# EUR-Lex - 52012DC0080 - EN

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# 52012DC0080

**REPORT FROM THE COMMISSION Member States' Replies to the Court of Auditors' 2010 Annual Report /* COM/2012/080 final */**

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TABLE
OF CONTENTS

1.     Scope
of the Report 2

2.     Presentation of the Report and DAS
2010 Findings. 2

2.1   Presentation of the Court's
2010 report 2

2.2   DAS 2010 findings for the policy
groups. 3

3.     Improvements
made  in Shared management by Member States - Revenue  and Agriculture and
Natural Resources. 4

3.1   Revenue. 5

3.2   Agriculture and natural
resources. 5

4.     Improvements 
made by Member States in shared management - Cohesion, energy and transport 7

4.1   Reinforced guidance and
trainings. 7

4.2   Simplification. 9

5.     Conclusion. 10

REPORT FROM THE COMMISSION

Member
States' Replies to the Court of Auditors' 2010 Annual Report

1.           Scope of the Report

The Financial Regulation applicable to the
General Budget of the European Union  states in article 143(6) that as soon as
the Court of Auditors (the Court) has transmitted the Annual Report, the
Commission shall inform the Member States concerned immediately of the details
of that report which relate to management of the funds for which they are
responsible, under the rules applicable. Member States should reply to the
Commission within sixty days and the Commission transmits a summary of the
replies to the Court of Auditors, the European Parliament and the Council
before 28 February[1]of
the following year.

Following publication on 10 November 2011 of
the Court's Annual Report for the budgetary year 2010, the Commission duly
informed Member States of details of the report. This information was presented
in the form of a letter and three questionnaires (presented as annexes) which
Member States were required to complete : Annex I was a questionnaire on
the paragraphs in the report referring to  individual Member States; Annex II
was a questionnaire on the audit findings which refer to each individual Member
State and Annex III was a questionnaire on general findings related to
the policies and programmes under shared management.

This report is an analysis of the Member
States' replies and is accompanied by a Staff Working Document (SWD) which
comprises the Member States' replies to Annex I and Annex III.

2.           Presentation
of the Report and DAS 2010 Findings

2.1         Presentation of
the Court's 2010 report

In its 2010 report, the Court made further
changes to the presentation. Firstly, there have been modifications to the
policy groups and corresponding chapters, and a new chapter on performance
issues (Chapter 8) which reflects the importance of the economy, efficiency and
effectiveness of EU spending, has also been introduced.

Secondly, the Court has further highlighted
recommendations, by reporting in detail on the follow up to its previous
recommendations for each policy group. Finally, the results of transaction
testing have been reported with greater clarity and the estimated error rates
for each policy group, as well as for the budget as a whole have been provided
by the Court.

Concerning the error rates, in its audit
methodology for DAS year 2010, the Court has provided a clear definition of the
terminology used:

"The MLE (most
likely error rate) is the weighted average of the percentage error rates
found in the sample. The Court also estimates, again using standard statistical
techniques, the range within which it is 95 % confident that the rate of
error for the population lies in each specific assessment (and for spending as
whole). This is the range between the lower error limit (LEL) and the upper
error limit (UEL)[2]".

Table 1 below provides details of the MLE,
LEL, and UEL per chapter for the DAS year 2010.

Source:
ECA Report 2010 - Table 1. 2 Summary of findings on
regularity of transactions p 18

2.2         DAS 2010 findings for the policy
groups

For the DAS year 2010, the Court found that the
accounts presented fairly the financial position of the European Union, the
results of its operations and its cash flows and that they were free from material
error. With regard to Revenue (Chapter 2), the Court also noted that
transactions were free of material error and control systems were effective. Commitments
in all policy groups were also free from material error.[3]The Court concluded that payments for the policy area Administration
and other expenditure (Chapter 7) were on the whole free of material error and
that the systems were effective in ensuring the regularity of payments.

For Research and internal policies (Chapter 6),
as well as External aid, development and enlargement (Chapter 5), the Court's
audit stated that the two policy areas were overall free of material error and
that control systems were partially effective in ensuring the regularity of
payments. However, for Chapter 6, the Court noted that interim and final
payments for the research FPs were subject to material error. Also in Chapter
5, interim and final payments were subject to material error[4].

In Cohesion, energy and transport (Chapter 4)
and Agriculture and natural resources (Chapter 3), the Court concluded that
payments were materially affected by error, although in the case of policy area
Agriculture and natural resources, direct payments to farmers covered by the
IACS[5], were free from material error.
In both policy areas the systems were partially effective[6].

Overall, as demonstrated in the Court's graph
below, in the past five years the trend for the most likely error rate for the
budget as a whole has been steadily downwards. However, for 2010, progress in a
number of domains has not compensated for a moderate increase in Cohesion,
thereby resulting in a small overall increase for the budget as a whole[7].

Source: ECA Report
2010 - Graph 1.1 Evolution of the Court's estimate of the most likely error
rate for the audited population of payments (2006-2010)

3.           Improvements
made  in Shared management by Member States- Revenue  and Agriculture and
Natural Resources.

As mentioned in the introduction, in addition
to the letter, the Commission duly provided each Member State with three
annexes: Annex I was a questionnaire on the paragraphs in the
report referring to the individual Member States; Annex II was a questionnaire
on audit findings which refer to the individual Member State and Annex III was
a questionnaire on general findings related to shared management for DAS 2010.
For Annexes I and II, the Member States were requested, where necessary, to
provide details of actions taken to rectify the errors as well as the timing,
content and expected outcome.

This section of the report provides an analysis
of the replies given by Member States to Annex I and Annex II and also question
1 in Annex III which refers to policy area Agriculture and natural resources
(Chapter 3).

Generally all replies from Member States were
received within the scheduled timeline, and although the quality varied
considerably from one Member State to another, in some cases replies were of a
very high standard. In their replies this year, overall, nearly all Member
States reported on and described initiatives for improvement already taken or
to be taken in the future. They also indicated their commitment to ensuring
sound financial management[8]. Member
States recognize their responsibility for improvement in EU fund management and
there were proposals for a more transparent discharge procedure suggesting, for
instance, that comprehensive information on best practices at Member States'
level could be exchanged[9].

3.1         Revenue

In their replies to the Court's specific findings
in policy area Revenue (Chapter 2), Member States indicated that remedial
actions had been taken when necessary. For example, the Court identified
certain weaknesses in the procedures and systems which affect the amounts
included in the B accounts statements in three countries-UK, Italy and the Net herlands[10].  The UK stated that its authorities had accepted the Court's findings and that each specific
finding had been addressed and the Court informed accordingly. The UK authorities stated further that they have rectified the B Account balance and established
new procedures and guidance to prevent a recurrence[11].

With regard to VAT based own resources,
according to the Court's report: "longstanding reservations still exist
but the backlog is being cleared[12]". As of 31/12/2010 there were 152 reservations for all Member
States compared to 167 a year previously.

Seventeen Member States summarised in varying
levels of detail the actions they and the Commission were undertaking to lift
reservations. Eight of these Member States[13] (Cyprus, Finland, Austria, the Czech Republic, Poland, Spain, Lithuania and Latvia) noted that as a result of the activity undertaken since 2010,
at least one reservation has been dropped for their Member State. Denmark, Malta, Poland, Lithuania, Italy, Greece, France and Finland all looked forward
to the lifting of further reservations, either as a result of inspections
during 2011 or from those scheduled for 2012.

3.2         Agriculture
and natural resources

In policy area Agriculture and natural resources
(Chapter 3), the Court highlighted weaknesses of and reported findings on the
Land Parcel Identification Scheme- (LPIS)[14]
- a database in which all the agricultural area (reference
parcels) of the Member State is recorded, including the optional use of
ortho-photos[15]. In Spain (Castilla-La-Mancha and Extremadura) Greece and Romania the Court observed cases of permanent
pasture land recorded in the LPIS as 100% eligible although they were only
partially eligible.

In all three cases the Member States concerned
provided replies. Spain reported that there was currently an action plan in
place to improve LPIS-GIS updating including a new methodology for establishing
the eligibility coefficient of pasture land[16]. Greece indicated that there were measures in place to ensure that only permanent pasture
land was eligible for payments[17]. In
response to the Court's observations, Romania replied that it had completed an
action plan on the quality of LPIS. In addition, it stated that APIA - Agricultural Payments and Interventions Agency – now ensures that non agricultural
areas are not included in the LPIS reference area and the isolated cases
identified are the result of errors in photo interpretation. According to APIA, "where payments are made unduly they are recovered using the procedure in force[18]".

In five Member States - Bulgaria, Netherlands, Greece, Romania and Spain - the Court also identified specific weaknesses in
keeping the LPIS up to date[19]. Four
of the five mentioned by the Court reported that updating the database was an
integral part of their maintenance programme, with Greece and Romania reporting regular annual updates[20]. In
reply to a question in Annex III of the questionnaire on initiatives taken to
improve the management and control systems for agricultural expenditure,
notably in the area of Rural Development, other Member States highlighted the
fact that improvements in LPIS remained a priority. Out of the 22 countries
which replied to the question, 13  outlined concrete examples of initiatives
taken for LPIS improvements. These countries included Ireland, Italy, UK, Portugal, Luxembourg and Poland.

In addition to improvements in the LPIS in
several Member States, the majority of Member States replied that they had
taken initiatives in the last year to further improve the management and control
systems for agricultural expenditure and to enhance the effectiveness of checks
carried out, notably in Rural Development. These improvements included
development and enhancement of various IT systems in many countries. Slovenia
for example stated that the Managing Authority for its Rural Development
Programme for the period 2007-2013 devised the electronic filing
"e-PRP" pilot project for measure 121 - Modernisation of agricultural
holdings in 2010 aimed at speeding up and making more effective the management
of applications. Applicants now make fewer mistakes when preparing their
applications electronically and consequently less time is spent carrying out
administrative checks, which in turn reduces the workload of the paying agency
while ensuring effective controls[21]. Latvia also reported improvements in IT systems, for example a
price catalogue was established within the Rural Development Programme
Information System in order to help compare and assess prices between project
applications submitted[22].

4.           Improvements  made by Member States in shared management- Cohesion, energy and transport

4.1         Reinforced
guidance and training

Annex III of the questionnaire comprised mostly
questions on Cohesion, energy and transport (Chapter 4) and this sub section of
the report provides a detailed analysis of the Member States' replies to these
questions.

The Court noted in its report that for Policy
area Cohesion, energy and transport, Member States could have detected and
corrected at least some of the errors (prior to certifying the expenditure to
the Commission) for 58% of the transactions affected by error[23]. Member States were requested in Annex III to comment on this
finding. Nearly all Member States commented and 63% of Member States replied
that the most efficient means of preventing irregularities from occurring was
with reinforced guidance to beneficiaries. Other means of improvement included
reinforced documentary checks and increased on the spot verifications. Further
suggestions offered by Member States included simplification and clarification
of rules and regulations at both national and EU level (see section 4.1 on
Simplification for  further analysis of simplification as proposed by Member
States). The table below provides details of the number of Member States selecting
a particular option. Some Member States chose more than one option and there
was a majority preference for a combination of (a) reinforced guidance to
beneficiaries and (b) reinforced documentary checks.

Q2 - Cohesion, Energy and Transport

In the Cohesion chapter (§4.25), the Court considers that sufficient information was available for the Member State authorities to have detected and corrected at least some of the errors (prior to certifying the expenditure to the Commission) for 58% of the transaction affected by error. In your opinion, what can be done to improve the situation? || No. of Member States || % of Member States

(a) reinforce guidance to beneficiaries to prevent irregularities from occurring || 18 || 67%

(b) reinforce documentary checks on claims submitted by beneficiaries || 15 || 56%

(c) increase on-the-spot verifications on operations before certification || 11 || 41%

(d) any other suggestions || 7 || 26%

In Cohesion the Court also found that wholly
ineligible projects and ineligible costs accounted for 35% and 33 %
respectively of the estimated error rate for the Chapter. In addition, the
Court also noted that there had been serious failures to respect EU and
national procurement rules and that these failures accounted for 22% of the
estimated error rate[24].

Member States cited training programmes as the
single best means of addressing these key issues. In the case of wholly
ineligible projects, 78% of the Member States stated that more training for
staff in national/regional/managing authorities and intermediate bodies was
required and 56% of them underlined the necessity for the training to be
targeted.

In its reply, Ireland further highlighted the
importance of the issue  by stating that the most efficient way to benefit from
these training programmes would be by ensuring that they were:
''targeted/tailored at the various levels in the financial management and
control cascade with regular follow-up refresher courses[25]". In addition, Germany underlined the challenges of the
training issue by stating that ''covering all areas in training and guidance
where infringements are possible may create considerable difficulties[26]".

Similarly for ineligible costs, a majority of Member
States (78%) highlighted as a solution, guidance and training at the level of
beneficiaries. For public procurement, an even greater number of countries (81%)
selected training for staff of national/regional/managing authorities and
intermediate bodies as the most effective means of improving the situation.

Both Latvia and France stated that they are
currently taking initiatives to complement the training already provided.

Latvia stated in its reply that: ''the
institutions involved in the administration of EU funds work with the Public
Procurement Bureau (PPB) and the State Treasury in order to arrange regular
training for the beneficiaries on procurement matters. From 2012 on,
pre-procurement verifications, apart from the PPB, will be carried out by the responsible
institution/cooperation institution (RI/CI), reducing/preventing infringements
in the area of public procurement[27]".

France proposed that
starting from the first trimester of 2012 training programmes with specific
themes (e.g. eligibility and expenditure) will be organised by the French
Interior Ministry. These training programmes will be made available to staff
from both national and regional managing authorities[28].

In the Cohesion chapter the Court also
highlights several weaknesses found in Audit Authorities in the Member States[29].

Member States demonstrated a clear preference
for two improvement measures (1) the use of detailed checklists which cover all
risks to the regularity of expenditure and (2) specific guidance by the
Commission on the scope of verifications and the extent of the audit checks to
be undertaken, as well as the reporting of findings. The use of standard
sampling methodology and re-structuring of training for the audit authorities
were welcomed by only 7% of Member States.

Apart from the measures suggested in the
questionnaire (Annex III) some additional comments on the subject were also
provided by Member States. Some Member States expressed concerns with regard to
the functioning of audit authorities. For example in its reply, Germany highlighted the "exacting requirements" for audit authorities, but stated
that at the same time there were some areas of uncertainty e.g.: sampling for
small populations. The German authorities concluded that:

"the Commission should in particular work
in partnership (with the audit authorities) and consider in more detail specific
experiences of the audit authorities in terms of practice and context[30]".

Lithuanian authorities highlighted the staffing
issue as an area of weakness for their audit authorities and stated that what
was required was the ''improvement of the level of qualifications of the audit
institution and application of appropriate measures to ensure lower staff
turnover[31]''.

France, however,
confirmed that weakness in its Audit Authorities was not a problematic issue[32].

4.2          Simplification

On the subject of simplification, a significant
number of Member States has already introduced initiatives addressed at
simplifying the implementation of EU programmes during the current programming
period 2007-2013. Estonia and Portugal have both acknowledged the importance of
simplification in the context of the European Social Fund (ESF). Estonia stated that ''twelve different rates for the reimbursement of expenditure from the ESF on
the basis of standardised unit prices have been implemented in Estonia[33]". Portugal also pointed out that ''the ESF Information System
(SIIFSE) was a key instrument of simplification implemented in Portugal in this programming period[34]".

Most countries (20 in total) stated that the
greatest potential for simplification lay with EU rules rather than with
national rules. Nonetheless, a significant number (11 in total) agreed that
there was also potential for simplification of national rules as well. Also, as
indicated in their replies and illustrated in the graph which follows, most
Member States would make at least minimal use of flat rates and lump sums.

The challenges of simplification were outlined
by some Member States in their replies. For example, Ireland stated that:

"A main part of
any simplification for management and beneficiaries is allowing flexibility
where possible. Therefore, all simplification proposals from the Commission
rules should be optional and not mandatory. However, at Member State level a balance is required, as a more flexible approach to specific operations could be
a simplification to the beneficiaries but, potentially, not a simplification
for management because a higher staff management resource would be required
than setting general national rules[35]".

5.           Conclusion

The results of the Court's 2010 Annual Report
indicate encouragingly that the overall most likely error rate for all
EU spending is below 4%. The results are particularly positive for policies
directly managed by the Commission. Policy areas such as Research and other
internal policies, External Aid, development and enlargement as well as
Administrative and other expenditure indicate continuous improvement.

In policy area Agriculture and natural
resources, the situation remained relatively stable with a level of error close
to the materiality threshold of 2%. In policy area Cohesion, energy and
transport, it is important to emphasise that the error rate was still below the
rates for DAS years 2006 - 2008. This is an indication that the management and
control systems in the policy area, although still partially effective, are
working more efficiently for the current programming period, as compared to the
previous period.

Member States replies to the report indicate
that there is a continuing trend towards improvement in the management of EU
funds. They outlined several initiatives taken and also stated their commitment
to even further improvements. Simplification and training at all levels remain
a top priority.  In addition, some Member States provided some complementary
suggestions with regard to ensuring efficient management of EU funds and a more
transparent discharge procedure.

[1]                 
OJ L 390, 30/12/2006 - Financial Régulation Article 143.6

[2]                   Annex 1.1, PART 2.13

[3]                 ECA Report 2010 1.11 p 17

[4]                 ECA Report 2010 5.35 p 149 and 6.48 p 183

[5]                 Integrated Administration and Control System

[6]                 ECA Report 2010 1.13 p 17

[7]                 ECA Report 2010 1.15-1.16 p 19

[8]                  SWD Annex III Part B p 89

[9]                  SWD Annex III Part B p 90

[10]              SWD p 6

[11]                SWD p 6-7

[12]              ECA Report 2010 2.22 p 49

[13]              SWD p 11-21

[14]              The Commission notes that most of the quantifiable
errors found by the Court were relatively small in

financial terms and
mainly concerned small differences in the re-measurement of parcels carried out
by

the Court (ECA
Report 2010 3.19 p 78).

[15]              ECA Report 2010 3.31 p 83

[16]                SWD p 31

[17]               SWD p 31-32

[18]               SWD p 29

[19]               ECA Report 2010 3.32 p 84

[20]               SWD p 31-32

[21]               SWD Annex III p 83-84

[22]               SWD Annex III p 71-72

[23]               ECA report 2010 Chapter 4.25 p 109

[24]               ECA Report 2010 Chapter 4.20, 4.29, 4.26 p 107-109

[25]               SWD Annex III p 70-71

[26]               SWD Annex III p 65-66

[27]                SWD Annex III p 71-72

[28]                SWD Annex III p 65

[29]              ECA Report 4.38 p 115

[30]                SWD Annex III p 65-66

[31]              SWD Annex III p 76-77

[32]              SWD Annex III p 65

[33]                SWD Annex III p 64

[34]              SWD Annex III p 79-81

[35]             SWD Annex III p 70-71