# Official Journal C 426/12 D

| | ISSN 1977-091X |
| --- | --- |
| Official Journal
  of the European Union | C 426 |
| | |
| English edition | Information and Notices | Volume 6012 December 2017 |

ISSN 1977-091X

Official Journal

of the European Union

C 426

English edition

Information and Notices

Volume 6012 December 2017

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| Notice No | Contents | page |
| --- | --- | --- |
| | IV   Notices |
| | NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES |
| | Court of Auditors |
| 2017/C 426/01 | Summary of results from the ECA’s 2016 annual audit of the European research Joint Undertakings | 1 |
| 2017/C 426/02 | Report on the annual accounts of the Bio-based Industries Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 8 |
| 2017/C 426/03 | Report on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 15 |
| 2017/C 426/04 | Report on the annual accounts of the Electronic Components and Systems for European Leadership Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 23 |
| 2017/C 426/05 | Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply | 31 |
| 2017/C 426/06 | Report on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 42 |
| 2017/C 426/07 | Report on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 49 |
| 2017/C 426/08 | Report on the annual accounts of the Single European Sky Air Traffic Management Research Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 56 |
| 2017/C 426/09 | Report on the annual accounts of the Shift2Rail Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply | 64 |

Notice No

Contents

page

IV   Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES

Court of Auditors

2017/C 426/01

Summary of results from the ECA’s 2016 annual audit of the European research Joint Undertakings

1

2017/C 426/02

Report on the annual accounts of the Bio-based Industries Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

8

2017/C 426/03

Report on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

15

2017/C 426/04

Report on the annual accounts of the Electronic Components and Systems for European Leadership Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

23

2017/C 426/05

Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply

31

2017/C 426/06

Report on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

42

2017/C 426/07

Report on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

49

2017/C 426/08

Report on the annual accounts of the Single European Sky Air Traffic Management Research Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

56

2017/C 426/09

Report on the annual accounts of the Shift2Rail Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

64

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| EN | |
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EN

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IV Notices

NOTICES FROM EUROPEAN UNION INSTITUTIONS, BODIES, OFFICES AND AGENCIES

Court of Auditors

| 12.12.2017 | EN | Official Journal of the European Union | C 426/1 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/1

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Summary of results from the ECA’s 2016 annual audit of the European research Joint Undertakings

(2017/C 426/01)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-6 | 2 |
| Background information | 1-2 | 2 |
| Research Joint Undertakings — public-private partnerships of the EU with industry and Member States | 3-4 | 2 |
| Research Joint Undertakings’ EU budgets | 5-6 | 2 |
| AUDIT APPROACH | 7-10 | 3 |
| Current audit arrangement is working but inefficient | 7-10 | 3 |
| AUDIT RESULTS | 11-34 | 3 |
| Clean audit opinions on the reliability of the accounts for all Joint Undertakings | 11 | 3 |
| Clean audit opinions on the legality and regularity of the transactions underlying the accounts for seven out of eight Joint Undertakings | 12-13 | 3 |
| We draw attention to the risks related to the EU contribution to the ITER project costs | 14-19 | 3 |
| Comments made in our specific reports | 20-33 | 4 |
| Budgetary and financial management | 21 | 4 |
| Closing phase of the FP7 programme showed some backlog of contributions from industry and research partners | 22-24 | 4 |
| Starting phase of the Horizon 2020 programme showed a high level of contribution from industry partners for additional activities | 25-26 | 4 |
| Internal controls were generally effective and kept the error rates below 2 % | 27-33 | 5 |
| Follow-up of previous years’ comments | 34 | 5 |
| CONCLUSIONS | 35-38 | 5 |
| ANNEX – | JOINT UNDERTAKINGS’ ACTIVITIES, BUDGET AND STAFF |

Paragraph

Page

INTRODUCTION

1-6

2

Background information

1-2

2

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

3-4

2

Research Joint Undertakings’ EU budgets

5-6

2

AUDIT APPROACH

7-10

3

Current audit arrangement is working but inefficient

7-10

3

AUDIT RESULTS

11-34

3

Clean audit opinions on the reliability of the accounts for all Joint Undertakings

11

3

Clean audit opinions on the legality and regularity of the transactions underlying the accounts for seven out of eight Joint Undertakings

12-13

3

We draw attention to the risks related to the EU contribution to the ITER project costs

14-19

3

Comments made in our specific reports

20-33

4

Budgetary and financial management

21

4

Closing phase of the FP7 programme showed some backlog of contributions from industry and research partners

22-24

4

Starting phase of the Horizon 2020 programme showed a high level of contribution from industry partners for additional activities

25-26

4

Internal controls were generally effective and kept the error rates below 2 %

27-33

5

Follow-up of previous years’ comments

34

5

CONCLUSIONS

35-38

5

ANNEX –

JOINT UNDERTAKINGS’ ACTIVITIES, BUDGET AND STAFF

7

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 2016 for eight European research Joint Undertakings:






  — | F4E (ITER) — Development of Fusion Energy, |
| --- | --- | --- |

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 2016 for eight European research Joint Undertakings:

—

F4E (ITER) — Development of Fusion Energy,

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

—

BBI — Bio-based Industries,

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

—

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 summary report provides an overview of the audit results (opinions and comments) published in our 2016 specific annual reports on the Joint Undertakings. This summary is not an audit report or opinion. |
| --- | --- |

2.

This summary report provides an overview of the audit results (opinions and comments) published in our 2016 specific annual reports on the Joint Undertakings. This summary is not an audit report or opinion.

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

| 3. | Joint Undertakings are public-private partnerships, which play an important role in implementing specific aspects of European Union (EU) research policy. Apart from the EU, which is represented by the Commission, members of the Joint Undertakings include various public and private partners from industry and research groupings. Most Joint Undertakings follow a bipartite model with the participation of the Commission and industry/research partners, or a tripartite model also including the participation of the Member States (ECSEL Joint Undertaking). |
| --- | --- |

3.

Joint Undertakings are public-private partnerships, which play an important role in implementing specific aspects of European Union (EU) research policy. Apart from the EU, which is represented by the Commission, members of the Joint Undertakings include various public and private partners from industry and research groupings. Most Joint Undertakings follow a bipartite model with the participation of the Commission and industry/research partners, or a tripartite model also including the participation of the Member States (ECSEL Joint Undertaking).

| 4. | The members make contributions to the funding of the Joint Undertakings’ activities. The EU funding is provided by the EU research budget through the Seventh Research Framework Programme (FP7) and Horizon 2020 (1). The industry and research partners provide in-kind and cash contributions. In the case of four Joint Undertakings (Clean Sky, FCH, BBI and S2R), the private partners also provide a minimum amount of in-kind contributions to ‘additional activities’ which are outside the Joint Undertakings’ work programmes but fall within the scope of the Joint Undertakings’ objectives. |
| --- | --- |

4.

The members make contributions to the funding of the Joint Undertakings’ activities. The EU funding is provided by the EU research budget through the Seventh Research Framework Programme (FP7) and Horizon 2020 (1). The industry and research partners provide in-kind and cash contributions. In the case of four Joint Undertakings (Clean Sky, FCH, BBI and S2R), the private partners also provide a minimum amount of in-kind contributions to ‘additional activities’ which are outside the Joint Undertakings’ work programmes but fall within the scope of the Joint Undertakings’ objectives.

Research Joint Undertakings’ EU budgets

| 5. | The total budget of the Joint Undertakings in 2016 was 1,8 billion euro (2015: 1,4 billion euro) or 1,3 % (2015: 1 %) of the EU general budget. The total in-kind and cash contributions from industry and research partners were expected to be of a similar amount. The Joint Undertakings employed 633 staff at the end of 2016 (2015: 562). |
| --- | --- |

5.

The total budget of the Joint Undertakings in 2016 was 1,8 billion euro (2015: 1,4 billion euro) or 1,3 % (2015: 1 %) of the EU general budget. The total in-kind and cash contributions from industry and research partners were expected to be of a similar amount. The Joint Undertakings employed 633 staff at the end of 2016 (2015: 562).

| 6. | Information on the Joint Undertakings’ activities, budget and staff numbers is shown in the Annex. |
| --- | --- |

6.

Information on the Joint Undertakings’ activities, budget and staff numbers is shown in the Annex.

AUDIT APPROACH

Current audit arrangement is working but inefficient

| 7. | In line with Articles 208(4) and 209 (2) of the EU Financial Regulation, the audit of the reliability of the accounts of all Joint Undertakings has been outsourced to independent external audit firms. The reliability of the annual accounts of the F4E and SESAR Joint Undertakings has been verified by independent external audit firms since 2014. For the remaining Joint Undertakings (Clean Sky, BBI, FCH, IMI, ECSEL, S2R), the audit of the reliability of the annual accounts was performed by external audit firms for the first time in 2016. |
| --- | --- |

7.

In line with Articles 208(4) and 209 (2) of the EU Financial Regulation, the audit of the reliability of the accounts of all Joint Undertakings has been outsourced to independent external audit firms. The reliability of the annual accounts of the F4E and SESAR Joint Undertakings has been verified by independent external audit firms since 2014. For the remaining Joint Undertakings (Clean Sky, BBI, FCH, IMI, ECSEL, S2R), the audit of the reliability of the annual accounts was performed by external audit firms for the first time in 2016.

| 8. | In accordance with international auditing standards, we reviewed the work of the audit firms and obtained sufficient assurance that we could rely on their work in formulating our audit opinions on the reliability of the Joint Undertakings’ 2016 annual accounts. |
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8.

In accordance with international auditing standards, we reviewed the work of the audit firms and obtained sufficient assurance that we could rely on their work in formulating our audit opinions on the reliability of the Joint Undertakings’ 2016 annual accounts.

| 9. | As in prior years, we remain exclusively responsible for the audit of the legality and regularity of the underlying transactions. Our audit approach comprised substantive testing of representative samples of payment and revenue transactions, analytical review procedures, and an assessment of key controls of each Joint Undertakings’ supervisory and internal control systems. We also reviewed the quality of the ex post audits of declared costs carried out by the contracted independent external audit firms at beneficiaries of FP7 grants. We obtained sufficient assurance to rely on the work of the audit firms as a complementary basis for our audit opinions on the legality and regularity of payments. |
| --- | --- |

9.

As in prior years, we remain exclusively responsible for the audit of the legality and regularity of the underlying transactions. Our audit approach comprised substantive testing of representative samples of payment and revenue transactions, analytical review procedures, and an assessment of key controls of each Joint Undertakings’ supervisory and internal control systems. We also reviewed the quality of the ex post audits of declared costs carried out by the contracted independent external audit firms at beneficiaries of FP7 grants. We obtained sufficient assurance to rely on the work of the audit firms as a complementary basis for our audit opinions on the legality and regularity of payments.

| 10. | The 2016 audit showed, however, that the outsourcing of the reliability of accounts part of the audit significantly increased administrative burden and caused overlaps of audit works. |
| --- | --- |

10.

The 2016 audit showed, however, that the outsourcing of the reliability of accounts part of the audit significantly increased administrative burden and caused overlaps of audit works.

AUDIT RESULTS

Clean audit opinions on the reliability of the accounts for all Joint Undertakings

| 11. | The final accounts of all eight Joint Undertakings present fairly, in all material respects, their financial position as at 31 December 2016 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.

The final accounts of all eight Joint Undertakings present fairly, in all material respects, their financial position as at 31 December 2016 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.

Clean audit opinions on the legality and regularity of the transactions underlying the accounts for seven out of eight Joint Undertakings

| 12. | The transactions underlying the annual accounts for the year ended 31 December 2016 were legal and regular in all material respects for seven Joint Undertakings (F4E, BBI, Clean Sky, IMI, FCH, SESAR and S2R). |
| --- | --- |

12.

The transactions underlying the annual accounts for the year ended 31 December 2016 were legal and regular in all material respects for seven Joint Undertakings (F4E, BBI, Clean Sky, IMI, FCH, SESAR and S2R).

| 13. | As in 2015, we issued a qualified opinion on the legality and regularity of the transactions underlying the accounts of the ECSEL Joint Undertaking. The arrangements in place at the ECSEL Joint Undertaking for ex post audits at beneficiaries of FP7 grants do not allow the calculation of a reliable weighted error rate or a residual error rate for its FP7 payments. 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 Joint Undertaking. This issue is linked to the control system which the ECSEL Joint Undertaking inherited from its predecessors (the ENIAC and Artemis Joint Undertakings) and will no longer be relevant for the implementation of Horizon 2020 projects. |
| --- | --- |

13.

As in 2015, we issued a qualified opinion on the legality and regularity of the transactions underlying the accounts of the ECSEL Joint Undertaking. The arrangements in place at the ECSEL Joint Undertaking for ex post audits at beneficiaries of FP7 grants do not allow the calculation of a reliable weighted error rate or a residual error rate for its FP7 payments. 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 Joint Undertaking. This issue is linked to the control system which the ECSEL Joint Undertaking inherited from its predecessors (the ENIAC and Artemis Joint Undertakings) and will no longer be relevant for the implementation of Horizon 2020 projects.

We draw attention to the risks related to the EU contribution to the ITER project costs

| 14. | Our audit opinions on the annual accounts of the F4E Joint Undertaking are accompanied by an emphasis of matter (2) related to the EU contribution to the ITER project costs. |
| --- | --- |

14.

Our audit opinions on the annual accounts of the F4E Joint Undertaking are accompanied by an emphasis of matter (2) related to the EU contribution to the ITER project costs.

| 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.

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.

| 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.

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).

| 17. | Moreover, the F4E Joint Undertaking must also contribute to the ITER operational phase after 2035 and to the subsequent deactivation and decommissioning phases. These costs are not yet estimated. |
| --- | --- |

17.

Moreover, the F4E Joint Undertaking must also contribute to the ITER operational phase after 2035 and to the subsequent deactivation and decommissioning phases. These costs are not yet estimated.

| 18. | In June 2017, the Commission issued a communication on the EU contribution to the ITER project, seeking the support of the European Parliament and a mandate from the Council of the EU for the Commission to approve the new baseline. The Commission has suggested that a contingency of up to 24 months in terms of schedule and 10-20 % in terms of budget would be appropriate. The 6,6 billion euro adopted by the EU Council in 2010 now serves as a ceiling for the JU’s spending up to 2020. |
| --- | --- |

18.

In June 2017, the Commission issued a communication on the EU contribution to the ITER project, seeking the support of the European Parliament and a mandate from the Council of the EU for the Commission to approve the new baseline. The Commission has suggested that a contingency of up to 24 months in terms of schedule and 10-20 % in terms of budget would be appropriate. The 6,6 billion euro adopted by the EU Council in 2010 now serves as a ceiling for the JU’s spending up to 2020.

| 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.

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.

Comments made in our specific reports

| 20. | Without calling our opinions into question, we made various comments in our specific annual reports on the Joint Undertakings, in order to highlight matters of importance and indicate areas for improvement. |
| --- | --- |

20.

Without calling our opinions into question, we made various comments in our specific annual reports on the Joint Undertakings, in order to highlight matters of importance and indicate areas for improvement.

Budgetary and financial management

| 21. | In four cases (Clean Sky, IMI, FCH, SESAR), the
  implementation rate for payment appropriations in 2016
  was significantly lower than expected, due to delays in concluding grant agreements (Clean Sky, IMI), fewer than expected grant agreements following the evaluation of the calls for proposals (FCH), or beneficiaries’ delays in implementing the projects and/or presenting their cost statements (SESAR). For IMI, the low rate of budget implementation was also linked to a significant reduction in spending on the emergency EBOLA+ programme when the epidemic receded. |
| --- | --- |

21.

In four cases (Clean Sky, IMI, FCH, SESAR), the
  implementation rate for payment appropriations in 2016
  was significantly lower than expected, due to delays in concluding grant agreements (Clean Sky, IMI), fewer than expected grant agreements following the evaluation of the calls for proposals (FCH), or beneficiaries’ delays in implementing the projects and/or presenting their cost statements (SESAR). For IMI, the low rate of budget implementation was also linked to a significant reduction in spending on the emergency EBOLA+ programme when the epidemic receded.

Closing phase of the FP7 programme showed some backlog of contributions from industry and research partners

| 22. | We reported on the Joint Undertakings’ multi-annual budgetary implementation of the FP7, TEN-T and Horizon 2020 programmes. |
| --- | --- |

22.

We reported on the Joint Undertakings’ multi-annual budgetary implementation of the FP7, TEN-T and Horizon 2020 programmes.

| 23. | For
  FP7
  , at the end of 2016, the total contributions (in-kind and cash) from industry and research partners were expected to be of a similar amount as the EU cash contributions. However, for all Joint Undertakings the private partners contributed slightly less than the EU. For the IMI Joint Undertaking, however, the backlog of contributions from industry amounted to about 220 million euro (equivalent to 30 % of the EU cash contribution). |
| --- | --- |

23.

For
  FP7
  , at the end of 2016, the total contributions (in-kind and cash) from industry and research partners were expected to be of a similar amount as the EU cash contributions. However, for all Joint Undertakings the private partners contributed slightly less than the EU. For the IMI Joint Undertaking, however, the backlog of contributions from industry amounted to about 220 million euro (equivalent to 30 % of the EU cash contribution).

| 24. | Horizon 2020
  was still in its preliminary phase in 2016, and the EU cash contribution was used to pre-finance the first wave of grant agreements with the industry partners and other beneficiaries. This explains the rather low level of in-kind contributions declared by industry partners at the end of 2016. |
| --- | --- |

24.

Horizon 2020
  was still in its preliminary phase in 2016, and the EU cash contribution was used to pre-finance the first wave of grant agreements with the industry partners and other beneficiaries. This explains the rather low level of in-kind contributions declared by industry partners at the end of 2016.

Starting phase of the Horizon 2020 programme showed a high level of contribution from industry partners for additional activities

| 25. | In some cases, industry and research partners may also declare
  in-kind contributions for additional activities
  which are outside the Joint Undertakings’ work programmes (Clean Sky, BBI, S2R, FCH). At the end of 2016, the partners had already declared a significant portion of the minimum amounts defined in the respective Joint Undertakings’ founding regulations for the whole Horizon 2020 period (BBI: 17 %; Clean Sky: 36 %; S2R: 43 %; FCH: 66 %). The Joint Undertakings are not required to disclose the in-kind contributions for additional activities in their annual accounts and we have no mandate to audit the amounts declared. |
| --- | --- |

25.

In some cases, industry and research partners may also declare
  in-kind contributions for additional activities
  which are outside the Joint Undertakings’ work programmes (Clean Sky, BBI, S2R, FCH). At the end of 2016, the partners had already declared a significant portion of the minimum amounts defined in the respective Joint Undertakings’ founding regulations for the whole Horizon 2020 period (BBI: 17 %; Clean Sky: 36 %; S2R: 43 %; FCH: 66 %). The Joint Undertakings are not required to disclose the in-kind contributions for additional activities in their annual accounts and we have no mandate to audit the amounts declared.

| 26. | Further information on multiannual budgetary implementation may be found in the Joint Undertakings’ annual activity reports. |
| --- | --- |

26.

Further information on multiannual budgetary implementation may be found in the Joint Undertakings’ annual activity reports.

Internal controls were generally effective and kept the error rates below 2 %

| 27. | The Joint Undertakings have set up

  ex ante

  control procedures
  based on financial and operational desk reviews, and contracted independent external audit firms to perform

  ex post

  audits at beneficiaries
  . These checks are key tools for assessing the legality and regularity of the underlying payment transactions, including the cash and in-kind contributions from industry and research members. |
| --- | --- |

27.

The Joint Undertakings have set up

  ex ante

  control procedures
  based on financial and operational desk reviews, and contracted independent external audit firms to perform

  ex post

  audits at beneficiaries
  . These checks are key tools for assessing the legality and regularity of the underlying payment transactions, including the cash and in-kind contributions from industry and research members.

| 28. | Based on the ex post audit results for FP7 grant payments, at the end of 2016, all the Joint Undertakings (except ECSEL) calculated and reported residual error rates below 2 %. This was confirmed by our reviews of the work of the external audit firms. |
| --- | --- |

28.

Based on the ex post audit results for FP7 grant payments, at the end of 2016, all the Joint Undertakings (except ECSEL) calculated and reported residual error rates below 2 %. This was confirmed by our reviews of the work of the external audit firms.

| 29. | For Horizon 2020 grant payments, no ex post audits were completed by the end of 2016. Therefore, our opinion on the legality and regularity of Horizon 2020 payments was based solely on the results of our substantive testing and analysis of the Joint Undertakings’ internal control systems. For all Joint Undertakings, the error rate was below the materiality threshold of 2 % of the final budget. |
| --- | --- |

29.

For Horizon 2020 grant payments, no ex post audits were completed by the end of 2016. Therefore, our opinion on the legality and regularity of Horizon 2020 payments was based solely on the results of our substantive testing and analysis of the Joint Undertakings’ internal control systems. For all Joint Undertakings, the error rate was below the materiality threshold of 2 % of the final budget.

| 30. | At the end of 2016, two Joint Undertakings (Clean Sky and IMI) had only partly completed the
  integration of their Horizon 2020 control systems
  with the Commission’s common Horizon 2020 grant management and monitoring tools. |
| --- | --- |

30.

At the end of 2016, two Joint Undertakings (Clean Sky and IMI) had only partly completed the
  integration of their Horizon 2020 control systems
  with the Commission’s common Horizon 2020 grant management and monitoring tools.

| 31. | During 2016, two Joint Undertakings (SESAR and S2R) awarded Horizon 2020 grants to project consortia despite the fact that the
  checks of the financial viability of the beneficiaries
  performed by the Research Executive Agency indicated a weak financial capacity of the coordinating industry members of the consortia. |
| --- | --- |

31.

During 2016, two Joint Undertakings (SESAR and S2R) awarded Horizon 2020 grants to project consortia despite the fact that the
  checks of the financial viability of the beneficiaries
  performed by the Research Executive Agency indicated a weak financial capacity of the coordinating industry members of the consortia.

| 32. | The system in place at the Clean Sky Joint Undertaking for
  the monitoring and clearing of Horizon 2020 pre-financing
  permitted an accumulation of around 176 million euro of outstanding pre-financing, increasing the exposure of the Joint Undertaking to financial risk. |
| --- | --- |

32.

The system in place at the Clean Sky Joint Undertaking for
  the monitoring and clearing of Horizon 2020 pre-financing
  permitted an accumulation of around 176 million euro of outstanding pre-financing, increasing the exposure of the Joint Undertaking to financial risk.

| 33. | Concerning their procedures for the
  procurement of services
  , two Joint Undertakings (SESAR and S2R) set maximum contract budgets. However, these maximum amounts were not based on a systematic cost estimation process or a reasonable market price reference system. As practice showed that most bids received are close to the maximum budget, this does not ensure the cost-effectiveness of their multi-annual service contracts. |
| --- | --- |

33.

Concerning their procedures for the
  procurement of services
  , two Joint Undertakings (SESAR and S2R) set maximum contract budgets. However, these maximum amounts were not based on a systematic cost estimation process or a reasonable market price reference system. As practice showed that most bids received are close to the maximum budget, this does not ensure the cost-effectiveness of their multi-annual service contracts.

Follow-up of previous years’ comments

| 34. | In most cases, the Joint Undertakings took corrective action in
  follow-up to previous years’ comments
  made in our earlier specific annual reports. Details can be found in the annexes to our reports. |
| --- | --- |

34.

In most cases, the Joint Undertakings took corrective action in
  follow-up to previous years’ comments
  made in our earlier specific annual reports. Details can be found in the annexes to our reports.

CONCLUSIONS

| 35. | We issued unqualified opinions on the reliability of the accounts for the financial year ended 31 December 2016 for all of the Joint Undertakings. |
| --- | --- |

35.

We issued unqualified opinions on the reliability of the accounts for the financial year ended 31 December 2016 for all of the Joint Undertakings.

| 36. | We issued unqualified opinions on the legality and regularity of the underlying transactions for the financial year ended 31 December 2016 for seven of the eight Joint Undertakings. We issued a qualified opinion on the legality and regularity of the underlying transactions for the ECSEL Joint Undertaking as no reasonable assurance could be obtained on the reliability of its internal controls for FP7 grant payments. |
| --- | --- |

36.

We issued unqualified opinions on the legality and regularity of the underlying transactions for the financial year ended 31 December 2016 for seven of the eight Joint Undertakings. We issued a qualified opinion on the legality and regularity of the underlying transactions for the ECSEL Joint Undertaking as no reasonable assurance could be obtained on the reliability of its internal controls for FP7 grant payments.

| 37. | We made comments on issues related to budgetary implementation and management, internal control systems and procurement procedures which, however, did not affect our opinions. |
| --- | --- |

37.

We made comments on issues related to budgetary implementation and management, internal control systems and procurement procedures which, however, did not affect our opinions.

| 38. | In relation to the F4E Joint Undertaking, we noted that positive steps have been taken to improve the management and control of the ITER project construction phase, but there remains a risk of further cost increases and delays in project implementation. |
| --- | --- |

38.

In relation to the F4E Joint Undertaking, we noted that positive steps have been taken to improve the management and control of the ITER project construction phase, but there remains a risk of further cost increases and delays in project implementation.

---

(1)  The SESAR and S2R Joint Undertakings also receive funding from the Trans-European Networks Transport programme (TEN-T).

(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.

---

ANNEX

Joint Undertakings' activities, budget and staff

| JOINT UNDERTAKING | | | | Final Budget (million euro) | Staff numbers |
| --- | --- | --- | --- | --- | --- |
| Parent DG | Policy Area | Area of Activity | 2015 | 2016 | At 31.12.2015 | At 31.12.2016 |
| BBI | DG RTD | Research | Bio-based products and biofuels | 21,1 | 66 | 13 | 20 |
| CLEAN SKY | DG RTD | Research | Aeronautical technologies | 245,9 | 287,8 | 36 | 41 |
| ECSEL | DG CONNECT | Research | Electronic components and systems | 161,5 | 244,1 | 28 | 29 |
| F4E —FUSION FOR ENERGY | DG ENER | Research | Nuclear fusion | 586 | 720 | 383 | 415 |
| FCH — FUEL CELLS AND HYDROGEN | DG RTD | Research | Fuel cells and hydrogen technologies | 95,1 | 98,3 | 26 | 26 |
| IMI — INNOVATIVE MEDICINES INITIATIVE | DG RTD | Research | Development of and access to innovative medicines | 195,4 | 209,3 | 35 | 41 |
| SESAR | DG MOVE | Research | Air traffic management | 136,9 | 157,1 | 41 | 44 |
| S2R — SHIFT2RAIL | DG MOVE | Research | Railway sector | — | 51,4 | — | 17 |
| Total | 1 441,9 | 1 834 | 562 | 633 |

JOINT UNDERTAKING

Final Budget (million euro)

Staff numbers

Parent DG

Policy Area

Area of Activity

2015

2016

At 31.12.2015

At 31.12.2016

BBI

DG RTD

Research

Bio-based products and biofuels

21,1

66

13

20

CLEAN SKY

DG RTD

Research

Aeronautical technologies

245,9

287,8

36

41

ECSEL

DG CONNECT

Research

Electronic components and systems

161,5

244,1

28

29

F4E —FUSION FOR ENERGY

DG ENER

Research

Nuclear fusion

586

720

383

415

FCH — FUEL CELLS AND HYDROGEN

DG RTD

Research

Fuel cells and hydrogen technologies

95,1

98,3

26

26

IMI — INNOVATIVE MEDICINES INITIATIVE

DG RTD

Research

Development of and access to innovative medicines

195,4

209,3

35

41

SESAR

DG MOVE

Research

Air traffic management

136,9

157,1

41

44

S2R — SHIFT2RAIL

DG MOVE

Research

Railway sector

—

51,4

—

17

Total

1 441,9

1 834

562

633

---

| 12.12.2017 | EN | Official Journal of the European Union | C 426/8 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/8

---

REPORT

on the annual accounts of the Bio-based Industries Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/02)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-9 | 9 |
| Establishment of the BBI Joint Undertaking | 1-2 | 9 |
| Governance | 3-5 | 9 |
| Objectives | 6 | 9 |
| Resources | 7-9 | 9 |
| OPINION | 10-22 | 10 |
| Opinion on the reliability of the accounts | 11 | 10 |
| Opinion on the legality and regularity of revenue underlying the accounts | 12 | 10 |
| Opinion on the legality and regularity of payments underlying the accounts | 13 | 10 |
| Responsibilities of management and those charged with governance | 14-16 | 10 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 17-21 | 11 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 23-27 | 11 |
| Implementation of the 2016 budget | 23 | 11 |
| Multiannual budget implementation under Horizon 2020 | 24-27 | 11 |
| INTERNAL CONTROLS | 28 | 12 |
| Internal control framework | 28 | 12 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-9

9

Establishment of the BBI Joint Undertaking

1-2

9

Governance

3-5

9

Objectives

6

9

Resources

7-9

9

OPINION

10-22

10

Opinion on the reliability of the accounts

11

10

Opinion on the legality and regularity of revenue underlying the accounts

12

10

Opinion on the legality and regularity of payments underlying the accounts

13

10

Responsibilities of management and those charged with governance

14-16

10

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

17-21

11

BUDGETARY AND FINANCIAL MANAGEMENT

23-27

11

Implementation of the 2016 budget

23

11

Multiannual budget implementation under Horizon 2020

24-27

11

INTERNAL CONTROLS

28

12

Internal control framework

28

12

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

13

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.

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.

| 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.

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).

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.

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

| 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-sized 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.

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-sized 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.

| 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.

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.

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.

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.

Resources

| 7. | The maximum EU contribution to the activities of the BBI Joint Undertaking is 975 million euro, to be paid from Horizon 2020. The industry members of the Joint Undertaking are to contribute resources of at least 2 730 million euro over the period of the Joint Undertaking (2), consisting of at least 975 million euro of in-kind and cash contributions to the Joint Undertaking’s operational activities (3) and at least 1 755 million euro of in-kind contributions to the Joint Undertaking’s additional activities (4). |
| --- | --- |

7.

The maximum EU contribution to the activities of the BBI Joint Undertaking is 975 million euro, to be paid from Horizon 2020. The industry members of the Joint Undertaking are to contribute resources of at least 2 730 million euro over the period of the Joint Undertaking (2), consisting of at least 975 million euro of in-kind and cash contributions to the Joint Undertaking’s operational activities (3) and at least 1 755 million euro of in-kind contributions to the Joint Undertaking’s additional activities (4).

| 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.

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).

| 9. | In 2016, the payments budget for the BBI Joint Undertaking was 66 million euro (2015: 21,1 million euro). At 31 December 2016, the Joint Undertaking employed 20 staff (2015: 13) (6). |
| --- | --- |

9.

In 2016, the payments budget for the BBI Joint Undertaking was 66 million euro (2015: 21,1 million euro). At 31 December 2016, the Joint Undertaking employed 20 staff (2015: 13) (6).

| OPINION









  10. | 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 2016; and |
| --- | --- | --- |

OPINION

10.

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 2016; 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

| 11. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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. |
| --- | --- |

11.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

Opinion on the legality and regularity of revenue underlying the accounts

| 12. | In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects. |
| --- | --- |

12.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

Opinion on the legality and regularity of payments underlying the accounts

| 13. | In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects. |
| --- | --- |

13.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

Responsibilities of management and those charged with governance

| 14. | 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. |
| --- | --- |

14.

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. | 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. |
| --- | --- |

15.

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

16.

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

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

| 17. | 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. |
| --- | --- |

17.

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. | 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. |
| --- | --- |

18.

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

19.

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

| 20. | 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. |
| --- | --- |

20.

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.

| 21. | 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). |
| --- | --- |

21.

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. | The comments which follow do not call our opinions into question. |
| --- | --- |

22.

The comments which follow do not call our opinions into question.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 23. | Taking into account unused payment appropriations from previous years (1,2 million euro), the final 2016 budget available for Horizon 2020 programme implementation included commitment appropriations of 194,3 million euro and payment appropriations of 67,2 million euro. The utilisation rates for commitment and payment appropriations were 97,1 % and 95,8 %, respectively. The payment appropriations were mainly used for the pre-financing of grant agreements resulting from the 2014 and 2015 calls for proposals. |
| --- | --- |

23.

Taking into account unused payment appropriations from previous years (1,2 million euro), the final 2016 budget available for Horizon 2020 programme implementation included commitment appropriations of 194,3 million euro and payment appropriations of 67,2 million euro. The utilisation rates for commitment and payment appropriations were 97,1 % and 95,8 %, respectively. The payment appropriations were mainly used for the pre-financing of grant agreements resulting from the 2014 and 2015 calls for proposals.

Multiannual budget implementation under Horizon 2020

| 24. | Out of the 975 million euro of Horizon 2020 funds allocated to the BBI Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 414,3 million euro (42,5 %) and payments of 79,5 million euro (8 % of the allocated funds) for the implementation of its first wave of projects. |
| --- | --- |

24.

Out of the 975 million euro of Horizon 2020 funds allocated to the BBI Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 414,3 million euro (42,5 %) and payments of 79,5 million euro (8 % of the allocated funds) for the implementation of its first wave of projects.

| 25. | Out of the 975 million euro of contributions to be made by the industry members to the operational activities and administrative costs of the Joint Undertaking, by the end of 2016 industry members had reported in-kind contributions of 15,4 million euro for operational activities, and the Governing Board had validated cash contributions by the members to the Joint Undertaking’s administrative costs of 3 million euro. The low level of in-kind contributions reflects the fact that most BBI projects were only in their preliminary stages in 2016. |
| --- | --- |

25.

Out of the 975 million euro of contributions to be made by the industry members to the operational activities and administrative costs of the Joint Undertaking, by the end of 2016 industry members had reported in-kind contributions of 15,4 million euro for operational activities, and the Governing Board had validated cash contributions by the members to the Joint Undertaking’s administrative costs of 3 million euro. The low level of in-kind contributions reflects the fact that most BBI projects were only in their preliminary stages in 2016.

| 26. | Out of the 1 755 million euro of industry members’ contributions to be made to additional activities, 294,8 million euro had been reported and certified (10) by the end of 2016. |
| --- | --- |

26.

Out of the 1 755 million euro of industry members’ contributions to be made to additional activities, 294,8 million euro had been reported and certified (10) by the end of 2016.

| 27. | Consequently, by the end of 2016, the total contributions from the industry members amounted to 313,2 million euro, compared to the EU’s cash contribution of 65 million euro. The significant difference between the EU’s and the industry members’ contributions is explained by the fact that the industry members had already declared a significant amount of in-kind contributions to additional activities. |
| --- | --- |

27.

Consequently, by the end of 2016, the total contributions from the industry members amounted to 313,2 million euro, compared to the EU’s cash contribution of 65 million euro. The significant difference between the EU’s and the industry members’ contributions is explained by the fact that the industry members had already declared a significant amount of in-kind contributions to additional activities.

INTERNAL CONTROLS

Internal control framework

| 28. | In 2016, most payments by the BBI Joint Undertaking were pre-financing payments for Horizon 2020 projects, paid upon signature of the first grant agreements. Ex post audits of project cost claims by independent external auditors are to be launched in 2017. |
| --- | --- |

28.

In 2016, most payments by the BBI Joint Undertaking were pre-financing payments for Horizon 2020 projects, paid upon signature of the first grant agreements. Ex post audits of project cost claims by independent external auditors are to be launched in 2017.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 19 September 2017.

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

2

(3)  According to Article 12(4) of the Statutes of the BBI Joint Undertaking (Annex of Regulation (EU) No 560/2014), the cash contribution by the members other than the Union to the operational costs shall be at least 182,5 million euro.

3

Annex

(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 of Regulation (EU) No 560/2014).

5

Annex

(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 (OJ L 298, 26.10.2012, p. 1).

9

(10)  A further estimated amount of 523,8 million euro were reported for 2016 but not certified.

10

---

ANNEX

Follow-up of previous years’ comments

| Year | ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding/N/A) |
| --- | --- | --- |
| | Conflict 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

ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding/N/A)

Conflict 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

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

---

| 12.12.2017 | EN | Official Journal of the European Union | C 426/15 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/15

---

REPORT

on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/03)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-10 | 16 |
| Establishment of the Clean Sky Joint Undertaking | 1-2 | 16 |
| Governance | 3-5 | 16 |
| Objectives | 6 | 16 |
| Resources | 7-10 | 16 |
| OPINION | 11-23 | 17 |
| Opinion on the reliability of the accounts | 12 | 17 |
| Opinion on the legality and regularity of revenue underlying the accounts | 13 | 17 |
| Opinion on the legality and regularity of payments underlying the accounts | 14 | 17 |
| Responsibilities of management and those in charge of governance | 15-17 | 17 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 18-22 | 18 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 24-31 | 18 |
| Implementation of the 2016 budget | 24 | 18 |
| Multiannual budget implementation under FP7 | 25-27 | 19 |
| Multiannual budget implementation under Horizon 2020 | 28-31 | 19 |
| INTERNAL CONTROLS | 32-34 | 19 |
| Internal control framework | 32 | 19 |
| Management of Horizon 2020 grants | 33 | 19 |
| Monitoring and clearing of pre-financing | 34 | 20 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-10

16

Establishment of the Clean Sky Joint Undertaking

1-2

16

Governance

3-5

16

Objectives

6

16

Resources

7-10

16

OPINION

11-23

17

Opinion on the reliability of the accounts

12

17

Opinion on the legality and regularity of revenue underlying the accounts

13

17

Opinion on the legality and regularity of payments underlying the accounts

14

17

Responsibilities of management and those in charge of governance

15-17

17

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

18-22

18

BUDGETARY AND FINANCIAL MANAGEMENT

24-31

18

Implementation of the 2016 budget

24

18

Multiannual budget implementation under FP7

25-27

19

Multiannual budget implementation under Horizon 2020

28-31

19

INTERNAL CONTROLS

32-34

19

Internal control framework

32

19

Management of Horizon 2020 grants

33

19

Monitoring and clearing of pre-financing

34

20

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

21

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). |
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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).

| 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, the industrial leaders of the Integrated Technology Demonstrators (ITDs)/Innovative Aircraft Demonstrator Platforms (IADPs)/Transverse Areas (TAs) and ‘core partners’ selected via open and competitive calls (3). The Associate Members of the first phase of the Clean Sky Joint Undertaking will retain their status until completion of their research activities initiated under Regulation (EC) No 71/2008. |
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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, the industrial leaders of the Integrated Technology Demonstrators (ITDs)/Innovative Aircraft Demonstrator Platforms (IADPs)/Transverse Areas (TAs) and ‘core partners’ selected via open and competitive calls (3). The Associate Members of the first phase of the Clean Sky Joint Undertaking will retain their status until completion of their research activities initiated under Regulation (EC) No 71/2008.

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. |
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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.

| 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 core partner per ITD, one representative of the Associates per ITD and one representative of the core partners per 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. |
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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 core partner per ITD, one representative of the Associates per ITD and one representative of the core partners per 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.

| 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. |
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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.

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. |
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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.

Resources

| 7. | The maximum EU contribution to the first phase of the Clean Sky Joint Undertaking’s research activities and administrative costs 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 Associated Members. The ITD leaders and Associated Members are to contribute resources at least matching the EU contribution. The remaining amount of at least 200 million euro must be allocated to the core partners selected by means of competitive calls for proposals (5). |
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7.

The maximum EU contribution to the first phase of the Clean Sky Joint Undertaking’s research activities and administrative costs 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 Associated Members. The ITD leaders and Associated Members are to contribute resources at least matching the EU contribution. The remaining amount of at least 200 million euro must be allocated to the core partners selected by means of competitive calls for proposals (5).

| 8. | The maximum EU contribution to the second phase of activities is 1 755 million euro, to be paid from Horizon 2020 (6). The leaders and core partners of the Joint Undertaking are to contribute resources of at least 2 193,7 million euro (7), consisting of at least 1 228,5 million euro of in-kind contributions to the Joint Undertaking’s operational activities and at least 965,2 million euro of in-kind contributions for additional activities (8). |
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8.

The maximum EU contribution to the second phase of activities is 1 755 million euro, to be paid from Horizon 2020 (6). The leaders and core partners of the Joint Undertaking are to contribute resources of at least 2 193,7 million euro (7), consisting of at least 1 228,5 million euro of in-kind contributions to the Joint Undertaking’s operational activities and at least 965,2 million euro of in-kind contributions for additional activities (8).

| 9. | The administrative costs for the second phase of the Clean Sky Joint Undertaking (Clean Sky 2 Joint Undertaking (CS2 JU)) 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). |
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9.

The administrative costs for the second phase of the Clean Sky Joint Undertaking (Clean Sky 2 Joint Undertaking (CS2 JU)) 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).

| 10. | In 2016, the budget for the Clean Sky 2 Joint Undertaking was 287,8 million euro (2015: 246 million euro). At 31 December 2016, the Joint Undertaking had 41 staff (2015: 36) (10). |
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10.

In 2016, the budget for the Clean Sky 2 Joint Undertaking was 287,8 million euro (2015: 246 million euro). At 31 December 2016, the Joint Undertaking had 41 staff (2015: 36) (10).

| OPINION









  11. | 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 2016; and |
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OPINION

11.

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 2016; 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). |
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(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 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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. |
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12.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

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 2016 is legal and regular in all material respects. |
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13.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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 2016 are legal and regular in all material respects. |
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14.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

Responsibilities of management and those in charge of 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. |
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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.

| 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. |
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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.

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

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

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. |
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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.

| 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. |
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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.

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

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

| 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. 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. |
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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. 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.

| 22. | 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). |
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22.

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

The comments which follow do not call the Court’s opinions into question.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 24. | The final 2016 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 310,5 million euro and payment appropriations of 287,8 million euro. The utilisation rates for commitment and payment appropriations were 97,5 % and 87,9 %, respectively. The lower implementation rate for payment appropriations is mainly due to delays in starting Horizon 2020 projects and, in particular, due to the delayed signature of one significant grant agreement with a member of the Joint Undertaking. |
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24.

The final 2016 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 310,5 million euro and payment appropriations of 287,8 million euro. The utilisation rates for commitment and payment appropriations were 97,5 % and 87,9 %, respectively. The lower implementation rate for payment appropriations is mainly due to delays in starting Horizon 2020 projects and, in particular, due to the delayed signature of one significant grant agreement with a member of the Joint Undertaking.

Multiannual budget implementation under FP7

| 25. | Out of the 800 million euro of FP7 funds allocated to the Clean Sky Joint Undertaking, by the end of 2016 the Joint Undertaking had made operational commitments of 784,5 million euro and operational payments of 754,7 million euro. The EU cash contribution to the administrative costs was 13,9 million euro. As the Joint Undertaking is no longer entitled to launch calls for proposals under FP7, the remaining commitments will be used for the payment of final cost claims from members, in line with the overall state of implementation of each ITD (14). |
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25.

Out of the 800 million euro of FP7 funds allocated to the Clean Sky Joint Undertaking, by the end of 2016 the Joint Undertaking had made operational commitments of 784,5 million euro and operational payments of 754,7 million euro. The EU cash contribution to the administrative costs was 13,9 million euro. As the Joint Undertaking is no longer entitled to launch calls for proposals under FP7, the remaining commitments will be used for the payment of final cost claims from members, in line with the overall state of implementation of each ITD (14).

| 26. | Out of the 800 million euro of in-kind and cash contributions to be made by the other members to the operational activities of the Joint Undertaking, by the end of 2016, the Governing board had validated in-kind contributions of 554,7 million euro and a further 33,5 million euro had been reported by the members. The members’ cash contributions to administrative costs were 14,5 million euro. |
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26.

Out of the 800 million euro of in-kind and cash contributions to be made by the other members to the operational activities of the Joint Undertaking, by the end of 2016, the Governing board had validated in-kind contributions of 554,7 million euro and a further 33,5 million euro had been reported by the members. The members’ cash contributions to administrative costs were 14,5 million euro.

| 27. | Consequently, at the end of 2016, the total contribution of the members to the FP7 activities of the Joint Undertaking amounted to 602,7 million euro, compared to the EU’s cash contribution of 775,2 million euro. |
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27.

Consequently, at the end of 2016, the total contribution of the members to the FP7 activities of the Joint Undertaking amounted to 602,7 million euro, compared to the EU’s cash contribution of 775,2 million euro.

Multiannual budget implementation under Horizon 2020

| 28. | Out of the 1 755 million euro of Horizon 2020 funds allocated to the Clean Sky Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 694 million euro and payments of 282 million euro (16 % of the allocated funds). The lower level of payments was partly due to delays in negotiating the Horizon 2020 grant agreements. |
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28.

Out of the 1 755 million euro of Horizon 2020 funds allocated to the Clean Sky Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 694 million euro and payments of 282 million euro (16 % of the allocated funds). The lower level of payments was partly due to delays in negotiating the Horizon 2020 grant agreements.

| 29. | Out of the 1 229 million euro of contributions to be made by the industry members to the operational activities of the Joint Undertaking, the Governing Board had validated in-kind contributions of 39,2 million euro and a further 104,0 million euro had been reported by the end of 2016. The industry members’ cash contributions to the administrative costs were 6,4 million euro. |
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29.

Out of the 1 229 million euro of contributions to be made by the industry members to the operational activities of the Joint Undertaking, the Governing Board had validated in-kind contributions of 39,2 million euro and a further 104,0 million euro had been reported by the end of 2016. The industry members’ cash contributions to the administrative costs were 6,4 million euro.

| 30. | Out of the 965,2 million euro of members’ contributions to the additional activities of the Joint Undertaking, by the end of 2016, 199,2 million euro had been reported and certified by the members and a further 152,6 million euro had been reported. |
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30.

Out of the 965,2 million euro of members’ contributions to the additional activities of the Joint Undertaking, by the end of 2016, 199,2 million euro had been reported and certified by the members and a further 152,6 million euro had been reported.

| 31. | Consequently, by the end of 2016, the total contributions of the industry members amounted to 348,8 million euro, compared to the EU’s cash contributions of 310,2 million euro. |
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31.

Consequently, by the end of 2016, the total contributions of the industry members amounted to 348,8 million euro, compared to the EU’s cash contributions of 310,2 million euro.

INTERNAL CONTROLS

Internal control framework

| 32. | The Clean Sky Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews, and ex post audits of grant cost claims. These checks are a key tool for assessing the legality and regularity of the underlying transactions, including the other members’ in-kind and cash contributions to the Joint Undertaking. The residual error rates for the ex post audits reported by the Joint Undertaking at the end of 2016 were 1,51 % for FP7 projects and 0,95 % for Horizon 2020 projects (15). |
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32.

The Clean Sky Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews, and ex post audits of grant cost claims. These checks are a key tool for assessing the legality and regularity of the underlying transactions, including the other members’ in-kind and cash contributions to the Joint Undertaking. The residual error rates for the ex post audits reported by the Joint Undertaking at the end of 2016 were 1,51 % for FP7 projects and 0,95 % for Horizon 2020 projects (15).

Management of Horizon 2020 grants

| 33. | 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. |
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33.

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.

Monitoring and clearing of pre-financing

| 34. | 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. |
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34.

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.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 19 September 2017.

For the Court of Auditors

Klaus-Heiner LEHNE

President

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(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)  As a result of the first call for core partners, 76 new partners joined the programme in 2015, making the membership of the second phase of the Clean Sky programme larger than that of the first phase (66 Associates). In 2015, the Joint Undertaking launched a second call for core partners.

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

Annex I

(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. Under Article 4(4) of the 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

Annex I

(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 (OJ L 298, 26.10.2012, p. 1).

13

(14)  See Clean Sky Report on Budgetary and Financial Management 2015, p. 22.

14

(15)  Clean Sky Joint Undertaking 2016 Annual Activity Report, pages 123-124.

15

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ANNEX

Follow-up of previous years’ comments

| Year | Court’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding/N/A) |
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| | 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

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THE JOINT UNDERTAKING’S REPLY

| 28. | The lower level of programme execution is the consequence of the specific demonstration programme, for which some complex actions and grants have taken more time to implement. |
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28.

The lower level of programme execution is the consequence of the specific demonstration programme, for which some complex actions and grants have taken more time to implement.

| 33. | The CS2 JU had decided to continue to use its own dedicated grant management application (grant management tool, GMT) developed under FP7, as some of the required features specific for the CS2 grants were not available in the common Horizon 2020 grant management tools, e.g. the in-kind contribution reporting.
  The CS2 JU has started to work with the respective EC services to implement the necessary developments for the integration of the GAMs (Grant Agreements for Members) into the Horizon 2020 grant management and reporting tools by the end of 2017. In order to ensure a smooth transition between the two systems, the current tool developed by the JU will continue to be used until the migration has been fully completed. Therefore, it is intended that the 2017 reporting cycle will be done in the GMT and the GAMs will be fully managed by the Horizon 2020 tools from 2018 reporting period onwards. |
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33.

The CS2 JU had decided to continue to use its own dedicated grant management application (grant management tool, GMT) developed under FP7, as some of the required features specific for the CS2 grants were not available in the common Horizon 2020 grant management tools, e.g. the in-kind contribution reporting.

The CS2 JU has started to work with the respective EC services to implement the necessary developments for the integration of the GAMs (Grant Agreements for Members) into the Horizon 2020 grant management and reporting tools by the end of 2017. In order to ensure a smooth transition between the two systems, the current tool developed by the JU will continue to be used until the migration has been fully completed. Therefore, it is intended that the 2017 reporting cycle will be done in the GMT and the GAMs will be fully managed by the Horizon 2020 tools from 2018 reporting period onwards.

| 34. | According to Horizon 2020 rules (Article 21 of the H2020 Model Grant Agreement), the pre-financing is only cleared at the final reporting period of the project or before, if the total amount of pre-financing and interim payments exceeds 90 % of the maximum grant amount. Until 2016, this general rule was followed by the CS2 JU for the signed Horizon 2020 GAMs. In order to mitigate the financial exposure, the CS2 JU took the initiative in 2017 to clear the pre-financing paid for the period 2014-2016 for the ongoing GAMs. This approach was agreed with the GAM’s beneficiaries and is now being applied for the payment of the 2016 cost claims. |
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34.

According to Horizon 2020 rules (Article 21 of the H2020 Model Grant Agreement), the pre-financing is only cleared at the final reporting period of the project or before, if the total amount of pre-financing and interim payments exceeds 90 % of the maximum grant amount. Until 2016, this general rule was followed by the CS2 JU for the signed Horizon 2020 GAMs. In order to mitigate the financial exposure, the CS2 JU took the initiative in 2017 to clear the pre-financing paid for the period 2014-2016 for the ongoing GAMs. This approach was agreed with the GAM’s beneficiaries and is now being applied for the payment of the 2016 cost claims.

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| 12.12.2017 | EN | Official Journal of the European Union | C 426/23 |
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12.12.2017

EN

Official Journal of the European Union

C 426/23

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REPORT

on the annual accounts of the Electronic Components and Systems for European Leadership Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/04)

TABLE OF CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-9 | 24 |
| Establishment of the ECSEL Joint Undertaking | 1-2 | 24 |
| Governance | 3-5 | 24 |
| Objectives | 6 | 24 |
| Resources | 7-9 | 24 |
| OPINION | 10-27 | 25 |
| Opinion on the reliability of the accounts | 11 | 25 |
| Opinion on the legality and regularity of revenue underlying the accounts | 12 | 25 |
| Qualified opinion on the legality and regularity of payments underlying the accounts | 13-18 | 25 |
| Basis for a qualified opinion on the legality and regularity of payments underlying the accounts | 14-18 | 25 |
| Responsibilities of management and those in charge of governance | 19-21 | 26 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 22-26 | 26 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 28-32 | 27 |
| Implementation of the 2016 budget | 28 | 27 |
| Multiannual budget implementation under FP7 | 29 | 27 |
| Multiannual budget implementation under Horizon 2020 | 30-32 | 27 |
| INTERNAL CONTROLS | 33-34 | 27 |
| Monitoring of pre-financing for FP7 projects | 33 | 27 |
| Conflicts of interest | 34 | 27 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-9

24

Establishment of the ECSEL Joint Undertaking

1-2

24

Governance

3-5

24

Objectives

6

24

Resources

7-9

24

OPINION

10-27

25

Opinion on the reliability of the accounts

11

25

Opinion on the legality and regularity of revenue underlying the accounts

12

25

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

13-18

25

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

14-18

25

Responsibilities of management and those in charge of governance

19-21

26

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

22-26

26

BUDGETARY AND FINANCIAL MANAGEMENT

28-32

27

Implementation of the 2016 budget

28

27

Multiannual budget implementation under FP7

29

27

Multiannual budget implementation under Horizon 2020

30-32

27

INTERNAL CONTROLS

33-34

27

Monitoring of pre-financing for FP7 projects

33

27

Conflicts of interest

34

27

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

29

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.

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.

| 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 industry members represented by the AENEAS, ARTEMIS-IA and EPoSS Associations of companies and other research organisations active in the fields of embedded and cyber-physical systems, smart system integration and micro- and nano-electronics. |
| --- | --- |

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 industry members represented by the AENEAS, ARTEMIS-IA and EPoSS Associations of companies and other research organisations active in the fields of embedded and cyber-physical systems, smart system integration and micro- and nano-electronics.

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.

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

| 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.

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.

| 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.

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.

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.

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.

Resources

| 7. | The maximum EU contribution to the activities of the ECSEL Joint Undertaking is 1 185 million euro, to be paid from Horizon 2020 (3). At least a similar amount 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.

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

| 8. | The administrative costs of the ECSEL Joint Undertaking are to be covered by cash contributions from the members, limited to 15,3 million euro from the EU and 19,7 million euro from the industry members (6). |
| --- | --- |

8.

The administrative costs of the ECSEL Joint Undertaking are to be covered by cash contributions from the members, limited to 15,3 million euro from the EU and 19,7 million euro from the industry members (6).

| 9. | In 2016, the payments budget of the ECSEL Joint Undertaking was 244 million euro (2015: 161,5 million euro). At 31 December 2016, the Joint Undertaking employed 29 staff (2015: 28) (7). |
| --- | --- |

9.

In 2016, the payments budget of the ECSEL Joint Undertaking was 244 million euro (2015: 161,5 million euro). At 31 December 2016, the Joint Undertaking employed 29 staff (2015: 28) (7).

| OPINION









  10. | 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 2016, and |
| --- | --- | --- |

OPINION

10.

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 2016, 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

| 11. | In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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. |
| --- | --- |

11.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

Opinion on the legality and regularity of revenue underlying the accounts

| 12. | In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects. |
| --- | --- |

12.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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

| 13. | In our opinion, except for the possible effects of the issue described below in paragraphs 14 to 18, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects. |
| --- | --- |

13.

In our opinion, except for the possible effects of the issue described below in paragraphs 14 to 18, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

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 2016, against certificates of acceptance of costs issued by the national funding authorities (NFAs) of the ECSEL Participating States, amounted to 118 million euro, which represents 54 % of the total operational payments made by the Joint Undertaking in 2016. |
| --- | --- |

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 2016, against certificates of acceptance of costs issued by the national funding authorities (NFAs) of the ECSEL Participating States, amounted to 118 million euro, which represents 54 % of the total operational payments made by the Joint Undertaking in 2016.

| 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.

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).

| 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.

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.

| 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.

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).

| 18. | This issue concerning the variation in the methodologies and procedures used by the NFAs is no longer relevant for the implementation of Horizon 2020 projects, as the ex-post audits will be undertaken by the ECSEL Joint Undertaking and the Commission (12). |
| --- | --- |

18.

This issue concerning the variation in the methodologies and procedures used by the NFAs is no longer relevant for the implementation of Horizon 2020 projects, as the ex-post audits will be undertaken by the ECSEL Joint Undertaking and the Commission (12).

Responsibilities of management and those in charge of governance

| 19. | 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. |
| --- | --- |

19.

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. | 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. |
| --- | --- |

20.

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

21.

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

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

| 22. | 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. |
| --- | --- |

22.

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. | 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. |
| --- | --- |

23.

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

24.

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

| 25. | 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. |
| --- | --- |

25.

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. | 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). |
| --- | --- |

26.

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

27.

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

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 28. | Taking into account unused payment appropriations from previous years (1,6 million euro), the final 2016 budget available for implementation included commitment appropriations of 169,3 million euro and payment appropriations of 245,6 million euro. The utilisation rates for commitment and payment appropriations were 99 % and 91 % respectively. |
| --- | --- |

28.

Taking into account unused payment appropriations from previous years (1,6 million euro), the final 2016 budget available for implementation included commitment appropriations of 169,3 million euro and payment appropriations of 245,6 million euro. The utilisation rates for commitment and payment appropriations were 99 % and 91 % respectively.

Multiannual budget implementation under FP7

| 29. | 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 411 million euro (ARTEMIS 132 million euro and ENIAC 279 million euro) by the end of 2016. |
| --- | --- |

29.

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 411 million euro (ARTEMIS 132 million euro and ENIAC 279 million euro) by the end of 2016.

Multiannual budget implementation under Horizon 2020

| 30. | Out of the 1 185 million euro of Horizon 2020 funds allocated to the ECSEL Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 415 million euro and payments of 156 million euro (13 % of the allocated funds) for the implementation of its first wave of projects. |
| --- | --- |

30.

Out of the 1 185 million euro of Horizon 2020 funds allocated to the ECSEL Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 415 million euro and payments of 156 million euro (13 % of the allocated funds) for the implementation of its first wave of projects.

| 31. | 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 2016, 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 371 million euro and payments of 56,8 million euro (4,9 % 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. |
| --- | --- |

31.

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 2016, 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 371 million euro and payments of 56,8 million euro (4,9 % 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. | 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 2016, the Joint Undertaking estimated that the members had made in-kind contributions of 202 million euro, compared to the EU’s cash contribution of 264 million euro. |
| --- | --- |

32.

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 2016, the Joint Undertaking estimated that the members had made in-kind contributions of 202 million euro, compared to the EU’s cash contribution of 264 million euro.

INTERNAL CONTROLS

Monitoring of pre-financing for FP7 projects

| 33. | In 2012, the Joint Undertaking was informed of insolvency proceedings concerning two beneficiaries, but did not attempt to recover the pre-financing payments made to those beneficiaries until 2016. By then, the proceedings were closed and the outstanding pre-financing of 230 000 euro had to be waived. |
| --- | --- |

33.

In 2012, the Joint Undertaking was informed of insolvency proceedings concerning two beneficiaries, but did not attempt to recover the pre-financing payments made to those beneficiaries until 2016. By then, the proceedings were closed and the outstanding pre-financing of 230 000 euro had to be waived.

Conflicts of interest

| 34. | 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, in 2016 the Joint Undertaking did not apply those rules consistently. The internal register of Declarations of Conflicts of Interest was not managed in line with internal guidelines, nor was it regularly updated. |
| --- | --- |

34.

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, in 2016 the Joint Undertaking did not apply those rules consistently. The internal register of Declarations of Conflicts of Interest was not managed in line with internal guidelines, nor was it regularly updated.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 3 October 2017.

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)  See Article 16(2) of the Statutes of the ECSEL Joint Undertaking (the Annex of Regulation (EU) No 561/2014). In addition, the following contributions to the administrative costs of the ECSEL Joint Undertaking are to be paid over the period 2014-2017 to complete the actions launched under Regulations (EC) No 72/2008 setting up the ENIAC Joint Undertaking (OJ L 30, 4.2.2008, p. 21) and (EC) No 74/2008 on the establishment of the ARTEMIS Joint Undertaking (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 ARTEMIS-IA Association.

6

(7)  Further information on the Joint Undertaking’s activities is available on its website: http://www.ecsel.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 9 of the ECSEL Joint Undertaking 2016 Annual Activity Report.

11

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

12

(13)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 298, 26.10.2012, p. 1).

13

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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 | |
| 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 | |
| 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

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

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

---

(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 JOINT UNDERTAKING’S REPLY

| 16. | The ECSEL JU would like to underline that this issue is related to the legal framework of the Seventh Framework Programme (FP7) and thus not caused by the Joint Undertaking’s performance. Like for the exercise 2015, the Joint Undertaking conducted in January 2017 an extensive assessment of the national assurance systems for year 2016, taking into account 1656 End of Project Certificates and 610 Audit Certificates received from the National Funding Authorities (NFAs) for projects funded under FP7. Furthermore, the ECSEL JU has invited, from January 2017, the National Authorities to provide it with an annual declaration of assurance. The ECSEL JU has received 21 declarations which represent 97,97 % of funding, and concluded that the audit report and declarations provide a reasonable protection of the financial interests of its members. |
| --- | --- |

16.

The ECSEL JU would like to underline that this issue is related to the legal framework of the Seventh Framework Programme (FP7) and thus not caused by the Joint Undertaking’s performance. Like for the exercise 2015, the Joint Undertaking conducted in January 2017 an extensive assessment of the national assurance systems for year 2016, taking into account 1656 End of Project Certificates and 610 Audit Certificates received from the National Funding Authorities (NFAs) for projects funded under FP7. Furthermore, the ECSEL JU has invited, from January 2017, the National Authorities to provide it with an annual declaration of assurance. The ECSEL JU has received 21 declarations which represent 97,97 % of funding, and concluded that the audit report and declarations provide a reasonable protection of the financial interests of its members.

| 33. | The bankruptcy of the two beneficiaries is a legacy of the ENIAC JU and happened before its incorporation into the ECSEL JU. In September 2015, the ECSEL Joint Undertaking put in place a procedure to deal with cases of insolvency or bankruptcy of beneficiaries of ENIAC or ARTEMIS Grant Agreements. This procedure details the different steps to be taken and the timeframe to be respected when such insolvency or bankruptcy cases are reported and was communicated to the National Funding Authorities (NFAs). In the nine years of existence of both Artemis and ENIAC, out of around 3 000 beneficiaries, only 16 bankruptcy cases have been reported out of which six received no payment, five were sent an End-of-Project Certificate and the remaining five provided evidence through the technical reports, that the project beneficiaries had performed sufficient activities. |
| --- | --- |

33.

The bankruptcy of the two beneficiaries is a legacy of the ENIAC JU and happened before its incorporation into the ECSEL JU. In September 2015, the ECSEL Joint Undertaking put in place a procedure to deal with cases of insolvency or bankruptcy of beneficiaries of ENIAC or ARTEMIS Grant Agreements. This procedure details the different steps to be taken and the timeframe to be respected when such insolvency or bankruptcy cases are reported and was communicated to the National Funding Authorities (NFAs). In the nine years of existence of both Artemis and ENIAC, out of around 3 000 beneficiaries, only 16 bankruptcy cases have been reported out of which six received no payment, five were sent an End-of-Project Certificate and the remaining five provided evidence through the technical reports, that the project beneficiaries had performed sufficient activities.

| 34. | The minutes of Board meetings record all conflicts of interest declared by a delegate: these are baseline documents used to fill in the register. In the future, when a delegate has declared a conflict of interest, the meeting minutes will also record that the said delegate has abstained from comments and voting on the topic declared as conflictual. |
| --- | --- |

34.

The minutes of Board meetings record all conflicts of interest declared by a delegate: these are baseline documents used to fill in the register. In the future, when a delegate has declared a conflict of interest, the meeting minutes will also record that the said delegate has abstained from comments and voting on the topic declared as conflictual.

---

| 12.12.2017 | EN | Official Journal of the European Union | C 426/31 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/31

---

REPORT

on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/05)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-6 | 32 |
| Establishment of the F4E Joint Undertaking | 1-2 | 32 |
| Governance | 3-4 | 32 |
| Objectives | 5 | 32 |
| Resources | 6 | 32 |
| OPINION | 7-29 | 32 |
| Opinion on the reliability of the accounts | 8 | 33 |
| Opinion on the legality and regularity of revenue underlying the accounts | 9 | 33 |
| Opinion on the legality and regularity of payments underlying the accounts | 10-20 | 33 |
| Emphasis of matter | 11-20 | 33 |
| Responsibilities of management and those in charge of governance | 21-23 | 34 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 24-28 | 34 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 30 | 35 |
| Implementation of the 2016 budget | 30 | 35 |
| INTERNAL CONTROLS | 31-35 | 35 |
| Monitoring of operational procurement contracts and grants | 31-34 | 35 |
| Anti-fraud strategy | 35 | 36 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-6

32

Establishment of the F4E Joint Undertaking

1-2

32

Governance

3-4

32

Objectives

5

32

Resources

6

32

OPINION

7-29

32

Opinion on the reliability of the accounts

8

33

Opinion on the legality and regularity of revenue underlying the accounts

9

33

Opinion on the legality and regularity of payments underlying the accounts

10-20

33

Emphasis of matter

11-20

33

Responsibilities of management and those in charge of governance

21-23

34

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

24-28

34

BUDGETARY AND FINANCIAL MANAGEMENT

30

35

Implementation of the 2016 budget

30

35

INTERNAL CONTROLS

31-35

35

Monitoring of operational procurement contracts and grants

31-34

35

Anti-fraud strategy

35

36

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

37

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.

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.

| 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.

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.

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.

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.

| 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.

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.

Objectives

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






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

5.

The objectives of the F4E Joint Undertaking are:

(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 2016, the payments budget for the F4E Joint Undertaking was 720 million euro (2015: 586 million euro) and the commitments budget was 459 million euro (2015: 467,9 million euro) (3). At 31 December 2016, the Joint Undertaking employed 415 staff (2015: 383) (4). |
| --- | --- |

6.

In 2016, the payments budget for the F4E Joint Undertaking was 720 million euro (2015: 586 million euro) and the commitments budget was 459 million euro (2015: 467,9 million euro) (3). At 31 December 2016, the Joint Undertaking employed 415 staff (2015: 383) (4).

| 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 2016, and |
| --- | --- | --- |

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 2016, 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 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

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 2016 is legal and regular in all material respects. |
| --- | --- |

9.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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 2016 are legal and regular in all material respects. |
| --- | --- |

10.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

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.

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).

| 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.

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.

| 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.

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.

| 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.

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.

| 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 (82 % increase in relation to the approved 6,6 billion euro budget). The amount of 6,6 billion euro adopted by the Council of the EU in 2010 now serves as a ceiling for the Joint Undertaking’s spending up to 2020. |
| --- | --- |

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 (82 % increase in relation to the approved 6,6 billion euro budget). The amount of 6,6 billion euro adopted by the Council of the EU in 2010 now serves as a ceiling for the Joint Undertaking’s spending up to 2020.

| 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. These contributions are not yet estimated. |
| --- | --- |

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. These contributions are not yet estimated.

| 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 (13). |
| --- | --- |

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 (13).

| 18. | In June 2017, the Commission issued a communication on the EU contribution to a reformed ITER project (14), seeking the support of the European Parliament and a mandate from the Council of the EU for the Commission to approve the new baseline (15) on behalf of Euratom. |
| --- | --- |

18.

In June 2017, the Commission issued a communication on the EU contribution to a reformed ITER project (14), seeking the support of the European Parliament and a mandate from the Council of the EU for the Commission to approve the new baseline (15) on behalf of Euratom.

| 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 (16). 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.

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 (16). 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.

| 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.

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.

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.

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.

| 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.

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.

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

23.

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

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.

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.

| 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.

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.

| 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.

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.

| 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.

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.

| 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 (17). |
| --- | --- |

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 (17).

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

29.

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

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 30. | The final 2016 budget available for implementation included commitment appropriations of 488 million euro (18) and payment appropriations of 724 million euro (19). The utilisation rates for commitment and payment appropriations were 99,8 % and 98 % respectively. |
| --- | --- |

30.

The final 2016 budget available for implementation included commitment appropriations of 488 million euro (18) and payment appropriations of 724 million euro (19). The utilisation rates for commitment and payment appropriations were 99,8 % and 98 % respectively.

INTERNAL CONTROLS

Monitoring of operational procurement contracts and grants

| 31. | The F4E Joint Undertaking has a system for performing audits at contractors’ premises with the aim of checking compliance with its quality assurance requirements (20). |
| --- | --- |

31.

The F4E Joint Undertaking has a system for performing audits at contractors’ premises with the aim of checking compliance with its quality assurance requirements (20).

| 32. | In September 2016, the Commission’s Internal Audit Service (IAS) completed an audit on the implementation of procurement arrangements. The F4E Joint Undertaking is implementing an action plan in response to the resulting recommendations. The IAS also followed up its audit on contract management and concluded that all its related recommendations had been adequately implemented by the Joint Undertaking. |
| --- | --- |

32.

In September 2016, the Commission’s Internal Audit Service (IAS) completed an audit on the implementation of procurement arrangements. The F4E Joint Undertaking is implementing an action plan in response to the resulting recommendations. The IAS also followed up its audit on contract management and concluded that all its related recommendations had been adequately implemented by the Joint Undertaking.

| 33. | In 2016, the F4E Joint Undertaking Internal Audit Capability (IAC) followed up its audit of procurement in the area of ITER buildings. The IAC acknowledged the important work performed by the Joint Undertaking in formalising and designing the process, guidelines, rules and tools related to procurement activities. The IAC also made six further recommendations for improvements in procedures. |
| --- | --- |

33.

In 2016, the F4E Joint Undertaking Internal Audit Capability (IAC) followed up its audit of procurement in the area of ITER buildings. The IAC acknowledged the important work performed by the Joint Undertaking in formalising and designing the process, guidelines, rules and tools related to procurement activities. The IAC also made six further recommendations for improvements in procedures.

| 34. | A residual error rate for grant payments is not calculated, due to their low share of the F4E Joint Undertaking’s budget (21) and the small number of ex-post audits carried out (22). In 2016, the Research Executive Agency launched an ex-post audit of a beneficiary on behalf of the F4E Joint Undertaking. The Joint Undertaking has taken the necessary action to correct errors identified in previous years’ audits. |
| --- | --- |

34.

A residual error rate for grant payments is not calculated, due to their low share of the F4E Joint Undertaking’s budget (21) and the small number of ex-post audits carried out (22). In 2016, the Research Executive Agency launched an ex-post audit of a beneficiary on behalf of the F4E Joint Undertaking. The Joint Undertaking has taken the necessary action to correct errors identified in previous years’ audits.

Anti-fraud strategy

| 35. | 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. |
| --- | --- |

35.

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.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 3 October 2017.

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 Council Decision 2013/791/Euratom of 13 December 2013 (OJ L 349, 21.12.2013, p. 100) and Council Decision (Euratom) 2015/224 of 10 February 2015 (OJ L 37, 13.2.2015, p. 8).

2

(3)  Second amendment to the Budget approved by the Governing Board in December 2016.

3

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

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

(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)  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.

13

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

14

(15)  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.

15

(16)  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’.

16

(17)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 298, 26.10.2012, p. 1).

17

(18)  The changes to the final 2016 approved budget mainly relate to 15 million euro in assigned revenue from the ITER Reserve Fund, 13,5 million euro for commitments carried over from the previous years and 0,5 million euro of recoveries of payments made in excess on operational contracts.

18

(19)  The changes to the final 2016 approved budget mainly relate to 4 million euro in payments from the ITER Reserve Fund.

19

(20)  The audits cover numerous aspects of implementation, including the quality plan, any situations of non-compliance with a specific requirement, purchase control and subcontracting management, documentation and data management, change and deviation management, the civil works quality control plan, the detailed project schedule, contract risk management and the technical works quality control plan. The 29 audits carried out in 2016 identified 47 situations of non-conformity with the quality assurance requirements and 202 areas for improvement.

20

(21)  From its founding until the end of 2016, the Joint Undertaking had awarded 150 grants for a total of 81 million euro. The Joint Undertaking awarded six grants for a total of 5 million euro in 2016.

21

(22)  Six beneficiaries and a total audited amount of 6 million euro, representing respectively 8 % of total beneficiaries and 7 % of total signed grant agreements since the founding of F4E.

22

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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 2 years. | Ongoing |
| 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 procurement 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. | 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. | Ongoing |
| | 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. | Ongoing |
| At the time of the audit (April 2016), F4E had implemented the majority of the provisions in the Governing Board Decision of 27 June 2013, though five were not yet fully implemented and three were still pending. | Completed |
| An impact assessment on the implementation of these policies is planned but has not yet been carried out. | Ongoing |
| | Host State agreement | |
| 2015 | According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, permanent premises should have been made available to the Joint Undertaking by June 2010.
  Following contacts between F4E and the Spanish Government, a formal offer was presented to the Joint Undertaking on 10 March 2015. In December 2015, the Host State informed the F4E Governing Board that the discussions at ministerial level to formalise the offer of 10 March 2015 had not been concluded, and offered instead to start negotiations with the owner of the building where F4E is currently located with a view to making it the permanent headquarters of the Joint Undertaking. At the time of the audit (April 2016) this new proposal was under examination by the Joint Undertaking. | Completed |
| | Rules implementing the Staff Regulations | |
| 2015 | During 2015, the Joint Undertaking continued with its adoption by analogy of several EU rules implementing the Staff Regulations. However, certain specific rules for the implementation of the Staff Regulations still remain to be adopted. | Completed |

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 2 years.

Ongoing

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 procurement 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.

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.

Ongoing

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.

Ongoing

At the time of the audit (April 2016), F4E had implemented the majority of the provisions in the Governing Board Decision of 27 June 2013, though five were not yet fully implemented and three were still pending.

Completed

An impact assessment on the implementation of these policies is planned but has not yet been carried out.

Ongoing

Host State agreement

2015

According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, permanent premises should have been made available to the Joint Undertaking by June 2010.

Following contacts between F4E and the Spanish Government, a formal offer was presented to the Joint Undertaking on 10 March 2015. In December 2015, the Host State informed the F4E Governing Board that the discussions at ministerial level to formalise the offer of 10 March 2015 had not been concluded, and offered instead to start negotiations with the owner of the building where F4E is currently located with a view to making it the permanent headquarters of the Joint Undertaking. At the time of the audit (April 2016) this new proposal was under examination by the Joint Undertaking.

Completed

Rules implementing the Staff Regulations

2015

During 2015, the Joint Undertaking continued with its adoption by analogy of several EU rules implementing the Staff Regulations. However, certain specific rules for the implementation of the Staff Regulations still remain to be adopted.

Completed

---

THE JOINT UNDERTAKING’S REPLY

| 33. | As of July 2017, five out of the six new IAC recommendations have been implemented. The ongoing recommendation relates to the redefinition of the role of the Internal Review Panel (IRP). Its expected date for completion is October 2017 as this action is part of a wider improvement project geared at optimising the open procurement procedures. |
| --- | --- |

33.

As of July 2017, five out of the six new IAC recommendations have been implemented. The ongoing recommendation relates to the redefinition of the role of the Internal Review Panel (IRP). Its expected date for completion is October 2017 as this action is part of a wider improvement project geared at optimising the open procurement procedures.

| 35. | F4E is currently defining the requirements to parametrize the tool that will allow F4E to collect systematically information relating to Anti-Fraud indicators on procurement procedures. This tool will also offer the possibility to F4E staff to insert additional information related to red flags on any procurement procedure. |
| --- | --- |

35.

F4E is currently defining the requirements to parametrize the tool that will allow F4E to collect systematically information relating to Anti-Fraud indicators on procurement procedures. This tool will also offer the possibility to F4E staff to insert additional information related to red flags on any procurement procedure.

Follow up of previous years’ comments

2015 — Presentation of the accounts

EU uses the ITER credit as its Earned Value Management (EVM) system. The value of the achieved credit versus the planned value provides the progress of F4E toward the completion of the EU share of the procurements. The credit profile is intended to represent the value of the real work done through the various project phases (i.e. design, manufacturing, delivery, installation).

F4E and ITER IO have agreed to readjust this profile for each Procurement Arrangement (PA) in order to make sure that the right credit weight is given all throughout the PA duration and as close as possible to reality. Such changes have already been made for some past PA’s and are expected to be completed by the end of October 2017.

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

First paragraph: In March 2016 the new F4E Director commissioned an independent consultancy study on the development of a concept for an integrated cross functional and integrated commercial and financial controlling system. The report of this study was issued in mid-June 2016 and the recommendations contained therein have been reviewed and accepted.

F4E is now working on the implementation of an Enterprise Project Control System, this being considered as a lower complexity and lower cost means to achieve a greater degree of integration of the F4E financial information.

F4E has selected the Ecosys system, and is currently finalising contract negotiation with the supplier. F4E will then implement a pilot phase, with a target date for full implementation of first quarter of 2018.

Second Paragraph: EU uses the ITER credit as its Earned Value Management (EVM) system. The value of the achieved credit versus the planned value provides the progress of F4E toward the completion of the EU share of the procurements. The credit profile is intended to represent the value of the real work done through the various project phases (i.e. design, manufacturing, delivery, installation).

F4E and ITER IO have agreed to readjust this profile for each Procurement Arrangement (PA) in order to make sure that the right credit weight is given all throughout the PA duration and as close as possible to reality. Such changes have already been made for some past PA’s and are expected to be completed by the end of October 2017.

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 2016 similar to previous years (49 % of total in 2016, vs 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.

Negotiated procedures with low value represent around 40 % of F4E’s yearly number of contracts (2016: 41 % in number and 0,8 % in value; 2015: 43 % in number and 0,3 % in value) but only correspond to around 1 % of the annual 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 engage internal resources more effectively in high value procurement. Therefore F4E considers that no action is needed to further reduce low value negotiated procedures as it is in compliance with the Financial Regulations’ principles and provisions.

The remaining negotiated procedures, typically higher value contracts, (5 % of the total number of procedures in 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 competition is present in the market. This often results in low competition or (in extreme cases) to monopoly or even lack of participation to calls for tender.

Since 2012, F4E increased its dissemination efforts but participation remained low. In F4E’s opinion, the main root cause is not lack of visibility but rather the sporadic nature of F4E purchases. 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.

As a consequence, during 2016 F4E started to look for ways to address the issue, in collaboration with other contracting authorities managing similar projects in Europe and facing the same lack of competition. In order to increase the impact of initiatives aimed at ensuring more industrial competition and engagement, F4E has been the initiator of a forum comprising similar, first of a kind high-tech frontier projects in Europe (CERN, ESA, ESS, ESRF, ESO, etc.). Through this forum different organizations with similar project challenges can work together to address them in a more coordinated and effective way. This is an attempt to foster a single market for large scientific projects, which is more stable and larger and therefore more capable of attracting companies’ interest.

An event hosted by Denmark in February 2018 will be the first opportunity for the forum participants to put in practice their new collaboration.

2015 — Legal Framework

In cooperation with the European Commission (DG BUDG and DG ENER), the Joint Undertaking has developed the requested specific provisions to be added to the Implementing Rules to the Joint Undertaking’s Financial Regulation relating to four derogations which the Joint Undertaking had been granted in its Financial Regulation from the EU General Financial Regulation and the Framework Financial Regulation applicable to the Article 208 bodies.

On 4 July 2017, the Joint Undertaking’s Governing Board adopted the amendment to the Implementing Rules which is now subject to a positive formal opinion from the European Commission. Once a positive opinion is issued, the four implementing provisions will enter into force on 1 August 2017.

2015 — Intellectual property rights and industrial policy

With regards to the impact assessment of the Industrial Policy, F4E intends to use the results of the assessment of F4E’s activities (and the ITER project as a whole) that will be performed by the European Commission during 2017 and 2018.

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| 12.12.2017 | EN | Official Journal of the European Union | C 426/42 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/42

---

REPORT

on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/06)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-12 | 43 |
| Establishment of the FCH Joint Undertaking | 1-2 | 43 |
| Governance | 3-6 | 43 |
| Objectives | 7 | 43 |
| Resources | 8-12 | 43 |
| OPINION | 13-25 | 44 |
| Opinion on the reliability of the accounts | 14 | 44 |
| Opinion on the legality and regularity of revenue underlying the accounts | 15 | 44 |
| Opinion on the legality and regularity of payments underlying the accounts | 16 | 44 |
| Responsibilities of management and those in charge of governance | 17-19 | 44 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 20-24 | 45 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 26-33 | 45 |
| Implementation of the 2016 budget | 26 | 45 |
| Multiannual budget implementation under FP7 | 27-29 | 45 |
| Multiannual budget implementation under Horizon 2020 | 30-33 | 46 |
| INTERNAL CONTROLS | 34 | 46 |
| Internal control framework | 34 | 46 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-12

43

Establishment of the FCH Joint Undertaking

1-2

43

Governance

3-6

43

Objectives

7

43

Resources

8-12

43

OPINION

13-25

44

Opinion on the reliability of the accounts

14

44

Opinion on the legality and regularity of revenue underlying the accounts

15

44

Opinion on the legality and regularity of payments underlying the accounts

16

44

Responsibilities of management and those in charge of governance

17-19

44

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

20-24

45

BUDGETARY AND FINANCIAL MANAGEMENT

26-33

45

Implementation of the 2016 budget

26

45

Multiannual budget implementation under FP7

27-29

45

Multiannual budget implementation under Horizon 2020

30-33

46

INTERNAL CONTROLS

34

46

Internal control framework

34

46

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

47

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.

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).

| 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 (New European Research Grouping on Fuel Cells and Hydrogen — N.ERGHY). |
| --- | --- |

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 (New European Research Grouping on Fuel Cells and Hydrogen — N.ERGHY).

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.

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.

| 4. | The Governing Board is composed of 10 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.

The Governing Board is composed of 10 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.

| 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.

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.

| 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.

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.

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.

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.

Resources

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

8.

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

| 9. | The maximum EU contribution to the second phase of activities of the FCH Joint Undertaking is 665 million euro 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.

The maximum EU contribution to the second phase of activities of the FCH Joint Undertaking is 665 million euro 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).

| 10. | The members from the Industry and Research Groupings are expected to contribute resources of at least 380 million euro to the Horizon 2020 projects funded by the FCH Joint Undertaking (5), including at least 285 million euro of in-kind contributions to additional activities (6). |
| --- | --- |

10.

The members from the Industry and Research Groupings are expected to contribute resources of at least 380 million euro to the Horizon 2020 projects funded by the FCH Joint Undertaking (5), including at least 285 million euro of in-kind contributions to additional activities (6).

| 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.

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).

| 12. | In 2016, the payment budget for the FCH Joint Undertaking was 98,3 million euro (2015: 95,1 million euro). At 31 December 2016, the Joint Undertaking had 26 staff (2015: 26) (8). |
| --- | --- |

12.

In 2016, the payment budget for the FCH Joint Undertaking was 98,3 million euro (2015: 95,1 million euro). At 31 December 2016, the Joint Undertaking had 26 staff (2015: 26) (8).

| OPINION









  13. | 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 2016; and |
| --- | --- | --- |

OPINION

13.

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 2016; 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 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

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 2016 is legal and regular in all material respects. |
| --- | --- |

15.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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 2016 are legal and regular in all material respects. |
| --- | --- |

16.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

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.

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. | 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.

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

19.

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

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.

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. | 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.

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

22.

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

| 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. 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. |
| --- | --- |

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. 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.

| 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 (11). |
| --- | --- |

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 (11).

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

25.

The comments which follow do not call the Court’s opinions into question.

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 26. | Taking into account unused payment appropriations from previous years (17,2 million euro), the final 2016 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 127,8 million euro and payment appropriations of 115,5 million euro. The lower utilisation rates for commitment and payment appropriations were 77,7 % and 83,9 %, respectively. The under-utilisation of appropriations was mainly due to the fact that fewer grant agreements than expected were signed, following the evaluation of the 2016 call for proposals. |
| --- | --- |

26.

Taking into account unused payment appropriations from previous years (17,2 million euro), the final 2016 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 127,8 million euro and payment appropriations of 115,5 million euro. The lower utilisation rates for commitment and payment appropriations were 77,7 % and 83,9 %, respectively. The under-utilisation of appropriations was mainly due to the fact that fewer grant agreements than expected were signed, following the evaluation of the 2016 call for proposals.

Multiannual budget implementation under FP7

| 27. | Out of the 470 million euro of FP7 funds allocated to the FCH Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 464,4 million euro and payments of 372 million euro. According to the Joint Undertaking’s payment plan for ongoing FP7 projects, the outstanding operational payments of 75,3 million euro (17 %) will be used by the end of 2019. |
| --- | --- |

27.

Out of the 470 million euro of FP7 funds allocated to the FCH Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 464,4 million euro and payments of 372 million euro. According to the Joint Undertaking’s payment plan for ongoing FP7 projects, the outstanding operational payments of 75,3 million euro (17 %) will be used by the end of 2019.

| 28. | Out of the 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 2016 the Governing board had validated contributions of 299 million euro. Additional in-kind contributions to operational activities of 40,6 million euro had been reported to the FCH Joint Undertaking by the end of 2016. |
| --- | --- |

28.

Out of the 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 2016 the Governing board had validated contributions of 299 million euro. Additional in-kind contributions to operational activities of 40,6 million euro had been reported to the FCH Joint Undertaking by the end of 2016.

| 29. | Consequently, at the end of 2016, the total contribution of the Industry and Research Grouping members to the Joint Undertaking amounted to 339,6 million euro, compared to the EU’s (Commission’s) contribution of 383,7 million euro. |
| --- | --- |

29.

Consequently, at the end of 2016, the total contribution of the Industry and Research Grouping members to the Joint Undertaking amounted to 339,6 million euro, compared to the EU’s (Commission’s) contribution of 383,7 million euro.

Multiannual budget implementation under Horizon 2020

| 30. | Out of the 665 million euro of Horizon 2020 funds allocated to the FCH Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 288,1 million euro (43 %) and payments of 77,4 million euro for the implementation of its first wave of projects. |
| --- | --- |

30.

Out of the 665 million euro of Horizon 2020 funds allocated to the FCH Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 288,1 million euro (43 %) and payments of 77,4 million euro for the implementation of its first wave of projects.

| 31. | By the end of 2016 the Industry and Research Grouping members had reported in-kind contributions of 4,9 million euro for operational activities, and the Governing Board had validated cash contributions to the Joint Undertakings administrative costs of 1,2 million euro. |
| --- | --- |

31.

By the end of 2016 the Industry and Research Grouping members had reported in-kind contributions of 4,9 million euro for operational activities, and the Governing Board had validated cash contributions to the Joint Undertakings administrative costs of 1,2 million euro.

| 32. | Out of the minimum of 285 million euro of in-kind contributions to be made by the other members for additional activities, 188,6 million euro (66 %) had already been reported and certified by the end of 2016. |
| --- | --- |

32.

Out of the minimum of 285 million euro of in-kind contributions to be made by the other members for additional activities, 188,6 million euro (66 %) had already been reported and certified by the end of 2016.

| 33. | Consequently, by the end of 2016, the total contributions of the Industry and Research Grouping members amounted to 194,7 million euro, compared to the EU’s cash contribution of 79,5 million euro. The difference is explained by the other members’ high contribution to the additional activities of the Joint Undertaking. |
| --- | --- |

33.

Consequently, by the end of 2016, the total contributions of the Industry and Research Grouping members amounted to 194,7 million euro, compared to the EU’s cash contribution of 79,5 million euro. The difference is explained by the other members’ high contribution to the additional activities of the Joint Undertaking.

INTERNAL CONTROLS

Internal control framework

| 34. | The Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews, and performs ex post audits of grant cost claims under FP7. These checks are key tools for assessing the legality and regularity of the underlying transactions, including other members’ cash and in-kind contributions to the Joint Undertaking. The residual error rate for the ex post audits reported in the Joint Undertaking’s 2016 annual activity report was 1,24 % (12). |
| --- | --- |

34.

The Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews, and performs ex post audits of grant cost claims under FP7. These checks are key tools for assessing the legality and regularity of the underlying transactions, including other members’ cash and in-kind contributions to the Joint Undertaking. The residual error rate for the ex post audits reported in the Joint Undertaking’s 2016 annual activity report was 1,24 % (12).

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 19 September 2017.

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 Council 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 point (b) of Article 4(2) 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. 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 of Regulation (EU) No 559/2014).

7

Annex

(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 (OJ L 298, 26.10.2012, p. 1).

11

(12)  FCH Joint Undertaking Annual Activity Report, p. 54.

12

---

ANNEX

Follow-up of previous years’ comments

| Year | Court’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding/N/A) |
| --- | --- | --- |
| | The Commission’s Internal Audit Service (IAS) | |
| 2015 | The IAS completed an audit on the evaluation and selection process for Horizon 2020 grant proposals at the FCH 2 Joint Undertaking in November 2015. The IAS recommended that the Joint Undertaking improve the clarity and transparency of its selection of topics for proposals. The FCH 2 Joint Undertaking is introducing improved procedures during 2016, for the next call for proposals in 2017. | Completed |
| | 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. | Ongoing |

Year

Court’s comment

Status of corrective action

(Completed/Ongoing/Outstanding/N/A)

The Commission’s Internal Audit Service (IAS)

2015

The IAS completed an audit on the evaluation and selection process for Horizon 2020 grant proposals at the FCH 2 Joint Undertaking in November 2015. The IAS recommended that the Joint Undertaking improve the clarity and transparency of its selection of topics for proposals. The FCH 2 Joint Undertaking is introducing improved procedures during 2016, for the next call for proposals in 2017.

Completed

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.

Ongoing

---

THE JOINT UNDERTAKING’S REPLY

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

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| 12.12.2017 | EN | Official Journal of the European Union | C 426/49 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/49

---

REPORT

on the annual accounts of the Innovative Medicines Initiative Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/07)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-11 | 50 |
| Establishment of the IMI Joint Undertaking | 1-2 | 50 |
| Governance | 3-5 | 50 |
| Objectives | 6 | 50 |
| Resources | 7-11 | 50 |
| OPINION | 12-24 | 51 |
| Opinion on the reliability of the accounts | 13 | 51 |
| Opinion on the legality and regularity of revenue underlying the accounts | 14 | 51 |
| Opinion on the legality and regularity of payments underlying the accounts | 15 | 51 |
| Responsibilities of management and those in charge of governance | 16-18 | 51 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 19-23 | 52 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 25-31 | 52 |
| Implementation of the 2016 budget | 25 | 52 |
| Multiannual budget implementation under FP7 | 26-28 | 52 |
| Multiannual budget implementation under Horizon 2020 | 29-31 | 53 |
| INTERNAL CONTROLS | 32-34 | 53 |
| Internal control framework | 32 | 53 |
| Management of Horizon 2020 grants | 33 | 53 |
| Ex ante checks and monitoring of cost claims | 34 | 53 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-11

50

Establishment of the IMI Joint Undertaking

1-2

50

Governance

3-5

50

Objectives

6

50

Resources

7-11

50

OPINION

12-24

51

Opinion on the reliability of the accounts

13

51

Opinion on the legality and regularity of revenue underlying the accounts

14

51

Opinion on the legality and regularity of payments underlying the accounts

15

51

Responsibilities of management and those in charge of governance

16-18

51

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

19-23

52

BUDGETARY AND FINANCIAL MANAGEMENT

25-31

52

Implementation of the 2016 budget

25

52

Multiannual budget implementation under FP7

26-28

52

Multiannual budget implementation under Horizon 2020

29-31

53

INTERNAL CONTROLS

32-34

53

Internal control framework

32

53

Management of Horizon 2020 grants

33

53

Ex ante checks and monitoring of cost claims

34

53

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

54

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.

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).

| 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.

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).

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.

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.

| 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.

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.

| 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.

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.

Objectives

| 6. | The objective of the IMI 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 IMI 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.

The objective of the IMI 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 IMI 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.

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.

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.

| 8. | The maximum EU contribution to the activities of the IMI2 programme (2014-2024) is 1 638 million euro, to be paid 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.

The maximum EU contribution to the activities of the IMI2 programme (2014-2024) is 1 638 million euro, to be paid 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).

| 9. | EFPIA is to contribute resources of at least 1 425 million euro. 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.

EFPIA is to contribute resources of at least 1 425 million euro. 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.

| 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.

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).

| 11. | In 2016, the payment budget for the IMI Joint Undertaking was 263,4 million euro (2015: 195 million euro). At 31 December 2016, the Joint Undertaking employed 41 staff (2015: 35) (6). |
| --- | --- |

11.

In 2016, the payment budget for the IMI Joint Undertaking was 263,4 million euro (2015: 195 million euro). At 31 December 2016, the Joint Undertaking employed 41 staff (2015: 35) (6).

| OPINION









  12. | 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 2016; and |
| --- | --- | --- |

OPINION

12.

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 2016; 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 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

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 2016 is legal and regular in all material respects. |
| --- | --- |

14.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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 2016 are legal and regular in all material respects. |
| --- | --- |

15.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

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.

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. | 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.

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

18.

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

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.

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. | 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.

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

21.

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

| 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. 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. |
| --- | --- |

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. 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.

| 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 (9). |
| --- | --- |

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 (9).

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

24.

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

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 25. | Taking into account unused appropriations from previous years (54,1 million euro), the final 2016 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 307 million euro and payment appropriations of 263,4 million euro. The utilisation rates for commitment and payment appropriations were 94,1 % and 69,6 %, respectively. The low implementation rate for payment appropriations was mainly due to a reduction in spending on the Ebola+ programme and to delays in concluding grant agreements for calls under Horizon 2020. |
| --- | --- |

25.

Taking into account unused appropriations from previous years (54,1 million euro), the final 2016 budget available for FP7 and Horizon 2020 programme implementation included commitment appropriations of 307 million euro and payment appropriations of 263,4 million euro. The utilisation rates for commitment and payment appropriations were 94,1 % and 69,6 %, respectively. The low implementation rate for payment appropriations was mainly due to a reduction in spending on the Ebola+ programme and to delays in concluding grant agreements for calls under Horizon 2020.

Multiannual budget implementation under FP7

| 26. | Out of the 1 billion euro of FP7 funds allocated to the IMI Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 966 million euro and payments of 648 million euro. The high level of outstanding payments of 318 million euro (32 %) was mainly due to the delayed start of FP7 activities during the first years of the IMI Joint Undertaking. |
| --- | --- |

26.

Out of the 1 billion euro of FP7 funds allocated to the IMI Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 966 million euro and payments of 648 million euro. The high level of outstanding payments of 318 million euro (32 %) was mainly due to the delayed start of FP7 activities during the first years of the IMI Joint Undertaking.

| 27. | 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 2016 the Joint Undertaking had validated in-kind and cash contributions of 403 million euro. A further 103 million euro of in-kind contributions had been reported by the members to the IMI Joint Undertaking. |
| --- | --- |

27.

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 2016 the Joint Undertaking had validated in-kind and cash contributions of 403 million euro. A further 103 million euro of in-kind contributions had been reported by the members to the IMI Joint Undertaking.

| 28. | Consequently, at the end of 2016, the in-kind and cash contributions of the industry members totalled 506 million euro, compared to the EU’s cash contributions to the FP7 activities of the IMI Joint Undertaking, which amounted to 728 million euro. |
| --- | --- |

28.

Consequently, at the end of 2016, the in-kind and cash contributions of the industry members totalled 506 million euro, compared to the EU’s cash contributions to the FP7 activities of the IMI Joint Undertaking, which amounted to 728 million euro.

Multiannual budget implementation under Horizon 2020

| 29. | Out of the 1 638 million euro of Horizon 2020 funds allocated to the IMI Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 515 million euro (31 %) and payments of 111 million euro (7 % of the allocated funds) for the implementation of its first wave of projects. The low level of payments is mainly due to delays in concluding Horizon 2020 grant agreements with the industry partners. |
| --- | --- |

29.

Out of the 1 638 million euro of Horizon 2020 funds allocated to the IMI Joint Undertaking, by the end of 2016 the Joint Undertaking had made commitments of 515 million euro (31 %) and payments of 111 million euro (7 % of the allocated funds) for the implementation of its first wave of projects. The low level of payments is mainly due to delays in concluding Horizon 2020 grant agreements with the industry partners.

| 30. | Out of the 1 638 million euro of in-kind and cash contributions to be made by the industry members to the activities of the Joint Undertaking, by the end of 2016 the industry partners had reported 83,8 million euro of in-kind contributions, of which 47,2 million euro had been validated by the Executive Director. |
| --- | --- |

30.

Out of the 1 638 million euro of in-kind and cash contributions to be made by the industry members to the activities of the Joint Undertaking, by the end of 2016 the industry partners had reported 83,8 million euro of in-kind contributions, of which 47,2 million euro had been validated by the Executive Director.

| 31. | Consequently, at the end of 2016, the total contributions of the industry members to the Horizon 2020 activities of the Joint Undertaking amounted to 83,8 million euro, compared to the EU’s cash contribution of 135 million euro. |
| --- | --- |

31.

Consequently, at the end of 2016, the total contributions of the industry members to the Horizon 2020 activities of the Joint Undertaking amounted to 83,8 million euro, compared to the EU’s cash contribution of 135 million euro.

INTERNAL CONTROLS

Internal control framework

| 32. | The Joint Undertaking has set up effective ex ante control procedures based on financial and operational desk reviews, and performs ex post audits of grant cost claims under FP7. These checks are key tools for assessing the legality and regularity of the underlying transactions, including other members’ cash and in-kind contributions to the Joint Undertaking. The residual rate for the ex post audits reported by the Joint Undertaking at the end of 2016 was 1,67 % (10). |
| --- | --- |

32.

The Joint Undertaking has set up effective ex ante control procedures based on financial and operational desk reviews, and performs ex post audits of grant cost claims under FP7. These checks are key tools for assessing the legality and regularity of the underlying transactions, including other members’ cash and in-kind contributions to the Joint Undertaking. The residual rate for the ex post audits reported by the Joint Undertaking at the end of 2016 was 1,67 % (10).

Management of Horizon 2020 grants

| 33. | 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. |
| --- | --- |

33.

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.

Ex ante checks and monitoring of cost claims

| 34. | 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. |
| --- | --- |

34.

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.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 19 September 2017.

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 to Regulation (EU) No 557/2014).

5

Annex

(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 (OJ L 298, 26.10.2012, p. 1).

9

(10)  IMI Joint Undertaking 2016 annual activity report, p. 102.

10

---

ANNEX

Follow-up of previous years’ comments

| Year | The ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | Key controls and supervisory systems | |
| 2014 | The performance of operational ex ante controls on the payment of project costs was insufficiently documented in the following critical areas:






  (a) | the ex ante control form used by the IMI Scientific Project Officers (SPOs) focused on administrative compliance rather than on operational compliance as it did not clearly identify and comment upon the status of the project (ongoing, ongoing subject to deficiencies, suspended/cancelled) and its deliverables (no reservations, reservations requiring clarification, major reservations); |

Year

The ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

Key controls and supervisory systems

2014

The performance of operational ex ante controls on the payment of project costs was insufficiently documented in the following critical areas:

(a)

the ex ante control form used by the IMI Scientific Project Officers (SPOs) focused on administrative compliance rather than on operational compliance as it did not clearly identify and comment upon the status of the project (ongoing, ongoing subject to deficiencies, suspended/cancelled) and its deliverables (no reservations, reservations requiring clarification, major reservations);

| (b) | payment was made without an official listing of deliverables accepted by the SPO and without any reference to the assessment of deliverables by the SPO. |
| --- | --- |

(b)

payment was made without an official listing of deliverables accepted by the SPO and without any reference to the assessment of deliverables by the SPO.

Completed

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

| 29. | The relatively low level of operational payments is linked to delays of the successful consortium members in concluding consortium agreements which are required for signing H2020 grant agreements with the IMI2 Joint Undertaking.
  Moreover, projects in Ebola and Antimicrobial resistance programmes have claimed less funds than foreseen in the initial project budgets, which was mainly due to the decline of the epidemic. |
| --- | --- |

29.

The relatively low level of operational payments is linked to delays of the successful consortium members in concluding consortium agreements which are required for signing H2020 grant agreements with the IMI2 Joint Undertaking.

Moreover, projects in Ebola and Antimicrobial resistance programmes have claimed less funds than foreseen in the initial project budgets, which was mainly due to the decline of the epidemic.

| 31. | At this stage of programme implementation, it is important to know that commitments of 275,8 million euro of EU funds and 249,1 million euro of industry in-kind contributions are allocated to 25 Horizon 2020 projects. While the EU contributions are transferred on an annual basis to cover the advance payments and costs claimed by the project beneficiaries, costs incurred by industry are reported as in-kind contributions in line with the established project reporting timelines, which start at the earliest 12 months after the signature of a grant agreement. |
| --- | --- |

31.

At this stage of programme implementation, it is important to know that commitments of 275,8 million euro of EU funds and 249,1 million euro of industry in-kind contributions are allocated to 25 Horizon 2020 projects. While the EU contributions are transferred on an annual basis to cover the advance payments and costs claimed by the project beneficiaries, costs incurred by industry are reported as in-kind contributions in line with the established project reporting timelines, which start at the earliest 12 months after the signature of a grant agreement.

| 33. | The IMI2 Joint Undertaking is dedicated to completing the transition to the common Horizon 2020 management tools by the end of 2017, including the migration of project data from the first eight IMI2 Calls which were temporarily hosted in the local SOFIA system. |
| --- | --- |

33.

The IMI2 Joint Undertaking is dedicated to completing the transition to the common Horizon 2020 management tools by the end of 2017, including the migration of project data from the first eight IMI2 Calls which were temporarily hosted in the local SOFIA system.

| 34. | The IMI2 Joint Undertaking has experienced some delays in receiving the periodic reports of the beneficiaries as set in the relevant grant agreement. Often the first versions of the periodic reports sent by the beneficiaries were incomplete as they lacked some of the required supporting documents. Those delays affected the effectiveness of the first part of the payment control process (report submission, receipt of the report, completeness check). In 2016, the average time to pay for interim cost claims was 95 days, while the target was 90 days. |
| --- | --- |

34.

The IMI2 Joint Undertaking has experienced some delays in receiving the periodic reports of the beneficiaries as set in the relevant grant agreement. Often the first versions of the periodic reports sent by the beneficiaries were incomplete as they lacked some of the required supporting documents. Those delays affected the effectiveness of the first part of the payment control process (report submission, receipt of the report, completeness check). In 2016, the average time to pay for interim cost claims was 95 days, while the target was 90 days.

---

| 12.12.2017 | EN | Official Journal of the European Union | C 426/56 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/56

---

REPORT

on the annual accounts of the Single European Sky Air Traffic Management Research Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/08)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-10 | 57 |
| Establishment of the SESAR Joint Undertaking | 1-2 | 57 |
| Governance | 3-4 | 57 |
| Objectives | 5-6 | 57 |
| Resources | 7-10 | 58 |
| OPINION | 11-23 | 58 |
| Opinion on the reliability of the accounts | 12 | 58 |
| Opinion on the legality and regularity of revenue underlying the accounts | 13 | 58 |
| Opinion on the legality and regularity of payments underlying the accounts | 14 | 58 |
| Responsibilities of management and those in charge of governance | 15-17 | 59 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 18-22 | 59 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 24-30 | 60 |
| Implementation of the 2016 budget | 24 | 60 |
| Multiannual budget implementation under FP7 and TEN-T | 25-27 | 60 |
| Multiannual budget implementation under Horizon 2020 | 28-30 | 60 |
| INTERNAL CONTROLS | 31-34 | 60 |
| Internal control framework | 31 | 60 |
| Reporting and checking in-kind contributions to SESAR 2020 projects | 32 | 61 |
| Assessment of the financial capacity of applicants under calls for proposals | 33 | 61 |
| Cost-effectiveness of service contracts | 34 | 61 |
| ANNEX — | FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS |

Paragraph

Page

INTRODUCTION

1-10

57

Establishment of the SESAR Joint Undertaking

1-2

57

Governance

3-4

57

Objectives

5-6

57

Resources

7-10

58

OPINION

11-23

58

Opinion on the reliability of the accounts

12

58

Opinion on the legality and regularity of revenue underlying the accounts

13

58

Opinion on the legality and regularity of payments underlying the accounts

14

58

Responsibilities of management and those in charge of governance

15-17

59

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

18-22

59

BUDGETARY AND FINANCIAL MANAGEMENT

24-30

60

Implementation of the 2016 budget

24

60

Multiannual budget implementation under FP7 and TEN-T

25-27

60

Multiannual budget implementation under Horizon 2020

28-30

60

INTERNAL CONTROLS

31-34

60

Internal control framework

31

60

Reporting and checking in-kind contributions to SESAR 2020 projects

32

61

Assessment of the financial capacity of applicants under calls for proposals

33

61

Cost-effectiveness of service contracts

34

61

ANNEX —

FOLLOW-UP OF PREVIOUS YEARS’ COMMENTS

62

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.

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).

| 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). 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.

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). 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.

Governance

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

3.

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

| 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.

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.

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.

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,

| — | a two-term ‘development phase’ (2007–2013, extended to 2016) managed by the SESAR Joint Undertaking, with co-financing from the TEN-T and Seventh Research Framework (FP7) programmes, |
| --- | --- |

—

a two-term ‘development phase’ (2007–2013, extended to 2016) managed by the SESAR Joint Undertaking, with co-financing from the TEN-T and Seventh Research Framework (FP7) programmes,

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

—

a ‘deployment phase’ (2014-2024) to be led by the air traffic industry and stakeholders for the large-scale production and implementation of the new ATM infrastructure, 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). Under Horizon 2020, the SESAR Joint Undertaking implements the SESAR II programme (SESAR 2020) with the objective of coordinating research and innovation by its stakeholders (continuation of the development phase) and implementing the new ATM infrastructure (deployment phase). |
| --- | --- |

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). Under Horizon 2020, the SESAR Joint Undertaking implements the SESAR II programme (SESAR 2020) with the objective of coordinating research and innovation by its stakeholders (continuation of the development phase) and implementing the new ATM infrastructure (deployment phase).

Resources

| 7. | The budget for the development phase of the SESAR I Programme 2008–2015 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 is funded from the FP7 and TEN-T programmes (3). |
| --- | --- |

7.

The budget for the development phase of the SESAR I Programme 2008–2015 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 is funded from the FP7 and TEN-T programmes (3).

| 8. | The maximum EU contribution to the SESAR Joint Undertaking for the implementation of SESAR 2020 is 585 million euro, to be paid from Horizon 2020 (4). According to the SESAR 2020 Membership Agreements, Eurocontrol is to contribute around 500 million euro, while the other members from the air traffic sector are to contribute resources amounting to at least 720,7 million euro to the Joint Undertaking’s operational activities. Around 90 % of the funding from Eurocontrol and the other members is in the form of in-kind contributions. |
| --- | --- |

8.

The maximum EU contribution to the SESAR Joint Undertaking for the implementation of SESAR 2020 is 585 million euro, to be paid from Horizon 2020 (4). According to the SESAR 2020 Membership Agreements, Eurocontrol is to contribute around 500 million euro, while the other members from the air traffic sector are to contribute resources amounting to at least 720,7 million euro to the Joint Undertaking’s operational activities. Around 90 % of the funding from Eurocontrol and the other members is in the form of in-kind contributions.

| 9. | 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. |
| --- | --- |

9.

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. | In 2016, the payment budget of the SESAR Joint Undertaking was 157,1 million euro (2015: 136,9 million euro). At 31 December 2016, the Joint Undertaking employed 44 staff (2015: 41) (5). |
| --- | --- |

10.

In 2016, the payment budget of the SESAR Joint Undertaking was 157,1 million euro (2015: 136,9 million euro). At 31 December 2016, the Joint Undertaking employed 44 staff (2015: 41) (5).

| OPINION









  11. | We have audited:






  (a) | the accounts of the Joint Undertaking which comprise the financial statements (6) and the reports on the implementation of the budget (7) for the financial year ended 31 December 2016; and |
| --- | --- | --- |

OPINION

11.

We have audited:

(a)

the accounts of the Joint Undertaking which comprise the financial statements (6) and the reports on the implementation of the budget (7) for the financial year ended 31 December 2016; 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 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

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 2016 is legal and regular in all material respects. |
| --- | --- |

13.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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 2016 are legal and regular in all material respects. |
| --- | --- |

14.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

Responsibilities of management and those in charge of 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.

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. | 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.

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

17.

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

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.

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. | 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.

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

20.

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

| 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) at the point they are made. |
| --- | --- |

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) at the point they are made.

| 22. | 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 (8). |
| --- | --- |

22.

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 (8).

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

23.

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

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 24. | Taking into account unused payment appropriations from previous years (5,7 million euro), the final 2016 budget available from FP7 and Horizon 2020 included commitment appropriations of 101,4 million euro and payment appropriations of 162,8 million euro. The utilisation rates for commitment and payment appropriations were 95,7 % and 63,2 % respectively. The low implementation rate for payment appropriations is mainly due to delays in the implementation of the studies and developments conducted by the members of the SESAR Joint Undertaking. |
| --- | --- |

24.

Taking into account unused payment appropriations from previous years (5,7 million euro), the final 2016 budget available from FP7 and Horizon 2020 included commitment appropriations of 101,4 million euro and payment appropriations of 162,8 million euro. The utilisation rates for commitment and payment appropriations were 95,7 % and 63,2 % respectively. The low implementation rate for payment appropriations is mainly due to delays in the implementation of the studies and developments conducted by the members of the SESAR Joint Undertaking.

Multiannual budget implementation under FP7 and TEN-T

| 25. | Out of the total operational and administrative budget of 892,8 million euro for SESAR I activities (9), by the end of 2016 the SESAR Joint Undertaking had made commitments of 827,4 million euro and payments of 704,2 million euro (79 % of the available budget). |
| --- | --- |

25.

Out of the total operational and administrative budget of 892,8 million euro for SESAR I activities (9), by the end of 2016 the SESAR Joint Undertaking had made commitments of 827,4 million euro and payments of 704,2 million euro (79 % of the available budget).

| 26. | Out of the 1 254,5 million euro of in-kind and cash contributions to be made by the other members to the operational and administrative 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 2016 the Joint Undertaking had validated contributions of 910 million euro (427,7 million euro from Eurocontrol and 482,3 million euro from the air traffic sector). In-kind contributions of 133,5 million euro from the other members had been reported to the SESAR Joint Undertaking by the end of 2016 (49,2 million euro from Eurocontrol and 84,2 million euro from the air traffic sector members). |
| --- | --- |

26.

Out of the 1 254,5 million euro of in-kind and cash contributions to be made by the other members to the operational and administrative 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 2016 the Joint Undertaking had validated contributions of 910 million euro (427,7 million euro from Eurocontrol and 482,3 million euro from the air traffic sector). In-kind contributions of 133,5 million euro from the other members had been reported to the SESAR Joint Undertaking by the end of 2016 (49,2 million euro from Eurocontrol and 84,2 million euro from the air traffic sector members).

| 27. | At the end of 2016, cumulative cash contributions from the EU amounted to 597,1 million euro, compared to total in-kind and cash contributions of 476,9 million euro from Eurocontrol, and 566,5 million euro from the air traffic sector members. |
| --- | --- |

27.

At the end of 2016, cumulative cash contributions from the EU amounted to 597,1 million euro, compared to total in-kind and cash contributions of 476,9 million euro from Eurocontrol, and 566,5 million euro from the air traffic sector members.

Multiannual budget implementation under Horizon 2020

| 28. | Out of the 585 million euro of Horizon 2020 funds allocated to the SESAR Joint Undertaking for the implementation of SESAR 2020, by the end of 2016 the Joint Undertaking had made commitments of 61,6 million euro and payments of 49,9 million euro (8,5 % of the allocated funds). The payments were mainly pre-financing payments for the first wave of SESAR 2020 projects. |
| --- | --- |

28.

Out of the 585 million euro of Horizon 2020 funds allocated to the SESAR Joint Undertaking for the implementation of SESAR 2020, by the end of 2016 the Joint Undertaking had made commitments of 61,6 million euro and payments of 49,9 million euro (8,5 % of the allocated funds). The payments were mainly pre-financing payments for the first wave of SESAR 2020 projects.

| 29. | By the end of 2016, the cumulative EU cash contributions to the operational activities of the Joint Undertaking amounted to 56,8 million euro. |
| --- | --- |

29.

By the end of 2016, the cumulative EU cash contributions to the operational activities of the Joint Undertaking amounted to 56,8 million euro.

| 30. | The other members should make in-kind and cash contributions of 1 220,7 million euro to the operational activities of the Joint Undertaking for SESAR 2020 (500 million euro from Eurocontrol and 720,7 million euro from the air traffic sector). However, at the end of 2016, SESAR 2020 projects were in their early stages and no in-kind and cash contributions had been validated by the Administrative Board. |
| --- | --- |

30.

The other members should make in-kind and cash contributions of 1 220,7 million euro to the operational activities of the Joint Undertaking for SESAR 2020 (500 million euro from Eurocontrol and 720,7 million euro from the air traffic sector). However, at the end of 2016, SESAR 2020 projects were in their early stages and no in-kind and cash contributions had been validated by the Administrative Board.

INTERNAL CONTROLS

Internal control framework

| 31. | The SESAR Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews, and performs ex post audits of beneficiaries. These checks are key tools for assessing the legality and regularity of the underlying transactions, including the cash and in-kind contributions to the Joint Undertaking by its members other than the EU. The residual error rate for the ex post audits reported by the Joint Undertaking at the end of 2016 was 1,34 % (10). |
| --- | --- |

31.

The SESAR Joint Undertaking has set up ex ante control procedures based on financial and operational desk reviews, and performs ex post audits of beneficiaries. These checks are key tools for assessing the legality and regularity of the underlying transactions, including the cash and in-kind contributions to the Joint Undertaking by its members other than the EU. The residual error rate for the ex post audits reported by the Joint Undertaking at the end of 2016 was 1,34 % (10).

Reporting and checking in-kind contributions to SESAR 2020 projects

| 32. | 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. |
| --- | --- |

32.

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.

Assessment of the financial capacity of applicants under calls for proposals

| 33. | 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. |
| --- | --- |

33.

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.

Cost-effectiveness of service contracts

| 34. | 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 multiannual service contracts, as experience shows that most of the bids received were close to the maximum budget. |
| --- | --- |

34.

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 multiannual service contracts, as experience shows that most of the bids received were close to the maximum budget.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 19 September 2017.

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

3

(4)  Article 4(1) of Regulation (EC) No 219/2007 as amended by Regulation (EC) No 1361/2008.

4

(5)  Further information on the Joint Undertaking’s activities is available on its website: http://www.sesarju.eu

5

(6)  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.

6

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

7

(8)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 298, 26.10.2012, p. 1).

8

(9)  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.

9

(10)  SESAR Joint Undertaking 2016 Annual Activity Report, p. 81.

10

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ANNEX

Follow-up of previous years’ comments

| Year | The ECA’s comment | Status of corrective action
  (Completed/Ongoing/Outstanding) |
| --- | --- | --- |
| | 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

The ECA’s comment

Status of corrective action

(Completed/Ongoing/Outstanding)

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

| 24. | One of the main reasons for the delay in implementation of payments for member studies and developments has been difficulties in adapting the common Horizon 2020 IT tools to the special needs of the SESAR Joint Undertaking. This process started in 2016 and is still ongoing. |
| --- | --- |

24.

One of the main reasons for the delay in implementation of payments for member studies and developments has been difficulties in adapting the common Horizon 2020 IT tools to the special needs of the SESAR Joint Undertaking. This process started in 2016 and is still ongoing.

| 30. | For the SESAR Horizon 2020 projects under the restricted calls, it is expected that members will submit their first cost declarations in 2018. The SESAR Joint Undertaking will then start to validate the related in-kind contributions. |
| --- | --- |

30.

For the SESAR Horizon 2020 projects under the restricted calls, it is expected that members will submit their first cost declarations in 2018. The SESAR Joint Undertaking will then start to validate the related in-kind contributions.

| 32. | In December 2016 the SESAR Joint Undertaking’s Administrative Board adopted the document ‘Methodology and validation process for in-kind contributions (IKC) in the SJU (SESAR 2020 Programme only)’, according to which the SESAR Joint Undertaking will develop Terms of Reference and a model certificate, to be presented to the Board in due time, before the reception of any in-kind contributions in 2018. The SESAR Joint Undertaking will investigate if there is some need to adapt the Commission’s Horizon 2020 ex ante control strategy to specific risks related to SESAR 2020 projects. Meanwhile the SESAR Joint Undertaking applies the Commission’s ex ante control strategy by analogy. |
| --- | --- |

32.

In December 2016 the SESAR Joint Undertaking’s Administrative Board adopted the document ‘Methodology and validation process for in-kind contributions (IKC) in the SJU (SESAR 2020 Programme only)’, according to which the SESAR Joint Undertaking will develop Terms of Reference and a model certificate, to be presented to the Board in due time, before the reception of any in-kind contributions in 2018. The SESAR Joint Undertaking will investigate if there is some need to adapt the Commission’s Horizon 2020 ex ante control strategy to specific risks related to SESAR 2020 projects. Meanwhile the SESAR Joint Undertaking applies the Commission’s ex ante control strategy by analogy.

| 33. | Following the results of complementary risk assessments carried out in accordance with the H2020 guidelines, the SESAR Joint Undertaking found that rejecting the project coordinators on the sole basis of the analysis conducted by REA could have exposed the Joint Undertaking to a significant risk of appeal. The SESAR Joint Undertaking agrees, however, that an internal procedure for the reassessment of the weak financial viability of a grant project coordinator, including measures to mitigate and compensate for the increased financial risks, should be established. |
| --- | --- |

33.

Following the results of complementary risk assessments carried out in accordance with the H2020 guidelines, the SESAR Joint Undertaking found that rejecting the project coordinators on the sole basis of the analysis conducted by REA could have exposed the Joint Undertaking to a significant risk of appeal. The SESAR Joint Undertaking agrees, however, that an internal procedure for the reassessment of the weak financial viability of a grant project coordinator, including measures to mitigate and compensate for the increased financial risks, should be established.

| 34. | Following the observation of the Court, in April 2017 the SESAR Joint Undertaking introduced a methodology to systematically assess during the procurement planning phase the needs and costs for contracts. The methodology has already been used on several occasions. |
| --- | --- |

34.

Following the observation of the Court, in April 2017 the SESAR Joint Undertaking introduced a methodology to systematically assess during the procurement planning phase the needs and costs for contracts. The methodology has already been used on several occasions.

---

| 12.12.2017 | EN | Official Journal of the European Union | C 426/64 |
| --- | --- | --- | --- |

12.12.2017

EN

Official Journal of the European Union

C 426/64

---

REPORT

on the annual accounts of the Shift2Rail Joint Undertaking for the financial year 2016, together with the Joint Undertaking’s reply

(2017/C 426/09)

CONTENTS

| | Paragraph | Page |
| --- | --- | --- |
| INTRODUCTION | 1-11 | 65 |
| Establishment of the Shift2Rail Joint Undertaking | 1-2 | 65 |
| Governance | 3-6 | 65 |
| Objectives | 7-8 | 65 |
| Resources | 9-11 | 66 |
| OPINION | 12-24 | 66 |
| Opinion on the reliability of the accounts | 13 | 66 |
| Opinion on the legality and regularity of revenue underlying the accounts | 14 | 66 |
| Opinion on the legality and regularity of payments underlying the accounts | 15 | 66 |
| Responsibilities of management and those in charge of governance | 16-18 | 67 |
| Auditor’s responsibilities for the audit of the accounts and underlying transactions | 19-23 | 67 |
| BUDGETARY AND FINANCIAL MANAGEMENT | 25-29 | 68 |
| Implementation of the 2016 budget | 25 | 68 |
| Multiannual budget implementation under Horizon 2020 | 26-29 | 68 |
| INTERNAL CONTROLS | 30-33 | 68 |
| Internal control framework | 30 | 68 |
| Anti-fraud strategy | 31 | 68 |
| Assessment of applications under calls for proposals | 32 | 68 |
| Procurement procedures | 33 | 69 |

Paragraph

Page

INTRODUCTION

1-11

65

Establishment of the Shift2Rail Joint Undertaking

1-2

65

Governance

3-6

65

Objectives

7-8

65

Resources

9-11

66

OPINION

12-24

66

Opinion on the reliability of the accounts

13

66

Opinion on the legality and regularity of revenue underlying the accounts

14

66

Opinion on the legality and regularity of payments underlying the accounts

15

66

Responsibilities of management and those in charge of governance

16-18

67

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

19-23

67

BUDGETARY AND FINANCIAL MANAGEMENT

25-29

68

Implementation of the 2016 budget

25

68

Multiannual budget implementation under Horizon 2020

26-29

68

INTERNAL CONTROLS

30-33

68

Internal control framework

30

68

Anti-fraud strategy

31

68

Assessment of applications under calls for proposals

32

68

Procurement procedures

33

69

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. As the Joint Undertaking began autonomous operations in 2016, this year’s accounts are the first set of S2R financial statements audited by the ECA. |
| --- | --- |

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. As the Joint Undertaking began autonomous operations in 2016, this year’s accounts are the first set of S2R financial statements audited by the ECA.

| 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.

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.

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.

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

| 4. | The Governing Board is composed of 22 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.

The Governing Board is composed of 22 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.

| 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.

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.

| 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.

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,

| — | 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 is intended to provide a platform for the rail sector to work together to drive forward innovation. 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, |
| --- | --- | --- |

7.

The S2R Joint Undertaking is intended to provide a platform for the rail sector to work together to drive forward innovation. 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,

| — | 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.

| 8. | The objectives are: to achieve a single European railway area; to enhance the attractiveness and competitiveness of the European railway system; to ensure a modal shift from road transport; and to maintain the European rail industry’s leading position in the global market. |
| --- | --- |

8.

The objectives are: to achieve a single European railway area; to enhance the attractiveness and competitiveness of the European railway system; to ensure a modal shift from road transport; and to maintain the European rail industry’s leading position in the global market.

Resources

| 9. | The maximum EU contribution to the activities of the S2R Joint Undertaking is 450 million euro (2), to be paid from Horizon 2020. The industry members of the Joint Undertaking are to contribute resources of at least 470 million euro (3), 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 (4). |
| --- | --- |

9.

The maximum EU contribution to the activities of the S2R Joint Undertaking is 450 million euro (2), to be paid from Horizon 2020. The industry members of the Joint Undertaking are to contribute resources of at least 470 million euro (3), 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 (4).

| 10. | The administrative costs of the S2R joint Undertaking are limited to 27 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.

The administrative costs of the S2R joint Undertaking are limited to 27 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).

| 11. | In 2016, the payment budget for the S2R Joint Undertaking was 51,4 million euro. At 31 December 2016, the Joint Undertaking employed 17 staff (6). |
| --- | --- |

11.

In 2016, the payment budget for the S2R Joint Undertaking was 51,4 million euro. At 31 December 2016, the Joint Undertaking employed 17 staff (6).

| OPINION









  12. | 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 2016; and |
| --- | --- | --- |

OPINION

12.

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 2016; 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 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

In our opinion, the accounts of the Joint Undertaking for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Joint Undertaking at 31 December 2016, 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.

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 2016 is legal and regular in all material respects. |
| --- | --- |

14.

In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects.

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 2016 are legal and regular in all material respects. |
| --- | --- |

15.

In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects.

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.

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. | 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.

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

18.

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

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.

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. | 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.

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

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

| 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) at the point they are made. |
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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) at the point they are made.

| 23. | 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 (9). |
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23.

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 (9).

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

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

BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the 2016 budget

| 25. | Taking into account unused payment appropriations from previous years (0,9 million euro), the final 2016 budget included commitment appropriations of 50,2 million euro and payment appropriations of 52,3 million euro. The utilisation rates for commitment and payment appropriations were 94 % and 82 % respectively. Most of the payments made by the Joint Undertaking in 2016 were pre-financing payments for Horizon 2020 projects selected under the 2015 and 2016 calls for proposals. |
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25.

Taking into account unused payment appropriations from previous years (0,9 million euro), the final 2016 budget included commitment appropriations of 50,2 million euro and payment appropriations of 52,3 million euro. The utilisation rates for commitment and payment appropriations were 94 % and 82 % respectively. Most of the payments made by the Joint Undertaking in 2016 were pre-financing payments for Horizon 2020 projects selected under the 2015 and 2016 calls for proposals.

Multiannual budget implementation under Horizon 2020

| 26. | Out of the 450 million euro of Horizon 2020 funds assigned to the S2R initiative, 52 million euro were earmarked for the Horizon 2020 Transport work programme 2014-2015 managed by the European Commission, resulting in 398 million euro allocated to the S2R Joint Undertaking. By the end of 2016 the Joint Undertaking had made commitments of 92,4 million euro (10) and payments of 42,7 million euro (10,7 % of the allocated funds) for the implementation of its first wave of projects. |
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26.

Out of the 450 million euro of Horizon 2020 funds assigned to the S2R initiative, 52 million euro were earmarked for the Horizon 2020 Transport work programme 2014-2015 managed by the European Commission, resulting in 398 million euro allocated to the S2R Joint Undertaking. By the end of 2016 the Joint Undertaking had made commitments of 92,4 million euro (10) and payments of 42,7 million euro (10,7 % of the allocated funds) for the implementation of its first wave of projects.

| 27. | Out of the 350 million euro of contributions to be made by the industry members to the operational activities and administrative costs of the Joint Undertaking, by the end of 2016, four months after the S2R Joint Undertaking had launched its first Horizon 2020 projects, the members had reported in-kind contributions of 4,5 million euro for operational activities, of which 3 million euro had been certified. In addition, the Governing Board had validated cash contributions to the Joint Undertaking’s administrative costs of 3,2 million euro. |
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27.

Out of the 350 million euro of contributions to be made by the industry members to the operational activities and administrative costs of the Joint Undertaking, by the end of 2016, four months after the S2R Joint Undertaking had launched its first Horizon 2020 projects, the members had reported in-kind contributions of 4,5 million euro for operational activities, of which 3 million euro had been certified. In addition, the Governing Board had validated cash contributions to the Joint Undertaking’s administrative costs of 3,2 million euro.

| 28. | Out of the 120 million euro of industry members’ contributions to be made to additional activities, by the end of 2016 the members had already reported 55 million euro (45,8 %), of which 35,2 million euro had been certified. |
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28.

Out of the 120 million euro of industry members’ contributions to be made to additional activities, by the end of 2016 the members had already reported 55 million euro (45,8 %), of which 35,2 million euro had been certified.

| 29. | Consequently, by the end of 2016, the total contributions from industry members amounted to 62,7 million euro, compared to the EU’s cash contribution of 48,5 million euro. |
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29.

Consequently, by the end of 2016, the total contributions from industry members amounted to 62,7 million euro, compared to the EU’s cash contribution of 48,5 million euro.

INTERNAL CONTROLS

Internal control framework

| 30. | The S2R Joint Undertaking has set up an action plan for the implementation of its internal control framework, which takes into account the results of a risk assessment completed by the Commission’s Internal Audit Service in December 2016. Ex post audits of project cost claims by independent external auditors are to be launched after the validation of the first cost claims in the course of 2017. |
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30.

The S2R Joint Undertaking has set up an action plan for the implementation of its internal control framework, which takes into account the results of a risk assessment completed by the Commission’s Internal Audit Service in December 2016. Ex post audits of project cost claims by independent external auditors are to be launched after the validation of the first cost claims in the course of 2017.

Anti-fraud strategy

| 31. | 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. |
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31.

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.

Assessment of applications under calls for proposals

| 32. | In two cases out of the eight we audited, the Joint Undertaking awarded grants to project consortia, despite the fact that the checks of the financial viability of the beneficiaries performed by the Research Executive Agency indicated that the financial capacity of the coordinating industry members of the consortia was weak. This implies a high financial risk to the completion of those projects. The financial risk was particularly high in one case, in which the coordinating partner had been assigned over 45 % of the total project funding. |
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32.

In two cases out of the eight we audited, the Joint Undertaking awarded grants to project consortia, despite the fact that the checks of the financial viability of the beneficiaries performed by the Research Executive Agency indicated that the financial capacity of the coordinating industry members of the consortia was weak. This implies a high financial risk to the completion of those projects. The financial risk was particularly high in one case, in which the coordinating partner had been assigned over 45 % of the total project funding.

Procurement procedures

| 33. | In its procedures for the procurement of services, the Joint Undertaking sets a maximum contract budget. There was no evidence that this maximum amount was based on a cost estimation process and a reasonable market price reference system. This may not ensure the cost-effectiveness of its multiannual service contracts, as experience shows that most of the bids received were close to the maximum budget. |
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33.

In its procedures for the procurement of services, the Joint Undertaking sets a maximum contract budget. There was no evidence that this maximum amount was based on a cost estimation process and a reasonable market price reference system. This may not ensure the cost-effectiveness of its multiannual service contracts, as experience shows that most of the bids received were close to the maximum budget.

This Report was adopted by Chamber IV, headed by Mr Baudilio TOMÉ MUGURUZA, Member of the Court of Auditors, in Luxembourg at its meeting of 19 September 2017.

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

2

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

3

(4)  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.

4

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

5

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

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 (OJ L 298, 26.10.2012, p. 1).

9

(10)  This amount includes unused commitments of 45,1 million euro approved by the Commission in the previous year and carried over to 2016 to be implemented by the S2R Joint Undertaking.

10

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THE JOINT UNDERTAKING’S REPLY

| 31. | In 2017 the S2R Joint Undertaking made the first steps to establish its own anti-fraud action plan, i.e. an anti-fraud awareness session for S2R JU staff organised by OLAF, and an anti-fraud risk assessment. This will be followed by an impact assessment establishing the key objectives to mitigate the main weaknesses (Q4 2017) and an evaluation of the anti-fraud strategy and the action plan (June 2018). |
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31.

In 2017 the S2R Joint Undertaking made the first steps to establish its own anti-fraud action plan, i.e. an anti-fraud awareness session for S2R JU staff organised by OLAF, and an anti-fraud risk assessment. This will be followed by an impact assessment establishing the key objectives to mitigate the main weaknesses (Q4 2017) and an evaluation of the anti-fraud strategy and the action plan (June 2018).

| 32. | In both cases, the S2R decision took into account the broader relationship of the JU with the two concerned Founding Members and the necessary follow-up.
  After the first control gate (project interim payment in May 2017), both projects have demonstrated positive operational achievements. In addition, one of the two entities has been reassessed for the need of its role of project coordinator in a new 2017 project, and the result of the financial viability check is now ‘acceptable’. |
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32.

In both cases, the S2R decision took into account the broader relationship of the JU with the two concerned Founding Members and the necessary follow-up.

After the first control gate (project interim payment in May 2017), both projects have demonstrated positive operational achievements. In addition, one of the two entities has been reassessed for the need of its role of project coordinator in a new 2017 project, and the result of the financial viability check is now ‘acceptable’.

| 33. | The approach followed by the S2R Joint Undertaking is in line with the provisions of the Commission Procurement Vademecum and the principles of the Financial Regulation. Nevertheless, the Joint Undertaking will implement in addition a method to document during the planning phase the result of the market price research performed, on a case-by-case approach. |
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33.

The approach followed by the S2R Joint Undertaking is in line with the provisions of the Commission Procurement Vademecum and the principles of the Financial Regulation. Nevertheless, the Joint Undertaking will implement in addition a method to document during the planning phase the result of the market price research performed, on a case-by-case approach.

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