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SPECIAL REPORT No 2/2004

concerning pre-accession aid

HAS SAPARD BEEN WELL MANAGED?

together Commission's replies

(pursuant to the second subparagraph of Article 248(4) of the EC Treaty)

(2004/C 295/01)

CONTENTS

ANNEX 1 EU contribution 2000-2003 by country and by main type of beneficiary and measure

ANNEX 2 List of projects reviewed

The Commission replies

EXECUTIVE SUMMARY

INTRODUCTION

What is Sapard?

How did we audit Sapard?

These objectives allowed the Court to analyse whether the management and control systems were effective and applied reasonably or whether they were insufficient in their coverage.

STAGES IN THE IMPLEMENTATION OF SAPARD

Large proportions of available funds remained unused

because of the time needed for setting up the programme

and because of delays in implementation by the Sapard countries

Key steps have not been analysed so that lessons can be learned

and budgets were systematically under-utilised

DECENTRALISED IMPLEMENTATION

was a choice by the Commission

but the lack of preparation by the Commission and the tight time frame led to difficulties with decentralisation

and the Commission's management was not always suited to Sapard countries' needs

MAIN RESULTS OF SAPARD

Limited impact in 8 out of 10 countries

VAT included as eligible expenditure does not contribute to Sapard objectives

There was little contribution to achieving ‘EU standards’

Targets were not always clear

and reporting on objectives and priorities by the Commission was not as required

Four years after the start of the programme, the Commission has not established or communicated the extent to which the objectives set out for the programme have been achieved.

Institution building has been positive except for agri-environment

ASSESSMENT OF SYSTEMS SET UP IN SAPARD COUNTRIES

Prior approval of the systems has ensured tight financial control systems

Systems were generally working in practice

but there was a lack of supporting elements in files

Sapard systems relied on other weaker systems

and national rules on interest were in conflict with Sapard rules

IMPLEMENTATION PROBLEMS IN SAPARD COUNTRIES

Potential beneficiaries lack own resources and have difficulties in obtaining credit

and there were heavy administrative procedures

which had as an effect that only financially strong beneficiaries are supported

ACTION REQUIRED BY THE COMMISSION

because insufficient rules and checks result in expenditure on general costs being misspent

and there is a lack of assurance that money is well spent under private procurement rules

CONCLUSIONS AND RECOMMENDATIONS

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 26 May 2004.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

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(1)  These 10 countries are: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia and Romania.

(2)  Body of EU law setting out the common rights and obligations which bind the Member States of the European Union.

(3)  The Phare programme is the first pre-accession instrument and was set up by Council Regulation (EEC) No 3906/1989 of 18 December 1989 (OJ L 375, 23.12.1989).

(4)  Council Regulation (EC) No 1268/1999 of 21 June 1999 (OJ L 161, 26.6.1999) on Community support for pre-accession measures for agriculture and rural development in the applicant countries of central and eastern Europe in the pre-accession period.

(5)  General budget of the European Union. As from 2004, Sapard is managed under Chapter 5 of Title 5 (Agriculture and rural development) of the budget, and only includes new allocations for Bulgaria and Romania.

(6)  Appropriations for commitment.

(7)  The level of public aid is a function of the type of measure or project. For revenue-generating investments the normal maximum aid level is 50 % of the total eligible cost.

(8)  As defined in Article 12 of Council Regulation (EC) No 1266/1999 of 21 June 1999 on coordinating aid to the applicant countries in the framework of the pre-accession strategy (OJ L 161, 26.6.1999).

(9)  The main measures are: investments in agricultural holdings, improving the processing and marketing of agricultural and fishery products, and development and improvement of rural infrastructure. This represents some 80 % of commitments made in all applicant countries.

(10)  Court of Auditors Annual Reports concerning the financial year 2000 (OJ C 359, 15.12.2001) (paragraphs 6.41 to 6.53); 2001 (OJ C 295, 28.11.2002) (paragraphs 6.8 to 6.32); and 2002 (OJ C 286, 28.11.03) (paragraphs 8.23 to 8.31).

(11)  Cumulative appropriations for commitment.

(12)  Further details are given in the Court's Annual Report concerning the financial year 2000, paragraphs 6.41 to 6.43.

(13)  Proposal from the Commission for a Council Regulation (COM(98) 153 final, 19 March 1998).

(14)  The reason for the delays is the following. Poland splits annual budgets into specific measures and, for the largest measures, to specific regions. Application rounds are launched for specific regional, annual allocations. This practice of linking projects to specific regional, annual allocations blocked the use of other available budgets. For rural development infrastructure, the allocation to the regions requires a decision by the Ministry of Agriculture, which was, for a large part of the funds, not done until 22 September 2003.

(15)  The amount of 154,4 million euro cannot be compared with the diagram because it includes 139,7 million euro of advance payments made by the Commission to applicant countries and 0,1 million euro for seminars. These amounts are not shown in the diagram because they are not paid to final beneficiaries. The 154,4 million euro also includes 14,6 million euro of payments made by the Sapard agencies, from the advance payments, to final beneficiaries. These latter payments (adjusted by the Court for timing differences because the Commission books the payments on a cash basis) are shown as section ‘C’ in Figure 1.

(16)  Initially, accession was foreseen for six countries: Czech Republic, Estonia, Hungary, Poland, Slovenia (Sapard) and Cyprus (non-Sapard).

(17)  The other official ways to be informed reach the Commission at later stages: results of mid-term evaluation (by 31 December 2003) and final evaluation (by 31 December 2006).

(18)  Commission staff involvement in audits is not considered as management in a strict sense and is discussed in paragraph 58.

(19)  The Commission could not control the rate of commitments and payments because it did not want to change the fully decentralised management framework of Sapard and did not propose changes such as an additional measure for credit or guarantees.

(20)  In total, 48 projects were reviewed for the two measures; however, in two cases the project had not advanced sufficiently to draw a conclusion on the main objective.

(21)  Comprehensive monitoring reports of the European Commission on the state of preparedness for EU membership of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia, 5 November 2003.

(22)  The revised EU allocation for 2000-2003 averages 57 million euro per year.

(23)  Sapard annual reports (Reports from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions) COM(2001) 241 final 3 July 2001, COM(2002) 434 final 30 July 2002, COM(2003) 582 final 7 October 2003.

(24)  In March 1997, the Commission decided to fully focus the Phare pre-accession instrument on preparing candidate countries for joining the EU. About 30 % of the annual Phare budget of around 1 500 million euro per year was allocated to institution building, in particular to introducing the objectives and procedures of the Structural Funds.

(25)  With the exception of certain elements, see paragraph 10.

(26)  This is the procedure under which the Commission decides whether expenditure made by CAP paying agencies should be definitively charged to the EU budget.

(27)  Council Regulation (EC) No 1266/1999 of 21 June 1999 (OJ L 161, 26.6.1999) on coordinating aid to the applicant countries in the framework of the pre-accession strategy; Annex 1(iii).

(28)Opinions on the Sapard Measure 2 programme expressed by Agricultural Advisory Centres and potential beneficiaries of the programme, Warsaw, 30 November 2002.

(29)  2 377 contracts were signed with farmers in the period September 2002-November 2003.

(30)  A ceiling of 50 % of public aid from all sources cannot be exceeded. Since Bulgaria applied a grant rate of 50 %, any subsidy element in the grant scheme would exceed this ceiling.

(31)  As at 31 March 2003.

(32)  Bulgaria reduced the general costs for the preparation of business plans to 5 %, and Romania in certain cases (for projects which do not include construction and for two measures only) to 3 % or 5 % depending on the measure.

(33)  Since the expenditure was paid in 2002, the Commission had already carried out its clearance of account audit.

(34)  In the sample of projects reviewed by the Court, private procurement rules were applied to 34 projects. In 23 cases the offers were found to be not comparable.

(35)  In the same handwriting and written with a purple pen.

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ANNEX 1

EU contribution 2000-2003 by country and by main type of beneficiary and measure

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(1)  Cumulative appropriations for commitment.

Source: European Court of Auditors, December 2003.

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ANNEX 2

List of projects reviewed

BULGARIA

LITHUANIA

POLAND

ROMANIA

TOTAL

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(1)  Visit on the spot to meet with the final beneficiary and to inspect the project.

(2)  File review to check general costs, key procurement rules, objective and other key issues relating to the project.

(3)  File review to check that the supervisory and control systems worked in practice.

(4)  Systems for the measure were not approved at the time of the audit.

(5)  Visit on the spot to meet with the final beneficiary and to inspect the project.

(6)  File review to check general costs, key procurement rules, objective and other key issues relating to the project.

(7)  File review to check that the supervisory and control systems worked in practice.

(8)  Visit on the spot to meet with the final beneficiary and to inspect the project.

(9)  File review to check general costs, key procurement rules, objective and other key issues relating to the project.

(10)  File review to check that the supervisory and control systems worked in practice.

(11)  Visit on the spot to meet with the final beneficiary and to inspect the project.

(12)  File review to check general costs, key procurement rules, objective and other key issues relating to the project.

(13)  File review to check that the supervisory and control systems worked in practice.

(14)  Systems for the measure were not approved at the time of the audit.

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THE COMMISSION'S REPLIES

EXECUTIVE SUMMARY

INTRODUCTION

STAGES IN THE IMPLEMENTATION OF SAPARD

DECENTRALISED IMPLEMENTATION

MAIN RESULTS OF SAPARD

ASSESSMENT OF SYSTEMS SET UP IN SAPARD COUNTRIES

IMPLEMENTATION PROBLEMS IN SAPARD COUNTRIES

ACTION REQUIRED BY THE COMMISSION BECAUSE

CONCLUSIONS AND RECOMMENDATIONS

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