# Official Journal C 121/20 M

| | ISSN 1725-2423 |
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| Official Journal
  of the European Union | C 121 |
| | |
| English edition | Information and Notices | Volume 4820 May 2005 |

ISSN 1725-2423

Official Journal

of the European Union

C 121

English edition

Information and Notices

Volume 4820 May 2005

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| Notice No | Contents | page |
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| | I   Information |
| | Court of Auditors |
| 2005/C 121/1 | Opinion No 1/2005 on the proposal for a Council Regulation on the financing of the common agricultural policy (COM(2004) 489 final of 14 July 2004) | 1 |
| 2005/C 121/2 | Opinion No 2/2005 on the proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund (COM(2004) 492 final of 14 July 2004) | 14 |

Notice No

Contents

page

I   Information

Court of Auditors

2005/C 121/1

Opinion No 1/2005 on the proposal for a Council Regulation on the financing of the common agricultural policy (COM(2004) 489 final of 14 July 2004)

1

2005/C 121/2

Opinion No 2/2005 on the proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund (COM(2004) 492 final of 14 July 2004)

14

| EN | |
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EN

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I Information

Court of Auditors

| 20.5.2005 | EN | Official Journal of the European Union | C 121/1 |
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20.5.2005

EN

Official Journal of the European Union

C 121/1

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OPINION No 1/2005

on the proposal for a Council Regulation on the financing of the common agricultural policy (COM(2004) 489 final of 14 July 2004)

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

(2005/C 121/01)

TABLE OF CONTENTS

| 1-6 | INTRODUCTION |
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1-6

| 7-14 | A CLEAR SEPARATION OF THE TWO ‘PILLARS’ |
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7-14

| 7-13 | Current situation and proposal |
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7-13

| 14 | Analysis |
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14

| 15-34 | MANAGEMENT AND CONTROL |
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15-34

| 15-25 | EAGF |
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15-25

| 15-18 | Current situation and proposal |
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15-18

| 19-25 | Analysis |
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19-25

| 26-34 | EAFRD |
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26-34

| 26-29 | Current situation and proposal |
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26-29

| 30-32 | Analysis |
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30-32

| 33-34 | Conclusion |
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33-34

| 35-48 | BUDGETARY DISCIPLINE |
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35-48

| 35-40 | Current situation |
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35-40

| 41-44 | The Commission's proposal |
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41-44

| 45-48 | Analysis |
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45-48

| 45-47 | EAGF |
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45-47

| 48 | EAFRD |
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48

| 49-61 | TREATMENT OF IRREGULARITIES |
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49-61

| 49-53 | EAGF |
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49-53

| 49 | Current situation |
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49

| 50-53 | Proposal and analysis |
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50-53

| 54-61 | EAFRD |
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54-61

| 54-57 | Current situation |
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54-57

| 58-61 | Proposal and analysis |
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58-61

| 62-65 | OTHER COMMENTS |
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62-65

| 62 | Consistency between financial years |
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62

| 63 | Transitional arrangements |
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63

| 64-65 | Minor points |
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64-65

| I-II | SUMMARY |
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I-II

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Article 248(4), second subparagraph, and Article 279 thereof,

Having regard to the proposal for a Council Regulation on the financing of the common agricultural policy (1),

Having regard to the request for an opinion on this proposal submitted by the Council to the Court of Auditors on 29 October 2004, and received by the Court on 5 November 2004,

HAS ADOPTED THE FOLLOWING OPINION:

INTRODUCTION

| 1. | The purpose of the proposed regulation is to establish with effect from 1 January 2007 a legal framework for financing the two ‘pillars’ (market expenditure and income support; rural development) of the common agricultural policy (CAP). The proposal builds upon existing CAP provisions (2). It does not introduce changes to the substance of the CAP or fix the amounts to be spent on the CAP. |
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1.

The purpose of the proposed regulation is to establish with effect from 1 January 2007 a legal framework for financing the two ‘pillars’ (market expenditure and income support; rural development) of the common agricultural policy (CAP). The proposal builds upon existing CAP provisions (2). It does not introduce changes to the substance of the CAP or fix the amounts to be spent on the CAP.

| 2. | The Court has considered whether the proposal is likely to improve the financial management of the CAP taking into account its opinion of April 2004 on the single audit model (Opinion No 2/2004) (3). |
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2.

The Court has considered whether the proposal is likely to improve the financial management of the CAP taking into account its opinion of April 2004 on the single audit model (Opinion No 2/2004) (3).

| 3. | Under this model, the Commission would be responsible for promoting improvements in internal control systems and for providing assurance that they are working effectively. The internal controls systems would be based on a logical framework using common principles and standards. The Court emphasised that the cost of the controls should be in proportion to their benefit. However, some elements identified in the Court's single audit opinion as necessary for an effective and efficient chain of accountability and financial control require further clarification (see paragraphs 20, 21, 23 and 24). |
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3.

Under this model, the Commission would be responsible for promoting improvements in internal control systems and for providing assurance that they are working effectively. The internal controls systems would be based on a logical framework using common principles and standards. The Court emphasised that the cost of the controls should be in proportion to their benefit. However, some elements identified in the Court's single audit opinion as necessary for an effective and efficient chain of accountability and financial control require further clarification (see paragraphs 20, 21, 23 and 24).

| 4. | Paragraphs (7 to 61) below discuss four principal themes of the draft regulation: |
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4.

Paragraphs (7 to 61) below discuss four principal themes of the draft regulation:

| — | Consolidation of agricultural expenditure and separation of the two pillars (Articles 2 to 5 of the draft regulation), |
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Consolidation of agricultural expenditure and separation of the two pillars (Articles 2 to 5 of the draft regulation),

| — | Management and control (Articles 6 to 8,10,11,12 to 17, 22 to 31, 36, 37 of the draft regulation), |
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Management and control (Articles 6 to 8,10,11,12 to 17, 22 to 31, 36, 37 of the draft regulation),

| — | Budgetary discipline (Articles 12 to 21 of the draft regulation), |
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Budgetary discipline (Articles 12 to 21 of the draft regulation),

| — | The treatment of irregularities (Articles 9, 32 to 35 of the draft regulation). |
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The treatment of irregularities (Articles 9, 32 to 35 of the draft regulation).

Paragraphs 62 to 65 discuss other detailed points, some of them concerning transition.

| 5. | At a number of points (Articles 7, 8, 9, 13, 15, 16, 18, 19, 26, 30, 39, 42, 45 and 48) the draft regulation leaves important issues, to be settled through committee procedure in secondary legislation, on which the Court is clearly unable to comment at the moment. The Court notes that the effectiveness of a number of aspects of the proposed system will depend on the quality and content of such secondary legislation. In particular, the draft regulation leaves unclear the precise financial responsibilities of the Commission and the Member States. |
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5.

At a number of points (Articles 7, 8, 9, 13, 15, 16, 18, 19, 26, 30, 39, 42, 45 and 48) the draft regulation leaves important issues, to be settled through committee procedure in secondary legislation, on which the Court is clearly unable to comment at the moment. The Court notes that the effectiveness of a number of aspects of the proposed system will depend on the quality and content of such secondary legislation. In particular, the draft regulation leaves unclear the precise financial responsibilities of the Commission and the Member States.

| 6. | Some of the proposed changes of the draft regulation are not consistent with some of the provisions in the Financial Regulation (4). The Commission will need to consider whether amendments to the Financial Regulation are necessary. |
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6.

Some of the proposed changes of the draft regulation are not consistent with some of the provisions in the Financial Regulation (4). The Commission will need to consider whether amendments to the Financial Regulation are necessary.

A CLEAR SEPARATION OF THE TWO ‘PILLARS’

Current situation and proposal

| 7. | For many years the common agricultural policy has been implemented through one ‘Fund’: the European Agricultural Guidance and Guarantee Fund. This Fund has two sections, Guidance and Guarantee, which are governed by different rules. (They are currently set out in Council Regulation (EC) No 1257/1999 and Council Regulation (EC) No 1258/1999 (5)). |
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7.

For many years the common agricultural policy has been implemented through one ‘Fund’: the European Agricultural Guidance and Guarantee Fund. This Fund has two sections, Guidance and Guarantee, which are governed by different rules. (They are currently set out in Council Regulation (EC) No 1257/1999 and Council Regulation (EC) No 1258/1999 (5)).

| 8. | The Guarantee section |
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8.

The Guarantee section

| — | finances all expenditure in support of agricultural markets and income support, and |
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finances all expenditure in support of agricultural markets and income support, and

| — | co-finances (with Member States) certain rural development measures. |
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co-finances (with Member States) certain rural development measures.

| 9. | The rural development measures co-financed by the Guarantee section are |
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9.

The rural development measures co-financed by the Guarantee section are

| (a) | early retirement payments, |
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(a)

early retirement payments,

| (b) | subsidies to farmers in less-favoured areas and areas with environmental restrictions, |
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(b)

subsidies to farmers in less-favoured areas and areas with environmental restrictions,

| (c) | support towards meeting standards (in the field of environment, public health etc.), |
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(c)

support towards meeting standards (in the field of environment, public health etc.),

| (d) | agri-environmental and animal welfare payments, |
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(d)

agri-environmental and animal welfare payments,

| (e) | support for food quality, |
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(e)

support for food quality,

| (f) | afforestation (6) and, |
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(f)

afforestation (6) and,

| (g) | support for all ‘other rural development measures’ in areas not covered by Structural Funds Objective 1:






  — | investments in agricultural holdings, |
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(g)

support for all ‘other rural development measures’ in areas not covered by Structural Funds Objective 1:

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investments in agricultural holdings,

| — | helping young farmers to establish themselves in business, |
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helping young farmers to establish themselves in business,

| — | training of farmers and other persons involved in agricultural and forestry activities, |
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training of farmers and other persons involved in agricultural and forestry activities,

| — | improving processing and marketing of agricultural products, |
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improving processing and marketing of agricultural products,

| — | forestry, and |
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forestry, and

| — | other measures promoting the adaptation and development of rural areas (7) (such as reparceling, diversification of agricultural activities etc.). |
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other measures promoting the adaptation and development of rural areas (7) (such as reparceling, diversification of agricultural activities etc.).

| 10. | The Guidance section co-finances all ‘other rural development measures’ listed under (g) in the preceding paragraph in areas covered by Objective 1. It also co-finances the Community Initiative ‘Leader+’ (8). |
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10.

The Guidance section co-finances all ‘other rural development measures’ listed under (g) in the preceding paragraph in areas covered by Objective 1. It also co-finances the Community Initiative ‘Leader+’ (8).

| 11. | These arrangements are shown graphically in figure 1. |
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11.

These arrangements are shown graphically in figure 1.

| 12. | Thus, at present, whether a rural development measure is financed by the Guarantee or Guidance section of the EAGGF depends on both the type of measure and its geographical location. For example: modernisation of an abattoir in an Objective 1 region will be co-financed by the Guidance section, while an identical project situated outside Objective 1 will be co-financed by the Guarantee section; afforestation of agricultural land will be co-financed by the Guarantee section throughout the Community, whereas investment in maintenance and improvement of forest resources will be co-financed by the Guidance section in Objective 1 areas. |
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12.

Thus, at present, whether a rural development measure is financed by the Guarantee or Guidance section of the EAGGF depends on both the type of measure and its geographical location. For example: modernisation of an abattoir in an Objective 1 region will be co-financed by the Guidance section, while an identical project situated outside Objective 1 will be co-financed by the Guarantee section; afforestation of agricultural land will be co-financed by the Guarantee section throughout the Community, whereas investment in maintenance and improvement of forest resources will be co-financed by the Guidance section in Objective 1 areas.

| 13. | The Commission proposes that two funds, a European Agricultural Guarantee Fund (EAGF) and a European Agricultural Fund for Rural Development (EAFRD) should replace the Guarantee and Guidance sections of the current EAGGF. The EAGF would include expenditure in support of agricultural markets and income support to farmers as laid down in paragraph 8, first indent above (9). All rural development expenditure, regardless of type or geographical location, would be co-financed by EAFRD. |
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13.

The Commission proposes that two funds, a European Agricultural Guarantee Fund (EAGF) and a European Agricultural Fund for Rural Development (EAFRD) should replace the Guarantee and Guidance sections of the current EAGGF. The EAGF would include expenditure in support of agricultural markets and income support to farmers as laid down in paragraph 8, first indent above (9). All rural development expenditure, regardless of type or geographical location, would be co-financed by EAFRD.

Image

Analysis

| 14. | The proposed consolidation of all rural development expenditure within a single budgetary framework would mean that it would be possible to identify total spending on particular rural development measures and overall spending on rural development (10). This represents a welcome increase in transparency (11). |
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14.

The proposed consolidation of all rural development expenditure within a single budgetary framework would mean that it would be possible to identify total spending on particular rural development measures and overall spending on rural development (10). This represents a welcome increase in transparency (11).

MANAGEMENT AND CONTROL

EAGF

Current situation and proposal

| 15. | The proposal introduces no significant changes to the management and control of market expenditure. As at present nearly all expenditure would be effected by the paying agencies of the Member States. |
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15.

The proposal introduces no significant changes to the management and control of market expenditure. As at present nearly all expenditure would be effected by the paying agencies of the Member States.

| 16. | For most expenditure the process would continue to be as follows: |
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16.

For most expenditure the process would continue to be as follows:

| (a) | farmers present claims to paying agencies in the year before payment is due, based on areas cultivated, number of eligible animals owned during a specified retention period, etc.; |
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(a)

farmers present claims to paying agencies in the year before payment is due, based on areas cultivated, number of eligible animals owned during a specified retention period, etc.;

| (b) | the paying agencies subject these claims to administrative checks and, on a sample basis, to on-the-spot-checks, mainly through the Integrated Administration and Control System (IACS); |
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(b)

the paying agencies subject these claims to administrative checks and, on a sample basis, to on-the-spot-checks, mainly through the Integrated Administration and Control System (IACS);

| (c) | each paying agency pays claimants, and reports expenditure made on a monthly basis to the Commission which reimburses the paying agency (‘monthly payments’); |
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(c)

each paying agency pays claimants, and reports expenditure made on a monthly basis to the Commission which reimburses the paying agency (‘monthly payments’);

| (d) | the accounts and payments of the paying agency are examined by an independent auditor (certifying body) who reports to the Commission in February of the year following the budget year; |
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(d)

the accounts and payments of the paying agency are examined by an independent auditor (certifying body) who reports to the Commission in February of the year following the budget year;

| (e) | by 30 April of that year, the Commission must take a decision (financial or accounting clearance) on whether to accept these accounts and audit reports or to ask for more work to be performed or information provided; |
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(e)

by 30 April of that year, the Commission must take a decision (financial or accounting clearance) on whether to accept these accounts and audit reports or to ask for more work to be performed or information provided;

| (f) | the Commission may then examine payments made by the paying agencies and, if they were irregular, or if financial controls were weak, may decide that some expenditure should be borne by the Member States concerned and not be charged to the EU budget (the Commission ‘disallows’ such expenditure in ‘conformity decisions’). When it disallows expenditure the Commission reduces its payments to paying agencies accordingly. |
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(f)

the Commission may then examine payments made by the paying agencies and, if they were irregular, or if financial controls were weak, may decide that some expenditure should be borne by the Member States concerned and not be charged to the EU budget (the Commission ‘disallows’ such expenditure in ‘conformity decisions’). When it disallows expenditure the Commission reduces its payments to paying agencies accordingly.

| 17. | Expenditure under EAGF, as under the present Guarantee section, would be financed by non-differentiated appropriations i.e. there would be no distinction between commitment and payment appropriations. |
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17.

Expenditure under EAGF, as under the present Guarantee section, would be financed by non-differentiated appropriations i.e. there would be no distinction between commitment and payment appropriations.

| 18. | The draft regulation introduces, however, some new elements and/or changes: |
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18.

The draft regulation introduces, however, some new elements and/or changes:

| — | in Member States where there is more than one paying agency a coordinating body is already required to centralise information to be made available to the Commission, to ensure that it is provided on a consistent basis, and to promote a harmonised application of Community rules. Article 6 (3) of the draft regulation would introduce the need for coordinating bodies to be subject to specific accreditation by the Member States, |
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in Member States where there is more than one paying agency a coordinating body is already required to centralise information to be made available to the Commission, to ensure that it is provided on a consistent basis, and to promote a harmonised application of Community rules. Article 6 (3) of the draft regulation would introduce the need for coordinating bodies to be subject to specific accreditation by the Member States,

| — | Article 8 (1)(c) of the draft regulation would introduce the need for the person in charge of each paying agency to sign and send to the Commission every year a ‘statement of assurance’, |
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Article 8 (1)(c) of the draft regulation would introduce the need for the person in charge of each paying agency to sign and send to the Commission every year a ‘statement of assurance’,

| — | Article 31(4)(a) of the draft regulation would allow the Commission, under the clearance of accounts procedure summarised in paragraph 16(f) above, to disallow EAGF expenditure that is incurred up to 36 months before the Commission notifies the Member State in writing of its inspection findings (a ‘36 months rule’). This period is 24 months at present. |
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Article 31(4)(a) of the draft regulation would allow the Commission, under the clearance of accounts procedure summarised in paragraph 16(f) above, to disallow EAGF expenditure that is incurred up to 36 months before the Commission notifies the Member State in writing of its inspection findings (a ‘36 months rule’). This period is 24 months at present.

Analysis

General

| 19. | The current payment process for EAGGF Guarantee is tried and tested. In the past the Commission has usually not proposed changes to areas that worked reasonably well. |
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19.

The current payment process for EAGGF Guarantee is tried and tested. In the past the Commission has usually not proposed changes to areas that worked reasonably well.

Detailed changes proposed (paragraph 18 above)

| 20. | The introduction of a specific accreditation requirement (separate from the accreditation of paying agencies) for ‘coordinating bodies’ could strengthen the chain of accountability for CAP spending (see Opinion No 2/2004 on single audit, paragraphs I, II and IV). This would however depend on the quality and content of the rules for specific accreditation provided by the Commission to the Member States and on how Member States applied them. |
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20.

The introduction of a specific accreditation requirement (separate from the accreditation of paying agencies) for ‘coordinating bodies’ could strengthen the chain of accountability for CAP spending (see Opinion No 2/2004 on single audit, paragraphs I, II and IV). This would however depend on the quality and content of the rules for specific accreditation provided by the Commission to the Member States and on how Member States applied them.

| 21. | The introduction of a ‘statement of assurance’ signed by the person in charge of a paying agency could improve the existing control system in the direction of the single audit model. However, the proposal makes no suggestion as to the objective, the content and scope of the statement. Its content should be closely modelled on the equivalent statement generally required under corporate governance requirements of, for example, listed companies. This would imply that the head of the agency should explain his/her responsibility for the accounts, conduct an annual review of the effectiveness of the system of internal control and report that he/she has done so. Such a review should cover all controls, including financial, operational and compliance controls and risk management. Such a statement cannot replace the work of certifying bodies. Neither DG AGRI nor the certifying body should place reliance on such a statement without additional corroborative evidence. On a point of detail, the terminology suggested would promote confusion with the statement of assurance required of the European Court of Auditors and with the assurance statement required of the Directors-General of the Commission. An alternative name should be chosen. |
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21.

The introduction of a ‘statement of assurance’ signed by the person in charge of a paying agency could improve the existing control system in the direction of the single audit model. However, the proposal makes no suggestion as to the objective, the content and scope of the statement. Its content should be closely modelled on the equivalent statement generally required under corporate governance requirements of, for example, listed companies. This would imply that the head of the agency should explain his/her responsibility for the accounts, conduct an annual review of the effectiveness of the system of internal control and report that he/she has done so. Such a review should cover all controls, including financial, operational and compliance controls and risk management. Such a statement cannot replace the work of certifying bodies. Neither DG AGRI nor the certifying body should place reliance on such a statement without additional corroborative evidence. On a point of detail, the terminology suggested would promote confusion with the statement of assurance required of the European Court of Auditors and with the assurance statement required of the Directors-General of the Commission. An alternative name should be chosen.

| 22. | The Court supported a ‘36 months rule’ in its Opinion No 9/2002 (12). This modification would reduce the risk that weaknesses detected in Member States’ systems may not be penalised simply because the Commission has not been able to cover all areas of expenditure within a two-year cycle. The Commission should consider 36 months strictly as a limit, and should endeavour so far as possible to avoid delays in clearing accounts and charging expenditure definitely to the budget. |
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22.

The Court supported a ‘36 months rule’ in its Opinion No 9/2002 (12). This modification would reduce the risk that weaknesses detected in Member States’ systems may not be penalised simply because the Commission has not been able to cover all areas of expenditure within a two-year cycle. The Commission should consider 36 months strictly as a limit, and should endeavour so far as possible to avoid delays in clearing accounts and charging expenditure definitely to the budget.

Other observations

| 23. | The existing EAGGF Guarantee arrangements are capable of improvement in an important respect which the Commission has not proposed. Certifying bodies, which audit the paying agencies accounts and the operation of the paying agencies' internal control procedures, limit their work to confirming the existence of controls designed to ensure conformity of the payments, and do not always carry out sufficient tests of compliance to confirm that such controls function effectively. Nor do certifying bodies carry out sufficient work at the level of the beneficiary of CAP payments to confirm that payments are legal and regular. |
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23.

The existing EAGGF Guarantee arrangements are capable of improvement in an important respect which the Commission has not proposed. Certifying bodies, which audit the paying agencies accounts and the operation of the paying agencies' internal control procedures, limit their work to confirming the existence of controls designed to ensure conformity of the payments, and do not always carry out sufficient tests of compliance to confirm that such controls function effectively. Nor do certifying bodies carry out sufficient work at the level of the beneficiary of CAP payments to confirm that payments are legal and regular.

| 24. | The Court maintains the view (set out in its Opinion No 10/98 (13)) that certification of paying agencies by certifying bodies should be based on internationally accepted auditing standards. A reference to internationally accepted auditing standards (14) should be introduced in Article 7 of the draft regulation. The certification should cover legality and regularity of expenditure at the level of the beneficiary and key controls of the paying agency should be tested. When defining the intensity of these checks, the related costs and the related benefits must be taken into account. Such coverage would represent a stronger and clearer chain of accountability for CAP spending. It would provide increased assurance to the Commission and would be consistent with the concept of the single audit model (see Opinion No 2/2004, paragraph 42). Changes to extend the scope of the work of the certifying bodies could be usefully set out in either Article 7 or Article 8(1)(c)(iii) of the draft regulation. |
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24.

The Court maintains the view (set out in its Opinion No 10/98 (13)) that certification of paying agencies by certifying bodies should be based on internationally accepted auditing standards. A reference to internationally accepted auditing standards (14) should be introduced in Article 7 of the draft regulation. The certification should cover legality and regularity of expenditure at the level of the beneficiary and key controls of the paying agency should be tested. When defining the intensity of these checks, the related costs and the related benefits must be taken into account. Such coverage would represent a stronger and clearer chain of accountability for CAP spending. It would provide increased assurance to the Commission and would be consistent with the concept of the single audit model (see Opinion No 2/2004, paragraph 42). Changes to extend the scope of the work of the certifying bodies could be usefully set out in either Article 7 or Article 8(1)(c)(iii) of the draft regulation.

| 25. | The Court notes that responsibility for the accreditation of paying agencies under CAP would remain with the Member States. In its Special Report No 2/2004 (15) on Sapard (the financing mechanisms of this programme are in many aspects similar to that of the CAP) the Court welcomed the Commission's role in giving accreditation: prior approval of the systems based on both Sapard countries' and the Commission's audits, has ensured that well-defined systems with key controls existed, at least on paper, before any money could be spent. The Court considered this as good practice. |
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25.

The Court notes that responsibility for the accreditation of paying agencies under CAP would remain with the Member States. In its Special Report No 2/2004 (15) on Sapard (the financing mechanisms of this programme are in many aspects similar to that of the CAP) the Court welcomed the Commission's role in giving accreditation: prior approval of the systems based on both Sapard countries' and the Commission's audits, has ensured that well-defined systems with key controls existed, at least on paper, before any money could be spent. The Court considered this as good practice.

EAFRD

Current situation and proposal

| 26. | The proposed management and control framework for the EAFRD is based in part on that of the structural funds and in part on that of the EAGGF Guarantee, and would provide a single set of financial rules and a common control system for all rural development expenditure. |
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26.

The proposed management and control framework for the EAFRD is based in part on that of the structural funds and in part on that of the EAGGF Guarantee, and would provide a single set of financial rules and a common control system for all rural development expenditure.

| 27. | As explained in paragraphs 8 to 13 above and in figure 1, the new EAFRD would bring together all rural development expenditure: |
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27.

As explained in paragraphs 8 to 13 above and in figure 1, the new EAFRD would bring together all rural development expenditure:

| — | Guarantee expenditure: payment appropriations of 4,8 billion euro in 2004 paid through non-differentiated appropriations (see paragraph 17 above), |
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—

Guarantee expenditure: payment appropriations of 4,8 billion euro in 2004 paid through non-differentiated appropriations (see paragraph 17 above),

| — | Guidance expenditure: payment appropriations of 2,9 billion euro in 2004 paid through differentiated appropriations (16). |
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Guidance expenditure: payment appropriations of 2,9 billion euro in 2004 paid through differentiated appropriations (16).

| 28. | The Commission proposes that all this expenditure should be financed under one expenditure stream with differentiated appropriations in future. The implications of these changes are that: |
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28.

The Commission proposes that all this expenditure should be financed under one expenditure stream with differentiated appropriations in future. The implications of these changes are that:

| — | rural development expenditure would no longer be implemented under different programming, implementation and control systems, |
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—

rural development expenditure would no longer be implemented under different programming, implementation and control systems,

| — | the ‘accompanying measures’ (Part A in figure 1), which account for the greater part of rural development expenditure and other rural development expenditure, currently financed by the EAGGF Guarantee section (Part B in figure 1), would no longer be dealt with in the way summarised in paragraph 16 above. |
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the ‘accompanying measures’ (Part A in figure 1), which account for the greater part of rural development expenditure and other rural development expenditure, currently financed by the EAGGF Guarantee section (Part B in figure 1), would no longer be dealt with in the way summarised in paragraph 16 above.

| 29. | The proposed process for most of the expenditure would be as follows: |
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29.

The proposed process for most of the expenditure would be as follows:

| — | when a Member State's rural development programme is adopted, the Commission pays 7 % of the EAFRD contribution to the programme concerned to the paying agency(ies) involved, |
| --- | --- |

—

when a Member State's rural development programme is adopted, the Commission pays 7 % of the EAFRD contribution to the programme concerned to the paying agency(ies) involved,

| — | this 7 % represents a pre-payment (reimbursable to the Commission if there is no payment application for the rural development programme within 24 months), |
| --- | --- |

—

this 7 % represents a pre-payment (reimbursable to the Commission if there is no payment application for the rural development programme within 24 months),

| — | expenditure is reported each quarter to the Commission, |
| --- | --- |

—

expenditure is reported each quarter to the Commission,

| — | for each rural development programme the Commission makes intermediate payments to the accredited paying agency, on the basis of intermediate payment applications, ‘wherever possible three times a year’, |
| --- | --- |

—

for each rural development programme the Commission makes intermediate payments to the accredited paying agency, on the basis of intermediate payment applications, ‘wherever possible three times a year’,

| — | after receiving the final implementing report the Commission pays the outstanding balance, |
| --- | --- |

—

after receiving the final implementing report the Commission pays the outstanding balance,

| — | the total prefinancing amount is cleared when the rural development programme is closed (a process which may take several years). |
| --- | --- |

—

the total prefinancing amount is cleared when the rural development programme is closed (a process which may take several years).

Analysis

| 30. | There is a strong case to be made for the use of differentiated appropriations to finance expenditure from the Community Budget where two conditions are met: |
| --- | --- |

30.

There is a strong case to be made for the use of differentiated appropriations to finance expenditure from the Community Budget where two conditions are met:

| — | the expenditure concerned is genuinely multiannual (in the sense that a project must be planned and executed over a number of years), |
| --- | --- |

—

the expenditure concerned is genuinely multiannual (in the sense that a project must be planned and executed over a number of years),

| — | the budgetary framework is genuinely multiannual, involving commitment appropriations which cover the total cost of the legal commitment entered into during the current financial year. |
| --- | --- |

—

the budgetary framework is genuinely multiannual, involving commitment appropriations which cover the total cost of the legal commitment entered into during the current financial year.

| 31. | Rural development expenditure includes a range of measures with different characteristics. Some of these support multiannual investment expenditure. The greater part involves multiannual contractual obligations with annual payments and control systems which frequently are similar to payments and control systems under the ‘first pillar’ of the CAP. |
| --- | --- |

31.

Rural development expenditure includes a range of measures with different characteristics. Some of these support multiannual investment expenditure. The greater part involves multiannual contractual obligations with annual payments and control systems which frequently are similar to payments and control systems under the ‘first pillar’ of the CAP.

| 32. | As for the budgetary framework, although the Commission proposes the use of differentiated appropriations for EAFRD, it does not propose a genuinely multiannual budgetary framework. A genuinely multiannual approach would be to record a commitment covering the total cost of legal commitments entered into during the current financial year. Instead the Commission proposes (Article 23 of the draft regulation) to raise a commitment for the entire amount expected to be disbursed in a particular Member State in a given year, i.e. to have annual tranches of commitments. As the Court argued in its Opinion No 2/2001 (17), such a procedure is contrary to theory and good practice in the use of differentiated appropriations (18). |
| --- | --- |

32.

As for the budgetary framework, although the Commission proposes the use of differentiated appropriations for EAFRD, it does not propose a genuinely multiannual budgetary framework. A genuinely multiannual approach would be to record a commitment covering the total cost of legal commitments entered into during the current financial year. Instead the Commission proposes (Article 23 of the draft regulation) to raise a commitment for the entire amount expected to be disbursed in a particular Member State in a given year, i.e. to have annual tranches of commitments. As the Court argued in its Opinion No 2/2001 (17), such a procedure is contrary to theory and good practice in the use of differentiated appropriations (18).

Conclusion

| 33. | The Financial Regulation provides for two types of budget appropriation: |
| --- | --- |

33.

The Financial Regulation provides for two types of budget appropriation:

| — | differentiated appropriations (comprising commitment and payment appropriations) used to finance multiannual expenditure, and |
| --- | --- |

—

differentiated appropriations (comprising commitment and payment appropriations) used to finance multiannual expenditure, and

| — | non-differentiated appropriations which ensure the commitment and payment of annual expenditure. |
| --- | --- |

—

non-differentiated appropriations which ensure the commitment and payment of annual expenditure.

| 34. | Depending on the nature of the expenditure, the appropriate type of appropriation should be chosen for expenditure for EAFRD. Given the diverse nature of EAFRD expenditure it is important that the Commission applies the principles mentioned in paragraph 30 correctly and consistently and that the relevant management and control systems are transparent and effective. The Commission's proposal for annual tranches of budget commitments, which negate the essential purpose of differentiated appropriations and of a commitment budget, is however not appropriate. |
| --- | --- |

34.

Depending on the nature of the expenditure, the appropriate type of appropriation should be chosen for expenditure for EAFRD. Given the diverse nature of EAFRD expenditure it is important that the Commission applies the principles mentioned in paragraph 30 correctly and consistently and that the relevant management and control systems are transparent and effective. The Commission's proposal for annual tranches of budget commitments, which negate the essential purpose of differentiated appropriations and of a commitment budget, is however not appropriate.

BUDGETARY DISCIPLINE

Current situation

| 35. | Budgetary discipline rules aim to ensure the respect of the financial perspectives. |
| --- | --- |

35.

Budgetary discipline rules aim to ensure the respect of the financial perspectives.

| 36. | The current legal requirements with regard to budgetary discipline are set out in Council Regulation (EC) No 2040/2000 (19). For each budgetary year the ‘agricultural guideline’ constitutes the ceiling for agricultural expenditure which the Commission has to set when it submits the preliminary draft budget. The agricultural guideline covers sub-heading 1.a (CAP expenditure) and 1.b (rural development and accompanying measures) of the financial perspective, as well as a part of heading 7 i.e. pre-accession aid for agriculture. |
| --- | --- |

36.

The current legal requirements with regard to budgetary discipline are set out in Council Regulation (EC) No 2040/2000 (19). For each budgetary year the ‘agricultural guideline’ constitutes the ceiling for agricultural expenditure which the Commission has to set when it submits the preliminary draft budget. The agricultural guideline covers sub-heading 1.a (CAP expenditure) and 1.b (rural development and accompanying measures) of the financial perspective, as well as a part of heading 7 i.e. pre-accession aid for agriculture.

| 37. | The current financial perspectives cover the period 2000 to 2006. They are set out in the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission. They are consistent with the conclusions of the Berlin European Council of 24 and 25 March 1999 (20). |
| --- | --- |

37.

The current financial perspectives cover the period 2000 to 2006. They are set out in the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission. They are consistent with the conclusions of the Berlin European Council of 24 and 25 March 1999 (20).

| 38. | The Court notes that there is some complexity in the planned arrangements for the control of CAP expenditure after 2006. On the one hand the Commission has proposed dividing Community expenditure into five new headings in the next financial perspective instead of the eight headings at present. Heading 2 of the financial perspective 2007 to 2013 is called ‘Conservation and management of natural resources’. It would cover the two pillars of the CAP, as well as expenditure on fisheries policy and environment. The sub-heading ‘Agriculture — Market-related expenditure and direct payments’ of heading 2 would include the content of the current sub-heading 1.a. |
| --- | --- |

38.

The Court notes that there is some complexity in the planned arrangements for the control of CAP expenditure after 2006. On the one hand the Commission has proposed dividing Community expenditure into five new headings in the next financial perspective instead of the eight headings at present. Heading 2 of the financial perspective 2007 to 2013 is called ‘Conservation and management of natural resources’. It would cover the two pillars of the CAP, as well as expenditure on fisheries policy and environment. The sub-heading ‘Agriculture — Market-related expenditure and direct payments’ of heading 2 would include the content of the current sub-heading 1.a.

| 39. | On the other hand, ceilings (until 2013) for the first pillar of the CAP were defined by the Brussels European Council of 24 and 25 October 2002. Following the agreement in Brussels, the amount of market-related expenditure and direct payments is to be stabilised until 2013 on the basis of the ceiling for sub-heading 1.a foreseen for the EU-15 in 2006, with the addition of the amount of the corresponding expenditure for the 10 new Member States. Thus the overall expenditure of market related expenditure and direct payments in nominal terms for each year in the period 2007 to 2013 will be kept within this 2006 figure, increased by 1 % per year. |
| --- | --- |

39.

On the other hand, ceilings (until 2013) for the first pillar of the CAP were defined by the Brussels European Council of 24 and 25 October 2002. Following the agreement in Brussels, the amount of market-related expenditure and direct payments is to be stabilised until 2013 on the basis of the ceiling for sub-heading 1.a foreseen for the EU-15 in 2006, with the addition of the amount of the corresponding expenditure for the 10 new Member States. Thus the overall expenditure of market related expenditure and direct payments in nominal terms for each year in the period 2007 to 2013 will be kept within this 2006 figure, increased by 1 % per year.

| 40. | Council Regulation (EC) No 1782/2003, which sets out the results of the CAP reform agreed in June 2003, also contains budget discipline provisions. Article 11 provides that starting with the 2007 budget, an adjustment of direct payments will be decided by the Council on a Commission proposal, when forecasts indicate that current sub-heading 1.a of the financial perspective will be exceeded in a given budget year. The adjustments are to be made by 30 June at the latest of the calendar year in respect of which it applies. |
| --- | --- |

40.

Council Regulation (EC) No 1782/2003, which sets out the results of the CAP reform agreed in June 2003, also contains budget discipline provisions. Article 11 provides that starting with the 2007 budget, an adjustment of direct payments will be decided by the Council on a Commission proposal, when forecasts indicate that current sub-heading 1.a of the financial perspective will be exceeded in a given budget year. The adjustments are to be made by 30 June at the latest of the calendar year in respect of which it applies.

The Commission's proposal

| 41. | The arrangements for budget discipline set out in the draft regulation reproduce and, in some respects, complement some of the provisions of the existing budgetary discipline Regulation (EC) No 2040/2000 and of Regulation (EC) No 1782/2003. However, the intention appears to be not to maintain the agricultural guideline. |
| --- | --- |

41.

The arrangements for budget discipline set out in the draft regulation reproduce and, in some respects, complement some of the provisions of the existing budgetary discipline Regulation (EC) No 2040/2000 and of Regulation (EC) No 1782/2003. However, the intention appears to be not to maintain the agricultural guideline.

| 42. | Articles 18(1), 19 and 20 of the draft regulation essentially reproduce the provisions of Regulation (EC) No 2040/2000 which relate to |
| --- | --- |

42.

Articles 18(1), 19 and 20 of the draft regulation essentially reproduce the provisions of Regulation (EC) No 2040/2000 which relate to

| — | legislative instruments with an impact on CAP spending (Article 5(1) of Regulation (EC) No 2040/2000), |
| --- | --- |

—

legislative instruments with an impact on CAP spending (Article 5(1) of Regulation (EC) No 2040/2000),

| — | actions which the Commission must take at different stages of the budget procedure if there is a risk that CAP spending will overshoot (Article 6 of Regulation (EC) No 2040/2000), |
| --- | --- |

—

actions which the Commission must take at different stages of the budget procedure if there is a risk that CAP spending will overshoot (Article 6 of Regulation (EC) No 2040/2000),

| — | the ‘early warning’ system for CAP spending. |
| --- | --- |

—

the ‘early warning’ system for CAP spending.

| 43. | Article 18(4) of the draft regulation provides for the Commission to adjust direct payments (paragraph 40 above) if the Council has not done so by 30 June of the year in question. |
| --- | --- |

43.

Article 18(4) of the draft regulation provides for the Commission to adjust direct payments (paragraph 40 above) if the Council has not done so by 30 June of the year in question.

| 44. | Article 17(2) of the draft regulation would enable the Commission to reduce or suspend monthly payments to Member States where there is a risk that a financial ceiling set by Community legislation has been exceeded. Under Article 19(4) of the draft regulation the Commission would be authorised to distribute the available budgetary balance between Member States if the reimbursement requests from Member States at the end of the budgetary year exceed or are likely to exceed the net balance available for EAGF expenditure. |
| --- | --- |

44.

Article 17(2) of the draft regulation would enable the Commission to reduce or suspend monthly payments to Member States where there is a risk that a financial ceiling set by Community legislation has been exceeded. Under Article 19(4) of the draft regulation the Commission would be authorised to distribute the available budgetary balance between Member States if the reimbursement requests from Member States at the end of the budgetary year exceed or are likely to exceed the net balance available for EAGF expenditure.

Analysis

EAGF

| 45. | The draft regulation in Articles 17, 18(4) and 19(4), would permit a somewhat stricter application of budgetary discipline. The Court welcomes these proposals. |
| --- | --- |

45.

The draft regulation in Articles 17, 18(4) and 19(4), would permit a somewhat stricter application of budgetary discipline. The Court welcomes these proposals.

| 46. | The disappearance of the agricultural guideline appears to reduce one element of budgetary discipline: there would be no overall ceiling on agricultural expenditure. The Court invites the Council and Parliament to consider carefully the arguments for and against retention of the agricultural guideline (21). |
| --- | --- |

46.

The disappearance of the agricultural guideline appears to reduce one element of budgetary discipline: there would be no overall ceiling on agricultural expenditure. The Court invites the Council and Parliament to consider carefully the arguments for and against retention of the agricultural guideline (21).

| 47. | In point 12 of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure (22), it is provided that ‘for the purposes of sound financial management, the institutions will ensure as far as possible during the budgetary procedure and at the time of the budget's adoption that sufficient margins are left available beneath the ceilings for the various headings’. A similar provision in the draft regulation would be appropriate in the Court's view. |
| --- | --- |

47.

In point 12 of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure (22), it is provided that ‘for the purposes of sound financial management, the institutions will ensure as far as possible during the budgetary procedure and at the time of the budget's adoption that sufficient margins are left available beneath the ceilings for the various headings’. A similar provision in the draft regulation would be appropriate in the Court's view.

EAFRD

| 48. | In the Commission's draft multiannual financial framework 2007 to 2013 expenditure on rural development is no longer shown under a distinctive subheading. The ceiling for the resources available for commitments from EAFRD is set by Article 70(1) of the Council Regulation on support for rural development, that is currently under discussion (23). This Article mentions a total amount of 88,75 billion euro at 2004 prices that are to be distributed by almost equivalent tranches each year for the period 2007 to 2013. The amounts set by the Commission as result of modulation have to be added to these commitment tranches. |
| --- | --- |

48.

In the Commission's draft multiannual financial framework 2007 to 2013 expenditure on rural development is no longer shown under a distinctive subheading. The ceiling for the resources available for commitments from EAFRD is set by Article 70(1) of the Council Regulation on support for rural development, that is currently under discussion (23). This Article mentions a total amount of 88,75 billion euro at 2004 prices that are to be distributed by almost equivalent tranches each year for the period 2007 to 2013. The amounts set by the Commission as result of modulation have to be added to these commitment tranches.

TREATMENT OF IRREGULARITIES

EAGF

Current situation

| 49. | Member States are obliged to notify the Commission when they detect irregular payments over 4 000 euro made under the CAP and to attempt to recover such payments. Where recovery is not possible the sums concerned are written off and the losses are borne by the Community unless non-recovery is due to the negligence of the Member State concerned. In its Special Report No 3/2004 (24) (‘Recovery of irregular payments under the common agricultural policy’) the Court showed that in practice there is an unsatisfactorily low rate of recovery of irregular payments. In addition, the write off of reported irregular payments has been very limited. |
| --- | --- |

49.

Member States are obliged to notify the Commission when they detect irregular payments over 4 000 euro made under the CAP and to attempt to recover such payments. Where recovery is not possible the sums concerned are written off and the losses are borne by the Community unless non-recovery is due to the negligence of the Member State concerned. In its Special Report No 3/2004 (24) (‘Recovery of irregular payments under the common agricultural policy’) the Court showed that in practice there is an unsatisfactorily low rate of recovery of irregular payments. In addition, the write off of reported irregular payments has been very limited.

Proposal and analysis

| 50. | The Commission proposes that the rules for EAGF should be carried over from EAGGF Guarantee but with some important changes. |
| --- | --- |

50.

The Commission proposes that the rules for EAGF should be carried over from EAGGF Guarantee but with some important changes.

| 51. | The draft regulation proposes that if recovery has not taken place within four years of the primary administrative or judicial finding, (or within six years where recovery action is taken in the national courts,) 50 % of the financial consequences of non-recovery would be borne by the Member State concerned and 50 % by the Community budget (see Article 32(5) of the draft regulation). In cases of negligence on the part of the Member State it would be possible for the Commission, as now, to charge the full sum to the Member State concerned (see Article 32(4) of the draft regulation). |
| --- | --- |

51.

The draft regulation proposes that if recovery has not taken place within four years of the primary administrative or judicial finding, (or within six years where recovery action is taken in the national courts,) 50 % of the financial consequences of non-recovery would be borne by the Member State concerned and 50 % by the Community budget (see Article 32(5) of the draft regulation). In cases of negligence on the part of the Member State it would be possible for the Commission, as now, to charge the full sum to the Member State concerned (see Article 32(4) of the draft regulation).

| 52. | While the Court underlines the primary importance of an efficient and effective recovery mechanism as an element of an overall internal control system (25), it welcomes this redistribution of the financial burden of non-recovery, which may encourage swifter resolution of procedures in Member States. The Court also welcomes the fact that the draft regulation: |
| --- | --- |

52.

While the Court underlines the primary importance of an efficient and effective recovery mechanism as an element of an overall internal control system (25), it welcomes this redistribution of the financial burden of non-recovery, which may encourage swifter resolution of procedures in Member States. The Court also welcomes the fact that the draft regulation:

| — | clarifies the Commission's powers to charge the sums to be recovered to the Member State in cases of negligence (26), and |
| --- | --- |

—

clarifies the Commission's powers to charge the sums to be recovered to the Member State in cases of negligence (26), and

| — | includes a new time limit: Member States must initiate appropriate administrative or judicial procedures to recover sums wrongly paid within one year of the primary administrative or judicial finding relating to the payment. |
| --- | --- |

—

includes a new time limit: Member States must initiate appropriate administrative or judicial procedures to recover sums wrongly paid within one year of the primary administrative or judicial finding relating to the payment.

| 53. | Under the Commission's proposal the Member States would continue to be able to retain 20 % of the amounts recovered as flat rate recovery costs, unless the irregularity or negligence is the fault of the Member State (see Article 32(2) of the draft regulation.) However, in the Court's view Member States should not be permitted to deduct the 20 % recovery costs before the cost sharing procedure described in paragraph 51 above because in such cases recovery has not yet taken place. Thus the reference to ‘the deduction provided for in paragraph 2’ should be removed from the last sentence of the first sub-paragraph of Article 32(5) of the draft regulation. |
| --- | --- |

53.

Under the Commission's proposal the Member States would continue to be able to retain 20 % of the amounts recovered as flat rate recovery costs, unless the irregularity or negligence is the fault of the Member State (see Article 32(2) of the draft regulation.) However, in the Court's view Member States should not be permitted to deduct the 20 % recovery costs before the cost sharing procedure described in paragraph 51 above because in such cases recovery has not yet taken place. Thus the reference to ‘the deduction provided for in paragraph 2’ should be removed from the last sentence of the first sub-paragraph of Article 32(5) of the draft regulation.

EAFRD

Current situation

| 54. | For rural development expenditure the current position is mixed, reflecting the fact that currently rural development expenditure falls partly under the EAGGF Guarantee section and partly under the EAGGF Guidance section. |
| --- | --- |

54.

For rural development expenditure the current position is mixed, reflecting the fact that currently rural development expenditure falls partly under the EAGGF Guarantee section and partly under the EAGGF Guidance section.

| 55. | For all rural development expenditure financed under the Guarantee section the current situation is as discussed in paragraph 49 above. |
| --- | --- |

55.

For all rural development expenditure financed under the Guarantee section the current situation is as discussed in paragraph 49 above.

| 56. | For the part of rural development financed by the Guidance section structural fund rules apply: |
| --- | --- |

56.

For the part of rural development financed by the Guidance section structural fund rules apply:

| — | Member States have to report on a quarterly basis to the Commission any irregularities (over 4 000 euro) which have been subject of initial administrative and judicial investigations as well as the follow up of irregularities previously notified, |
| --- | --- |

—

Member States have to report on a quarterly basis to the Commission any irregularities (over 4 000 euro) which have been subject of initial administrative and judicial investigations as well as the follow up of irregularities previously notified,

| — | in the first instance, it is the responsibility of the Member State to investigate and to recover any amounts lost as a result of an irregularity detected, |
| --- | --- |

—

in the first instance, it is the responsibility of the Member State to investigate and to recover any amounts lost as a result of an irregularity detected,

| — | Community funds released via recovery and/or correction may be re-used by the Member State for the assistance concerned and before closure of that programme, |
| --- | --- |

—

Community funds released via recovery and/or correction may be re-used by the Member State for the assistance concerned and before closure of that programme,

| — | where a Member State considers that an amount cannot be (totally) recovered it must report it to the Commission, |
| --- | --- |

—

where a Member State considers that an amount cannot be (totally) recovered it must report it to the Commission,

| — | the Commission decides in consultation with the respective authorities of the Member State concerned who shall bear the financial consequences. |
| --- | --- |

—

the Commission decides in consultation with the respective authorities of the Member State concerned who shall bear the financial consequences.

| 57. | In practice, similar problems as discussed for the Guarantee section exist e.g. a low rate of recovery, inadequate criteria for deciding who should bear the costs, etc. |
| --- | --- |

57.

In practice, similar problems as discussed for the Guarantee section exist e.g. a low rate of recovery, inadequate criteria for deciding who should bear the costs, etc.

Proposal and analysis

| 58. | The Commission proposes that structural fund rules on irregularities, including the reuse of funds recovered, be applied to all rural development expenditure (as laid down in paragraph 56 above). |
| --- | --- |

58.

The Commission proposes that structural fund rules on irregularities, including the reuse of funds recovered, be applied to all rural development expenditure (as laid down in paragraph 56 above).

| 59. | As explained in paragraph 31 above, rural development expenditure frequently involves payment and control arrangements which are similar to those for direct payments under EAGF. It would be more logical to treat cancelled and recovered amounts in such cases in the same way as under EAGF. |
| --- | --- |

59.

As explained in paragraph 31 above, rural development expenditure frequently involves payment and control arrangements which are similar to those for direct payments under EAGF. It would be more logical to treat cancelled and recovered amounts in such cases in the same way as under EAGF.

| 60. | A similar provision to that described in paragraph 51 above is proposed in respect of this Fund. However the distribution of the financial burden of unrecovered amounts will only be effected four years after the closure of a rural development programme, which, for expenditure in the period 2007 to 2013, could be as late as 2019. This will almost certainly be longer than the period allowed under EAGF. The Court believes that it would be more appropriate to fix an earlier deadline. |
| --- | --- |

60.

A similar provision to that described in paragraph 51 above is proposed in respect of this Fund. However the distribution of the financial burden of unrecovered amounts will only be effected four years after the closure of a rural development programme, which, for expenditure in the period 2007 to 2013, could be as late as 2019. This will almost certainly be longer than the period allowed under EAGF. The Court believes that it would be more appropriate to fix an earlier deadline.

| 61. | As for EAGF, Article 33(5) of the draft regulation would clarify the cases of negligence on the part of the Member State for which the Commission may charge the full sum to the Member State concerned (27). However, draft Article 33(5) should, in the view of the Court, also introduce the same one year time limit to initiate the appropriate administrative or judicial procedures as is provided for EAGF. |
| --- | --- |

61.

As for EAGF, Article 33(5) of the draft regulation would clarify the cases of negligence on the part of the Member State for which the Commission may charge the full sum to the Member State concerned (27). However, draft Article 33(5) should, in the view of the Court, also introduce the same one year time limit to initiate the appropriate administrative or judicial procedures as is provided for EAGF.

OTHER COMMENTS

Consistency between financial years

| 62. | Article 26(6) of the proposed regulation states that EAFRD intermediate payment applications in respect of expenditure incurred from 16 October onwards are to be booked to the following year's budget. This is a new rule for expenditure currently financed from the EAGGF Guidance section. It would align the EAFRD financial year with that for EAGF, whereas for EAGGF Guarantee at present, payments made by paying agencies after that date would be reimbursed by the Commission in January of the following year. The Court notes and regrets that the Commission has not proposed harmonisation with the rest of the General Budget where the financial year is the calendar year. |
| --- | --- |

62.

Article 26(6) of the proposed regulation states that EAFRD intermediate payment applications in respect of expenditure incurred from 16 October onwards are to be booked to the following year's budget. This is a new rule for expenditure currently financed from the EAGGF Guidance section. It would align the EAFRD financial year with that for EAGF, whereas for EAGGF Guarantee at present, payments made by paying agencies after that date would be reimbursed by the Commission in January of the following year. The Court notes and regrets that the Commission has not proposed harmonisation with the rest of the General Budget where the financial year is the calendar year.

Transitional arrangements

| 63. | Article 39(1)(a) of the proposed regulation states that, in respect of rural development programmes for the period 2000 to 2006 financed by EAGGF Guarantee, payments to beneficiaries shall cease no later than 15 October 2006. By way of an exception (Article 39(1)(c)), expenditure in respect of rural development measures incurred over the period 16 October to 31 December 2006 shall be charged to the EAFRD budget in the years 2007 to 2013. This appears to mean that payments due to beneficiaries after 2006 under five-year commitments entered into from 2003 onwards, which are likely to be significant, will not be charged to the EAFRD budget and thus not be co-financed at all. This would cause financial and legal problems in the Member States: Article 48 appears to provide a procedure for dealing with such problems. |
| --- | --- |

63.

Article 39(1)(a) of the proposed regulation states that, in respect of rural development programmes for the period 2000 to 2006 financed by EAGGF Guarantee, payments to beneficiaries shall cease no later than 15 October 2006. By way of an exception (Article 39(1)(c)), expenditure in respect of rural development measures incurred over the period 16 October to 31 December 2006 shall be charged to the EAFRD budget in the years 2007 to 2013. This appears to mean that payments due to beneficiaries after 2006 under five-year commitments entered into from 2003 onwards, which are likely to be significant, will not be charged to the EAFRD budget and thus not be co-financed at all. This would cause financial and legal problems in the Member States: Article 48 appears to provide a procedure for dealing with such problems.

Minor points

| 64. | In (draft) Article 8(2), first subparagraph ‘and the Court of Auditors’ should be added to the last sentence, so that the Court can carry out its responsibilities. |
| --- | --- |

64.

In (draft) Article 8(2), first subparagraph ‘and the Court of Auditors’ should be added to the last sentence, so that the Court can carry out its responsibilities.

| 65. | The last sentence of Article 33(3)(c) of the English version of the draft regulation should read: ‘and provided the funds are NOT reallocated to operations which have been the subject of a financial correction’. In addition, Article 33(5)(b) refers to paragraphs 2(a) and 2(c) of the same article. This should be changed to paragraphs (3)(a) and (c). |
| --- | --- |

65.

The last sentence of Article 33(3)(c) of the English version of the draft regulation should read: ‘and provided the funds are NOT reallocated to operations which have been the subject of a financial correction’. In addition, Article 33(5)(b) refers to paragraphs 2(a) and 2(c) of the same article. This should be changed to paragraphs (3)(a) and (c).

SUMMARY

| I. | The Court: |
| --- | --- |

I.

The Court:

| — | welcomes the increase in transparency that would result from grouping all rural development expenditure under one budget heading, |
| --- | --- |

—

welcomes the increase in transparency that would result from grouping all rural development expenditure under one budget heading,

| — | considers that the Commission's proposal in respect of the management of the EAGF include some potentially helpful changes but need further improvement in the light of the Court's opinion on the single audit, |
| --- | --- |

—

considers that the Commission's proposal in respect of the management of the EAGF include some potentially helpful changes but need further improvement in the light of the Court's opinion on the single audit,

| — | notes that the Commission's proposals in respect of budget discipline and the treatment of irregularities also include some welcome changes but are in some respects capable of improvement, |
| --- | --- |

—

notes that the Commission's proposals in respect of budget discipline and the treatment of irregularities also include some welcome changes but are in some respects capable of improvement,

| — | regards as inappropriate the Commission's proposal for annual tranches of budget commitments under EAFRD. |
| --- | --- |

—

regards as inappropriate the Commission's proposal for annual tranches of budget commitments under EAFRD.

| II. | The Court's principal observations on the detailed provisions of the draft regulation are as follows: |
| --- | --- |

II.

The Court's principal observations on the detailed provisions of the draft regulation are as follows:

| (i) | Management and control of EAGF







  — | The proposal would not change the framework for the management and control of expenditure in support of agricultural markets and incomes. Of the detailed changes proposed:






  — | the introduction of a specific accreditation requirement for coordinating bodies could strengthen the chain of accountability for CAP spending (paragraph 20), |
| --- | --- | --- | --- |

(i)

Management and control of EAGF

—

The proposal would not change the framework for the management and control of expenditure in support of agricultural markets and incomes. Of the detailed changes proposed:

—

the introduction of a specific accreditation requirement for coordinating bodies could strengthen the chain of accountability for CAP spending (paragraph 20),

| — | the objective, the content and the scope of the proposed ‘statement’ by the head of each paying agency should be modelled on the equivalent statements required under corporate governance arrangements; in this way it could improve the existing control system in the direction of the single audit model (paragraph 21), |
| --- | --- |

—

the objective, the content and the scope of the proposed ‘statement’ by the head of each paying agency should be modelled on the equivalent statements required under corporate governance arrangements; in this way it could improve the existing control system in the direction of the single audit model (paragraph 21),

| — | the Commission should have proposed changes to the extent and scope of the work of certifying bodies – taking account of the related costs and benefits – in order to strengthen and clarify the chain of accountability for CAP spending in line with the concept of the single audit model and to make clear that certification of paying agencies should be based on internationally accepted auditing standards (paragraphs 23 and 24). |
| --- | --- |

—

the Commission should have proposed changes to the extent and scope of the work of certifying bodies – taking account of the related costs and benefits – in order to strengthen and clarify the chain of accountability for CAP spending in line with the concept of the single audit model and to make clear that certification of paying agencies should be based on internationally accepted auditing standards (paragraphs 23 and 24).

| (ii) | Management and control of EAFRD







  — | Depending on the nature of the expenditure the appropriate type of appropriation (differentiated or non-differentiated) should be chosen. The proposal put forward by the Commission (to use differentiated appropriations with commitments for annual instalments of the total national programme) does not constitute an appropriate budgetary framework (paragraphs 33 and 34). |
| --- | --- | --- |

(ii)

Management and control of EAFRD

—

Depending on the nature of the expenditure the appropriate type of appropriation (differentiated or non-differentiated) should be chosen. The proposal put forward by the Commission (to use differentiated appropriations with commitments for annual instalments of the total national programme) does not constitute an appropriate budgetary framework (paragraphs 33 and 34).

| (iii) | Budgetary discipline







  — | Articles 17, 18(4) and 19(4) of the draft regulation would allow for a stricter application of budgetary discipline (paragraph 45), |
| --- | --- | --- |

(iii)

Budgetary discipline

—

Articles 17, 18(4) and 19(4) of the draft regulation would allow for a stricter application of budgetary discipline (paragraph 45),

| — | the Council and Parliament should consider carefully the arguments for and against retention of the agricultural guidelines (paragraph 46). |
| --- | --- |

—

the Council and Parliament should consider carefully the arguments for and against retention of the agricultural guidelines (paragraph 46).

| (iv) | Irregularities







  — | The proposed redistribution of the financial burden of non-recovery of irregular payments under EAGGF is welcome (paragraph 51), |
| --- | --- | --- |

(iv)

Irregularities

—

The proposed redistribution of the financial burden of non-recovery of irregular payments under EAGGF is welcome (paragraph 51),

| — | the draft regulation helpfully clarifies the Commission's powers to charge sums to be recovered to the Member State in cases of negligence and includes a new time limit (paragraphs 51 and 52), |
| --- | --- |

—

the draft regulation helpfully clarifies the Commission's powers to charge sums to be recovered to the Member State in cases of negligence and includes a new time limit (paragraphs 51 and 52),

| — | cancelled and recovered amounts for some measures under EAFRD should be treated in the same way as under EAGF (paragraph 59), |
| --- | --- |

—

cancelled and recovered amounts for some measures under EAFRD should be treated in the same way as under EAGF (paragraph 59),

| — | the one year time limit for initiating the appropriate administrative or judicial procedures (proposed for EAGF) should apply also to EAFRD (paragraph 61). |
| --- | --- |

—

the one year time limit for initiating the appropriate administrative or judicial procedures (proposed for EAGF) should apply also to EAFRD (paragraph 61).

This Opinion was adopted by the Court of Auditors in Luxembourg on 17 March 2005.

For the Court of Auditors

Hubert WEBER

President

---

(1)  Commission document reference 2004/0164 (CNS) — COM(2004) 489 final.

1

(2)  Council Regulation (EC) No 1782/2003 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers (OJ L 270, 21.10.2003, p. 1). Council Regulation (EC) No 1783/2003 of 29 September 2003 amending Regulation (EC) No 1257/1999 on support for rural development from the European Guidance and Guarantee Fund (EAGGF) (OJ L 270, 21.10.2003, p. 70).

2

(3)  OJ C 107, 30.4.2004.

3

(4)  For example, Article 149(3) of the Financial Regulation, which permits the carryover to the next financial year of uncommitted EAGGF Guarantee section appropriations relating to rural development will no longer be necessary due to the introduction of EAFRD.

4

(5)  OJ L 160, 26.6.1999, pp. 80 and 103.

5

(6)  Article 31 of Council Regulation (EC) No 1257/1999.

6

(7)  Article 33 of Council Regulation (EC) No 1257/1999.

7

(8)  ‘Leader+’ is a Community initiative, a complement to the mainstream programmes of rural development. It is implemented by active partnership at the local level (‘local action groups’) and aims to encourage the emergence and testing of new approaches to integrated and sustainable development that can influence, complete and/or reinforce rural development policy in the Community.

8

(9)  Most aid will take the form of decoupled aid in the future.

9

(10)  At present, to ascertain the level of expenditure on, say, Processing and Marketing in the EU-15, one has to take into account the non-objective 1 EAGGF Guarantee part (budget heading 05 04 01 09) plus the appropriate parts of the OP in objective 1 areas, which, moreover, are not distinctly identifiable (unidentifiable part of budget heading 05 04 02 01). A positive aspect of the inclusion of all rural development expenditure under EAFRD is that Member States will be able to use the amounts made available under modulation - switching some expenditure from direct payments into rural development (Article 12(2) of the proposal) for all rural development measures. Under the current rules, such additional amounts are not available to the rural development measures financed by EAGGF Guidance.

10

budget heading 05 04 01 09

unidentifiable part of budget heading 05 04 02 01

(11)  The Treaty uses the terminology of ‘fund’. Nevertheless, from the point of view of financial management, the proposed two ‘funds’ represent subsets of the general budget and thus it would be sufficient to differentiate them with the use of budgetary chapters.

11

(12)  OJ C 285, 21.11.2002.

12

(13)  OJ C 401, 22.12.1998.

13

(14)  Such as those produced by the International Federation of Accountants (IFAC) or the International Organisation of Supreme Audit Institutions (INTOSAI).

14

(15)  OJ C 295, 30.11.2004.

15

(16)  Differentiated appropriations are used to finance multiannual activities in certain budgetary areas. They comprise commitment appropriations and payment appropriations.

16

(17)  OJ C 162, 5.6.2001.

17

(18)  See Opinion No 2/2001 paragraphs 29, 30 and 77.

18

(19)  OJ L 244, 29.9.2000, p. 27.

19

(20)  OJ C 172, 18.6.1999.

20

(21)  Without calling into question the function of the agricultural guideline, the Court has in its Opinion No 9/99 (OJ C 334, 23.11.1999), paragraphs 1 and 5 criticised the complexity of its calculation, the imprecision of its definition and the consequent difficulty of monitoring compliance. The current proposals to consolidate and standardise the treatment of agricultural expenditure, together with the implementation of activity based budgeting should facilitate the calculation and monitoring of the guideline.

21

(22)  COM(2004) 498 final of 14.7.2004.

22

(23)  See COM(2004) 490 final of 14.7.2004‘Proposal for a Council Regulation on support of rural development by support of the European Agricultural Fund for Rural Development (EAFRD)’.

23

(24)  OJ C 269, 4.11.2004

24

(25)  The internal control systems should actively contribute to improving the financial management by including safeguards that remedial action is taken and recoveries are made (see Opinion 2/04 on the single audit model, paragraph VII and paragraph 36).

25

(26)  Article 32(4) states:... ‘the Commission may decide to charge the sums to be recovered to the Member States ...’. It is the Court's view that the wording should be changed to ‘the Commission shall decide ...’.

26

may

shall

(27)  Article 33(5) states:... ‘the Commission may decide to charge the sums to be recovered to the Member States ...’. It is the Court's view that the wording should be changed to ‘the Commission shall decide ...’.

27

may

shall

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| 20.5.2005 | EN | Official Journal of the European Union | C 121/14 |
| --- | --- | --- | --- |

20.5.2005

EN

Official Journal of the European Union

C 121/14

---

OPINION No 2/2005

on the proposal for a Council Regulation laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund (COM(2004) 492 final of 14 July 2004)

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

(2005/C 121/02)

CONTENTS

| 1-29 | GENERAL OBSERVATIONS |
| --- | --- |

1-29

| 30 | SPECIFIC OBSERVATIONS |
| --- | --- |

30

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Articles 5, 10, 158 to 162, 248(4), second subparagraph, 274 and 279 thereof,

Having regard to Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (1) and to its implementing rules (2),

Having regard to the Council's request for an opinion, which reached the Court on 3 January 2005,

Having regard to the proposal for a general Regulation presented by the Commission (3),

Having regard to the extended impact assessment on the proposed regulatory package revising the Regulations applicable to the management of the Structural and Cohesion Funds (4),

Having regard to the Communication from the Commission to the European Parliament and to the Council on the respective responsibilities of the Member States and the Commission in the shared management of the Structural Funds and the Cohesion Fund (5),

Having regard to the Communication from the Commission to the Council and the European Parliament entitled ‘Building our common future — policy challenges and budgetary means of the enlarged Union’ (6),

Having regard to the Communication from the Commission to the Council and the European Parliament on the Financial Perspectives for 2007 to 2013 (7),

Having regard to the Court's Opinion No 2/2004 (8) on the ‘single audit’ model,

Whereas, pursuant to Article 5 of the Treaty establishing the European Community, the Community takes action in areas which do not fall within its exclusive competence only if and insofar as the objectives of the proposed action, by reason of its scale or effects, can be better achieved by the Community;

Whereas Article 274 of the Treaty establishing the European Community makes the Commission responsible for the implementation of the budget, having regard to the principles of sound financial management, and requires the Member States to cooperate with the Commission to ensure that the appropriations are used in accordance with those principles;

Whereas, in the sphere of the Structural Funds and the Cohesion Fund, the budget is implemented within a framework of shared management with the Member States, as required by Article 53(3) of the Financial Regulation applicable to the general budget of the European Communities; and whereas Article 54 of the Financial Regulation stipulates that the implementing tasks delegated must be clearly defined and fully supervised as to the use made of them;

Whereas the efficient and effective internal control of the budget of the European Union entails establishing clear and consistent objectives, ensuring effective coordination, producing information on costs and benefits and guaranteeing the consistent application of requirements;

Whereas the internal control systems covering European Union revenue and expenditure should provide reasonable assurance that revenue and expenditure are raised and spent in accordance with the legal provisions in force and managed so as to achieve value for money,

HAS ADOPTED THE FOLLOWING OPINION:

GENERAL OBSERVATIONS

Introduction

| 1. | The proposal for a Regulation essentially retains the framework that was established in the previous programming periods. Besides this, it focuses on achieving greater simplification with regard to, in particular, financial instruments and the choice of themes and, more generally, implementation, management and control systems. The Court paid particular attention to the consequences of the measures proposed for financial management and control. |
| --- | --- |

1.

The proposal for a Regulation essentially retains the framework that was established in the previous programming periods. Besides this, it focuses on achieving greater simplification with regard to, in particular, financial instruments and the choice of themes and, more generally, implementation, management and control systems. The Court paid particular attention to the consequences of the measures proposed for financial management and control.

Responsibility for the implementation of the Community budget

| 2. | The legal framework for the implementation of the Community budget is set by Article 274 of the EC Treaty, according to which the Commission implements the budget on its own responsibility and in cooperation with the Member States, having regard to the principle of sound financial management. |
| --- | --- |

2.

The legal framework for the implementation of the Community budget is set by Article 274 of the EC Treaty, according to which the Commission implements the budget on its own responsibility and in cooperation with the Member States, having regard to the principle of sound financial management.

| 3. | In the context of the various methods for implementing the Community budget, structural measures are included among ‘shared management’ areas, namely, areas in which ‘implementation tasks shall be delegated to Member States’ (9). The management and control of structural measures involve not only several Commission departments but also hundreds of national, regional and local offices and departments in the Member States. In future, these measures could account for nearly half of the appropriations in the Community budget. |
| --- | --- |

3.

In the context of the various methods for implementing the Community budget, structural measures are included among ‘shared management’ areas, namely, areas in which ‘implementation tasks shall be delegated to Member States’ (9). The management and control of structural measures involve not only several Commission departments but also hundreds of national, regional and local offices and departments in the Member States. In future, these measures could account for nearly half of the appropriations in the Community budget.

| 4. | The rules currently governing structural measures (Regulation No 1260/1999) already provide as follows:






  (a) | that ‘in application of the principle of subsidiarity, the implementation of assistance shall be the responsibility of the Member States, (...) without prejudice to the powers vested in the Commission, notable for implementing the general budget of the European Communities’ (Article 8(3)); |
| --- | --- | --- |

4.

The rules currently governing structural measures (Regulation No 1260/1999) already provide as follows:

(a)

that ‘in application of the principle of subsidiarity, the implementation of assistance shall be the responsibility of the Member States, (...) without prejudice to the powers vested in the Commission, notable for implementing the general budget of the European Communities’ (Article 8(3));

| (b) | that ‘without prejudice to Article 8(3), the managing authority (...) shall be responsible for the efficiency and correctness of management and implementation (...)’ (Article 34(1)); |
| --- | --- |

(b)

that ‘without prejudice to Article 8(3), the managing authority (...) shall be responsible for the efficiency and correctness of management and implementation (...)’ (Article 34(1));

| (c) | that ‘without prejudice to the Commission's responsibility for implementing the general budget of the European Communities, Member States shall take responsibility in the first instance for the financial control of assistance (...)’ (Article 38(1)). |
| --- | --- |

(c)

that ‘without prejudice to the Commission's responsibility for implementing the general budget of the European Communities, Member States shall take responsibility in the first instance for the financial control of assistance (...)’ (Article 38(1)).

| 5. | The proposal for a Regulation refers, in Article 12, to shared management within the meaning of Article 53(3) of the Financial Regulation. However, the wording of the proposal contains no reference to the Commission's final responsibility. For instance, it is specified in the last sentence of Article 12(1) that ‘the Member States and the Commission shall ensure compliance with the principle of sound financial management’, Article 12(2) essentially limits the Commission's responsibility for implementing the budget to checking ‘the existence and proper functioning of management and control systems in the Member States (...)’, and Article 69(1) makes the Member States alone responsible: ‘Member States shall be responsible for ensuring sound financial management of operational programmes and the legality and regularity of underlying transactions’. What is more, it is the Member States that are assigned a general obligation to guarantee that assistance measures comply with Community law (Articles 39(f), 59(a), 60(b)(ii) and 66(2)(g)). Yet the fact that implementation tasks are entrusted to the Member States cannot limit the Commission’s final responsibility. In a context where the Member States are both beneficiaries of the Community funds and responsible for the implementation of measures, only the Commission is able to ensure that the Community objectives are applied in a logical and consistent manner. It is therefore crucial that the notion of the Commission's final responsibility, as envisaged in Article 274 of the Treaty, be reaffirmed unequivocally in the articles that deal with the responsibility of Member States. |
| --- | --- |

5.

The proposal for a Regulation refers, in Article 12, to shared management within the meaning of Article 53(3) of the Financial Regulation. However, the wording of the proposal contains no reference to the Commission's final responsibility. For instance, it is specified in the last sentence of Article 12(1) that ‘the Member States and the Commission shall ensure compliance with the principle of sound financial management’, Article 12(2) essentially limits the Commission's responsibility for implementing the budget to checking ‘the existence and proper functioning of management and control systems in the Member States (...)’, and Article 69(1) makes the Member States alone responsible: ‘Member States shall be responsible for ensuring sound financial management of operational programmes and the legality and regularity of underlying transactions’. What is more, it is the Member States that are assigned a general obligation to guarantee that assistance measures comply with Community law (Articles 39(f), 59(a), 60(b)(ii) and 66(2)(g)). Yet the fact that implementation tasks are entrusted to the Member States cannot limit the Commission’s final responsibility. In a context where the Member States are both beneficiaries of the Community funds and responsible for the implementation of measures, only the Commission is able to ensure that the Community objectives are applied in a logical and consistent manner. It is therefore crucial that the notion of the Commission's final responsibility, as envisaged in Article 274 of the Treaty, be reaffirmed unequivocally in the articles that deal with the responsibility of Member States.

| 6. | It is worth noting that if the Commission no longer had final responsibility for implementing the budget, the Community's financial process, and in particular the discharge procedure, would lose a good deal of its significance. The budgetary authorities' recommendations (Article 276(3) of the EC Treaty) would be deprived of all practical effect. |
| --- | --- |

6.

It is worth noting that if the Commission no longer had final responsibility for implementing the budget, the Community's financial process, and in particular the discharge procedure, would lose a good deal of its significance. The budgetary authorities' recommendations (Article 276(3) of the EC Treaty) would be deprived of all practical effect.

The proposed regulatory framework

The conditions for an adequate control framework

| 7. | In order that the Commission can assume its ultimate responsibility for the implementation of the budget, the proposal for a Regulation should take into account the following key aspects, which underpin opinion No 2/2004 of the Court on the ‘single audit’ model: |
| --- | --- |

7.

In order that the Commission can assume its ultimate responsibility for the implementation of the budget, the proposal for a Regulation should take into account the following key aspects, which underpin opinion No 2/2004 of the Court on the ‘single audit’ model:

(i)   The intensity of the checks

| 8. | There is no indication in the current legislation of the intensity of the checks at final beneficiary level, which should rely on a comparison of the costs to be borne by the Member States and the Commission in connection with the controls and the related benefits. The proposal only indirectly addresses the need to set acceptable confidence and materiality thresholds (Article 61(1)(e)(ii) and 61(1)(g)). It would be desirable to explicitly provide for appropriate criteria in the implementing rules specified in Article 58(6). The terms ‘reasonable assurance’ and ‘validity of the application’ should also be defined. |
| --- | --- |

8.

There is no indication in the current legislation of the intensity of the checks at final beneficiary level, which should rely on a comparison of the costs to be borne by the Member States and the Commission in connection with the controls and the related benefits. The proposal only indirectly addresses the need to set acceptable confidence and materiality thresholds (Article 61(1)(e)(ii) and 61(1)(g)). It would be desirable to explicitly provide for appropriate criteria in the implementing rules specified in Article 58(6). The terms ‘reasonable assurance’ and ‘validity of the application’ should also be defined.

(ii)   Definition of appropriate standards

| 9. | The reference to ‘international audit standards’ (Article 61(1)(a)) is not sufficiently explicit to allow the control procedures to be based on common norms and principles. There should be provision in the implementing rules mentioned above for a preliminary acceptance procedure covering both the system’s audit and the audit of the operations themselves. |
| --- | --- |

9.

The reference to ‘international audit standards’ (Article 61(1)(a)) is not sufficiently explicit to allow the control procedures to be based on common norms and principles. There should be provision in the implementing rules mentioned above for a preliminary acceptance procedure covering both the system’s audit and the audit of the operations themselves.

(iii)   Organisation of the management and control systems

| 10. | Article 54 of the Financial Regulation specifies that the implementing tasks delegated must be clearly defined and fully supervised as to the use made of them. Article 35(1) of the implementing rules states that, where management is shared, the Commission will first carry out documentary and on-the-spot checks into the existence, relevance and proper operation of the procedures and systems within the entities to which it entrusts implementation. The proposal for a Regulation departs from these provisions in that, prior to the Commission's adoption of an operational programme, only the Member States are required to ensure that management and control systems have been set up (Article 70). In this context, it would be desirable to make arrangements, if not for an approval procedure, then at least for the Commission to oversee the procedures by which management and control bodies are appointed at national level. Moreover, it would also be advisable to set up an intermediary body at national level to ensure liaison with the Community authorities. |
| --- | --- |

10.

Article 54 of the Financial Regulation specifies that the implementing tasks delegated must be clearly defined and fully supervised as to the use made of them. Article 35(1) of the implementing rules states that, where management is shared, the Commission will first carry out documentary and on-the-spot checks into the existence, relevance and proper operation of the procedures and systems within the entities to which it entrusts implementation. The proposal for a Regulation departs from these provisions in that, prior to the Commission's adoption of an operational programme, only the Member States are required to ensure that management and control systems have been set up (Article 70). In this context, it would be desirable to make arrangements, if not for an approval procedure, then at least for the Commission to oversee the procedures by which management and control bodies are appointed at national level. Moreover, it would also be advisable to set up an intermediary body at national level to ensure liaison with the Community authorities.

| 11. | A substantial strengthening of Community controls is the indispensable corollary to a system in which project management rests with the national or regional authorities (10). Given that the rules on the eligibility of expenditure will, from now on, be largely fixed at national level, the conditions outlined above will be of even greater importance. |
| --- | --- |

11.

A substantial strengthening of Community controls is the indispensable corollary to a system in which project management rests with the national or regional authorities (10). Given that the rules on the eligibility of expenditure will, from now on, be largely fixed at national level, the conditions outlined above will be of even greater importance.

Responsibility in the area of legality and regularity

| 12. | Article 60(1) of the Financial Regulation makes the authorising officer responsible for ensuring the legality and regularity of expenditure. In Article 53(6), the Regulation also states that, where management is shared, the Member States are to conduct regular checks to ensure that the actions to be financed from the Community budget have been implemented correctly. They are also to take appropriate measures to prevent irregularities and fraud and if necessary bring prosecutions to recover funds wrongly paid. |
| --- | --- |

12.

Article 60(1) of the Financial Regulation makes the authorising officer responsible for ensuring the legality and regularity of expenditure. In Article 53(6), the Regulation also states that, where management is shared, the Member States are to conduct regular checks to ensure that the actions to be financed from the Community budget have been implemented correctly. They are also to take appropriate measures to prevent irregularities and fraud and if necessary bring prosecutions to recover funds wrongly paid.

| 13. | In the light of these provisions, the proposal for a Regulation (Article 69(1)) confers upon the Member States responsibility for the legality and regularity of the underlying transactions (see paragraph 5). The ensuing transfer of competence to the Member States also comes as a corollary to the stipulation in Article 70 that they are to approve the management and control systems. |
| --- | --- |

13.

In the light of these provisions, the proposal for a Regulation (Article 69(1)) confers upon the Member States responsibility for the legality and regularity of the underlying transactions (see paragraph 5). The ensuing transfer of competence to the Member States also comes as a corollary to the stipulation in Article 70 that they are to approve the management and control systems.

| 14. | It is true that, where there are doubts as to the operation of these systems, or where irregularities are suspected or confirmed, the Commission could interrupt payment for a period of six to twelve months (Article 89). It is also envisaged that the Member States and the Commission could adopt financial corrections (Articles 99 and 100). However, such measures could provide no more than a limited, auxiliary contribution to the necessary rigour of everyday management. Their effectiveness is essentially dependent on the number of checks performed. Furthermore, since financial corrections would intervene only after the fact, they could not be enough on their own to make good all the consequences of any transactions that might be implemented even though they did not meet the necessary regulatory requirements. |
| --- | --- |

14.

It is true that, where there are doubts as to the operation of these systems, or where irregularities are suspected or confirmed, the Commission could interrupt payment for a period of six to twelve months (Article 89). It is also envisaged that the Member States and the Commission could adopt financial corrections (Articles 99 and 100). However, such measures could provide no more than a limited, auxiliary contribution to the necessary rigour of everyday management. Their effectiveness is essentially dependent on the number of checks performed. Furthermore, since financial corrections would intervene only after the fact, they could not be enough on their own to make good all the consequences of any transactions that might be implemented even though they did not meet the necessary regulatory requirements.

Responsibility in the area of sound financial management

| 15. | Article 60(1) of the Financial Regulation indicates that the authorising officer is to implement expenditure in accordance with the principles of sound financial management. Article 27 of the Regulation sets out the conditions for the use of Community appropriations in accordance with the principles of economy, efficiency and effectiveness. The same Article states that specific, measurable, achievable, relevant and timed objectives are to be set for all budget activities. The Commission is to undertake ex ante and ex post evaluations which it then forwards to the spending, legislative and budgetary authorities. |
| --- | --- |

15.

Article 60(1) of the Financial Regulation indicates that the authorising officer is to implement expenditure in accordance with the principles of sound financial management. Article 27 of the Regulation sets out the conditions for the use of Community appropriations in accordance with the principles of economy, efficiency and effectiveness. The same Article states that specific, measurable, achievable, relevant and timed objectives are to be set for all budget activities. The Commission is to undertake ex ante and ex post evaluations which it then forwards to the spending, legislative and budgetary authorities.

| 16. | The proposal for a Regulation makes the Member States responsible for sound financial management (Article 69). However, this provision does no more than refer to the existence of ‘adequate guidance’ on setting up management and control systems that will ensure that community financing is used ‘efficiently and correctly’. On the matter of effectiveness (11), the proposal refers almost exclusively to the management and control systems, and by implication to those governing only legality and regularity. Article 59 of the proposal is limited to making the managing authority responsible for managing and implementing programmes ‘efficiently, effectively and correctly’ and finally refers, in indent (e), to the quality standards agreed between the Commission and the Member States in respect of ex ante evaluations. |
| --- | --- |

16.

The proposal for a Regulation makes the Member States responsible for sound financial management (Article 69). However, this provision does no more than refer to the existence of ‘adequate guidance’ on setting up management and control systems that will ensure that community financing is used ‘efficiently and correctly’. On the matter of effectiveness (11), the proposal refers almost exclusively to the management and control systems, and by implication to those governing only legality and regularity. Article 59 of the proposal is limited to making the managing authority responsible for managing and implementing programmes ‘efficiently, effectively and correctly’ and finally refers, in indent (e), to the quality standards agreed between the Commission and the Member States in respect of ex ante evaluations.

| 17. | Concerning the narrower question of evaluations, the proposal for a Regulation specifies that the evaluation methods and standards to be applied (Article 45(5)) are to be agreed between the Commission and the Member States (Article 59(e)). The quality of these standards will be of particular importance for the ex ante evaluations entrusted to the Member States (Articles 46(2) and 46(3)), which must inter alia identify the added value that operational programmes bring to the Community. |
| --- | --- |

17.

Concerning the narrower question of evaluations, the proposal for a Regulation specifies that the evaluation methods and standards to be applied (Article 45(5)) are to be agreed between the Commission and the Member States (Article 59(e)). The quality of these standards will be of particular importance for the ex ante evaluations entrusted to the Member States (Articles 46(2) and 46(3)), which must inter alia identify the added value that operational programmes bring to the Community.

| 18. | lt is therefore particularly important that the implementing rules that the Commission is to adopt pursuant to Article 58(6) of the proposal for a Regulation provide all the necessary clarification of these aspects. |
| --- | --- |

18.

lt is therefore particularly important that the implementing rules that the Commission is to adopt pursuant to Article 58(6) of the proposal for a Regulation provide all the necessary clarification of these aspects.

Conservation of supporting documents

| 19. | Article 88 of the proposal for a Regulation says that supporting documents concerning expenditure are to be kept available for the Commission and the Court of Auditors for a period of at least three years following closure. In the case of co-financed assistance, where the eligibility of the expenditure is largely dependent on national legislation, it would be desirable to state explicitly that the three-year term is without prejudice to national rules specifying longer periods. |
| --- | --- |

19.

Article 88 of the proposal for a Regulation says that supporting documents concerning expenditure are to be kept available for the Commission and the Court of Auditors for a period of at least three years following closure. In the case of co-financed assistance, where the eligibility of the expenditure is largely dependent on national legislation, it would be desirable to state explicitly that the three-year term is without prejudice to national rules specifying longer periods.

| 20. | These remarks apply also to the partial closure of operational programmes (Article 97). In this specific case by derogation from the general rule (Article 88), the period for conserving supporting documents would start on the date of partial closure (Article 98(2)). This would have the effect of seriously limiting checks on an operational programme as a whole at the end of the programming period, since the supporting documents for operations closed earlier might no longer be available. In the Court's view, such an eventuality could encroach upon its audit prerogatives as specified in Article 248 of the EC Treaty. |
| --- | --- |

20.

These remarks apply also to the partial closure of operational programmes (Article 97). In this specific case by derogation from the general rule (Article 88), the period for conserving supporting documents would start on the date of partial closure (Article 98(2)). This would have the effect of seriously limiting checks on an operational programme as a whole at the end of the programming period, since the supporting documents for operations closed earlier might no longer be available. In the Court's view, such an eventuality could encroach upon its audit prerogatives as specified in Article 248 of the EC Treaty.

More effective programmes

Programming and setting objectives

| 21. | The proposal stipulates that each Member State is to draw up a ‘national strategic reference framework’ that is consistent with the ‘Community guidelines on economic, social and territorial cohesion’ to be adopted by the Council (Article 23). However, there is no reference under the ‘national strategic reference framework’ to the ‘European territorial cooperation’ objective. |
| --- | --- |

21.

The proposal stipulates that each Member State is to draw up a ‘national strategic reference framework’ that is consistent with the ‘Community guidelines on economic, social and territorial cohesion’ to be adopted by the Council (Article 23). However, there is no reference under the ‘national strategic reference framework’ to the ‘European territorial cooperation’ objective.

| 22. | The content of the ‘national strategic reference framework’ (Article 25) is not sufficiently precise (in terms of measures, the allocation of resources and expected results) to provide detailed information on the national and regional development strategy. Neither are the ‘thematic and territorial priorities’, which are supposed to define the measures to be financed, explained adequately. This framework is also likely to be limited exclusively to areas where assistance is co-financed. Thus the Commission, which is required to adopt the frameworks, would not be in a position to emphasise some or other aspect in the operational programmes. |
| --- | --- |

22.

The content of the ‘national strategic reference framework’ (Article 25) is not sufficiently precise (in terms of measures, the allocation of resources and expected results) to provide detailed information on the national and regional development strategy. Neither are the ‘thematic and territorial priorities’, which are supposed to define the measures to be financed, explained adequately. This framework is also likely to be limited exclusively to areas where assistance is co-financed. Thus the Commission, which is required to adopt the frameworks, would not be in a position to emphasise some or other aspect in the operational programmes.

| 23. | The operational programmes are also characterised by a lack of precision, no information being requested in respect of the various measures to achieve the priority objectives. This prevents any arbitration between measures. Specific objectives would be quantified by means of a limited number of implementation, results and impact indicators. Compared with the current legislation, a description of the arrangements for managing each operational programme is no longer required (Article 36). Thus, neither the ‘national strategic reference framework’, nor the operational programmes would be true management and monitoring instruments for the Commission. It is consequently unclear how the Commission will be able to ensure that coordination with the operational programmes has been established at national level. |
| --- | --- |

23.

The operational programmes are also characterised by a lack of precision, no information being requested in respect of the various measures to achieve the priority objectives. This prevents any arbitration between measures. Specific objectives would be quantified by means of a limited number of implementation, results and impact indicators. Compared with the current legislation, a description of the arrangements for managing each operational programme is no longer required (Article 36). Thus, neither the ‘national strategic reference framework’, nor the operational programmes would be true management and monitoring instruments for the Commission. It is consequently unclear how the Commission will be able to ensure that coordination with the operational programmes has been established at national level.

Improved integration of assistance measures

| 24. | The extended impact assessment fails to address the reasons for maintaining separate Funds (as opposed to grouping the Funds as postulated in Article 161 of the EC Treaty). However, this should have been the subject of a thorough analysis from the point of view of the advantages and disadvantages of all the available options, given that the extended impact assessment gives arguments in favour of setting up a single Fund. As regards the present Objective 2, in fact, it says that the relative thematic diversity of funded projects and the fragmentation caused by zoning have blocked the implementation of suitable policies. Moreover, it has not been possible to exploit sufficiently the ERDF/ESF synergies under Objective 3. It is therefore concluded that there is a need for:






  — | a greater concentration of themes to promote competitiveness, |
| --- | --- | --- |

24.

The extended impact assessment fails to address the reasons for maintaining separate Funds (as opposed to grouping the Funds as postulated in Article 161 of the EC Treaty). However, this should have been the subject of a thorough analysis from the point of view of the advantages and disadvantages of all the available options, given that the extended impact assessment gives arguments in favour of setting up a single Fund. As regards the present Objective 2, in fact, it says that the relative thematic diversity of funded projects and the fragmentation caused by zoning have blocked the implementation of suitable policies. Moreover, it has not been possible to exploit sufficiently the ERDF/ESF synergies under Objective 3. It is therefore concluded that there is a need for:

—

a greater concentration of themes to promote competitiveness,

| — | greater complementarity, over and above the ‘Convergence’ objective, between the ERDF and the ESF. |
| --- | --- |

—

greater complementarity, over and above the ‘Convergence’ objective, between the ERDF and the ESF.

| 25. | Establishing the principle of ‘one Fund/one operational programme’, in the interest of simplification is not likely to promote the search for the necessary synergies. |
| --- | --- |

25.

Establishing the principle of ‘one Fund/one operational programme’, in the interest of simplification is not likely to promote the search for the necessary synergies.

| 26. | It is especially difficult to justify the separation between the ERDF and the Cohesion Fund in the context of the ‘Convergence’ objective. These two Funds are generally to be found in the same operational programmes and are concerned with the same themes (transport infrastructure and environmental projects/actions). The corresponding actions/projects are often complementary (for example, where the Cohesion Fund and the ERDF are both used to finance different parts of a motorway). What distinguishes them are regional/State eligibility (per capita GDP of less than 75 % of the Community average in the case of the Structural Funds, and per capita GNI of less than 90 % of the Community average), the contribution ceiling, Article 51 gives 85 % for the Cohesion Fund and 75 % for the ERDF, although the ERDF ceiling may be increased to 85 % in certain cases (Articles 51(4) and 52(1)), and the matter of pre-financing (Article 81), which amounts to 7 % for the Structural Funds and 10,5 % for the Cohesion Fund. ERDF actions and Cohesion Fund projects are often managed by the same public entities. The concepts of major projects and revenue-generating projects are equally valid for both Funds. For reasons of consistency it would be appropriate to operate a single Fund, at least in the case of the ERDF and the Cohesion Fund, since the differences given above do not constitute major obstacles. |
| --- | --- |

26.

It is especially difficult to justify the separation between the ERDF and the Cohesion Fund in the context of the ‘Convergence’ objective. These two Funds are generally to be found in the same operational programmes and are concerned with the same themes (transport infrastructure and environmental projects/actions). The corresponding actions/projects are often complementary (for example, where the Cohesion Fund and the ERDF are both used to finance different parts of a motorway). What distinguishes them are regional/State eligibility (per capita GDP of less than 75 % of the Community average in the case of the Structural Funds, and per capita GNI of less than 90 % of the Community average), the contribution ceiling, Article 51 gives 85 % for the Cohesion Fund and 75 % for the ERDF, although the ERDF ceiling may be increased to 85 % in certain cases (Articles 51(4) and 52(1)), and the matter of pre-financing (Article 81), which amounts to 7 % for the Structural Funds and 10,5 % for the Cohesion Fund. ERDF actions and Cohesion Fund projects are often managed by the same public entities. The concepts of major projects and revenue-generating projects are equally valid for both Funds. For reasons of consistency it would be appropriate to operate a single Fund, at least in the case of the ERDF and the Cohesion Fund, since the differences given above do not constitute major obstacles.

| 27. | Looking at Article 3(2) of the proposal, it is difficult to draw a clear line between actions concerned by indent (a) and those concerned by indent (b). The real difference appears to be ‘territorial’ (eligible areas) as compared with ‘financial’ (contribution levels). |
| --- | --- |

27.

Looking at Article 3(2) of the proposal, it is difficult to draw a clear line between actions concerned by indent (a) and those concerned by indent (b). The real difference appears to be ‘territorial’ (eligible areas) as compared with ‘financial’ (contribution levels).

| 28. | From a practical point of view, the provision of Article 33 (financing from a single Fund, with no more than 5 % from any other Fund) is a further complication arising from the existence of multiple Funds. |
| --- | --- |

28.

From a practical point of view, the provision of Article 33 (financing from a single Fund, with no more than 5 % from any other Fund) is a further complication arising from the existence of multiple Funds.

Adequacy of the Commission's administrative capacity

| 29. | In the past, the Court has noted (12) several delays during the different stages of programming or during the performance of checks for which the responsibility must lie with Commission departments. It is therefore vital that administrative structures and adequate procedures be established. Moreover, precise deadlines should be laid down in several of the provisions proposed (Articles 31(5), 32(2), 40(3), 85(2) and 96(1)). It would also be useful to have the departments responsible for the different Funds reach a common accord on the audit strategy, the allocation of resources and the required level of assurance. |
| --- | --- |

29.

In the past, the Court has noted (12) several delays during the different stages of programming or during the performance of checks for which the responsibility must lie with Commission departments. It is therefore vital that administrative structures and adequate procedures be established. Moreover, precise deadlines should be laid down in several of the provisions proposed (Articles 31(5), 32(2), 40(3), 85(2) and 96(1)). It would also be useful to have the departments responsible for the different Funds reach a common accord on the audit strategy, the allocation of resources and the required level of assurance.

SPECIFIC OBSERVATIONS

| 30. | The Court sets out specific observations in the table below. In this section the imprecision of certain time limits and certain expressions used is noted on several occasions. This runs the risk of giving rise to differing interpretations and undermining the legal scope of the provisions concerned. |
| --- | --- |

30.

The Court sets out specific observations in the table below. In this section the imprecision of certain time limits and certain expressions used is noted on several occasions. This runs the risk of giving rise to differing interpretations and undermining the legal scope of the provisions concerned.

| COMMISSION'S PROPOSAL | THE COURT'S OBSERVATIONS |
| --- | --- |
| Article 3.1 |
| 1. | The action taken by the Community under Article 158 of the Treaty shall be designed to strengthen the economic and social cohesion of the enlarged Community in order to promote the harmonious, balanced and sustainable development of the Community. This action shall be taken with the aid of the Funds, the European Investment Bank (EIB) and other existing financial instruments. It shall be aimed at meeting the challenges linked to the economic, social and territorial disparities which have arisen particularly in countries and regions whose development is lagging behind, to the speeding-up of economic and social restructuring, and to the ageing of the population. The action taken under the Funds shall incorporate, at national and regional level, the Community's priorities in favour of sustainable development by strengthening growth, competitiveness and employment, social inclusion, as well as the protection and quality of the environment. |

COMMISSION'S PROPOSAL

THE COURT'S OBSERVATIONS

Article 3.1

1.

The action taken by the Community under Article 158 of the Treaty shall be designed to strengthen the economic and social cohesion of the enlarged Community in order to promote the harmonious, balanced and sustainable development of the Community. This action shall be taken with the aid of the Funds, the European Investment Bank (EIB) and other existing financial instruments. It shall be aimed at meeting the challenges linked to the economic, social and territorial disparities which have arisen particularly in countries and regions whose development is lagging behind, to the speeding-up of economic and social restructuring, and to the ageing of the population. The action taken under the Funds shall incorporate, at national and regional level, the Community's priorities in favour of sustainable development by strengthening growth, competitiveness and employment, social inclusion, as well as the protection and quality of the environment.

The reference to action taken under Article 158 of the EC Treaty is incomplete in that it omits rural development. However, it is stated in Article 3(3) that assistance under the Funds is to support, in an appropriate manner, the renewal of rural areas and areas dependent on fisheries through economic diversification, as well as mountain areas.

Article 3.2

| 2. | To that end, the ERDF, the ESF, the Cohesion Fund, the European Investment Bank (EIB) and the other existing Community financial instruments shall each contribute in an appropriate way towards achieving the following three objectives:






  (a) | the ‘Convergence’ objective shall be aimed at speeding up the convergence of the least-developed Member States and regions by improving conditions for growth and employment through increasing and improving the quality of investment in physical and human capital, the development of innovation and of the knowledge society, the adaptability to economic and social changes, the protection and improvement of the environment as well as administrative efficiency. This objective shall constitute the priority of the Funds; |
| --- | --- | --- |

2.

To that end, the ERDF, the ESF, the Cohesion Fund, the European Investment Bank (EIB) and the other existing Community financial instruments shall each contribute in an appropriate way towards achieving the following three objectives:

(a)

the ‘Convergence’ objective shall be aimed at speeding up the convergence of the least-developed Member States and regions by improving conditions for growth and employment through increasing and improving the quality of investment in physical and human capital, the development of innovation and of the knowledge society, the adaptability to economic and social changes, the protection and improvement of the environment as well as administrative efficiency. This objective shall constitute the priority of the Funds;

(...)

The proposal includes ‘administrative efficiency’ among the actions to be financed under the ‘Convergence’ objective. The concept of ‘administrative efficiency’, which also appears in Articles 25(3)(b) and 26(3)(c), needs to be clarified, especially since the proposal also uses the term ‘administrative capacity’ (Article 44(1)).

Articles 5.1 and 5.2

| 1. | The regions eligible for funding from the Structural Funds under the ‘Convergence’ objective shall be regions corresponding to level II of the Nomenclature of Territorial Statistical Units (hereinafter NUTS level II) within the meaning of Regulation (EC) No 1059/2003 of the European Parliament and of the Council of 26 May 2003 whose per capita Gross Domestic Product (GDP), measured in purchasing power parities and calculated on the basis of Community figures for the last three years available on (...), is less than 75 % of the Community average. |
| --- | --- |

1.

The regions eligible for funding from the Structural Funds under the ‘Convergence’ objective shall be regions corresponding to level II of the Nomenclature of Territorial Statistical Units (hereinafter NUTS level II) within the meaning of Regulation (EC) No 1059/2003 of the European Parliament and of the Council of 26 May 2003 whose per capita Gross Domestic Product (GDP), measured in purchasing power parities and calculated on the basis of Community figures for the last three years available on (...), is less than 75 % of the Community average.

| 2. | The NUTS level II regions whose per capita GDP, measured in purchasing power parities and calculated on the basis of Community figures for the last three years available on (...), is between 75 % and (...) % of the Community average shall be eligible, on a transitional and specific basis, for financing by the Structural Funds |
| --- | --- |

2.

The NUTS level II regions whose per capita GDP, measured in purchasing power parities and calculated on the basis of Community figures for the last three years available on (...), is between 75 % and (...) % of the Community average shall be eligible, on a transitional and specific basis, for financing by the Structural Funds

It is not enough to use GDP alone to identify eligible regions because of the many dimensions of the development gap. Aspects that should not be overlooked include the availability of basic infrastructure, the unemployment rate, labour productivity, the economic structure, education and training, the quality of the environment, emigration and R & D.

Article 5.2

| 2. | The NUTS level II regions whose per capita GDP, measured in purchasing power parities and calculated on the basis of Community figures for the last three years available on (...), is between 75 % and (...) % of the Community average shall be eligible, on a transitional and specific basis, for financing by the Structural Funds. |
| --- | --- |

2.

The NUTS level II regions whose per capita GDP, measured in purchasing power parities and calculated on the basis of Community figures for the last three years available on (...), is between 75 % and (...) % of the Community average shall be eligible, on a transitional and specific basis, for financing by the Structural Funds.

The second percentage referring to the Community average needs to be inserted.

Article 6.1

| 1. | The areas eligible for funding from the Structural Funds under the ‘Regional competitiveness and employment’ objective shall be those not covered by Article 5(1) and 5(2). When presenting the national strategic reference framework referred to in Article 25, each Member State concerned shall indicate the NUTS I or NUTS II regions for which it will present a programme for financing by the ERDF. |
| --- | --- |

1.

The areas eligible for funding from the Structural Funds under the ‘Regional competitiveness and employment’ objective shall be those not covered by Article 5(1) and 5(2). When presenting the national strategic reference framework referred to in Article 25, each Member State concerned shall indicate the NUTS I or NUTS II regions for which it will present a programme for financing by the ERDF.

It should be pointed out that the geographical scope of the ‘Regional competitiveness and employment’ objective is potentially very broad and therefore all-embracing. Eligibility criteria need to be defined for this objective.

Articles 7.1 and 7.2

| 1. | For the purpose of cross-border cooperation, shall be eligible for financing the NUTS level III regions of the Community along the internal and certain external land borders and certain NUTS level III regions of the Community along the maritime borders separated, as a general rule, by a maximum of 150 kilometres, taking into account potential adjustments needed to ensure the coherence and continuity of the cooperation action. Immediately following the entry into force of this Regulation, the Commission shall adopt, in accordance with the procedure referred to in Article 104(2) the list of the eligible regions. This list shall be valid from 1 January 2007 to 31 December 2013. |
| --- | --- |

1.

For the purpose of cross-border cooperation, shall be eligible for financing the NUTS level III regions of the Community along the internal and certain external land borders and certain NUTS level III regions of the Community along the maritime borders separated, as a general rule, by a maximum of 150 kilometres, taking into account potential adjustments needed to ensure the coherence and continuity of the cooperation action. Immediately following the entry into force of this Regulation, the Commission shall adopt, in accordance with the procedure referred to in Article 104(2) the list of the eligible regions. This list shall be valid from 1 January 2007 to 31 December 2013.

| 2. | For the purpose of transnational cooperation, on the basis of the Community's strategic guidelines referred to in Articles 23 and 24, the Commission in accordance with the procedure referred to in Article 104(2), shall adopt the list of the eligible transnational areas. This list shall be valid from 1 January 2007 to 31 December 2013. |
| --- | --- |

2.

For the purpose of transnational cooperation, on the basis of the Community's strategic guidelines referred to in Articles 23 and 24, the Commission in accordance with the procedure referred to in Article 104(2), shall adopt the list of the eligible transnational areas. This list shall be valid from 1 January 2007 to 31 December 2013.

The description of the ‘European territorial cooperation’ objective should have been preceded by an analysis of the situation in these areas and a clear definition of their needs with a view to concentrating activities. The provisions on the choice of eligible areas should be expanded to include criteria that are precisely defined and, more particularly, weighted.

Article 10.3

| 3. | Each year the Commission shall consult the organisations representing the social partners at European level on assistance from the Funds. |
| --- | --- |

3.

Each year the Commission shall consult the organisations representing the social partners at European level on assistance from the Funds.

Article 10(1)(b) refers to the economic and social partners. It would be desirable to use the same expression in paragraph 3.

Article 13

| 1. | Contributions from the Structural Funds shall not replace public or equivalent structural expenditure by a Member State. |
| --- | --- |

1.

Contributions from the Structural Funds shall not replace public or equivalent structural expenditure by a Member State.

| 2. | For regions covered by the ‘Convergence’ objective, the Commission and the Member State shall determine the level of public or equivalent structural expenditure which the Member State shall maintain in all the regions concerned during the programming period. That expenditure shall be agreed by the Member State and the Commission within the national strategic reference framework referred to in Article 25. |
| --- | --- |

2.

For regions covered by the ‘Convergence’ objective, the Commission and the Member State shall determine the level of public or equivalent structural expenditure which the Member State shall maintain in all the regions concerned during the programming period. That expenditure shall be agreed by the Member State and the Commission within the national strategic reference framework referred to in Article 25.

| 3. | The level of the expenditure referred to in paragraph 2 shall be at least equal to the amount of average annual expenditure in real terms attained during the previous programming period. The level of expenditure shall be determined with reference to the general macroeconomic conditions in which the financing is carried out and taking into account certain specific economic situations, namely privatisations as well as an exceptional level of public or equivalent structural expenditure by the Member State during the previous programming period. |
| --- | --- |

3.

The level of the expenditure referred to in paragraph 2 shall be at least equal to the amount of average annual expenditure in real terms attained during the previous programming period. The level of expenditure shall be determined with reference to the general macroeconomic conditions in which the financing is carried out and taking into account certain specific economic situations, namely privatisations as well as an exceptional level of public or equivalent structural expenditure by the Member State during the previous programming period.

| 4. | The Commission shall, in cooperation with each Member State, verify additionality mid-term in 2011 and ex post by 30 June 2016 for the ‘Convergence’ objective. Where a Member State is unable to prove on 30 June 2016 that the additionality agreed within the national strategic reference framework has been respected, the Commission shall proceed to a financial correction in accordance with procedure laid down in Article 101. |
| --- | --- |

4.

The Commission shall, in cooperation with each Member State, verify additionality mid-term in 2011 and ex post by 30 June 2016 for the ‘Convergence’ objective. Where a Member State is unable to prove on 30 June 2016 that the additionality agreed within the national strategic reference framework has been respected, the Commission shall proceed to a financial correction in accordance with procedure laid down in Article 101.

A procedure verifying the application of the additionality principle is only envisaged for the ‘Convergence’ objective. There is no such provision for the other two objectives, which account for around 20 % of appropriations. Only section 5.3 of the explanatory memorandum specifies that this control is to be exercised by the Member States in accordance with the proportionality principle. Neither does the Commission have to be informed of the results of controls by the Member States. This represents a change compared with the current legislation (Article 11(3) of Regulation No 1260/99).

Article 13.3

| 3. | The level of the expenditure referred to in paragraph 2 shall be at least equal to the amount of average annual expenditure in real terms attained during the previous programming period.
  The level of expenditure shall be determined with reference to the general macroeconomic conditions in which the financing is carried out and taking into account certain specific economic situations, namely privatisations as well as an exceptional level of public or equivalent structural expenditure by the Member State during the previous programming period. |
| --- | --- |

3.

The level of the expenditure referred to in paragraph 2 shall be at least equal to the amount of average annual expenditure in real terms attained during the previous programming period.

The level of expenditure shall be determined with reference to the general macroeconomic conditions in which the financing is carried out and taking into account certain specific economic situations, namely privatisations as well as an exceptional level of public or equivalent structural expenditure by the Member State during the previous programming period.

The possibility of taking account of the general macroeconomic circumstances as well as certain specific economic situations, without further explanation, potentially leaves enormous scope for discretion.

Article 16.1

| 1. | Overall resources for the ‘Convergence’ objective shall amount to 78,54 % of the resources referred to in the first paragraph of Article 15 (i.e. a total of EUR 264,0 billion) and shall be distributed between the different components as follows:






  (a) | 67,34 % for the financing referred to in Article 5(1), using eligible population, regional prosperity, national prosperity and unemployment as the criteria for calculating the indicative breakdowns by Member State; |
| --- | --- | --- |

1.

Overall resources for the ‘Convergence’ objective shall amount to 78,54 % of the resources referred to in the first paragraph of Article 15 (i.e. a total of EUR 264,0 billion) and shall be distributed between the different components as follows:

(a)

67,34 % for the financing referred to in Article 5(1), using eligible population, regional prosperity, national prosperity and unemployment as the criteria for calculating the indicative breakdowns by Member State;

| (b) | 8,38 % for the transitional and specific support referred to in Article 5(2), using eligible population, regional prosperity, national prosperity and unemployment as criteria for calculating the indicative breakdowns by Member State; |
| --- | --- |

(b)

8,38 % for the transitional and specific support referred to in Article 5(2), using eligible population, regional prosperity, national prosperity and unemployment as criteria for calculating the indicative breakdowns by Member State;

| (c) | 23,86 % for the financing referred to in Article 5(3), using population, per capita GNI taking into account of the improvement in national prosperity over the previous period, and surface area as criteria for calculating the indicative breakdowns by Member State; and |
| --- | --- |

(c)

23,86 % for the financing referred to in Article 5(3), using population, per capita GNI taking into account of the improvement in national prosperity over the previous period, and surface area as criteria for calculating the indicative breakdowns by Member State; and

| (d) | 0,42 % for the financing referred to in Article 5(4), using eligible population as criteria for calculating the indicative breakdowns by Member State. |
| --- | --- |

(d)

0,42 % for the financing referred to in Article 5(4), using eligible population as criteria for calculating the indicative breakdowns by Member State.

It would be helpful to indicate how the criteria were weighted to determine the allocation of Funds to the different components.

Article 16.2

| 2. | The annual breakdown of the appropriations referred to in paragraph 1(b) shall be degressive from 1 January 2007. The appropriation in 2007 shall be lower than in 2006, except for those regions that are not fully eligible to Objective 1 on 1 January 2000 pursuant to Regulation (EC) No 1260/1999 for which the appropriation in 2007 shall be objective and fair. |
| --- | --- |

2.

The annual breakdown of the appropriations referred to in paragraph 1(b) shall be degressive from 1 January 2007. The appropriation in 2007 shall be lower than in 2006, except for those regions that are not fully eligible to Objective 1 on 1 January 2000 pursuant to Regulation (EC) No 1260/1999 for which the appropriation in 2007 shall be objective and fair.

The text does not define what is meant by ‘objective and fair’.

Article 17.1

| 1. | Overall resources for the ‘Regional competitiveness and employment’ objective shall amount to 17,22 % of the resources referred to in the first paragraph of Article 15 (i.e. a total of EUR 57,9 billion) and shall be distributed between the different components as follows:






  (a) | 83,44 % for the financing as referred to in Article 6(1), using eligible population, regional prosperity, unemployment, employment rate and population density as the criteria for calculating the indicative breakdowns by Member State; and |
| --- | --- | --- |

1.

Overall resources for the ‘Regional competitiveness and employment’ objective shall amount to 17,22 % of the resources referred to in the first paragraph of Article 15 (i.e. a total of EUR 57,9 billion) and shall be distributed between the different components as follows:

(a)

83,44 % for the financing as referred to in Article 6(1), using eligible population, regional prosperity, unemployment, employment rate and population density as the criteria for calculating the indicative breakdowns by Member State; and

| (b) | 16,56 % for the transitional and specific support referred to in Article 6(2), using eligible population, regional prosperity, national prosperity and unemployment as the criteria for calculating the indicative breakdowns by Member State. |
| --- | --- |

(b)

16,56 % for the transitional and specific support referred to in Article 6(2), using eligible population, regional prosperity, national prosperity and unemployment as the criteria for calculating the indicative breakdowns by Member State.

It would be helpful to indicate how the criteria were weighted to determine the allocation of Funds to the different components.

Article 17.2

| 2. | The appropriations referred to in paragraph 1(a) shall be divided equally between the programmes financed by the ERDF and the programmes financed by the ESF. 2. |
| --- | --- |

2.

The appropriations referred to in paragraph 1(a) shall be divided equally between the programmes financed by the ERDF and the programmes financed by the ESF. 2.

The text should clarify how the division between the ERDF and the ESF is to be made.

Article 17.4

| 4. | The annual breakdowns of the appropriations referred to in paragraph 1(b) shall be degressive from 1 January 2007. The appropriations in 2007 shall be lower than in 2006, except for those regions whose eligibility to Objective 1 pursuant to Regulation (EC) No 1260/1999 started in 2004 for which the appropriation in 2007 shall be objective and fair. |
| --- | --- |

4.

The annual breakdowns of the appropriations referred to in paragraph 1(b) shall be degressive from 1 January 2007. The appropriations in 2007 shall be lower than in 2006, except for those regions whose eligibility to Objective 1 pursuant to Regulation (EC) No 1260/1999 started in 2004 for which the appropriation in 2007 shall be objective and fair.

The text does not define what is meant by ‘objective and fair’.

Article 22

The Commission ensures that total annual allocations from the Funds for any Member State pursuant to this Regulation, including the contribution of the ERDF to the financing of the cross-border strand of the European Neighbourhood and Partnership Instrument pursuant to Regulation (EC) No (...) and of the Instrument for pre-accession pursuant to Regulation (EC) No (...), and from the part of the European Agricultural Fund for Rural Development (EAFRD) pursuant to Regulation (EC) No (...) originating from the EAGGF, Guidance section, and of the European Fund for Fisheries (EFF) pursuant to Regulation (EC) No (...) contributing to the ‘Convergence’ objective, shall not exceed 4 % of that Member State's GDP as estimated at the time of the adoption of the Interinstitutional Agreement.

The Regulations of the financial instruments mentioned in the previous paragraph other than the Funds include a similar provision.

Concerning the total annual allocations from the Funds for any Member State, the idea put forward in recital 30 of the preamble, namely, that annual appropriations should be allocated with regard to the Member States' capacity for absorption, has not been taken up.

Article 24

At the latest three months after the adoption of this Regulation, the Community strategic guidelines referred to in Article 23 are adopted in accordance with the procedure laid down in Article 161 of the Treaty. This decision shall be published in the Official Journal of the European Union. The Community strategic guidelines shall be subject, if necessary, to mid-term review in accordance with the procedure laid down in Article 161 of the Treaty, in order to take account in particular of changes in the priorities of the Community.

It is also necessary to question the effects on the frameworks of any amendment to the Community strategic guidelines. There is in fact no provision for a revision of the frameworks in any of the articles.

Article 25.3

| 3. | The strategic section of the national strategic reference framework shall specify the strategy chosen for the ‘Convergence’ objective and the ‘Regional competitiveness and employment’ objective, demonstrating how the choices made are consistent with the Community strategic guidelines on the basis of an analysis of development disparities, weaknesses and potential related, in particular, to the expected changes in the European and world economies. It shall specify:
  (...)






  (b) | for the ‘Convergence’ objective only, the action envisaged for reinforcing the Member State's administrative efficiency, including as regards management of the Funds, and the evaluation plan referred to in Article 46(1); |
| --- | --- | --- |

3.

The strategic section of the national strategic reference framework shall specify the strategy chosen for the ‘Convergence’ objective and the ‘Regional competitiveness and employment’ objective, demonstrating how the choices made are consistent with the Community strategic guidelines on the basis of an analysis of development disparities, weaknesses and potential related, in particular, to the expected changes in the European and world economies. It shall specify:

(...)

(b)

for the ‘Convergence’ objective only, the action envisaged for reinforcing the Member State's administrative efficiency, including as regards management of the Funds, and the evaluation plan referred to in Article 46(1);

(...)

It is stated here that the chosen strategy is to specify ‘the action envisaged for reinforcing the Member State’s administrative efficiency, including as regards management of the Funds’. This implies that the notion of ‘reinforcing the Member State’s administrative efficiency’ could go beyond the management of the Funds, bringing with it the risk that a very wide range of operations would be financed.

Article 25.3

| 3. | The strategic section of the national strategic reference framework shall specify the strategy chosen for the ‘Convergence’ objective and the ‘Regional competitiveness and employment’ objective, demonstrating how the choices made are consistent with the Community strategic guidelines on the basis of an analysis of development disparities, weaknesses and potential related, in particular, to the expected changes in the European and world economies. It shall specify:
  (...)
  In order to permit monitoring, the main goals of the priorities referred to in point a) shall be quantified and a limited number of performance and impact indicators shall be identified. |
| --- | --- |

3.

The strategic section of the national strategic reference framework shall specify the strategy chosen for the ‘Convergence’ objective and the ‘Regional competitiveness and employment’ objective, demonstrating how the choices made are consistent with the Community strategic guidelines on the basis of an analysis of development disparities, weaknesses and potential related, in particular, to the expected changes in the European and world economies. It shall specify:

(...)

In order to permit monitoring, the main goals of the priorities referred to in point a) shall be quantified and a limited number of performance and impact indicators shall be identified.

It is inappropriate to specify ‘a limited number’ without giving further detail. What matters most is that the chosen indicators should enable the results achieved, and the impact of those results, to be adequately expressed.

Article 25.4

| 4. | For the ‘Convergence’ objective and the ‘Regional competitiveness and employment’ objective, the operational section shall contain:






  (a) | the list of operational programmes and the indicative annual allocation from each Fund by programme, ensuring an appropriate balance between regional and thematic action. This list shall include the amount of the national contingency reserve referred to in Article 49; |
| --- | --- | --- |

4.

For the ‘Convergence’ objective and the ‘Regional competitiveness and employment’ objective, the operational section shall contain:

(a)

the list of operational programmes and the indicative annual allocation from each Fund by programme, ensuring an appropriate balance between regional and thematic action. This list shall include the amount of the national contingency reserve referred to in Article 49;

(...)

What is meant by ‘an appropriate balance’ is not defined.

Article 26.2

| 2. | Each Member State shall send the Commission a proposal for a national strategic reference framework as soon as possible after adoption of the Community strategic guidelines. Member States may decide to present at the same time the operational programmes referred to in Article 31. The Commission negotiates this proposal in the framework of the partnership. |
| --- | --- |

2.

Each Member State shall send the Commission a proposal for a national strategic reference framework as soon as possible after adoption of the Community strategic guidelines. Member States may decide to present at the same time the operational programmes referred to in Article 31. The Commission negotiates this proposal in the framework of the partnership.

The phrase ‘as soon as possible’ should be replaced with an exact deadline.

Article 30

The report of the Commission referred to in Article 159, second subparagraph, of the Treaty shall include in particular:

| (a) | a record of the progress made on economic and social cohesion, including the socio-economic situation and development of the regions, as well as the integration of the Community priorities; |
| --- | --- |

(a)

a record of the progress made on economic and social cohesion, including the socio-economic situation and development of the regions, as well as the integration of the Community priorities;

| (b) | a record of the role of the Funds, the EIB and the other financial instruments, as well as the effect of other Community and national policies on the progress made. The report shall contain, if necessary, any proposals on Community measures and policies which should be adopted in order to strengthen economic and social cohesion. It shall also propose, if necessary, proposals concerning any adjustments linked to new Community policy initiatives in the strategic guidelines on cohesion. In the year in which the report is presented, it shall replace the annual report by the Commission referred to in Article 28. It shall be the subject of an annual debate in accordance with the procedure laid down in Article 29. |
| --- | --- |

(b)

a record of the role of the Funds, the EIB and the other financial instruments, as well as the effect of other Community and national policies on the progress made. The report shall contain, if necessary, any proposals on Community measures and policies which should be adopted in order to strengthen economic and social cohesion. It shall also propose, if necessary, proposals concerning any adjustments linked to new Community policy initiatives in the strategic guidelines on cohesion. In the year in which the report is presented, it shall replace the annual report by the Commission referred to in Article 28. It shall be the subject of an annual debate in accordance with the procedure laid down in Article 29.

It would be advisable to stipulate that the cohesion report should also address the territorial dimension of cohesion.

Article 31.3

| 3. | The Member State shall submit a proposal for an operational programme to the Commission containing all the components referred to in Article 36, as soon as possible following the Commission decision referred to in Article 26 or at the same of the presentation of the national strategic reference framework referred to in the same Article 26. |
| --- | --- |

3.

The Member State shall submit a proposal for an operational programme to the Commission containing all the components referred to in Article 36, as soon as possible following the Commission decision referred to in Article 26 or at the same of the presentation of the national strategic reference framework referred to in the same Article 26.

The phrase ‘as soon as possible’ should be replaced with an exact deadline.

Article 31.5

| 5. | The Commission shall adopt each operational programme as soon as possible after its formal submission by the Member State. |
| --- | --- |

5.

The Commission shall adopt each operational programme as soon as possible after its formal submission by the Member State.

The phrase ‘as soon as possible’ should be replaced with an exact deadline (the deadline is currently five months).

Article 32.2

The Commission shall adopt a decision on the requests for revision of operational programmes as soon as possible after formal submission of the request by the Member State.

The phrase ‘as soon as possible’ should be replaced with an exact deadline.

Article 35.4

| 4. | The Commission may, if it considers it appropriate for the appraisal of major projects, request the EIB to examine those projects' technical quality and economic and financial viability, in particular as regards the financial engineering instruments to be implemented or developed. |
| --- | --- |

4.

The Commission may, if it considers it appropriate for the appraisal of major projects, request the EIB to examine those projects' technical quality and economic and financial viability, in particular as regards the financial engineering instruments to be implemented or developed.

The fourth paragraph is different in nature from the other three and would surely be more appropriate as part of Article 40.

Article 36.1

| 1. | Operational programmes relating to the ‘Convergence’ and the ‘Regional competitiveness and employment’ objectives shall contain:
  (...)






  (c) | an information on the priorities and their specific targets. Those targets shall be quantified using a limited number of indicators for implementation, results and impact, taking into account the proportionality principle. The indicators must make it possible to measure the progress in relation to the baseline situation and the effectiveness of the targets implementing the priorities; |
| --- | --- | --- |

1.

Operational programmes relating to the ‘Convergence’ and the ‘Regional competitiveness and employment’ objectives shall contain:

(...)

(c)

an information on the priorities and their specific targets. Those targets shall be quantified using a limited number of indicators for implementation, results and impact, taking into account the proportionality principle. The indicators must make it possible to measure the progress in relation to the baseline situation and the effectiveness of the targets implementing the priorities;

(...)

What is meant by ‘a limited number of indicators ..., taking into account the proportionality principle’ should be clarified.

Article 36.4

| 4. | Operational programmes financed by the ERDF shall contain in addition for the ‘Convergence’ and the ‘Regional competitiveness and employment’ objective:






  (a) | actions for inter-regional cooperation with, at least, one region of another Member State in each regional programme; |
| --- | --- | --- |

4.

Operational programmes financed by the ERDF shall contain in addition for the ‘Convergence’ and the ‘Regional competitiveness and employment’ objective:

(a)

actions for inter-regional cooperation with, at least, one region of another Member State in each regional programme;

(...)

The actions concerned correspond more closely to the ‘European territorial cooperation’ objective.

Article 40.3

| 3. | The Commission shall adopt a decision as soon as possible after the submission by the Member State or the managing authority of all the information referred to in Article 39. That decision shall define the physical object, the amount to which the co-financing rate for the priority applies, and the annual schedule. |
| --- | --- |

3.

The Commission shall adopt a decision as soon as possible after the submission by the Member State or the managing authority of all the information referred to in Article 39. That decision shall define the physical object, the amount to which the co-financing rate for the priority applies, and the annual schedule.

The phrase ‘as soon as possible’ should be replaced with an exact deadline.

Article 45.3

| 3. | The evaluation activities referred to in paragraph 1 shall be organised under the responsibility of the Member State or the Commission, as appropriate, in accordance with the principle of proportionality and on the basis of a partnership between the Member State and the Commission. Evaluations shall be carried out by independent assessors. The results shall be published, except where the authority responsible for the evaluation expressly objects in accordance with Regulation (EC) No 1049/2001 on access to documents. |
| --- | --- |

3.

The evaluation activities referred to in paragraph 1 shall be organised under the responsibility of the Member State or the Commission, as appropriate, in accordance with the principle of proportionality and on the basis of a partnership between the Member State and the Commission. Evaluations shall be carried out by independent assessors. The results shall be published, except where the authority responsible for the evaluation expressly objects in accordance with Regulation (EC) No 1049/2001 on access to documents.

The ‘principle of proportionality’ is not defined.

Article 46.5

| 5. | During the programming period, Member States carry out ad hoc evaluation linked to the monitoring of operational programmes where the monitoring of programmes reveals a significant departure from the goals initially set and where proposals are made for the revision of operational programmes. The results shall be sent to the monitoring committee for the operational programme and to the Commission. |
| --- | --- |

5.

During the programming period, Member States carry out ad hoc evaluation linked to the monitoring of operational programmes where the monitoring of programmes reveals a significant departure from the goals initially set and where proposals are made for the revision of operational programmes. The results shall be sent to the monitoring committee for the operational programme and to the Commission.

The text does not define what is meant by ‘a significant departure from the goals initially set’ and ‘the revision of operational programmes’.

This observation only refers to the French version of the proposal. The adjective ‘substantiel’ does not appear in all languages.

Article 48

| 1. | Within the context of the annual debate referred to in Article 29, the Council shall in 2011, in accordance with the procedure laid down in Article 161 of the Treaty, allocate the reserve referred to in Article 20 among the Member States to reward progress made as compared with the initial situation:






  (a) | for the ‘Convergence’ objective, on the basis of the following criteria:






  (i) | growth in the per capita gross domestic product measured at NUTS II level, in relation to the Community average, on the basis of the data available for the 2004 to 2010 period; |
| --- | --- | --- | --- |

1.

Within the context of the annual debate referred to in Article 29, the Council shall in 2011, in accordance with the procedure laid down in Article 161 of the Treaty, allocate the reserve referred to in Article 20 among the Member States to reward progress made as compared with the initial situation:

(a)

for the ‘Convergence’ objective, on the basis of the following criteria:

(i)

growth in the per capita gross domestic product measured at NUTS II level, in relation to the Community average, on the basis of the data available for the 2004 to 2010 period;

| (ii) | growth in the employment rate at NUTS II level, on the basis of the data available for the 2004 to 2010 period; |
| --- | --- |

(ii)

growth in the employment rate at NUTS II level, on the basis of the data available for the 2004 to 2010 period;

| (b) | for the ‘Regional competitiveness and employment’ objective, on the basis of the following criteria:






  (i) | pro rata to those regions having spent between 2007 and 2010 at least 50 % of their ERDF allocation on innovation-related activities as referred to in Article 5(1) of Regulation (EC) No (...); |
| --- | --- | --- |

(b)

for the ‘Regional competitiveness and employment’ objective, on the basis of the following criteria:

(i)

pro rata to those regions having spent between 2007 and 2010 at least 50 % of their ERDF allocation on innovation-related activities as referred to in Article 5(1) of Regulation (EC) No (...);

| (ii) | growth in the employment rate at NUTS II level, on the basis of the data available for the 2004 to 2010 period. |
| --- | --- |

(ii)

growth in the employment rate at NUTS II level, on the basis of the data available for the 2004 to 2010 period.

| 2. | Each Member State shall allocate the amounts concerned among operational programmes taking into account the criteria referred to in the previous paragraph 1. |
| --- | --- |

2.

Each Member State shall allocate the amounts concerned among operational programmes taking into account the criteria referred to in the previous paragraph 1.

Use of the performance reserve will essentially depend on criteria for which it is extremely difficult to establish a direct link with the actions benefiting from Community assistance. Changes in GDP and the employment rate are dependent on factors that are far more complex than the operational programmes alone, whose financial impact, moreover, is generally more limited than that of public investment as a whole. Furthermore, it appears restrictive to consider only the upward movement of indicators, as the structural measures may well have contributed towards cushioning a fall.

Article 50

The contribution of the Funds shall be modulated in the light of the following:

| (a) | the gravity of the specific problems, in particular of an economic, social or territorial nature; |
| --- | --- |

(a)

the gravity of the specific problems, in particular of an economic, social or territorial nature;

| (b) | the importance of each priority for the Community's priorities as set out in the strategic guidelines of the Community; |
| --- | --- |

(b)

the importance of each priority for the Community's priorities as set out in the strategic guidelines of the Community;

| (c) | protection and improvement of the environment, principally through the application of the precautionary principle, the principle of preventive action, and the polluter-pays principle; |
| --- | --- |

(c)

protection and improvement of the environment, principally through the application of the precautionary principle, the principle of preventive action, and the polluter-pays principle;

| (d) | the rate of mobilisation of private financing, in particular under public-private partnerships, in the fields concerned. |
| --- | --- |

(d)

the rate of mobilisation of private financing, in particular under public-private partnerships, in the fields concerned.

The text should give weightings for the criteria to be applied for modulations of the contribution rates.

Article 54.2

| 2. | Public expenditure on revenue-generating projects shall be calculated on the basis of the investment cost less the current value of the net revenue from the investment over a specific reference period. The calculation shall take account of the profitability normally expected of the category of investment concerned and of the application of the polluter-pays principle, and, if necessary, of the principle of equity linked to the relative prosperity of the Member State concerned. |
| --- | --- |

2.

Public expenditure on revenue-generating projects shall be calculated on the basis of the investment cost less the current value of the net revenue from the investment over a specific reference period. The calculation shall take account of the profitability normally expected of the category of investment concerned and of the application of the polluter-pays principle, and, if necessary, of the principle of equity linked to the relative prosperity of the Member State concerned.

The criteria used to apply the ‘polluter pays’ principle and the principle of equity linked to the Member States' relative prosperity are not defined. The Commission should provide methodological support for the setting of assistance levels for these projects (see Article 40(2)).

Article 55.1

| 1. | Expenditure shall be eligible for a contribution from the Funds if it has actually been incurred by the beneficiary for carrying out an operation between 1 January 2007 and 31 December 2015. Operations co-financed must not have been completed before the starting date for eligibility. Expenditure on major projects shall be eligible from the date of submission of the project to the Commission. |
| --- | --- |

1.

Expenditure shall be eligible for a contribution from the Funds if it has actually been incurred by the beneficiary for carrying out an operation between 1 January 2007 and 31 December 2015. Operations co-financed must not have been completed before the starting date for eligibility. Expenditure on major projects shall be eligible from the date of submission of the project to the Commission.

It might be beneficial to relax these conditions to take account of preparatory work on the actions to be financed. The eligibility period could thus start on 1 July 2006.

Article 55.3

| 3. | The rules on the eligibility of expenditure shall be laid down at national level subject to the exception provided in the specific Regulations for each Fund. They cover the entirety of the public expenditure declared under the operational programme. |
| --- | --- |

3.

The rules on the eligibility of expenditure shall be laid down at national level subject to the exception provided in the specific Regulations for each Fund. They cover the entirety of the public expenditure declared under the operational programme.

It will be difficult to apply national eligibility rules in the context of the ‘European territorial cooperation’ objective, as the operations financed concern more than one Member State. This aspect is not taken into account.

Article 57.1

| 1. | The management and control systems of operational programmes set up by Member States shall provide for:






  (a) | a clear definition of the functions of the bodies concerned in management and control and a clear allocation of functions within each body; |
| --- | --- | --- |

1.

The management and control systems of operational programmes set up by Member States shall provide for:

(a)

a clear definition of the functions of the bodies concerned in management and control and a clear allocation of functions within each body;

| (b) | a clear separation of functions between bodies concerned in management, certification of expenditure and control and between those functions within each body; |
| --- | --- |

(b)

a clear separation of functions between bodies concerned in management, certification of expenditure and control and between those functions within each body;

| (c) | adequate resources for each body to carry out the functions allocated to it; |
| --- | --- |

(c)

adequate resources for each body to carry out the functions allocated to it;

| (d) | effective internal audit arrangements; |
| --- | --- |

(d)

effective internal audit arrangements;

| (e) | reliable accounting, monitoring and financial reporting systems in computerised form; |
| --- | --- |

(e)

reliable accounting, monitoring and financial reporting systems in computerised form;

| (f) | an effective system of reporting and monitoring where the performance of tasks is delegated; |
| --- | --- |

(f)

an effective system of reporting and monitoring where the performance of tasks is delegated;

| (g) | the existence of manuals of procedures for the functions to be performed; |
| --- | --- |

(g)

the existence of manuals of procedures for the functions to be performed;

| (h) | effective arrangements for auditing the proper operation of the system; |
| --- | --- |

(h)

effective arrangements for auditing the proper operation of the system;

| (i) | systems and procedures to ensure an adequate audit trail; |
| --- | --- |

(i)

systems and procedures to ensure an adequate audit trail;

| (j) | reporting and monitoring procedures of irregularities and of recovery of amounts unduly paid. |
| --- | --- |

(j)

reporting and monitoring procedures of irregularities and of recovery of amounts unduly paid.

Subparagraph (j) refers to ‘irregularities’. A precise definition would be useful, especially since this notion appears in a number of clauses (for example, Articles 69(3), 73(4), 89(1) and 99). The value of this provision is limited at present by the lack of clarity concerning the data to be submitted.

Article 57.2

| 2. | The measures laid down in paragraph 1(b), (c), (d), (f), and (h) shall be proportionate to public expenditure under the operational programme concerned. |
| --- | --- |

2.

The measures laid down in paragraph 1(b), (c), (d), (f), and (h) shall be proportionate to public expenditure under the operational programme concerned.

It is envisaged that a number of the measures set out in this article would be applied in proportion to public expenditure under the operational programme concerned. However, this notion is insufficiently clear for the measures to be applied with any consistency. For this reason, it is difficult to imagine applying the measures in question (separation of functions, adequate resources and arrangements for internal audit, reporting and the systems audit) in a proportionate way. Moreover, this derogation does not apply to manuals of procedure, and no definition is given. It should also be specified whether the proportionality principle is supposed to apply to Articles 13 (verification of the additionality principle exclusively in the case of the ‘Convergence’ objective), 46(3) (overall or specific ex ante evaluation), 66(2) (content of the annual and final implementation reports) and 73 (control procedures).

Article 61.1

| 1. | The Audit Authority of an operational programme shall be responsible in particular for:
  (...)






  (b) | ensuring that audits are carried out on operations on the basis of an appropriate sample to verify expenditure declared; |
| --- | --- | --- |

1.

The Audit Authority of an operational programme shall be responsible in particular for:

(...)

(b)

ensuring that audits are carried out on operations on the basis of an appropriate sample to verify expenditure declared;

(...)

The notion of an ‘appropriate sample’ should be defined in the implementing rules. In any case, the requirements should not be less rigorous than for the 2000 to 2006 period.

Article 61.1

| 1. | The Audit Authority of an operational programme shall be responsible in particular for:
  (...)






  (c) | presenting to the Commission, within six months of the approval of the operational programme, an audit strategy covering the bodies which will perform the audits referred to under subparagraphs (a) and (b), the method to be used, the sampling method for audits on operations and the indicative planning of audits to ensure that the main bodies are audited and that audits are spread evenly throughout the programming period; |
| --- | --- | --- |

1.

The Audit Authority of an operational programme shall be responsible in particular for:

(...)

(c)

presenting to the Commission, within six months of the approval of the operational programme, an audit strategy covering the bodies which will perform the audits referred to under subparagraphs (a) and (b), the method to be used, the sampling method for audits on operations and the indicative planning of audits to ensure that the main bodies are audited and that audits are spread evenly throughout the programming period;

(...)

This clause refers to ensuring that the ‘main bodies’ are audited, yet without defining what those bodies are.

Article 61.1

| 1. | The Audit Authority of an operational programme shall be responsible in particular for:
  (...)






  (e) | by 30 June each year from 2008 to 2016:






  (i) | establishing an annual control report setting out the findings of the audits carried out in accordance with the audit strategy in respect of the operational programme during the previous year and reporting any shortcomings found in the systems for the management and control of the programme. The information concerning years the 2014 and 2015 may be included in the final report to accompany the declaration of validity; |
| --- | --- | --- | --- |

1.

The Audit Authority of an operational programme shall be responsible in particular for:

(...)

(e)

by 30 June each year from 2008 to 2016:

(i)

establishing an annual control report setting out the findings of the audits carried out in accordance with the audit strategy in respect of the operational programme during the previous year and reporting any shortcomings found in the systems for the management and control of the programme. The information concerning years the 2014 and 2015 may be included in the final report to accompany the declaration of validity;

| (ii) | issuing an opinion as to whether the management and control system has operated effectively to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission during that year and the legality and regularity of the underlying transactions; |
| --- | --- |

(ii)

issuing an opinion as to whether the management and control system has operated effectively to give a reasonable assurance on the correctness of the statements of expenditure presented to the Commission during that year and the legality and regularity of the underlying transactions;

(...)

The Commission's assurance concerning the audit of operational programmes is largely dependent upon the audit authority's submission of an annual control report accompanied by an opinion. However, owing to the deadline for submitting these documents (30 June), it will not be possible to take them into consideration either in the annual declarations to be drawn up by the Directors-General or in the statements of assurance prepared by the Court of Auditors. The same applies, mutatis mutandis, to the annual report that is the subject of Article 66.

Article 63.2

| 2. | At its own initiative, a representative of the Commission may participate in the work of the monitoring committee in an advisory capacity. A representative of the EIB and the EIF may participate in an advisory capacity for those operational programmes to which it makes a contribution. |
| --- | --- |

2.

At its own initiative, a representative of the Commission may participate in the work of the monitoring committee in an advisory capacity. A representative of the EIB and the EIF may participate in an advisory capacity for those operational programmes to which it makes a contribution.

In contrast with the current rules (see Article 35(2) of Regulation No 1260/1999), the Commission would participate in the monitoring committees at its own initiative. However, participation on these terms does appear desirable as a means of facilitating the exchange of information and the timely adoption of suitable measures.

Article 65

| 1. | The Managing Authority and the Monitoring Committee shall ensure the quality of the implementation of the operational programme. |
| --- | --- |

1.

The Managing Authority and the Monitoring Committee shall ensure the quality of the implementation of the operational programme.

| 2. | The Managing Authority and the Monitoring Committee shall carry out monitoring by reference to financial indicators and indicators of implementation, results and impact specified in the operational programme. Where the nature of the assistance permits, the statistics shall be broken down by sex and by the size of the recipient undertakings. |
| --- | --- |

2.

The Managing Authority and the Monitoring Committee shall carry out monitoring by reference to financial indicators and indicators of implementation, results and impact specified in the operational programme. Where the nature of the assistance permits, the statistics shall be broken down by sex and by the size of the recipient undertakings.

| 3. | The Commission, in partnership with the Member States, shall examine the indicators necessary for monitoring and evaluating the operational programme. |
| --- | --- |

3.

The Commission, in partnership with the Member States, shall examine the indicators necessary for monitoring and evaluating the operational programme.

It should be stated as a principle that all co-financed projects will carry implementation objectives and be subject to the evaluation of results specified in Article 65. Priority-based management is all too likely to produce only general information.

Article 66.2

| 2. | The reports referred to in paragraph 1 shall include the following information in order to obtain a clear view of the implementation of the operational programme:
  (...)






  (j) | the use made of assistance repaid to the Managing Authority or to another public authority during the period of implementation of the operational programme. The breadth of information transmitted to the Commission shall be proportional to the total amount of public expenditure of the operational programme concerned. |
| --- | --- | --- |

2.

The reports referred to in paragraph 1 shall include the following information in order to obtain a clear view of the implementation of the operational programme:

(...)

(j)

the use made of assistance repaid to the Managing Authority or to another public authority during the period of implementation of the operational programme. The breadth of information transmitted to the Commission shall be proportional to the total amount of public expenditure of the operational programme concerned.

(...)

The exact relationship between the breadth of information submitted and the amount of public expenditure should be clarified.

Article 73

| 1. | For programmes for which the level of co-financing from Community funds does not exceed 33 % of public expenditure under the operational programme and the amount of the Funds does not exceed EUR 250 million, the provisions referred to in Article 61 points (c), (d), and (e)(i) do not apply. |
| --- | --- |

1.

For programmes for which the level of co-financing from Community funds does not exceed 33 % of public expenditure under the operational programme and the amount of the Funds does not exceed EUR 250 million, the provisions referred to in Article 61 points (c), (d), and (e)(i) do not apply.

| 2. | For the programmes referred to in paragraph 1, the Member State may exercise the option to establish according to national rules the bodies and procedures for carrying out the functions laid down in Articles 59(b), and in Articles 60 and 61. Where a Member State exercises this option, the provisions of Article 58(1)(b) and (c), and of Article 60(1)(c) shall not apply. When the Commission adopts the implementing rules of Articles 59, 60 and 61, it shall specify the provisions which shall not apply to those Member States which exercise the option referred to in the first subparagraph. |
| --- | --- |

2.

For the programmes referred to in paragraph 1, the Member State may exercise the option to establish according to national rules the bodies and procedures for carrying out the functions laid down in Articles 59(b), and in Articles 60 and 61. Where a Member State exercises this option, the provisions of Article 58(1)(b) and (c), and of Article 60(1)(c) shall not apply. When the Commission adopts the implementing rules of Articles 59, 60 and 61, it shall specify the provisions which shall not apply to those Member States which exercise the option referred to in the first subparagraph.

| 3. | Article 70(3) shall apply, mutatis mutandis, where a Member State exercises the option referred to in paragraph 2, first subparagraph. |
| --- | --- |

3.

Article 70(3) shall apply, mutatis mutandis, where a Member State exercises the option referred to in paragraph 2, first subparagraph.

| 4. | For all operational programmes referred to in paragraph 1, and irrespective of whether a Member State exercises the option referred to paragraph 2, where the opinion on the compliance of the system has no reservations, or where all reservations have been withdrawn following corrective measures, the Commission may inform the Member State concerned that it will rely principally on the opinion provided by the Audit Authority, or the body designated by the Member State where it has exercised the option referred to, as to the correctness, legality and regularity of expenditure declared and will carry out its own on-the-spot audits only in exceptional circumstances. In the event that there are indications of irregularities which have not been detected in a timely way by the national audit authorities or which have not been subject to appropriate corrective measures, the Commission may require the Member State to carry out audits in accordance with Article 71(3) or it may carry out its own audits under Article 71(2) in order to obtain assurance on the correctness, legality and regularity of expenditures declared. |
| --- | --- |

4.

For all operational programmes referred to in paragraph 1, and irrespective of whether a Member State exercises the option referred to paragraph 2, where the opinion on the compliance of the system has no reservations, or where all reservations have been withdrawn following corrective measures, the Commission may inform the Member State concerned that it will rely principally on the opinion provided by the Audit Authority, or the body designated by the Member State where it has exercised the option referred to, as to the correctness, legality and regularity of expenditure declared and will carry out its own on-the-spot audits only in exceptional circumstances. In the event that there are indications of irregularities which have not been detected in a timely way by the national audit authorities or which have not been subject to appropriate corrective measures, the Commission may require the Member State to carry out audits in accordance with Article 71(3) or it may carry out its own audits under Article 71(2) in order to obtain assurance on the correctness, legality and regularity of expenditures declared.

In theory, this simplified procedure would apply during the 2000 to 2006 period to 33 programmes in 10 Member States, for Community aid worth a total of 3 800 million euro (2 % of the Community aid budget for 2000 to 2006). This clause encourages Member States to take advantage of the associated simplification measures, and it could therefore concern more programmes than would in theory be calculated for the current programming period. Of particular interest in this connection is the exemption from the need to submit an audit strategy and an annual control report (Article 61(1)), the possibility of designating management and control bodies on the basis of national legislation (Articles 59 to 61) and the exemption from the need to designate certifying and audit authorities (Article 58(1)). Furthermore, when the report of the body stating compliance with the systems has been accepted by the Commission, the latter will carry out checks in exceptional cases only.

Article 73.2

| 2. | For the programmes referred to in paragraph 1, the Member State may exercise the option to establish according to national rules the bodies and procedures for carrying out the functions laid down in Articles 59(b), and in Articles 60 and 61. Where a Member State exercises this option, the provisions of Article 58(1)(b) and (c), and of Articles 60(1)(c) shall not apply. When the Commission adopts the implementing rules of Articles 59, 60 and 61, it shall specify the provisions which shall not apply to those Member States which exercise the option referred to in the first subparagraph. |
| --- | --- |

2.

For the programmes referred to in paragraph 1, the Member State may exercise the option to establish according to national rules the bodies and procedures for carrying out the functions laid down in Articles 59(b), and in Articles 60 and 61. Where a Member State exercises this option, the provisions of Article 58(1)(b) and (c), and of Articles 60(1)(c) shall not apply. When the Commission adopts the implementing rules of Articles 59, 60 and 61, it shall specify the provisions which shall not apply to those Member States which exercise the option referred to in the first subparagraph.

It should be possible to assess all the implications of the option of the first indent, and it is therefore not justified to refer to later implementing rules to specify which provisions will not apply.

Article 73.4

| 4. | For all operational programmes referred to in paragraph 1, and irrespective of whether a Member State exercises the option referred to paragraph 2, where the opinion on the compliance of the system has no reservations, or where all reservations have been withdrawn following corrective measures, the Commission may inform the Member State concerned that it will rely principally on the opinion provided by the Audit Authority, or the body designated by the Member State where it has exercised the option referred to, as to the correctness, legality and regularity of expenditure declared and will carry out its own on-the-spot audits only in exceptional circumstances.
  In the event that there are indications of irregularities which have not been detected in a timely way by the national audit authorities or which have not been subject to appropriate corrective measures, the Commission may require the Member State to carry out audits in accordance with Article 71(3) or it may carry out its own audits under Article 71(2) in order to obtain assurance on the correctness, legality and regularity of expenditures declared. |
| --- | --- |

4.

For all operational programmes referred to in paragraph 1, and irrespective of whether a Member State exercises the option referred to paragraph 2, where the opinion on the compliance of the system has no reservations, or where all reservations have been withdrawn following corrective measures, the Commission may inform the Member State concerned that it will rely principally on the opinion provided by the Audit Authority, or the body designated by the Member State where it has exercised the option referred to, as to the correctness, legality and regularity of expenditure declared and will carry out its own on-the-spot audits only in exceptional circumstances.

In the event that there are indications of irregularities which have not been detected in a timely way by the national audit authorities or which have not been subject to appropriate corrective measures, the Commission may require the Member State to carry out audits in accordance with Article 71(3) or it may carry out its own audits under Article 71(2) in order to obtain assurance on the correctness, legality and regularity of expenditures declared.

The phrase ‘‘in a timely way’’ should be replaced with an exact deadline.

Article 79

Member States shall satisfy themselves that the body responsible for making the payments ensures that the beneficiaries receive the total amount of the contribution from public funds as quickly as possible and in full. No amounts shall be deducted or withheld, nor any further specific charge or other charge with equivalent effect shall be levied that would reduce these amounts for the beneficiaries.

The phrase ‘as quickly as possible’ should be replaced with an exact deadline.

Article 85.2

| 2. | If one of the conditions referred to in paragraph 1 is not met, the Member State and the certification authority shall be informed as soon as possible by the Commission that the payment request is unacceptable. |
| --- | --- |

2.

If one of the conditions referred to in paragraph 1 is not met, the Member State and the certification authority shall be informed as soon as possible by the Commission that the payment request is unacceptable.

The phrase ‘as soon as possible’ should be replaced with an exact deadline.

Article 90.1

| 1. | The Commission shall decide to withhold from interim payments 20 % of the sums to be reimbursed by the Commission where the essential elements of the corrective action plan referred to in Article 70(3) have been implemented and the serious deficiencies referred to in the annual report by the audit authority for the programme referred to in Article 61, point (e)(i), have been rectified but amendments still need to be made to give the Commission reasonable assurance regarding the management and control systems. |
| --- | --- |

1.

The Commission shall decide to withhold from interim payments 20 % of the sums to be reimbursed by the Commission where the essential elements of the corrective action plan referred to in Article 70(3) have been implemented and the serious deficiencies referred to in the annual report by the audit authority for the programme referred to in Article 61, point (e)(i), have been rectified but amendments still need to be made to give the Commission reasonable assurance regarding the management and control systems.

Mention should also be made of the opinion referred to in Article 61(1)(e)(ii).

Article 96.1

| 1. | The Commission shall inform the Member State and the authorities concerned in good time whenever there is a risk of application of the automatic decommitment provided for in Article 92. The Commission shall inform the Member State and the authorities concerned of the amount of the automatic decommitment resulting from the information in its possession.
  The Member State shall have two months' time from the date of receipt of that information to agree to the amount or submit its observations. The Commission shall carry out the automatic decommitment not later than nine months after the time limit referred to in Article 92. |
| --- | --- |

1.

The Commission shall inform the Member State and the authorities concerned in good time whenever there is a risk of application of the automatic decommitment provided for in Article 92. The Commission shall inform the Member State and the authorities concerned of the amount of the automatic decommitment resulting from the information in its possession.

The Member State shall have two months' time from the date of receipt of that information to agree to the amount or submit its observations. The Commission shall carry out the automatic decommitment not later than nine months after the time limit referred to in Article 92.

What is meant by ‘in good time’ should be clarified.

Article 97

| 1. | Partial closure of operational programmes may be made at periods selected by the Member State.
  Partial closure shall relate to completed operations for which a final payment has been made to the beneficiary not later than 31 December of year n-1. For the purposes of this Regulation, operations shall be deemed completed where the activities under it have been actually carried out and the beneficiary has received a final payment or the beneficiary has provided a document of equivalent effect to the managing authority. |
| --- | --- |

1.

Partial closure of operational programmes may be made at periods selected by the Member State.

Partial closure shall relate to completed operations for which a final payment has been made to the beneficiary not later than 31 December of year n-1. For the purposes of this Regulation, operations shall be deemed completed where the activities under it have been actually carried out and the beneficiary has received a final payment or the beneficiary has provided a document of equivalent effect to the managing authority.

| 2. | The amount of payments corresponding to completed operations shall be identified in the statements of expenditure.
  Partial closure shall be made on condition that the managing authority sends the following to the Commission by 30 June of year n:






  a) | a statement of expenditure relating to those operations; |
| --- | --- | --- |

2.

The amount of payments corresponding to completed operations shall be identified in the statements of expenditure.

Partial closure shall be made on condition that the managing authority sends the following to the Commission by 30 June of year n:

a)

a statement of expenditure relating to those operations;

| b) | a statement certifying the legality and regularity of the transactions concerned by the statement of expenditure, issued by the audit authority for the programme referred to in Article 61. |
| --- | --- |

b)

a statement certifying the legality and regularity of the transactions concerned by the statement of expenditure, issued by the audit authority for the programme referred to in Article 61.

It is important that the procedures provided for in the area of partial closures supply the same degree of assurance regarding the legality and regularity of expenditure as that which would result from the declaration on the final closure of the operational programme, in particular as regards the intensity and extent of the checks.

This Opinion was adopted by the Court of Auditors in Luxembourg on 18 March 2005.

For the Court of Auditors

Hubert WEBER

President

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(1)  OJ L 248, 16.9.2002.

1

(2)  Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 (OJ L 357, 31.12.2002).

2

(3)  COM(2004) 492 final of 14 July 2004.

3

(4)  SEC(2004) 924 of 14 July 2004.

4

(5)  COM(2004) 580 final of 6 September 2004.

5

(6)  COM(2004) 101 final of 10 February 2004.

6

(7)  COM(2004) 487 final of 14 July 2004.

7

(8)  OJ C 107, 30.4.2004.

8

(9)  Article 53(3) of the Financial Regulation applicable to the general budget of the European Communities.

9

(10)  See Opinion No 10/98 on certain proposals for regulation within the Agenda 2000 framework (Structural Funds, point 6.3) (OJ C 401, 22.12.1998).

10

(11)  For example Articles 57(d), (f) and (h), 61(1)(a), 70(1), 71(2) and 72(2).

11

(12)  See for example Special Report No 10/2001 (OJ C 314, 8.11.2001), concerning the financial control of the Structural Funds and Special Report No 7/2003 (OJ C 174, 23.7.2004), on the implementation of assistance programming for the period 2000 to 2006 within the framework of the Structural Funds.

12

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