# C_2011366EN.01011201.xml

| 15.12.2011 | EN | Official Journal of the European Union | C 366/112 |
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15.12.2011

EN

Official Journal of the European Union

C 366/112

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REPORT

on the annual accounts of the European GNSS Agency for the financial year 2010, together with the Agency’s replies

2011/C 366/20

INTRODUCTION

INTRODUCTION

| 1. | The European GNSS (Global Navigation Satellite System) Agency (hereinafter ‘the Agency’), which is located in Brussels, was set up by Council Regulation (EC) No 1321/2004 of 12 July 2004 (1) to manage the public interests relating to the European GNSS programmes and to act as the regulatory agency for the programme during the deployment and operational phases of the Galileo Programme. Regulation (EC) No 683/2008 of the European Parliament and of the Council of 9 July 2008 (2) reduced the responsibilities of the Agency to the control of the security of Galileo systems and to the preparation of their commercialisation. The Agency was previously known, until 2010, as the European GNSS Supervisory Authority (3). |
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1.

The European GNSS (Global Navigation Satellite System) Agency (hereinafter ‘the Agency’), which is located in Brussels, was set up by Council Regulation (EC) No 1321/2004 of 12 July 2004 (1) to manage the public interests relating to the European GNSS programmes and to act as the regulatory agency for the programme during the deployment and operational phases of the Galileo Programme. Regulation (EC) No 683/2008 of the European Parliament and of the Council of 9 July 2008 (2) reduced the responsibilities of the Agency to the control of the security of Galileo systems and to the preparation of their commercialisation. The Agency was previously known, until 2010, as the European GNSS Supervisory Authority (3).

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| 2. | The Agency’s 2010 adopted budget amounted to 15,9 million euro, compared with 44,4 million euro the previous year. The number of staff employed by the Agency at the end of the year was 42, compared with 35 the previous year. |
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2.

The Agency’s 2010 adopted budget amounted to 15,9 million euro, compared with 44,4 million euro the previous year. The number of staff employed by the Agency at the end of the year was 42, compared with 35 the previous year.

STATEMENT OF ASSURANCE

STATEMENT OF ASSURANCE

| 3. | Pursuant to the provisions of Article 287(1), second subparagraph, of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (4) of the Agency, which comprise the ‘financial statements’ (5) and the ‘reports on the implementation of the budget’ (6) for the financial year ended 31 December 2010, and the legality and regularity of the transactions underlying those accounts. |
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3.

Pursuant to the provisions of Article 287(1), second subparagraph, of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (4) of the Agency, which comprise the ‘financial statements’ (5) and the ‘reports on the implementation of the budget’ (6) for the financial year ended 31 December 2010, and the legality and regularity of the transactions underlying those accounts.

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| 4. | This Statement of Assurance is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (7). |
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This Statement of Assurance is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (7).

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The Director’s responsibility

The Director’s responsibility

| 5. | As authorising officer, the Director implements the revenue and expenditure of the budget in accordance with the financial rules of the Agency, under his own responsibility and within the limits of the authorised appropriations (8). The Director is responsible for putting in place (9) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (10) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular. |
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5.

As authorising officer, the Director implements the revenue and expenditure of the budget in accordance with the financial rules of the Agency, under his own responsibility and within the limits of the authorised appropriations (8). The Director is responsible for putting in place (9) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (10) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular.

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The Court’s responsibility

The Court’s responsibility

| 6. | The Court’s responsibility is to provide, on the basis of its audit, a statement of assurance as to the reliability of the annual accounts of the Agency and the legality and regularity of the transactions underlying them. |
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6.

The Court’s responsibility is to provide, on the basis of its audit, a statement of assurance as to the reliability of the annual accounts of the Agency and the legality and regularity of the transactions underlying them.

| 7. | The Court conducted its audit in accordance with the IFAC and ISSAI (11) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical requirements and to plan and perform the audit so as to obtain reasonable assurance as to whether the accounts are free of material misstatement and whether the underlying transactions are legal and regular. |
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7.

The Court conducted its audit in accordance with the IFAC and ISSAI (11) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical requirements and to plan and perform the audit so as to obtain reasonable assurance as to whether the accounts are free of material misstatement and whether the underlying transactions are legal and regular.

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| 8. | The Court’s audit involves performing procedures to obtain audit evidence of the amounts and disclosures in the accounts and of the legality and regularity of the transactions underlying them. The procedures selected, including its assessment of the risks of material misstatement of the accounts or of illegal or irregular transactions, whether due to fraud or error, depend on its audit judgement. In making those risk assessments, internal controls relevant to the entity’s preparation and presentation of accounts are considered in order to design audit procedures that are appropriate in the circumstances. The Court’s audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the accounts. |
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8.

The Court’s audit involves performing procedures to obtain audit evidence of the amounts and disclosures in the accounts and of the legality and regularity of the transactions underlying them. The procedures selected, including its assessment of the risks of material misstatement of the accounts or of illegal or irregular transactions, whether due to fraud or error, depend on its audit judgement. In making those risk assessments, internal controls relevant to the entity’s preparation and presentation of accounts are considered in order to design audit procedures that are appropriate in the circumstances. The Court’s audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the accounts.

| 9. | The Court believes that the audit evidence obtained is sufficient and appropriate to provide a basis for its qualified opinion on the reliability of the accounts and its opinion on the legality and regularity of the transactions underlying the accounts. |
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9.

The Court believes that the audit evidence obtained is sufficient and appropriate to provide a basis for its qualified opinion on the reliability of the accounts and its opinion on the legality and regularity of the transactions underlying the accounts.

Basis for a qualified opinion on the reliability of the accounts

Basis for a qualified opinion on the reliability of the accounts

| 10. | During 2010 the Agency purchased tangible fixed assets (12) related to the Galileo programme (13) in the amount of 4,4 million euro. These assets are due to be transferred by the Agency to the European Commission. These assets have been recorded as research expenditure but should have instead been classified as assets held for transfer. The result of this transaction is an understatement of assets in the amount of 4,4 million euro and an understatement of the economic outturn account by the same amount. |
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10.

During 2010 the Agency purchased tangible fixed assets (12) related to the Galileo programme (13) in the amount of 4,4 million euro. These assets are due to be transferred by the Agency to the European Commission. These assets have been recorded as research expenditure but should have instead been classified as assets held for transfer. The result of this transaction is an understatement of assets in the amount of 4,4 million euro and an understatement of the economic outturn account by the same amount.

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Qualified opinion on the reliability of the accounts

Qualified opinion on the reliability of the accounts

| 11. | In the Court’s opinion, except for the effect of the matter described in paragraph 10, the Agency’s Annual Accounts (14) fairly present, in all material respects, its financial position as of 31 December 2010 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation. |
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11.

In the Court’s opinion, except for the effect of the matter described in paragraph 10, the Agency’s Annual Accounts (14) fairly present, in all material respects, its financial position as of 31 December 2010 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation.

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Opinion on the legality and the regularity of the transactions underlying the accounts

Opinion on the legality and the regularity of the transactions underlying the accounts

| 12. | In the Court’s opinion, the transactions underlying the annual accounts of the Agency for the financial year ended 31 December 2010 are, in all material respects, legal and regular. |
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12.

In the Court’s opinion, the transactions underlying the annual accounts of the Agency for the financial year ended 31 December 2010 are, in all material respects, legal and regular.

| 13. | The comments which follow do not call the Court’s opinions into question. |
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13.

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

BUDGETARY AND FINANCIAL MANAGEMENT

BUDGETARY AND FINANCIAL MANAGEMENT

| 14. | As regards the Seventh Framework Programme/Galileo/Second Call grant procedures with a budget of 26 million euro, the evaluation process did not clearly distinguish between selection and award criteria. Criteria for assessing the applicants’ financial capacity were not defined. Although the status of the applicant determined the maximum reimbursement rate, such status was not verified by the Agency. |
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14.

As regards the Seventh Framework Programme/Galileo/Second Call grant procedures with a budget of 26 million euro, the evaluation process did not clearly distinguish between selection and award criteria. Criteria for assessing the applicants’ financial capacity were not defined. Although the status of the applicant determined the maximum reimbursement rate, such status was not verified by the Agency.

| 15. | As regards the Sixth Framework Programme (FP6)/ Third Call, in two grant agreements audited, the cost claims submitted by the beneficiaries were based on standard rates, instead of actual costs. This was not in compliance with the non-profit principle for EU financial contributions. |
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15.

As regards the Sixth Framework Programme (FP6)/ Third Call, in two grant agreements audited, the cost claims submitted by the beneficiaries were based on standard rates, instead of actual costs. This was not in compliance with the non-profit principle for EU financial contributions.

| 16. | Five audited grants, related mainly to the Sixth Framework Programme, showed delays of between one and three years for their implementation. Successive increases in the initial value of the contracts were noted. |
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16.

Five audited grants, related mainly to the Sixth Framework Programme, showed delays of between one and three years for their implementation. Successive increases in the initial value of the contracts were noted.

| 17. | Following the entry into force of Regulation (EC) No 683/2008, most of the activities and assets related to the EGNOS and Galileo programmes were transferred to the Commission in December 2009. At 31 December 2010, the status of 2 million euro held by the Agency in respect of technical support from the European Space Agency had still to be determined. |
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17.

Following the entry into force of Regulation (EC) No 683/2008, most of the activities and assets related to the EGNOS and Galileo programmes were transferred to the Commission in December 2009. At 31 December 2010, the status of 2 million euro held by the Agency in respect of technical support from the European Space Agency had still to be determined.

OTHER MATTERS

OTHER MATTERS

| 18. | In the staff selection procedures audited, threshold scores were not determined for admission to written tests and interviews or for inclusion in the list of suitable candidates. These practices jeopardised the transparency of the recruitment procedures. |
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18.

In the staff selection procedures audited, threshold scores were not determined for admission to written tests and interviews or for inclusion in the list of suitable candidates. These practices jeopardised the transparency of the recruitment procedures.

This Report was adopted by Chamber IV, headed by Mr Igors LUDBORŽS, Member of the Court of Auditors, in Luxembourg at its meeting of 25 October 2011.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President

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(1)  OJ L 246, 20.7.2004, p. 1.

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(2)  OJ L 196, 24.7.2008, p. 1.

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(3)  The Annex summarises the Agency's competences and activities. It is presented for information purposes.

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Annex

(4)  These accounts are accompanied by a report on the budgetary and financial management during the year which gives inter alia an account of the rate of implementation of the appropriations, with summary information on the transfers of appropriations among the various budget items.

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(5)  The financial statements include the balance sheet and the economic outturn account, the cash-flow table, the statement of changes in capital and the annex to the financial statements, which includes a description of the main accounting policies and other explanatory information.

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(6)  The budget implementation reports comprise the budget outturn account and its annex.

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(7)  OJ L 248, 16.9.2002, p. 1.

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(8)  Article 33 of Commission Regulation (EC, Euratom) No 2343/2002 (OJ L 357, 31.12.2002, p. 72).

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(9)  Article 38 of Regulation (EC, Euratom) No 2343/2002.

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(10)  The rules concerning the presentation of the accounts and accounting by the Agencies are laid down in Chapter 1 of Title VII of Regulation (EC, Euratom) No 2343/2002 as last amended by Regulation (EC, Euratom) No 652/2008 (OJ L 181, 10.7.2008, p. 23) and are integrated as such in the Financial Regulation of the Agency.

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(11)  International Federation of Accountants (IFAC) and International Standards of Supreme Audit Institutions (ISSAI).

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(12)  Satellite magnetotorquers, satellite propulsion thrusters, satellite fuel tanks (In Orbit Validation) and ground rubidium atomic clocks (Full Operational Capability).

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(13)  Regulation (EC) No 683/2008 on the further implementation of European satellite navigation programmes (EGNOS and Galileo).

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(14)  The Final Annual Accounts were drawn up on 16 September 2011 and received by the Court on 3 October 2011. The Final Annual Accounts can be found on the following website http://eca.europa.eu or http://www.gsa.europa.eu

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ANNEX

European GNSS Agency (Brussels)

Competences and activities

| Areas of Union competence deriving from the Treaty | — | Competitiveness for growth and employment. |
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Areas of Union competence deriving from the Treaty

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Competitiveness for growth and employment.

Competences of the Agency

(Regulation (EU) No 912/2010 of the European Parliament and of the Council of 22 September 2010)

Objectives

| — | To manage the public interests relating to the European GNSS programmes. |
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To manage the public interests relating to the European GNSS programmes.

| — | To be the regulatory agency for the European GNSS programmes. |
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To be the regulatory agency for the European GNSS programmes.

Tasks

The Agency shall:

| (a) | ensure security accreditation and the operation of the Galileo security centre; |
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(a)

ensure security accreditation and the operation of the Galileo security centre;

| (b) | contribute to the preparation of the commercialisation of the systems, including the necessary market analysis; |
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(b)

contribute to the preparation of the commercialisation of the systems, including the necessary market analysis;

| (c) | accomplish other tasks that may be entrusted to it by the Commission. |
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(c)

accomplish other tasks that may be entrusted to it by the Commission.

Governance

1 —   Administrative Board

Composition

| — | one representative per Member State, |
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one representative per Member State,

| — | one representative from the Commission. |
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one representative from the Commission.

Tasks

| — | appoints the Director, |
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appoints the Director,

| — | adopts the annual work programme, |
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adopts the annual work programme,

| — | adopts the budget, |
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adopts the budget,

| — | adopts the annual report on the activities and prospects of the Agency. |
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adopts the annual report on the activities and prospects of the Agency.

2 —   Executive Director

Appointed by the Administrative Board.

3 —   System Safety and Security Committee

Composed of one representative per Member State and one representative from the Commission.

4 —   External audit

Court of Auditors.

5 —   Discharge Authority

Parliament, acting on a recommendation from the Council.

Resources made available to the Agency in 2010 (2009)

Final Budget

15,9 (44,4) million euro; this consists of the EU subsidy of 8,7 (7,4) million euro, which is the operating subsidy from the Commission, and 7,2 (37) million euro in operational funds from the Commission.

Staff as at 31 December 2010 (2009)

28 (23) provided for in the establishment plan, of which occupied: 26 (23)

- 14 (12) other staff (contract staff, seconded national experts), of which occupied: 14 (12)

Total staff foreseen: 42 (35)

Total staff in employment as at 31 December 2010: 40 (35), undertaking the following tasks:

| | operational: 18 (14) |
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operational: 18 (14)

| | administrative: 14 (12) |
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administrative: 14 (12)

| | mixed: 8 (9) |
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mixed: 8 (9)

Products and services in 2010

Programmes

| — | Support to the European Commission in the implementation of the EGNOS and Galileo programmes. |
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Support to the European Commission in the implementation of the EGNOS and Galileo programmes.

Systems Security

| — | Galileo and EGNOS Systems Security. |
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Galileo and EGNOS Systems Security.

| — | Public Regulated Service (PRS) preparation of the PRS User Segment. |
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Public Regulated Service (PRS) preparation of the PRS User Segment.

| — | Galileo Security Monitoring Centre. |
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Galileo Security Monitoring Centre.

| — | GNSS Technology Control Regime. |
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GNSS Technology Control Regime.

Market development

| — | EGNOS Market Entry. |
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EGNOS Market Entry.

| — | International activities (Latin America, Israel, China, Africa). |
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International activities (Latin America, Israel, China, Africa).

| — | Information and outreach (EGNOS Information Portal, ‘Growing Galileo 2009’ event). |
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Information and outreach (EGNOS Information Portal, ‘Growing Galileo 2009’ event).

Research and development

| — | Management of projects under the Sixth Framework Programme and the Seventh Framework Programme (first and second calls) for research. |
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Management of projects under the Sixth Framework Programme and the Seventh Framework Programme (first and second calls) for research.

| — | Implementation/update of a web-based knowledge management and dissemination tool. |
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Implementation/update of a web-based knowledge management and dissemination tool.

Source: Information supplied by the Agency.

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THE AGENCY'S REPLIES

| 10. | The GSA did not record this equipment as assets in its accounts for the following reasons: (i) the objective of the IOV/FOC phase is to assess the technical feasibility of the system, which was not validated in 2010; (ii) according to the Matimop Arrangement the equipment was never intended to be acquired by the GSA and was never and shall never be in GSA’s control; (iii) from an accounting perspective it was found not prudent to recognise an asset without any economic benefit/value for the GSA; (iv) based on the above and in line with a Commission’s consistent accounting practice in such a situation, the costs for the equipment were booked as research expenditure in 2010. |
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10.

The GSA did not record this equipment as assets in its accounts for the following reasons: (i) the objective of the IOV/FOC phase is to assess the technical feasibility of the system, which was not validated in 2010; (ii) according to the Matimop Arrangement the equipment was never intended to be acquired by the GSA and was never and shall never be in GSA’s control; (iii) from an accounting perspective it was found not prudent to recognise an asset without any economic benefit/value for the GSA; (iv) based on the above and in line with a Commission’s consistent accounting practice in such a situation, the costs for the equipment were booked as research expenditure in 2010.

| 14. | GSA follows standard FP7 evaluation processes, which stipulate a set of eligibility criteria and another set of evaluation criteria. However, the GSA is currently revising the latest FP7 Commission guidelines and rules to ensure absolute compliance ahead of the signature of the third call FP7 grant agreements.
  Although standardised financial capacity checks were performed, they were not documented appropriately. The GSA is upgrading the internal procedures to ensure that every any financial capacity check is filed accordingly. |
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GSA follows standard FP7 evaluation processes, which stipulate a set of eligibility criteria and another set of evaluation criteria. However, the GSA is currently revising the latest FP7 Commission guidelines and rules to ensure absolute compliance ahead of the signature of the third call FP7 grant agreements.

Although standardised financial capacity checks were performed, they were not documented appropriately. The GSA is upgrading the internal procedures to ensure that every any financial capacity check is filed accordingly.

| 15. | The grant agreements managed by the GSA for FP6 had been inherited from the predecessor of the GSA, the Galileo Joint Undertaking (GJU). The GJU and the European Space Agency (ESA) had established their FP6 rules, slightly different from the European Commission rules. The remaining open FP6 grant agreements have to be closed following the stipulations within these contracts, which were based on the standard rates used and verified ex ante by the ESA. |
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15.

The grant agreements managed by the GSA for FP6 had been inherited from the predecessor of the GSA, the Galileo Joint Undertaking (GJU). The GJU and the European Space Agency (ESA) had established their FP6 rules, slightly different from the European Commission rules. The remaining open FP6 grant agreements have to be closed following the stipulations within these contracts, which were based on the standard rates used and verified ex ante by the ESA.

| 16. | Successive increases in the initial value of some FP6 grants usually were agreed for taking into account additional tasks to be performed by the beneficiary.
  As long as new actions were considered of importance, via documented work packages, the grant agreements were amended to support the new tasks to be developed. This is not a rare event in EU grant management.
  The technological leading-edge nature of the activities, subject to constant change, was the fundamental reason for deciding on these amendments and extensions (not necessarily delays). |
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16.

Successive increases in the initial value of some FP6 grants usually were agreed for taking into account additional tasks to be performed by the beneficiary.

As long as new actions were considered of importance, via documented work packages, the grant agreements were amended to support the new tasks to be developed. This is not a rare event in EU grant management.

The technological leading-edge nature of the activities, subject to constant change, was the fundamental reason for deciding on these amendments and extensions (not necessarily delays).

| 17. | The GSA respected all contractual and legal obligations in relation to the ‘Technical ESA-Official Request No 7’. The GSA had to finally reject the request for payment by the European Space Agency (ESA) to the amount of 2 million euro, because ESA did not provide the reports required to constitute the achievement of payment milestones. Accordingly, the unused funds had to be transferred to the European Commission with the obligation to use these funds for the implementation of the IOV agreement between ESA and the GSA. The transfer is to be finalised in September 2011. |
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17.

The GSA respected all contractual and legal obligations in relation to the ‘Technical ESA-Official Request No 7’. The GSA had to finally reject the request for payment by the European Space Agency (ESA) to the amount of 2 million euro, because ESA did not provide the reports required to constitute the achievement of payment milestones. Accordingly, the unused funds had to be transferred to the European Commission with the obligation to use these funds for the implementation of the IOV agreement between ESA and the GSA. The transfer is to be finalised in September 2011.

| 18. | The GSA has revised the selection procedure. Since 2011, the pre-selection panel determines the threshold scores before the written tests are completed and before the interviews have taken place. |
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The GSA has revised the selection procedure. Since 2011, the pre-selection panel determines the threshold scores before the written tests are completed and before the interviews have taken place.

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