme. Of this amount, a maximum of 1 425 million euro can be used to match the contribution of EFPIA, and up to 213 million euro can be used to match contributions from other companies and universities that decide to join the IMI Joint Undertaking as members or associated partners (4). |
| --- | --- |

8.

| 9. | EFPIA is to contribute resources of at least 1 425 million euro to the Joint Undertaking’s operational and administrative costs. Future other members or associated partners of the IMI2 programme are to contribute resources corresponding to the amounts they committed when becoming a member or an associated partner. |
| --- | --- |

9.

| 10. | The administrative costs of the Joint Undertaking are limited to 85,2 million euro, to be covered by the cash contributions of the members, divided equally on an annual basis between the EU and the industry members (5). |
| --- | --- |

10.

| 11. | In 2017, the final budget for the IMI Joint Undertaking was 206,4 million euro (2016: 263,4 million euro). At 31 December 2017, the Joint Undertaking employed 49 staff (2016: 41) (6). |
| --- | --- |

11.

The Commission’s evaluations

| 12. | The Commission completed the final evaluation of the Joint Undertaking’s FP7 activities and the interim evaluation of its Horizon 2020 activities in June 2017, which was followed by respective action plans prepared by the Joint Undertaking to address the recommendations raised in the evaluations. On this occasion, we include a section related to the Joint Undertaking’s Action Plans in response to the evaluations, which is intended only for information purposes and does not form part of our audit opinion or observations. |
| --- | --- |

12.

| OPINION









  13. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (7) and the reports on the implementation of the budget (8) for the financial year ended 31 December 2017, and |
| --- | --- | --- |

OPINION

13.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (7) and the reports on the implementation of the budget (8) for the financial year ended 31 December 2017, and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 14. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

14.

Opinion on the legality and regularity of revenue underlying the accounts

| 15. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

15.

Opinion on the legality and regularity of payments underlying the accounts

| 16. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

16.

Responsibilities of management and those in charge of governance

| 17. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

17.

| 18. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

18.

| 19. | Those in charge of governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

19.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 20. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

20.

| 21. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

21.

| 22. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

22.

| 23. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) other than advances at the point they are made. |
| --- | --- |

23.

| 24. | In preparing this report and opinion, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (9). |
| --- | --- |

24.

| 25. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

25.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 26. | The final 2017 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 322,4 million euro and payment appropriations of 206,4 million euro. The implementation rates for commitment and payment appropriations were 97 % and 72 %, respectively. The low implementation rate for payment appropriations was mainly due to a reduction or postponement of clinical trials within some large and complex projects of the Anti-Microbial Resistance and Ebola programmes and to delays in concluding grant agreements for calls under Horizon 2020. |
| --- | --- |

26.

| 27. | Near the end of 2017, the unused payment appropriations from previous years amounted to 78,7 million euro. Consequently, the Joint Undertaking’s Governing Board approved in July 2017 to reduce the new operational payment appropriations of the year by 56 million euro (10), and in November 2017 to reduce the accumulated unused payment appropriations from previous years by 25,8 million euro. This situation shows that during the last years, there were weaknesses when planning and monitoring the need for new payment appropriations. |
| --- | --- |

27.

Multiannual budget implementation under FP7

| 28. | Out of the maximum 1 billion euro of FP7 funds allocated to the IMI Joint Undertaking, for the implementation of IMI 1, by the end of 2017, the EU contributed in cash a total amount of 827,2 million euro. |
| --- | --- |

28.

| 29. | Out of the 1 billion euro of contributions to be made by the industry members to the activities of the IMI Joint Undertaking, by the end of 2017, the Joint Undertaking had validated in-kind contributions of 529,9 million euro and cash contributions of 21,9 million euro. Another 153,3 million euro of in-kind contributions have been declared by the industry member and will be validated beginning 2018. |
| --- | --- |

29.

| 30. | Consequently, at the end of 2017, the total in-kind and cash contributions of the industry members amounted to 705,1 million euro, compared to the cumulative EU cash contribution to the FP7 activities of the IMI Joint Undertaking, which amounted to 827,2 million euro. |
| --- | --- |

30.

| 31. | Out of the total operational and administrative budget of 1 billion euro for IMI 1 activities, by the end of 2017, the IMI 1 Joint Undertaking had made commitments of 966 million euro (96,6 % of the available budget) and payments of 720 million euro. |
| --- | --- |

31.

| 32. | The high level of outstanding payments of 246 million euro (25 %) was mainly due to the delayed start of FP7 activities during the first years of the IMI Joint Undertaking. |
| --- | --- |

32.

Multiannual budget implementation under Horizon 2020

| 33. | Out of the maximum of 1 638 million euro of Horizon 2020 funds allocated to the IMI Joint Undertaking for the implementation of IMI 2, by the end of 2017, the EU contributed in cash a total amount of 157,3 million euro. |
| --- | --- |

33.

| 34. | EFPIA committed to make at least 1 425 million euro of in-kind and cash contributions to the Joint Undertaking’s Horizon 2020 operational and administrative activities over its lifespan. At the end of 2017, EPFIA and its associated partners reported in-kind contributions of 132,8 million euro of which 82,5 million euro had been validated. In addition, the Executive Director had validated cash contributions by the industry members (EFPIA and associated partners) of 7,6 million euro. |
| --- | --- |

34.

| 35. | Consequently, by the end of 2017, the total contributions from industry members, amounted to 140,4 million euro compared to the EU cash contribution of 157,3 million euro. |
| --- | --- |

35.

| 36. | Out of the maximum operational and administrative budget for the Joint Undertaking of 1 680 (11) million euro (12), by the end of 2017, the Joint Undertaking made commitments of 819,0 million euro and payments of 179,6 million euro. The relatively low level of payments is mainly due to the time required by project consortia to conclude Horizon 2020 grant agreements, which delayed the Joint Undertaking’s planned pre-financing payments for the year. |
| --- | --- |

36.

INTERNAL CONTROLS

Internal control framework

| 37. | The Joint Undertaking has set up reliable ex-ante control procedures based on financial and operational desk reviews. For FP7 interim and final payments, the Joint Undertaking performs ex-post audits at the beneficiaries whilst for Horizon 2020 project cost claims the Commission’s Common Audit Service (CAS) is responsible for the ex-post audits. The residual error rates for the ex-post audits reported by the Joint Undertaking at the end of 2017 were 1,29 % for FP7 and 0,81 % for Horizon 2020 (13). |
| --- | --- |

37.

| 38. | Based on an assessment of the Joint Undertaking’s internal control system and substantive testing of revenue, payment, grant and procurement operations and a review of a sample of finalised ex-post audits including recoveries arising from the errors detected, the audit results provided us with reasonable assurance that the overall residual error rate for the Joint Undertaking is below materiality. |
| --- | --- |

38.

| 39. | At the end of 2017, the Commission’s Common Support Centre (CAS) had not finished specific developments in the Horizon 2020 grant management and monitoring tools to serve the Joint Undertaking’s reporting and processing needs for in-kind contributions. |
| --- | --- |

39.

OTHER ISSUES

Leverage of contributions from industry members

| 40. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry members in the area of its activities (14). The minimum leverage factor to be achieved according to the Joint Undertaking’s founding regulation is 1 (15). |
| --- | --- |

40.

INFORMATION ON THE COMMISSION’S EVALUATIONS

| 41. | The Commission’s Final Evaluation of IMI Joint Undertaking operating under FP7 covered the period between 2008 and 2016 (16), while the Interim Evaluation of IMI 2 Joint Undertaking operating under H2020 covered the period from 2014 to 2016 (17). The evaluations were carried out with the assistance of independent experts as foreseen in the IMI Council Regulations (18), and covered the performance of the Joint Undertaking in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency and research quality. The results of the evaluations were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (19). |
| --- | --- |

41.

| 42. | In response to the recommendations raised by the evaluators (20), the Joint Undertaking prepared an Action Plan that was endorsed by the IMI 2 Governing Board in November 2017. The action plan includes a wide set of actions to be implemented by the Joint Undertaking (21), for which a certain number of activities have already been initiated (22), the majority should be implemented in 2018 and 2019, while a small number will be taken under consideration in the next programming period (23). |
| --- | --- |

42.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  Council Regulation (EC) No 73/2008 of 20 December 2007 setting up the Joint Undertaking for the implementation of the Joint Technology Initiative on Innovative Medicines (OJ L 30, 4.2.2008, p. 38).

1

(2)  Council Regulation (EU) No 557/2014 of 6 May 2014 establishing the Innovative Medicines Initiative 2 Joint Undertaking (OJ L 169, 7.6.2014, p. 54).

2

(3)  Article 5(1) of Regulation (EC) No 73/2008.

3

(4)  Article 3(1) of Regulation (EU) No 557/2014.

4

(5)  Article 13(2) of the Statutes of the IMI 2 Joint Undertaking (Annex I of Regulation (EU) No 557/2014).

5

(6)  Further information on the Joint Undertaking’s activities is available on its website: https://www.imi.europa.eu.

6

(7)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

7

(8)  The reports on implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

8

(9)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

9

(10)  First amendment of the 2017 budget.

10

(11)  1 638 million euro to cover administrative and operational costs (Article 3 of IMI2 regulation) plus half of 85 million euro (cash contribution — Article 13, Annex of IMI2 regulation).

11

(12)  This amount includes the maximum EU cash contribution to the Joint Undertaking’s operational and administrative costs and the industry members’ cash contribution to the Joint Undertakings’ administrative costs.

12

(13)  IMI Joint Undertaking 2017 Annual Activity Report, p. 103-104.

13

(14)  Recital 4 of Regulation (EU) No 557/2014 states that this partnership should be based on a balanced contribution from all partners.

14

(15)  Minimum in-kind contributions of the industry member (EFPIA) to the operational activities of the Joint Undertaking (1 425 million euro) divided by the maximum EU cash contribution to the Joint Undertaking (1 425 million euro). Please note that in line with the IMI2 statutes, the industry members do not provide in-kind contributions to additional activities outside the work programme of the Joint Undertaking.

15

(16)  Final evaluation of the IMI Joint Undertaking operating under FP7 https://ec.europa.eu/research/health/pdf/imi_final_evaluation.pdf

16

(17)  Interim evaluation of the IMI 2 Joint Undertaking (2014-2016) operating under Horizon 2020 https://ec.europa.eu/research/health/pdf/imi2_interim_evaluation.pdf

17

(18)  Commission statutory evaluations in application of Article 11 of Regulation (EC) No 73/2008 on IMI Joint Undertaking, and Article 11 of Regulation (EU) No 557/2014 establishing the IMI 2 Joint Undertaking.

18

(19)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 {SWD(2017) 339 final}.

19

(20)  Recommendations raised by the evaluators include: the need to integrate other industries than the pharmaceutical industry in the collaborative projects; the need to increase participation of SMEs and the EU 13; the need to develop an accountable Performance Measurement Framework to assess the impacts and socioeconomic benefits of the joint undertaking, the need to review the Intellectual Property Rights policy, and the need to improve and broaden access to project outcomes, in order to ensure sustainability and increase impact.

20

(21)  Specific actions presented in the action plan to address the evaluator’s recommendations include: to identify and develop topics better adapted to SMEs; to develop an IMI 2 webpage identifying all important assets generated by IMI projects in order to facilitate dissemination and further exploitation; to seek advice on how to best ensure sustainability of valuable outputs/outcome from IMI projects; to investigate the feasibility and potential added value for a brokerage platform in order to stimulate uptake of project results.

21

(22)  Activities already initiated include: the development of specific webinars to enhance participation of SMEs in the Joint Undertaking’s activities (https://www.imi.europa.eu/news-events/events/webinars-imi2-call-13); a catalogue of accessible tools generated by IMI projects to promote dissemination, and to further exploit project results and widen impact (IMI 2 Joint Undertaking web site); a new set of relevant, accepted, credible, easy and robust key performance indicators to be provided from 2018 financial year and beyond (IMI 2 Amended Annual Work Programme of March 2018).

22

(23)  The review of the Intellectual Property rights policy to make it more flexible while respecting the Legal Framework.

23

---

ANNEX

Follow-up of previous years’ comments

| Year | The ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | Management of Horizon 2020 grants | |
| 2016 | At the end of 2016 — the third year of Horizon 2020 implementation — the Joint Undertaking had only partially completed the integration of its control systems with the Commission’s common Horizon 2020 grant management and monitoring tools. | Completed |
| | Ex-ante checks and monitoring of cost claims | |
| 2016 | The Joint Undertaking experienced some delays in making payments to beneficiaries (universities, research organisations and SMEs). This indicates weaknesses in the internal control and monitoring procedures for project reports and related cost claims, adversely affecting the efficiency of project implementation. | Completed |

Year

The ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

Management of Horizon 2020 grants

2016

At the end of 2016 — the third year of Horizon 2020 implementation — the Joint Undertaking had only partially completed the integration of its control systems with the Commission’s common Horizon 2020 grant management and monitoring tools.

Completed

Ex-ante checks and monitoring of cost claims

2016

The Joint Undertaking experienced some delays in making payments to beneficiaries (universities, research organisations and SMEs). This indicates weaknesses in the internal control and monitoring procedures for project reports and related cost claims, adversely affecting the efficiency of project implementation.

Completed

---

THE JOINT UNDERTAKING’S REPLY

27.

The established budgetary process does not allow any adaptations even though the IMI2 Joint Undertaking revises its forecast in year N-1 according to the actual changes in project portfolio. The figures recorded in the Commission’s ‘Fiche Financière’ cannot be changed before the adoption of the next Commission’s annual budget.

39.

In agreement with the Internal Audit Service, the IMI2 Joint Undertaking is implementing an action plan. The IMI2 Joint Undertaking is collaborating with the Commissions Common Support Center in analysing the possible options of migrating industry in-kind contribution reporting into the H2020 tools and in seeking effective solutions in view of the continuity of H2020 type of reporting structures under Horizon Europe.

---

| 14.12.2018 | EN | Official Journal of the European Union | C 452/66 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/66

---

REPORT

on the annual accounts of the Single European Sky Air Traffic Management Research Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/08)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-12 | 67 |
| Establishment of the SESAR Joint Undertaking | 1-2 | 67 |
| Governance | 3-4 | 67 |
| Objectives | 5-7 | 67 |
| Resources | 8-11 | 68 |
| The Commission’s evaluations | 12 | 68 |
| OPINION | 13-25 | 68 |
| Opinion on the reliability of the accounts | 14 | 68 |
| Opinion on the legality and regularity of revenue underlying the accounts | 15 | 69 |
| Opinion on the legality and regularity of payments underlying the accounts | 16 | 69 |
| Responsibilities of management and those in charge of governance | 17-19 | 69 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 20-25 | 69 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 26-37 | 70 |
| Implementation of the 2017 budget | 26-28 | 70 |
| Multiannual budget implementation under FP7 and TEN-T | 29-33 | 70 |
| Multiannual budget implementation under Horizon 2020 | 34-37 | 71 |
| INTERNAL CONTROLS | 38-42 | 71 |
| Internal control framework | 38-41 | 71 |
| Procurement procedures | 42 | 72 |
| OTHER ISSUES | 43 | 72 |
| Leverage of contributions from other members for SESAR 2020 | 43 | 72 |
| INFORMATION ON COMMISSION’S EVALUATIONS | 44-47 | 72 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-12

67

Establishment of the SESAR Joint Undertaking

1-2

67

Governance

3-4

67

Objectives

5-7

67

Resources

8-11

68

The Commission’s evaluations

12

68

OPINION

13-25

68

Opinion on the reliability of the accounts

14

68

Opinion on the legality and regularity of revenue underlying the accounts

15

69

Opinion on the legality and regularity of payments underlying the accounts

16

69

Responsibilities of management and those in charge of governance

17-19

69

Auditor’s responsibilities for the audit of the accounts and underlying transactions

20-25

69

BUDGETARY AND FINANCIAL MANAGEMENT

26-37

70

Implementation of the 2017 budget

26-28

70

Multiannual budget implementation under FP7 and TEN-T

29-33

70

Multiannual budget implementation under Horizon 2020

34-37

71

INTERNAL CONTROLS

38-42

71

Internal control framework

38-41

71

Procurement procedures

42

72

OTHER ISSUES

43

72

Leverage of contributions from other members for SESAR 2020

43

72

INFORMATION ON COMMISSION’S EVALUATIONS

44-47

72

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

74

THE JOINT UNDERTAKING’S REPLY

75

INTRODUCTION

Establishment of the SESAR Joint Undertaking

| 1. | The Single European Sky Air Traffic Management Research (SESAR) Joint Undertaking, located in Brussels, was set up in February 2007 for a period of eight years and started to work autonomously on 10 August 2007 (1). In June 2014, the Council amended the founding Regulation and extended the lifetime of the Joint Undertaking up to 31 December 2024 (2). |
| --- | --- |

1.

| 2. | The SESAR Joint Undertaking is a public-private partnership for the development and deployment of modernised air traffic management (ATM) in Europe. The founding members are the European Union (EU), represented by the Commission, and the European Organisation for the Safety of Air Navigation (Eurocontrol) (3). Following a call for expressions of interest, 19 public and private entities from the aviation sector became members of the Joint Undertaking. They comprise aircraft manufacturers, ground and airborne equipment manufacturers, air navigation service providers, and airport authorities. |
| --- | --- |

2.

Governance

| 3. | The governance structure of the SESAR Joint Undertaking includes the Administrative Board and the Executive Director. |
| --- | --- |

3.

| 4. | The Administrative Board is composed of representatives of the SESAR Joint Undertaking members, together with Stakeholder Representatives (for the military, civil users of airspace, air navigation service providers, equipment manufacturers, airports, staff in the ATM sector, and the scientific community). The Board is responsible for adopting the ATM Master Plan endorsed by the Council and exercising overall control over the implementation of the SESAR project. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

Objectives

| 5. | The SESAR project aims to modernise ATM in Europe by defining, developing and delivering new or improved technologies and procedures. The project is divided into three phases:






  — | A ‘definition phase’ (2004-2007) led by Eurocontrol, co-financed by the Trans-European Networks (TEN-T) programme. The outcome was the European ATM Master Plan, which defines the content and describes the development and deployment of the next generation of a modern ATM system. |
| --- | --- | --- |

5.

—

A ‘definition phase’ (2004-2007) led by Eurocontrol, co-financed by the Trans-European Networks (TEN-T) programme. The outcome was the European ATM Master Plan, which defines the content and describes the development and deployment of the next generation of a modern ATM system.

| — | A two-term ‘development phase’ (2008–2013, extended to 2016) managed by the SESAR Joint Undertaking, co-financed from the TEN-T and Seventh Research Framework (FP7) programmes, since 2014 also co-financed from Horizon 2020. |
| --- | --- |

—

A two-term ‘development phase’ (2008–2013, extended to 2016) managed by the SESAR Joint Undertaking, co-financed from the TEN-T and Seventh Research Framework (FP7) programmes, since 2014 also co-financed from Horizon 2020.

| — | A ‘deployment phase’ (2014-2024) for the implementation of the new ATM infrastructure, led by the air traffic industry and stakeholders for the large-scale production, with co-financing from Horizon 2020. |
| --- | --- |

—

A ‘deployment phase’ (2014-2024) for the implementation of the new ATM infrastructure, led by the air traffic industry and stakeholders for the large-scale production, with co-financing from Horizon 2020.

| 6. | The objective of the SESAR Joint Undertaking under the FP7 and the TEN-T programmes was to modernise and increase the safety of ATM in Europe by coordinating and concentrating all relevant research and development efforts in the EU for the production of new technological systems, components and operational procedures as defined in the European ATM Master Plan (SESAR I — development phase from 2008-2016). |
| --- | --- |

6.

| 7. | Under Horizon 2020, the SESAR Joint Undertaking implements the SESAR 2020 programme with the objective of demonstrating the viability of the technological and operational solutions, already developed within SESAR I, in larger and more operationally-integrated environments (continuation of the development phase) and implementing the new ATM infrastructure (deployment phase). |
| --- | --- |

7.

Resources

| 8. | The budget for the SESAR I development phase 2008–2016 was 2 100 million euro, to be provided in equal parts by the EU, Eurocontrol and the participating public and private partners from the air traffic sector. The EU contribution of a maximum of 700 million euro was funded from the FP7 and TEN-T programmes (4). |
| --- | --- |

8.

| 9. | The SESAR founding regulation estimates the total costs for SESAR 2020 at 1 585 million euro (5). The maximum EU contribution to the SESAR Joint Undertaking for the implementation of the SESAR 2020 development and deployment programme 2017-2024 is 585 million euro, to be funded from Horizon 2020 (6). Eurocontrol is to contribute around 500 million euro (7), while the air traffic sector is expected to contribute 500 million euro to the Joint Undertaking’s activities. Around 95 % of the contributions from Eurocontrol and the other members is in the form of in-kind contributions to the Joint Undertaking’s activities. |
| --- | --- |

9.

| 10. | For the cash contributions to the Joint Undertaking’s administrative costs, the Administrative Board decides on the amounts to be released by each member in proportion to the contributions which it has agreed to pay, and establishes the deadlines by which the members must pay their contributions. |
| --- | --- |

10.

| 11. | In 2017, the final budget of the SESAR Joint Undertaking for SESAR I and SESAR 2020 was 191,8 million euro (2016: 157,1 million euro). At 31 December 2017, the Joint Undertaking employed 40 staff (2016: 44). |
| --- | --- |

11.

The Commission’s evaluations

| 12. | The Commission completed the final evaluation of the Joint Undertaking’s FP7 activities and the interim evaluation of its Horizon 2020 activities in June 2017, which was followed by respective action plans prepared by the Joint Undertaking to address the recommendations raised in the evaluations. On this occasion, we include a section related to the Joint Undertaking’s Action Plans in response to the evaluations, which is intended only for information purposes and does not form part of our audit opinion or observations. |
| --- | --- |

12.

| OPINION









  13. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2017, and |
| --- | --- | --- |

OPINION

13.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2017, and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 14. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

14.

Opinion on the legality and regularity of revenue underlying the accounts

| 15. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

15.

Opinion on the legality and regularity of payments underlying the accounts

| 16. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

16.

Responsibilities of management and those in charge of governance

| 17. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

17.

| 18. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

18.

| 19. | Those in charge of governance are responsible for overseeing the entity’s financial reporting process. |
| --- | --- |

19.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 20. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

20.

| 21. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

21.

| 22. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

22.

| 23. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) at the point they are made. |
| --- | --- |

23.

| 24. | In preparing this report and opinion, we considered the audit work of the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (10). |
| --- | --- |

24.

| 25. | The comments which follow do not call the ECA’s opinions into question. |
| --- | --- |

25.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 26. | Taking into account the assigned revenue appropriations (18 million euro), the available 2017 budget for SESAR I was 19,3 million euro in commitment appropriations and 121,8 million euro in payment appropriations; and the available 2017 budget for SESAR 2020 was 111,7 million euro in commitment appropriations and 91,2 million euro in payment appropriations. |
| --- | --- |

26.

| 27. | The implementation rates for the SESAR I commitments and payment appropriations were 11 % and 68 % respectively. The following factors caused the low implementation rates for SESAR I:






  — | In December 2016, the SESAR I programme was formally closed and the last payment was done in December 2017. Nevertheless, the Joint Undertaking had to ensure by the end of 2017 sufficient FP7 funds for the reimbursement of cash contributions received in excess from the SESAR I industry members (11) and for the payment of delayed but still justified cost claims for on-going FP7 projects. |
| --- | --- | --- |

27.

—

In December 2016, the SESAR I programme was formally closed and the last payment was done in December 2017. Nevertheless, the Joint Undertaking had to ensure by the end of 2017 sufficient FP7 funds for the reimbursement of cash contributions received in excess from the SESAR I industry members (11) and for the payment of delayed but still justified cost claims for on-going FP7 projects.

| — | When planning and monitoring its need of new commitment and payment appropriations for the SESAR I budget, the Joint Undertaking took a conservative approach and did not consider the expected assigned revenue of around 17 million euro, stemming from recoveries for SESAR I projects (i.e. ex-post audit error corrections, outstanding open pre-financing, etc.). |
| --- | --- |

—

When planning and monitoring its need of new commitment and payment appropriations for the SESAR I budget, the Joint Undertaking took a conservative approach and did not consider the expected assigned revenue of around 17 million euro, stemming from recoveries for SESAR I projects (i.e. ex-post audit error corrections, outstanding open pre-financing, etc.).

| 28. | The implementation rate for SESAR 2020 commitment and payment appropriations was 92 % and 68 % respectively. The lower than expected implementation rate for payment appropriations was mainly due to delays in the implementation of Horizon 2020 projects conducted by the industry members and a rather conservative budget planning considering the risk of delayed reception of the annual financial implementation delegation agreements. |
| --- | --- |

28.

Multiannual budget implementation under FP7 and TEN-T

| 29. | Out of the maximum of 700 million euro of FP7 funds allocated to the SESAR Joint Undertaking for the implementation of SESAR I, by the end of 2017, the EU had contributed in cash a total amount of 633,9 million euro. |
| --- | --- |

29.

| 30. | Out of the 1 254,5 million euro of in-kind and cash contributions to be made by the other members to the SESAR I activities of the SESAR Joint Undertaking (670,2 million euro from Eurocontrol and 584,3 million euro from the air traffic sector members), by the end of 2017, the Joint Undertaking had validated contributions of 560,7 million euro from Eurocontrol and of 539,2 million euro from the air traffic sector. |
| --- | --- |

30.

| 31. | Consequently, by at the end of 2017, the total contribution from the other members of SESAR I amounted to 1 099,9 million euro, comparted to the cumulative EU cash contribution of 633,9 million euro. |
| --- | --- |

31.

| 32. | Out of the total operational and administrative budget of 892,8 million euro for SESAR I activities (12), by the end of 2017 the SESAR Joint Undertaking had made commitments of 853 million euro and payments of 801 million euro (89,7 % of the available budget). |
| --- | --- |

32.

| 33. | At the end of 2017 and closing phase of the SESAR I programme, the Joint Undertaking had to laps 30 million euro (19 %) of outstanding commitments due to adjusted or cancelled SESAR I projects. Consequently, at year-end the Joint Undertaking’s still open payment obligations for SESAR I grants amounted to about 47 million euro. |
| --- | --- |

33.

Multiannual budget implementation under Horizon 2020

| 34. | Out of the maximum of 585 million euro of Horizon 2020 funds allocated to the SESAR Joint Undertaking for the implementation of SESAR 2020, by the end of 2017, the EU had contributed in cash a total amount of 132,9 million euro. |
| --- | --- |

34.

| 35. | The other members committed to make in-kind and cash contributions of at least 825,9 million euro to the Joint Undertaking’s SESAR 2020 operational activities (about 500 million euro from Eurocontrol and an estimated amount of 325,9 million euro from the air traffic sector). At the end of 2017, the other members had reported in-kind contributions of 97,3 million euro. However, as in 2017 the SESAR 2020 projects were still in their early stages, they had not yet been validated by the Administrative Board. In addition, Eurocontrol made cash contributions to the administrative cost of the Joint Undertaking of 6,7 million euro. |
| --- | --- |

35.

| 36. | Consequently, by the end of 2017, the total contributions from the air traffic sector and Eurocontrol amounted to 104 million euro compared to the EU cash contribution of 132,9 million euro. |
| --- | --- |

36.

| 37. | Out of the maximum operational and administrative budget of 639,8 million euro (13) for SESAR 2020 activities, by the end of 2017, the Joint Undertaking had made commitments of 236,7 million euro and payments of 112,3 million euro. The payments were mainly pre-financing payments for the first and second wave of SESAR 2020 projects. |
| --- | --- |

37.

INTERNAL CONTROLS

Internal control framework

| 38. | The external auditor of the Joint Undertaking’s annual accounts noted shortcomings in the Joint Undertaking’s financial control processes. This situation is mainly due to the complex financial regulatory framework under which the Joint Undertaking has to operate, the recent departure of key finance staff and the resulting work overload in the finance department. |
| --- | --- |

38.

| 39. | The Joint Undertaking has set up reliable ex-ante control procedures based on financial and operational desk reviews. For FP7 interim and final payments, the Joint Undertaking performs ex-post audits at the beneficiaries whilst for Horizon 2020 project cost claims the Commission’s Common Audit Service (CAS) is responsible for the ex-post audits. The residual error rates for the ex-post audits reported by the Joint Undertaking at the end of 2017 were 1,09 % for FP7 and 2,8 % for Horizon 2020 (14). |
| --- | --- |

39.

| 40. | Based on an assessment of the Joint Undertaking’s internal control system and substantive testing of revenue, payment, grant and procurement operations and a review of a sample of finalised ex-post audits including recoveries arising from the errors detected, the audit results provided us with reasonable assurance that the overall residual error rate for the Joint Undertaking is below materiality. |
| --- | --- |

40.

| 41. | At the end of 2017, the Commission’s common Horizon 2020 grant management and monitoring tools had not finished the specific developments needed for the processing of the Joint Undertaking’s in-kind contributions. |
| --- | --- |

41.

Procurement procedures

| 42. | In its procurement for support services from civil airspace users regarding SESAR 2020 activities (15), the Joint Undertaking took as financial score the simple (arithmetic) average of the financial bids it received for the daily rates of expert categories. The same approach was applied for all lots. In fact, the use of a weighted average for the calculation of the financial score would have been a more competitive and effective solution. The weighting should be based on the most likely number of work days for each category of experts needed for the specific services of the lot. |
| --- | --- |

42.

OTHER ISSUES

Leverage of contributions from other members for SESAR 2020

| 43. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry partners in the area of its activities (16). The estimated leverage factor of air traffic industry funds to be achieved according to the Joint Undertaking’s founding regulation without Eurocontrol is 0,85 (17). |
| --- | --- |

43.

INFORMATION ON COMMISSION’S EVALUATIONS

| 44. | The Commission’s Final Evaluation on SESAR Joint Undertaking operating under FP7 covered the period between 2007 and 2016 (18), while the Interim Evaluation on SESAR Joint Undertaking operating under H2020 covered the period from 2014 to 2016 (19). The evaluations were carried out with the assistance of independent experts as foreseen in the SESAR Council Regulations (20), and covered the performance of the Joint Undertaking in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency and research quality. The results of the evaluations were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (21). |
| --- | --- |

44.

| 45. | In response to the recommendations raised by the evaluators (22), the Joint Undertaking’s Action Plan was adopted by the SESAR Administrative Board in May 2018. The action plan includes a wide set of actions to be implemented by the Joint Undertaking (23), for which a certain number of activities have already been initiated (24), the majority should be implemented in 2018 and the first quarter of 2019, while a number will be taken under consideration for the next programming period (25). |
| --- | --- |

45.

| 46. | In 2017, the Court of Auditors published its special report on the Single European Sky Initiative (SES) (26), which covered certain elements of SESAR Joint Undertaking’s performance under FP7 (27), as the main EU financial support to the SES initiative. |
| --- | --- |

46.

| 47. | Both, the Commission’s Final Evaluation (28) and the ECA’s Special Report (29), have drawn attention to the delays in the execution of the ATM Master Plan, and the misalignment between the fixed regulatory lifespan of the SESAR Joint Undertaking activities and the planned duration of the work expected. The Court’s report also emphasised the need to reinforce the Joint Undertaking’s accountability on the execution of the Master Plan (30). |
| --- | --- |

47.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

---

(1)  Council Regulation (EC) No 219/2007 of 27 February 2007 on the establishment of a Joint Undertaking to develop the new generation European air traffic management system (SESAR) (OJ L 64, 2.3.2007, p. 1), amended by Regulation (EC) No 1361/2008 (OJ L 352, 31.12.2008, p. 12).

1

(2)  Council Regulation (EU) No 721/2014 of 16 June 2014 amending Regulation (EC) No 219/2007 on the establishment of a Joint Undertaking to develop the new generation European air traffic management system (SESAR) as regards the extension of the Joint Undertaking until 2024 (OJ L 192, 1.7.2014, p. 1).

2

(3)  Eurocontrol is an international organisation owned by 41 Member States. The EU has delegated parts of its Single European Sky regulations to Eurocontrol, making it the central organisation for coordination and planning of air traffic control for all of Europe. The EU itself is a signatory of Eurocontrol and all EU Member States are members of Eurocontrol.

3

(4)  Article 3 of the General Agreement between the European Commission and the SESAR Joint Undertaking, December 2009.

4

(5)  Recital 5 of Regulation (EU) No 721/2014.

5

(6)  Article 4(2) of Regulation (EC) No 219/2007 as amended by Regulation (EU) No 721/2014.

6

(7)  Article 4 of the SESAR 2020 — Eurocontrol agreement.

7

(8)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

8

(9)  The reports on the implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

9

(10)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

10

(11)  Article 13 and 25 of the statutes of the Joint Undertaking, annexed to the Regulation (EC) No 219/2007 as amended by Regulation (EU) No 721/2014.

11

(12)  The total of 892,8 million euro is composed of the 700 million euro EU cash contribution funded by the FP7 and TEN-T programmes, a 165 million euro cash contribution from Eurocontrol and a 27,8 million euro cash contribution from air traffic industry members.

12

(13)  The total of 639,8 million euro is composed of the 585 million euro EU cash contribution funded by the Horizon 2020 programme, a 25 million euro cash contribution from Eurocontrol and an 18,5 million euro cash contribution from air traffic industry members. In addition, the Commission will provide assigned revenue of 11,3 million to the Joint Undertaking for specific tasks it had delegated to the Joint Undertaking.

13

(14)  SESAR Joint Undertaking 2017 Annual Activity Report, points 1.1.4.3 and 1.1.7.

14

(15)  Framework contracts (4 lots) with a total budget of 6 million euro over 4 years.

15

(16)  Recital 17 of Regulation (EC) No 219/2007 as amended by Regulation (EU) No 721/2014, states that substantial participation of industry is an essential element for the SESAR project. It is therefore fundamental that the public budget for the development phase of the SESAR project be supplemented by contributions from industry.

16

(17)  The estimated in-kind contributions of partners from the air traffic sector to the operational activities of the Joint Undertaking without Eurocontrol (500 million euro) divided by the total EU cash contribution to the Joint Undertaking (585 million euro). Please note that in line with the SESAR 2020 statutes, the industry members do not provide in-kind contributions to additional activities outside the work programme of the Joint Undertaking.

17

(18)  Final evaluation of the SESAR Joint Undertaking operating under FP7. https://ec.europa.eu/research/evaluations/pdf/sesar1.pdf

18

(19)  Interim evaluation of the SESAR Joint Undertaking operating under H2020. https://ec.europa.eu/research/evaluations/pdf/sesar2020.pdf

19

(20)  Commission statutory evaluations in application of Article 7 of Regulation (EC) No 219/2007 on SESAR Joint Undertaking, and article 7 of Regulation (EU) No 721/2014 amending Regulation (EC) No 219/2007.

20

(21)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 (SWD(2017) 339 final).

21

(22)  Recommendations raised by the evaluators relate to the following areas: strengthen the participation of stakeholders in SESAR activities, including links to the deployment phase; strengthen the three layers of the European ATM Masterplan (definition, development and deployment phase), ensuring that all layers use a common solutions based language, and enabling the Commission to streamline deployment planning and monitoring; strengthen the links to academia; resolve issues related to the application of H2020 Legal Framework; taking measures to close the so called ‘industrialisation gap’ between the current SESAR solutions that ends at Technology Readiness level (TRL) 6, and the deployment phase of the ATM Master Plan that requires solutions at TRL 8.

22

(23)  Specific actions included in the action plan in response to the evaluator’s recommendations include: enhancing the cooperative arrangements with the SESAR Deployment Manager, the European Aviation Safety Agency, National Authorities and EUROCAE in order to strengthen their participation in the ATM Master Plan; increasing participation of the Industry; simplifying SESAR activities under H2020.

23

(24)  Activities already initiated include: reorganising the three layers of the ATM Master Plan to strengthen its architecture around the principles of SESAR solutions; regular meetings with the Association for the Scientific Development of ATM in Europe (ASDA) to increase Academia Participation.

24

(25)  A general assessment of the current SESAR Joint Undertaking legal framework for the preparation of the next programming period was carried out by the Joint Undertaking and sent to the Commission in December 2017. Regarding the recommendation to further close the industrialisation gap between the SESAR Joint Undertaking activities and the SESAR Deployment Management, the Joint Undertaking considers it to be currently on hold, subject to a Commission initiative for the next programming period.

25

(26)  The EU Single European Sky initiative, launched in 2004, comprises a set of EU-wide common binding rules on ATM safety and services, on airspace management and on interoperability within the network: https://ec.europa.eu/transport/modes/air/ses_en

26

(27)  Court of Auditor’s Special Report 18/2017.

27

(28)  See Final Evaluation on SESAR Joint Undertaking activities under FP7, section 7.1.4. Research Quality, and Section 8. Conclusions.

28

(29)  Paragraphs 86 and 87 of Court of Auditor’s Special Report 18/2017.

29

(30)  See paragraph 86, and recommendation 8 of Court of Auditor’s Special Report 18/2017.

30

---

ANNEX

Follow-up of previous years’ comments

| Year | The ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | Reporting and checking in-kind contributions to SESAR 2020 projects | |
| 2016 | The SESAR Joint Undertaking has not yet introduced specific guidance for the members and their external auditors concerning the declaration and certification of members’ in-kind contributions to SESAR 2020 projects. The Joint Undertaking has also not established internal guidance on its ex-ante checks of cost claims for SESAR 2020 projects, based on the Commission’s ex-ante control strategy for Horizon 2020. | Completed |
| | Assessment of the financial capacity of applicants under calls for proposals | |
| 2016 | For the restricted call for industrial research which was limited to the Joint Undertaking’s industry members, the Joint Undertaking awarded grants to project consortia, despite the fact that, in two cases, the checks of the financial viability of the beneficiaries performed by the Research Executive Agency indicated that the financial capacity of the coordinating industry member of the consortia was weak. This implies a higher financial risk to the completion of those projects and the financial risk is also higher for the other projects in which these two beneficiaries are involved. The Executive Director’s decision in these two cases was based on complementary ad-hoc risk assessments performed by SESAR Joint Undertaking staff. The Joint Undertaking has, however, not yet established a systematic internal procedure to reassess a weak financial viability of a grant project coordinator, including measures to mitigate and compensate for the increased financial risk. | Completed |
| | Cost-effectiveness of service contracts | |
| 2016 | In its procedures for the procurement of services, the Joint Undertaking sets a maximum contract budget. This maximum amount is not based on a systematic cost estimation process and a reasonable market price reference system. This does not ensure the cost-effectiveness of its multi-annual service contracts, as experience shows that most of the bids received were close to the maximum budget. | Completed |

Year

The ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

Reporting and checking in-kind contributions to SESAR 2020 projects

2016

The SESAR Joint Undertaking has not yet introduced specific guidance for the members and their external auditors concerning the declaration and certification of members’ in-kind contributions to SESAR 2020 projects. The Joint Undertaking has also not established internal guidance on its ex-ante checks of cost claims for SESAR 2020 projects, based on the Commission’s ex-ante control strategy for Horizon 2020.

Completed

Assessment of the financial capacity of applicants under calls for proposals

2016

For the restricted call for industrial research which was limited to the Joint Undertaking’s industry members, the Joint Undertaking awarded grants to project consortia, despite the fact that, in two cases, the checks of the financial viability of the beneficiaries performed by the Research Executive Agency indicated that the financial capacity of the coordinating industry member of the consortia was weak. This implies a higher financial risk to the completion of those projects and the financial risk is also higher for the other projects in which these two beneficiaries are involved. The Executive Director’s decision in these two cases was based on complementary ad-hoc risk assessments performed by SESAR Joint Undertaking staff. The Joint Undertaking has, however, not yet established a systematic internal procedure to reassess a weak financial viability of a grant project coordinator, including measures to mitigate and compensate for the increased financial risk.

Completed

Cost-effectiveness of service contracts

2016

In its procedures for the procurement of services, the Joint Undertaking sets a maximum contract budget. This maximum amount is not based on a systematic cost estimation process and a reasonable market price reference system. This does not ensure the cost-effectiveness of its multi-annual service contracts, as experience shows that most of the bids received were close to the maximum budget.

Completed

---

THE JOINT UNDERTAKING’S REPLY

25.

Over the period 2010-2017, the average time for receiving the Annual Financial Implementation Delegation Agreements was more than six months. Consequently, in order to ensure continuity of operations, the SESAR Joint Undertaking has to plan its budget in such a way to have enough cash and payment appropriations to be able to cover payments during at least the first half of the following year.

26.

Over the last two years, the SESAR Joint Undertaking has been operating under several financial regulatory systems because it had to implement simultaneously projects under FP7, TEN-T, Horizon 2020, Connecting Europe Facility (CEF) and delegation agreements for assigned revenue. The 2018 recruitment plan foresees the recruitment of two additional financial officers to reinforce the Finance and Budget Team.

27.

The higher error rate for Horizon 2020 grant payments in 2017 resulted from the fact that the SESAR Joint Undertaking had executed only a few Horizon 2020 grant payments when the Commission’s Common Audit Support (CAS) established its audit plan. These payments were predominantly related to Exploratory Research projects, involving as main beneficiaries research centres and universities which are, generally speaking, not as familiar with financial reporting as other larger industrial beneficiaries. In addition, the error rate was largely affected by a significant error stemming from one single university beneficiary. To mitigate this risk in future, the SESAR Joint Undertaking will set up, in cooperation with the Commission, an information day on financial reporting, which addresses in particular research centres, universities, and SMEs.

28.

The SESAR Joint Undertaking will update its internal guidelines regarding the elaboration of call documentation (which are part of the ‘SESAR Joint Undertaking Quality Management System’) in order to include the weighted average method as a possible option to evaluate financial offers, notably when this method allows to better reflect the different price components of financial offers.

---

| 14.12.2018 | EN | Official Journal of the European Union | C 452/76 |
| --- | --- | --- | --- |

14.12.2018

EN

Official Journal of the European Union

C 452/76

---

REPORT

on the annual accounts of the Shift2Rail Joint Undertaking for the financial year 2017, together with the Joint Undertaking’s reply

(2018/C 452/09)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-12 | 77 |
| Establishment of the Shift2Rail Joint Undertaking | 1-2 | 77 |
| Governance | 3-6 | 77 |
| Objectives | 7-8 | 77 |
| Resources | 9-11 | 78 |
| The Commission’s evaluation | 12 | 78 |
| OPINION | 13-25 | 78 |
| Opinion on the reliability of the accounts | 14 | 78 |
| Opinion on the legality and regularity of revenue underlying the accounts | 15 | 79 |
| Opinion on the legality and regularity of payments underlying the accounts | 16 | 79 |
| Responsibilities of management and those in charge of governance | 17-19 | 79 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 20-25 | 79 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 26-32 | 80 |
| Implementation of the 2017 budget | 26-27 | 80 |
| Multiannual budget implementation under Horizon 2020 | 28-32 | 80 |
| INTERNAL CONTROLS | 33-37 | 81 |
| Internal control framework | 33-36 | 81 |
| Procurement procedures | 37 | 81 |
| OTHER ISSUES | 38 | 81 |
| Leverage of contributions from industry members | 38 | 81 |
| INFORMATION ON THE COMMISSION’S EVALUATIONS | 39-40 | 81 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-12

77

Establishment of the Shift2Rail Joint Undertaking

1-2

77

Governance

3-6

77

Objectives

7-8

77

Resources

9-11

78

The Commission’s evaluation

12

78

OPINION

13-25

78

Opinion on the reliability of the accounts

14

78

Opinion on the legality and regularity of revenue underlying the accounts

15

79

Opinion on the legality and regularity of payments underlying the accounts

16

79

Responsibilities of management and those in charge of governance

17-19

79

Auditor’s responsibilities for the audit of the accounts and underlying transactions

20-25

79

BUDGETARY AND FINANCIAL MANAGEMENT

26-32

80

Implementation of the 2017 budget

26-27

80

Multiannual budget implementation under Horizon 2020

28-32

80

INTERNAL CONTROLS

33-37

81

Internal control framework

33-36

81

Procurement procedures

37

81

OTHER ISSUES

38

81

Leverage of contributions from industry members

38

81

INFORMATION ON THE COMMISSION’S EVALUATIONS

39-40

81

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

83

THE JOINT UNDERTAKING’S REPLY

84

INTRODUCTION

Establishment of the Shift2Rail Joint Undertaking

| 1. | The Shift2Rail (S2R) Joint Undertaking, located in Brussels, was set up in June 2014 (1) for a period of 10 years and started working autonomously on 24 May 2016. The Joint Undertaking began autonomous operations in 2016 and this year’s accounts are the second set of S2R financial statements audited by the ECA. |
| --- | --- |

1.

| 2. | The S2R Joint Undertaking is a public-private partnership in the rail sector. The founding members are the European Union (EU), represented by the Commission and rail industry partners (key stakeholders, including rail equipment manufacturers, railway companies, infrastructure managers and research centres). Other entities may participate in the Joint Undertaking as associated members. |
| --- | --- |

2.

Governance

| 3. | The governance structure of the S2R Joint Undertaking includes the Governing Board, the Executive Director, the Scientific Committee, and the States Representatives Group. |
| --- | --- |

3.

| 4. | The Governing Board is composed of twenty-two members, with two representatives from the Commission and one representative from each industry member. It is responsible for the strategic orientation and operations of the Joint Undertaking and supervises the implementation of its activities. The Executive Director is responsible for the day-to-day management of the Joint Undertaking. |
| --- | --- |

4.

| 5. | The Scientific Committee and the States Representatives Group are advisory bodies. The Scientific Committee provides advice on the scientific and technological priorities to be addressed in the Joint Undertaking’s annual work programmes. The States Representatives Group represents EU Member States and countries associated with the Horizon 2020 Research Framework Programme. The Group may offer opinions on the strategic orientations of the Joint Undertaking and on the links between S2R activities and relevant national or regional research and innovation programmes. |
| --- | --- |

5.

| 6. | The Statutes of the S2R Joint Undertaking also stipulate:






  — | a specific advisory role for the European Union Agency for Railways in contributing to the definition and implementation of S2R work plans, and ensuring that S2R activities lead to technical standards guaranteeing interoperability and safety, |
| --- | --- | --- |

6.

—

a specific advisory role for the European Union Agency for Railways in contributing to the definition and implementation of S2R work plans, and ensuring that S2R activities lead to technical standards guaranteeing interoperability and safety,

| — | the establishment of Innovation Programme Steering Committees, comprising representatives of the founding members and associated members, and of the S2R Programme Office, in charge of the technical input and implementation of each Innovation Programme, |
| --- | --- |

—

the establishment of Innovation Programme Steering Committees, comprising representatives of the founding members and associated members, and of the S2R Programme Office, in charge of the technical input and implementation of each Innovation Programme,

| — | the possibility of creating working groups of experts to assist the Joint Undertaking in carrying out its tasks. |
| --- | --- |

—

the possibility of creating working groups of experts to assist the Joint Undertaking in carrying out its tasks.

Objectives

| 7. | The S2R Joint Undertaking was created to provide a platform for the rail sector to work together to drive forward innovation to enhance the competitiveness of the railway system and to strengthen the rail transport system in Europe. A key initiative in achieving this goal is the creation of a Single European Railway Area (SERA) (2). |
| --- | --- |

7.

| 8. | The Joint Undertaking seeks to develop, integrate, demonstrate and validate innovative technologies and solutions that uphold the strictest safety standards, with a view to achieving:






  — | a 50 % reduction in the life-cycle cost of rail transport, |
| --- | --- | --- |

8.

—

a 50 % reduction in the life-cycle cost of rail transport,

| — | a 100 % increase in the capacity of the railway transport system, |
| --- | --- |

—

a 100 % increase in the capacity of the railway transport system,

| — | a 50 % increase in the reliability and punctuality of rail services, |
| --- | --- |

—

a 50 % increase in the reliability and punctuality of rail services,

| — | the removal of the remaining technical obstacles to interoperability and efficiency, |
| --- | --- |

—

the removal of the remaining technical obstacles to interoperability and efficiency,

| — | a reduction in negative externalities linked to railway transport, in particular noise, vibrations, emissions and other environmental effects. |
| --- | --- |

—

a reduction in negative externalities linked to railway transport, in particular noise, vibrations, emissions and other environmental effects.

Resources

| 9. | The maximum EU contribution to the activities of the S2R Joint Undertaking is 450 million euro, to be financed from Horizon 2020. This amount includes 52 million euro earmarked for the Horizon 2020 Transport Work Programme 2014-2015 (Lighthouse projects) so far managed by the European Commission, resulting in 398 million euro allocated to the S2R Joint Undertaking (3). The industry members of the Joint Undertaking are to contribute resources of at least 470 million euro (4), consisting of at least 350 million euro of in-kind and cash contributions to the Joint Undertaking’s operational activities and administrative costs, together with at least 120 million euro of in-kind contributions to additional activities (5). |
| --- | --- |

9.

| 10. | The administrative costs of the S2R joint Undertaking are limited to 27 million euro, to be covered by the member’s cash contributions, divided equally on an annual basis between the EU and the industry members (6). |
| --- | --- |

10.

| 11. | In 2017, the final budget for the S2R Joint Undertaking was 44,1 million euro (2016: 52,3). At 31 December 2017, the Joint Undertaking employed 19 staff (2016: 17). The lower final budget for 2017 was a direct consequence of the confirmation of the European Commission to continue to administer the Lighthouse Projects (7). |
| --- | --- |

11.

The Commission’s evaluation

| 12. | The Commission completed the interim evaluation of the Joint Undertaking’s activities in June 2017, which was followed by an action plan prepared by the Joint Undertaking to address the recommendations raised in the evaluation. On this occasion, we include a section related to the Joint Undertaking’s Action Plan in response to the interim evaluation, which is intended only for information purposes and does not form part of our audit opinion or observations. |
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12.

| OPINION









  13. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2017; and |
| --- | --- | --- |

OPINION

13.

(a)

the accounts of the Joint Undertaking which comprise the financial statements (8) and the reports on the implementation of the budget (9) for the financial year ended 31 December 2017; and

| (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). |
| --- | --- |

(b)

the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU).

Opinion on the reliability of the accounts

| 14. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2017 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2017, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally-accepted accounting standards for the public sector. |
| --- | --- |

14.

Opinion on the legality and regularity of revenue underlying the accounts

| 15. | In our opinion, revenue underlying the accounts for the year ended 31 December 2017 is legal and regular in all material respects. |
| --- | --- |

15.

Opinion on the legality and regularity of payments underlying the accounts

| 16. | In our opinion, payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. |
| --- | --- |

16.

Responsibilities of management and those in charge of governance

| 17. | In accordance with Articles 310 to 325 of the TFEU and the Joint Undertaking’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally-accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Joint Undertaking’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. |
| --- | --- |

17.

| 18. | In preparing the accounts, management is responsible for assessing the Joint Undertaking’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. |
| --- | --- |

18.

| 19. | Those in charge of governance are responsible for overseeing the entity’s financial reporting process. |
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19.

Auditor’s responsibilities for the audit of the accounts and underlying transactions

| 20. | Our objectives are to obtain reasonable assurance about whether the accounts of the Joint Undertaking are free from material misstatement and the transactions underlying them are legal and regular and, on the basis of our audit, to provide the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. |
| --- | --- |

20.

| 21. | 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 European Union, whether due to fraud or error. In making those risk assessments, internal control relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions is considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by the management and the overall presentation of the accounts. |
| --- | --- |

21.

| 22. | For revenue, we verify the subsidy received from the Commission and assess the Joint Undertaking’s procedures for collecting fees and other income. |
| --- | --- |

22.

| 23. | For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) at the point they are made. |
| --- | --- |

23.

| 24. | In preparing this report and Opinion, we considered the audit work which the independent external auditor performed on the Joint Undertaking’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (10). |
| --- | --- |

24.

| 25. | The comments which follow do not call the ECA’s opinion into question. |
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25.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2017 budget

| 26. | The final 2017 budget included commitment appropriations of 68,6 million euro and payment appropriations of 44,1 million euro. The implementation rates for commitment and payment appropriations were 94 % and 79 % respectively. Most of the payments made by the Joint Undertaking in 2017 were pre-financing payments for Horizon 2020 projects selected under the 2017 calls for proposals. |
| --- | --- |

26.

| 27. | At the end of 2017, the Joint Undertaking had unused payment appropriations from previous years of around 7,6 million euro. This situation shows weaknesses in the budget planning process, which, however, cannot be fully controlled by the Joint Undertaking. |
| --- | --- |

27.

Multiannual budget implementation under Horizon 2020

| 28. | Out of the maximum of 398 million euro of EU cash contribution to be allocated to the S2R Joint Undertaking over its lifespan, by the end of 2017, the EU had contributed in cash a total amount of 83,2 million euro. |
| --- | --- |

28.

| 29. | Out of the at least 350 million euro of contributions to be made by the industry members to the operational activities and administrative costs of the Joint Undertaking over its lifespan, by the end of 2017, the members had reported in-kind contributions of 34,9 million euro for operational activities, of which 3 million euro had been certified. In addition, the Governing Board had validated cash contributions by the industry members to the Joint Undertaking’s administrative costs of 4,9 million euro. |
| --- | --- |

29.

| 30. | Out of the at least 120 million euro of industry members’ contributions to be made to additional activities outside the work programme of the Joint Undertaking, by the end of 2017 the members had already reported 130 million euro (108 %), of which 86,3 million euro had been certified. However, as we have no right to audit the members’ in-kind contributions to additional activities, we cannot provide an opinion on their nature, quality and quantity. |
| --- | --- |

30.

| 31. | Consequently, by the end of 2017, the total contributions from industry members, amounted to 169,8 million euro (of which 76 % are contributions to additional activities), compared to the EU cash contribution of 83,2 million euro (see also paragraph 38). |
| --- | --- |

31.

| 32. | Out of the maximum operational and administrative budget for the Joint Undertaking of 411,5 million euro (11), by the end of 2017, the Joint Undertaking made commitments of 158,8 million euro and payments of 78,6 million euro. This shows that the Joint Undertaking has currently signed interdependent multiannual grant agreements and procurement contracts for the implementation of 39 % of the S2R research and innovation programme, in line with the Joint Undertaking’s multi-annual work programme. |
| --- | --- |

32.

INTERNAL CONTROLS

Internal control framework

| 33. | The Joint Undertaking has set up reliable ex ante control procedures based on financial and operational desk reviews. The situation at end of 2017 showed that the most important internal control standards were largely implemented with some actions remaining to be completed in 2018 such as carrying out the testing of the Business Continuity Plan. |
| --- | --- |

33.

| 34. | The Common Audit Service of the Commission (CAS) is responsible for the ex post audit of Horizon 2020 project cost claims. In 2017, the Joint Undertaking — together with the Common Audit Service (CAS) of DG RTD — launched the first ex post audit of a random sample of Horizon 2020 interim cost claims of which the results, however, will only be reported in in the Joint Undertaking’s annual activity report 2018. |
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34.

| 35. | Based on an assessment of the Joint Undertaking’s internal control system and substantive testing of revenue, payment, grant and procurement operations, the audit results provided us with reasonable assurance that the overall residual error rate for the Joint Undertaking is below materiality. |
| --- | --- |

35.

| 36. | At the end of 2017, the Commission’s common Horizon 2020 grant management and monitoring tools had not finished the specific developments needed for the processing of the Joint Undertaking’s in-kind contributions. |
| --- | --- |

36.

Procurement procedures

| 37. | Some qualitative shortcomings were observed in the Joint Undertaking’s open procedure for the procurement of communication and event services of an estimated budget of 1,2 million euro over 4 years. |
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37.

OTHER ISSUES

Leverage of contributions from industry members

| 38. | One of the main objectives of the Joint Undertaking is to leverage contributions from industry members in the area of its activities (12). The minimum leverage factor to be achieved according to the Joint Undertaking’s founding regulation is 0,88 (13) if only the industry members’ contributions to the activities directly covered by the Joint Undertaking’s work programme are considered. The minimum leverage factor increases to 1,18 (14) if the industry members’ contributions to additional activities outside the Joint Undertaking’s work programme are equally included. However, as we have no right to audit in-kind contributions to additional activities we cannot provide an opinion on the nature, and quality of such contributions (15). |
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38.

INFORMATION ON THE COMMISSION’S EVALUATIONS

| 39. | The Commission’s Interim Evaluation (16) on S2R Joint Undertaking’s activities covered the period 2014-2016, and was carried out with the assistance of independent experts as foreseen in the S2R Joint Undertaking Council Regulation (17). The evaluation covered the performance of the Joint Undertaking in terms of relevance, efficiency, effectiveness, coherence, and EU added value, with additional consideration of openness and transparency. The results of the evaluation were taken into account in the report that the Commission sent to the European Parliament and Council in October 2017 (18). |
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39.

| 40. | In response to the recommendations raised by the evaluators (19), the Joint Undertaking prepared an Action Plan adopted by the Governing Board on 28 June 2018. While not all recommendations raised in the Interim Evaluation will be addressed under the current Financial Framework Programme (20), some actions included in the Action Plan have already been initiated (21), while others, in accordance with their nature and the current legal framework, are expected to be implemented in the period 2018 to 2020 (22). |
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40.

This Report was adopted by Chamber IV, headed by Mr Neven MATES, Member of the Court of Auditors, in Luxembourg at its meeting of 2 October 2018.

For the Court of Auditors

Klaus-Heiner LEHNE

President

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(1)  Council Regulation (EU) No 642/2014 of 16 June 2014 establishing the Shift2Rail Joint Undertaking (OJ L 177, 17.6.2014, p. 9).

1

(2)  Further information on the Joint Undertaking’s activities is available on its website: http://shift2rail.org

2

(3)  Article 3(1) of Regulation (EU) No 642/2014.

3

(4)  Article 4(1) of Regulation (EU) No 642/2014.

4

(5)  As provided for in Article 4(2)(b) of Regulation (EU) No 642/2014, additional activities are outside the work plan and budget of the Joint Undertaking but contribute to the objectives of the S2R Master Plan. In line with Article 4(4) of the same regulation, the costs of additional activities must be certified by an independent external auditor and are not subject to audit by the Joint Undertaking, the ECA or by any EU body.

5

(6)  Article 16(2) of the Statutes of the S2R Joint Undertaking (Annex I of Regulation (EU) No 642/2014).

6

(7)  Article 3(1)(b) of Regulation (EU) No 642/2014 foresees an additional EU contribution of 52 million euro to the S2R Joint Undertaking in case it takes over the management of the Horizon 2020 Transport Work Programme 2014-2015 (so-called Lighthouse projects).

7

(8)  The financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

8

(9)  The reports on the implementation of the budget comprise the reports which aggregate all budgetary operations and the explanatory notes.

9

(10)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council 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).

10

(11)  This amount includes the maximum EU cash contribution to the Joint Undertaking’s operational and administrative costs and the industry members’ cash contribution to the Joint Undertakings’ administrative costs of 13,5 million euro.

11

(12)  Recital 10 of Regulation (EU) No 642/2014 states that substantial participation of industry is an essential element of the Shift2Rail (S2R) initiative. It is therefore fundamental that the public budget for the S2R initiative be at least matched by contributions from industry.

12

(13)  Minimum contributions of the industry members to the operational activities of the Joint Undertaking (350 million euro) divided by the maximum EU cash contribution to the Joint Undertaking (398 million euro).

13

(14)  Total of minimum contributions of the industry members to the Joint Undertaking’s operational and additional activities (470 million euro) divided by the maximum EU cash contribution to the Joint Undertaking (398 million euro).

14

(15)  In accordance with Article 4(4) of Regulation (EU) No 642/2014 the cost of additional activities are certified by an independent external auditor appointed by the Joint Undertaking. The cost for such activities shall however, not be audited by the Joint Undertaking or any Union body.

15

(16)  Interim evaluation of the S2R Joint Undertaking (2014-2016) operating under Horizon 2020. https://ec.europa.eu/research/evaluations/pdf/s2r.pdf

16

(17)  Article 11 of Regulation (EU) No 642/2014.

17

(18)  Commission Staff Working Document. Interim Evaluation of the Joint Undertakings operating under Horizon 2020 (SWD(2017) 339 final).

18

(19)  Specific recommendations include the need to increase the collaboration with the other Transport Joint Undertakings (SESAR, Clean Sky and FCH); to increase the balance of participants in S2R activities; to make further use of the Joint Undertaking Scientific Committee, of the European Rail Research Advisory Council (ERRAC), and of the advisory bodies in order to provide technical and strategic advice; and to review the current Key Performance Indicators of the Joint Undertaking, that are considered to be too many, and in some issues, inappropriate.

19

(20)  The Joint Undertaking’s Action Plan recognises that certain recommendations such as the need to improve the balance of participants in the Joint Undertaking, or to increase focus on key societal challenges, were not sufficiently covered in S2R and will need to be further addressed in the next programming period.

20

(21)  Regular contacts with the other Joint Undertakings to create synergies between the different programmes are already in place; the Lump Sum Grants scheme has been introduced in the 2018 Annual Work Programme to enhance simplification.

21

(22)  Actions to be implemented include: the invitation to associated members of the Joint Undertaking to increase their commitment in S2R in order to allow further participation of third parties trough the associated members activities; the selection of new members of the Scientific Committee; a review of the S2R Multi-Annual Action Plan (Part B) to align it with the S2R executive view adopted by the Governing Board on October 2017 (Part A); and the establishment of a new KPI model in line with the S2R Council Regulation Objectives.

22

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ANNEX

Follow-up of previous years’ comments

| Year | The ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | Anti-fraud strategy | |
| 2016 | The Commission’s research anti-fraud strategy is mandatory for the S2R Joint Undertaking. However, at the end of 2016, the Joint Undertaking had not yet performed a specific anti-fraud risk assessment, nor had it established an action plan for the implementation of its own anti-fraud strategy, based on the methodology provided by the Commission. | Completed |

Year

The ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

Anti-fraud strategy

2016

The Commission’s research anti-fraud strategy is mandatory for the S2R Joint Undertaking. However, at the end of 2016, the Joint Undertaking had not yet performed a specific anti-fraud risk assessment, nor had it established an action plan for the implementation of its own anti-fraud strategy, based on the methodology provided by the Commission.

Completed

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THE JOINT UNDERTAKING’S REPLY

27.

The usual budget process foresees that for each financial year the Commission pays to the Joint Undertaking the first instalment around March only. The Joint Undertaking therefore considered the full amount of unused payment appropriations from previous years in its budget planning for 2017, to cover the payments of the first quarter in 2018.

37.

In the same procedure, Lot 4 was cancelled because the technical solution proposed by the winning tender allowed to merge the services planned initially for two lots into one lot. This solution resulted in saving financial resources. In this context, the Joint Undertaking fully complied with Article 114 of the Financial Regulation (‘Cancelation of a procurement procedure’).

38.

The leverage factor according to the Joint Undertaking’s founding regulation is 1,24 (1) and 1,66 (2) respectively when considering the Members other than the Union contributions’ only.

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(1)  Minimum contributions of the industry members to the operational activities of the Joint Undertaking (350 million euro) divided by the maximum EU cash contribution to the Joint Undertaking allocated by the S2R Regulation to the Members other than the Union (282,5 million euro).

1

(2)  Considering the total of minimum contributions of the industry members to the Joint Undertaking’s operational and additional activities (470 million euro)

2

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