TABLE OF CONTENTS

INTRODUCTION....................................................................................................................... 4

European Parliament resolutions on 2009 discharge....................................................................... 5

Accounts............................................................................................................................. 6

Legality and regularity.......................................................................................................... 7

Recovery and correction mechanisms................................................................................. 10

Member State responsibility and transparency.................................................................... 14

Tolerable risk of errors...................................................................................................... 17

Commission's Internal Audit Service.................................................................................. 19

Single audit........................................................................................................................ 21

Transparency.................................................................................................................... 23

Evaluations........................................................................................................................ 26

Whistleblowers.................................................................................................................. 27

Reforms of the Staff Regulations of Officials of the EU........................................................ 28

Agriculture and natural resources....................................................................................... 29

Cohesion........................................................................................................................... 32

Research, energy and transport.......................................................................................... 38

External aid, Development and Enlargement....................................................................... 42

Education and Citizenship.................................................................................................. 49

Economic and Financial Affairs.......................................................................................... 50

Comprehensive spending review........................................................................................ 53

Priority actions - general.................................................................................................... 54

Priority action - Reform of the current discharge procedure................................................ 55

Priority action - National management declarations............................................................. 56

Priority action - Completion of the Commission's governance structure............................... 58

Priority action - Systematic activation of interruption and suspension of payments as well as lifting of the measure 59

Priority action - Improvement of corrective mechanisms..................................................... 61

Priority action - Performance evaluator.............................................................................. 63

Priority action - Introduction of a new spending logic.......................................................... 64

Observations from committee on development................................................................... 65

Observations from committee on Employment and Social Affairs........................................ 68

Observations from committee on Internal Market and Consumer Protection........................ 70

Observations from committee on Transport and Tourism.................................................... 72

Observations from committee on Civil liberties, Justice and Home affairs............................. 74

Observations from committee on Culture and Education..................................................... 75

Observations from committee on Environment, Public Health and Food Safety.................... 76

Observations from committee on Foreign Affairs................................................................ 78

Observations from committee on Regional Development..................................................... 79

Part I - Special report N° 15/2009 on "EU assistance implemented through United Nations organisations: decision-making and monitoring"........................................................................................ 82

Part II - Special report N° 17/2009 on "Vocational training actions for women co-financed by the European Social Fund".................................................................................................................. 84

Part III - Special report N° 1/2010 on "Are simplified customs procedures for imports effectively controlled?" 87

Part IV - Special report N° 2/2010 on "The effectiveness of the Design Studies and Construction of New Infrastructures support schemes under the Sixth Framework Programme for Research" 90

Part V - Special report N° 3/2010 on "Impact Assessments in the EU institutions: do they support decision-making?"........................................................................................................................... 92

Part VI - Special report N° 4/2010 on "Is the design and management of the mobility scheme of the Leonardo da Vinci Programme likely to lead to effective results?".............................................. 95

Part VII - Special report N° 5/2010 on "Implementation of the Leader approach for rural development" 97

Part VIII - Special report N° 6/2010 on "Has the reform of the sugar market achieved its main objectives?" 99

Part IX - Special report N° 8/2010 on "Improving transport performance on Trans-European rail axes: Have EU rail infrastructure investments been effective?".......................................................... 101

Part X - Special report N° 9/2010 on "Is EU Structural Measures spending on the supply of water for domestic consumption used to best effect?"...................................................................... 106

Part XI - Special report N° 10/2010 on "Specific measures for agriculture in favour of the outermost regions of the Union and the smaller Aegean islands"................................................................ 107

European Development Funds......................................................................................... 109

Requests to the Commission concerning the agencies........................................................ 120

INTRODUCTION

This Commission Staff Working Paper completes the Report from the Commission to the European Parliament and the Council on the Follow-up to 2009 Discharge. It presents in detail the answers to the 213 specific requests made by the European Parliament in its Resolutions forming an integral part of its Decisions on the 2009 Discharges.[1]

European Parliament resolutions on 2009 discharge

Accounts

1. (European Parliament, §3) The EP considers it abnormal for the annual accounts to be presented with negative own capital of EUR 44 700 000 000 and wonders whether the amounts to be requested from Member States should not be entered as assets, given that the estimated EUR 37 000 000 000 in staff pensions is clearly a commitment. The EP notes the explanations provided by the Commission's Accounting Officer to the effect that international accounting standards applicable to the public sector have been complied with; proposes that consideration be given to creating a Union pension fund to externalise financial commitments of this kind concerning staff

Commission's response:

As mentioned previously, the existence of negative net assets is a consequence of the application of accrual accounting to an institution that is funded by an annual budget. These amounts are not receivables from the Member States at the year-end. Furthermore, under the EU accounting rules (and also internationally accepted accounting standards) guarantees such as those given by Member States do not meet the definition of being an asset and so are not recorded in the accounts as such, rather they are disclosed in the notes to the accounts. EU accounting standards follow international standards. Modification of these EU rules would therefore be contrary to international standards and so could lead to a qualified opinion by the ECA.

Concerning the study on the possibility to the creation of a pension fund: a thorough analysis was done at the time of the review of the Staff Regulations (SR) in 2004 and the current solution was finally chosen and embedded in the SR.

2. (European Parliament, §4) The EP urges the Commission to eliminate the risk of misstatements in the accounts in the future by dealing with the weaknesses identified by the Court of Auditors without delay

Commission's response:

It is impossible to eliminate entirely the risk of misstatement in a set of accounts. The Commission instead focuses on reducing this risk to an acceptable, cost-efficient level. It has therefore put in place a robust accounting system and surrounding rules and procedures that have, for the last 3 years, resulted in a fully clean (unqualified opinion) on the reliability of the accounts produced. This means that in the view of the Commission and the Court, these accounts are free from material misstatement. Moreover, the Commission continues to improve its methods and controls, through actions such as the Accounting Quality project, so as to address the remarks of the Court and thus reduce the risk of misstatements further.

Legality and regularity

3. (European Parliament, §6) The EP notes that while Article 317TFEU states that the Commission implements the Union budget on its own responsibility, in the present understanding of ‘shared management’ most of the management functions are carried out by national bodies not directly accountable at Union level and over which the Commission has limited powers of enforcement; takes the view therefore that these bodies are meant to be directly accountable at Union level to the Commission; insists that this does not absolve the Commission of its responsibility for the implementation of the Union budget but on the contrary requires it to take a hard line with any Member States not fulfilling their responsibilities under 'shared management'

Commission's response:

The Commission has taken the requested action and will demonstrate the impact of this in the 2011 Annual Activity Reports of the Directors General.

Although the Commission has the ultimate responsibility for the implementation of the budget according to the Treaty, in the area of Cohesion, Member States are in the first instance responsible for the legal and regular implementation of the Structural Funds in shared management (art 70 of Regulation 1083/2006). The accountability of the Member State and the assurance they provide to the Commission have been strengthened in the current legislation, through the establishment of an ex-ante approval procedure of the management and control systems and the setting up of programme audit authorities.

The current Structural Fund Regulations also provide the Commission with all necessary tools to perform its supervisory role in case of non respect of their obligations by Member States, and in particular:

- interruptions and suspensions of interim payments and implementation of financial corrections.

The Commission exercised rigorously this supervisory role in 2010 by interrupting 63 (49 ERDF and 14 ESF) payment deadlines and adopting one suspension decision for 2007-2013 operational programmes and five suspension decisions (ESF) on 2000-2006 operational programmes, where serious deficiencies or irregularities have been detected. The Commission is pursuing this strict policy in 2011, with 54 interruptions of payment deadlines decided (40 for ERDF and 14 for ESF) by 30 June 2011. Furthermore, the Commission proposed in the revision of the Financial Regulation in Article 56 to increase the accountability and ownership of the bodies managing the funds, notably by introducing annual management declarations of assurance, which already exist for agriculture. The declaration is intended to provide a direct link of accountability between the managing bodies and the Commission. The proposal is currently subject to inter-institutional discussion, the final outcome will be subject to the legislative debate.

In the area of agriculture, expenditure is managed and controlled through a system which already includes, on the one hand, all the necessary building blocks to guarantee a sound administration at Member States’ level and, on the other hand, allows the Commission to audit the proper functioning of their management and control systems and, if need be, to counter the risk of financial losses as a result of any deficiencies in the set-up and operation of those systems through clawing back expenditure from Member States under the conformity clearance mechanism.

This comprehensive system is based on four levels:

- a compulsory administrative structure at the level of Member States, centred around the establishment of accredited paying agencies;

- detailed systems for controls by paying agencies before payment and dissuasive sanctions to be applied by those paying agencies;

- ex-post controls by independent audit bodies on the paying agencies' annual accounts and the functioning of their internal control systems and by special departments on aid measures other than direct aid payments;

- clearance of accounts procedures operated by the Commission (annual accounting (financial) clearance and multi-annual conformity clearance).

Taken together, the four levels and the results that they produce are the basis for the Commission to gain reasonable assurance as to the effective management of the risk of error in the legality and regularity of the financial transactions in respect of the final beneficiaries.

4. (European Parliament, §7) The EP calls, pursuant to Article 287(3) TFEU, as regards shared-management controls, for cooperation to be stepped up between national audit bodies and the Court of Auditors; proposes examination of the possibility of national audit bodies, in their capacity as accredited and independent external auditors, and with due regard for international audit standards, issuing national audit certificates for the management of Union funds, which would be submitted to Member State governments with a view to being produced during the discharge process in accordance with an appropriate inter-institutional procedure to be introduced

Commission's response:

This recommendation has been implemented by means of the Commission's proposal for the triennial revision of the Financial Regulation, adopted in December 2010. It includes a requirement for annual management declarations of assurance from accredited bodies in the Member States, accompanied by an independent audit opinion thereon. Under this proposal, it is for the Member States to decide whether independent audit opinions are drawn up by its national Supreme Audit Institution (SAI), another public sector auditor, or a private audit firm.

When auditing the performance of a Managing Authority, the audit body designated by the Member State will contribute to the internal control process piloted from the Commission. It will apply international standards and a methodology agreed by the Commission, and will necessarily be subject to controls from the Commission, and in consequence subject to the scrutiny of the Court of Auditors later on.

5. (European Parliament, §14) The EP calls on the Commission and the Member States to make annual improvements in the most likely error rates in implementing the Union budget; considers that the aim should be to bring the rate below the materiality threshold, thus securing a positive statement of assurance from the Court of Auditors

Commission's response:

The Commission agrees to do its utmost for further reducing error rates so as to contribute as much as possible to increasing the European Court of Auditors positive assessment of the budget. However, any development of the respective percentages of the sectoral assessments will depend on a number of factors, notably the effect of ongoing action plans, the effect of the 2007-2013 legislation, and the structure of the Court's annual report.

In addition, it is inevitable that the error rates can oscillate around the target set. Over years, improvements should be seen from the whole budget perspective.

6. (European Parliament, §15 and §16) The EP recalls its invitations to the Commission to present a proposal for the introduction of mandatory national management declarations (NMDs) issued and signed at ministerial level, made public and duly audited by an independent auditor so far as such declarations are a necessary and indispensable first step to improve the efficiency of national systems and to enhance national accountability for the use of Union money. The EP reiterates that for Member States with federal systems or substantial decentralisation such NMDs could take the form, in whole or in part, of a collation of regional declarations, provided that each component declaration has been audited and signed by an elected political office-holder; insists that the Commission will present such a proposal by September 2011 irrespective of the fact that some Member States might not yet agree with such an initiative. NMDs should contain full information about the use of Union funds, and after the signing of NMDs at ministerial level they should be made public

Commission's response:

In the Commission's view, management declarations, audited by an independent auditor, as currently already the case for Agriculture, would be more appropriate for obtaining assurance from Member States on the proper management of EU Funds than any mandatory national declarations. For this reason, the Commission proposal for the triennial revision of the Financial Regulation adopted in May 2010 included a requirement for annual management declarations of assurance from accredited bodies in the Member States, accompanied by an independent audit opinion thereon. If a Member State has accredited more than one body per policy area, it should, in addition, provide the Commission with a synthesis report with an overview at national level of all management declarations of assurance and audit opinions thereon. The inter-institutional discussion on the revision of the FR is currently ongoing.

Recovery and correction mechanisms

7. (European Parliament, §21) The EP emphasises that the 'financial correction' mechanism should not be used as an easy way of avoiding the use of a 'recovery' procedure and that whenever possible a 'recovery' procedure should be pursued to ensure that those who have benefitted from sums paid 'incorrectly' do not retain such funds; recalls its request that all data concerning recoveries should be an integral part of, and included in, the database of final beneficiaries

Commission's response:

The Commission is taking the requested action with exception of the second part of the recommendation. It intends to take measures to that effect before 31/12/2012.

Under the system of shared management in Cohesion, the Commission primarily cooperates with Member States and regions for the set-up, management and control of programmes. The management of projects is under the domain of the Member States and the programme authorities. Following this logic, financial corrections, understood as corrections agreed between the Commission and Member States or decided by the Commission, always address the Member States and their programmes and not directly the beneficiaries and their projects. In case of financial corrections agreed between the Commission and Member States, the amount that is to be corrected is deducted from the following payment claim of the Member State to the Commission. In case of a financial correction which is made by a Commission decision, a recovery order is issued by the Commission against the Member State. All this does not mean that the corrected amounts are born by the national budgets and the taxpayers. The Member States are required to recover from beneficiaries whenever possible.

In this respect, the Commission will carry out in the second semester of 2011 a specific audit enquiry on the Member States' systems for recoveries, in order to gain assurance on the quality of data submitted in the annual statements on recoveries and withdrawals by Member States and to verify where possible the national recovery process.

The Commission will not be taking action to include data on recoveries in the database on final beneficiaries. The reason for this is that this database aims at fulfilling the obligation of transparency set by art. 53 of the Financial Regulation, but there is no legal basis to impose additional costs to Member States to create automatic links and compatibility with the data stored in the IT systems of the certifying authorities.

As regards Agriculture, financial corrections are determined on the basis of the nature and gravity of the infringement and the financial damage caused to the EU. Where possible, the amount is calculated on the basis of the loss actually caused or on the basis of an extrapolation. Where this is not possible, flat-rates are used which take account of the severity of the deficiencies in the national control systems in order to reflect the financial risk for the EU. Where undue payments are or can be identified as a result of the conformity clearance procedures, Member States are required to follow them up by recovery actions against the final beneficiaries. However, even where this is not possible because the financial corrections only relate to deficiencies in the Member States' management and control systems, financial corrections are an important means to improve these systems and, thus, to prevent or detect and recover irregular payments to final beneficiaries. The conformity clearance thereby contributes to the legality and regularity of the transactions at the level of the final beneficiaries.

8. (European Parliament, §24) The EP Invites the Commission to refine the financial reporting guidelines to ensure that all relevant information about the operation of the multi-annual correction mechanisms is appropriately disclosed in the accounts; further asks the Commission to keep Parliament informed on its efforts to verify the work of the national audit authorities

Commission's response:

The Commission issued specific guidelines to the DGs concerning the reporting of financial corrections at 31/12/2010. Additionally, the Commission provides information about its verification of the work of the national audit authorities in the context of the Annual Activity Reports of the Directors General.

9. (European Parliament, §26) The EP believes that future rules applicable to the Union budget and programmes should provide that unspent Union funds are not returned to the Member States if a Member State has not paid back to the Union amounts incorrectly received and invites the Commission to take into account any financial correction not yet paid by the Member States before returning unspent annual budget appropriations to the Member States

Commission's response:

The EU budget is by construction balanced. The balance from each financial year is entered in the budget for the following financial year as revenue in the case of a surplus or as a payment appropriation in the case of a deficit. In the former case, such surplus decreases correspondingly Member States' contributions based on the GNI resource. Nevertheless, the surplus calculations take into account the amount of executed financial corrections.

10. (European Parliament, §27) The EP repeats its opinion from the 2008 discharge resolution, that reallocation of ineligible expenditure should only be allowed if it was discovered by the Member States themselves; further welcomes that the Commission has made use of the new possibility to immediately suspend payments and demands that suspension of payments continue to be used resolutely and consistently, making the decisions taken and the reasons for them clear to Parliament; calls on the Commission to develop a system which will punish underperformers, and reward those who perform well, by reducing their administrative burden

Commission's response:

The Commission is taking the requested action to resolutely and consistently exercise its supervisory role. It intends to demonstrate measures taken to that effect in the 2011 Annual Activity Reports of the Directors General.

However, the Commission is not in the capacity to take measures with regard to the first sentence of the request. The reason for that is that the current regulatory framework does not provide for sanctions of this type, but for financial corrections, as corrective measures to restore the regularity of expenditures and to protect the EU budget. Furthermore, the Commission will make proposals for the future regulations to encourage performance and to reduce administrative burden while ensuring continuous high control standards.

The Commission exercised rigorously this supervisory role in 2010 by interrupting 63 (49 ERDF and 14 ESF) payment deadlines and adopting six suspension decisions for 2007-2013 and 2000-2006 ESF operational programmes, where serious deficiencies or irregularities have been detected in the management of Structural Funds. The Commission is pursuing this strict policy in 2011, with 54 interruptions of payment deadlines decided (40 for ERDF and14 for ESF) by 30 June 2011.

The possibility to interrupt payments and impose financial corrections also acts as an incentive for the Member State to improve the management and control systems and implement the necessary financial corrections. Indeed in case a Member State applies the financial correction itself, it has the incentive to act fast, because otherwise it penalises itself (outstanding payments are still blocked and risk automatic de-commitment under the N+2/3 rule). Finally if the correction is imposed by the Commission through a formal decision, it represents a net reduction of allocations available for the Member State.

11. (European Parliament, §28) Provide Parliament with an analysis of the paying agencies' capacity to deliver reliable data based, in addition, on ex-ante declarations and on-the-spot checks, comparing those declarations and those checks with the information given by the Court of Auditors, and to check the veracity of the information provided by these bodies in the last four years

Commission's response:

An analysis of the information provided by paying agencies and verified by the certification bodies is provided in the AAR on an annual basis. The Commission wishes to point out, that the Court of Auditors only audits a small part of the paying agencies every year and does not provide representative control statistics per Member State, so such a comparison is not possible to draw.

12. (European Parliament, §32) The EP asks the Commission to carefully analyse the Member States' reports on recoveries and, if necessary, carry out further training

Commission's response:

The Commission is taking the requested action. It intends to take measures to that effect and to report results in the 2011 and 2012 Annual Activity Reports of the Directors General.

The Commission has planned an audit enquiry on recoveries in the area of Structural Funds as from the second semester of 2011, to review for all Funds the corrective mechanism systems put in place by certifying authorities and to assess the assurance the Commission can place on the reported figures, for a sample of programmes and Member States selected on the basis of a risk analysis. The results of this enquiry will be reported in the 2011 and 2012 Annual Activity Reports of the Directors General of the concerned services. Audit findings will be communicated to the concerned Member States and additional guidance and training will be provided, if necessary.

Member State responsibility and transparency

13. (European Parliament, §33) The EP notes with concern the slow pace of improvements to the financial management of Union funds; at the same time takes note of the repeated opinions of both the Court of Auditors and the Commission that the quality of management and control systems differs widely between the Member States and between the different programmes; calls on the Commission to systematically account for these differences in control systems and to make available clear evaluations of efforts by the Member States to detect irregularities so as to make sure that those Member States detecting higher irregularities due to more onerous control systems are not discredited at any point

Commission's response:

The Commission has taken the requested action.

The audit efforts of the different Member States and programmes' audit authorities are thoroughly analysed and have been for the first time disclosed in the 2011 Annual Activity Reports of the Directors General. The Commission also takes into account the national audit efforts and actions taken by Member States to follow-up such efforts for its follow-up of reported irregularities and error rates. The annual report on the protection of the financial interests of the Union also takes into account such considerations.

14. (European Parliament, §35) The EP Invites the Commission to publish in the Synthesis Report an assessment of the strengths and weaknesses of individual Member States' management and control systems on the basis of the audit work it already performs as well as other relevant available information; further invites the Commission to include a progress report on the improvements in the discharge information; calls on the Commission to establish a ‘scoreboard’ on the quality of controls per Member State and policy area according to a matrix model per Member State

Commission's response:

The Commission is of the view that it already reports extensively on the effectiveness of management and control systems in the respective Annual Activity Reports of the Directors General. The Annual activity reports for 2010 provide extensive information per Member state, per policy area and programming period. The Commission has instructed the DGs concerned to systematically provide in their Annual Activity Reports additional and detailed information on the financial management by Member States, including information on financial corrections and the assessment of the national control systems by operating programme and Member State.

However, the Commission does not agree with the suggestion that this information should also be presented in the synthesis report, as it would be technically complex to consolidate information from different policy areas and this would burden the report with significantly technical data.

15. (European Parliament, §36) The EP urges the Commission on the basis of concrete data per Member State and per policy area, to report to Parliament on the effectiveness of management and control mechanisms and to implement, together with the European Anti-Fraud Office (OLAF), stricter control on the spending of Union money

Commission's response:

The Commission has instructed the DGs concerned to systematically provide in their Annual Activity Reports detailed information on the financial management by Member States, including information on financial corrections and the assessment of the national control systems by operating programme and Member State. Therefore, the Commission is of the view that the Directors General of the concerned Services already reports extensively on the effectiveness of management and control systems in the respective Annual Activity Reports.

The Commission will continue to rigorously exercise its supervisory role by pressing Member States to address the deficiencies detected in their management and control systems and also by applying interruptions and suspensions of payments, as well as financial corrections whenever necessary. Interruptions of payments have been increasingly used as this became a new legal tool, available for the 2007-2013 programming period. The more rigorous policy towards financial corrections when serious weaknesses are detected, is demonstrated through the increase in the overall figure for financial corrections in 2008, 2009 and 2010 compared to the years before the 2008 Structural funds Action Plan.

The cooperation with OLAF has been reinforced with the updated "Joint Fraud Prevention Strategy for ERDF, ESF, CF and EFF 2010-2011" adopted by the Structural Funds DGs and OLAF in July 2010. The objective of the strategy is to reinforce fraud risk assessment; to provide more proactive guidance and support for Member States in fraud prevention and fraud detection work and to raise the level of fraud awareness in the Services and in the Member States.

16. (European Parliament, §40) The EP believes that a ‘scoreboard’ on the quality of controls per Member State and policy area as requested would be an important element in such an analysis and invites the Commission to follow-up on this request starting with its Synthesis Report on 2011 and in time for the 2010 discharge procedure

Commission's response:

The Commission is of the view that it already reports extensively on the effectiveness of management and control systems in the respective Annual Activity Reports of the Directors General. The Annual activity reports for 2010 provide extensive information per Member State, per policy area and programming period. The Commission has instructed the DGs concerned to systematically provide in their Annual Activity Reports additional and detailed information on the financial management by Member States, including information on financial corrections and the assessment of the national control systems by operating programme and Member State.

However, the Commission does not agree with the suggestion that this information should also be presented in the synthesis report, as it would be technically complex to consolidate information from different policy areas and this would burden the report with significantly technical data.

17. (European Parliament, §42) The EP invites the Commission to publish in the Synthesis Report clear and unequivocal information on the value of recovery orders made against individual Member States as well as a systematic presentation of the results of recovery and correction mechanisms

Commission's response:

In February 2011 the Commission instructed the services operating in shared management to report in their Annual Activity Reports information on financial corrections split by Member State, programming period and fund. From now on, this information will be provided annually in the AARs. Whereas the Commission agrees to publish detailed information on financial corrections in the AARs, it does not consider the synthesis report to be an appropriate vehicle to present such data. Information on financial corrections per Member State and programming period is also disclosed in the notes to the annual accounts.

18. (European Parliament, §46) The EP requests the Commission to make the Member States' annual summaries publicly available as part of next year's discharge procedure and upgrade the information provided in these summaries to present a meaningful picture of the Member States' financial management performance; underlines that making the Member States' annual summaries publicly available should be considered as a step towards NMDs

Commission's response:

The decision to make Annual Summaries public is for the Member States concerned. The Commission is legally prevented from doing so unless the Member State concerned explicitly agrees.

Yet, the Commission has instructed the DGs concerned to systematically provide in their Annual Activity Reports additional and detailed information, including information on financial corrections and the assessment of the national control systems by operating programme and Member State.

This information significantly increases transparency on financial management performance by the Member States and largely contributes to meet the EP information request.

Tolerable risk of errors

19. (European Parliament, §48) The EP reaffirms that the Commission must pursue a zero-tolerance approach to all cases of mismanagement and fraud

Commission's response:

The Commission does pursue a zero-tolerance approach to all cases of mismanagement and fraud.

20. (European Parliament, §50) The EP invites the Commission to identify weaknesses in present management and control systems as well as to analyse the cost and benefits of various possible changes; underlines that where it is difficult to obtain a sufficiently high level of compliance with scheme rules, a number of options such as: simplification of the rules, re-designing the programme, tightening controls, or terminating the programme, are possible

Commission's response:

The Commission is currently preparing the proposals for sectoral legislation for the 2014-2020 programming period. It is considering already providing in the legislative financial statements a description of the control system set up, estimation on the cost and benefits of controls and the expected risk of non-compliance with applicable rules.

21. (European Parliament, §52) The EP takes the view that a forward-looking approach to a possible introduction of a comprehensive concept of ‘tolerable risk of error’ would include in the Financial Regulation a requirement for the Commission to match spending proposals with an assessment of the irregularity risks

Commission's response:

The inter-institutional discussion on the revision of the Financial Regulation is currently ongoing. The Commission supports the Parliament's suggestion that an assessment of the risk of irregularities should be considered at the time when new spending proposals are put forward. In the framework of the preparation of the new sectoral legislation for the 2014-2020 period, the Commission is considering already providing in the legislative financial statements a description of the control system set up, estimation on the cost and benefits of controls and the expected risk of non-compliance with applicable rules.

22. (European Parliament, §53) The EP calls for a study of the distinction between the materiality threshold, which is associated with the holding of an audit and therefore subject to assessment by the Court of Auditors, and the acceptable error rate, which is a concept associated with internal audits for which the Commission is responsible

Commission's response:

In the Commission's view the two terms are already clearly defined in the DAS methodology of the European Court of Auditors and in the Court's "single audit model" opinion of 2/2004, so that a study on the subject would not be required.

The concept of materiality is recognised in the international auditing standards. It is a concept that acknowledges that underlying transactions can rarely be absolutely error free. The materiality threshold serves as an important factor for auditors both in the calculation of sample sizes for substantive testing and in the interpretation of the audit results achieved. Errors are deemed to be material if they may affect the decisions of the stakeholders. The Court of Auditors is independent in establishing its materiality level, but is required according to international auditing standards to take account of stakeholders' expectations.

The tolerable risk of error, on the other hand, should be considered to be a management tool which takes account of the cost and benefits of controls. The trade-off between the costs of controls against the benefits they bring is a critical aspect of a control strategy.

Commission's Internal Audit Service

23. (European Parliament, §55) The EP invites the Commission to carry out an external quality review of all the IAC in the Commission and to inform Parliament of the results

Commission's response:

An external quality review of the Internal Audit Capabilities has been launched under the supervision of the Internal Audit Service. The correspondent results are expected by the end of 2011.

24. (European Parliament, §56) The EP requests the Commission to split the hierarchical power between people with accounting responsibility and those responsible for transferring funds in application of the customary rules on security and separation of powers for internal control in treasury management

Commission's response:

The basic objective of the segregation of duties between accounting and treasury functions is to prevent the potential risk that inappropriate transactions be carried out by the treasurer, resulting in economic losses for the organisation that are then inappropriately accounted for by the accountant under the authority of the treasurer, or vice versa. In the Commission's context the treasury management activities that fall under the responsibility of the Accounting Officer are limited in scope by the Financial Regulation and its Implementing Rules. In particular the Commission's treasury cannot intervene or make modifications in the payment authorisation or accounting process (which falls under the responsibility of the Authorising Officers), and its responsibility is limited to the technical execution of payment instructions initiated and fully authorised by the relevant spending departments. The only transfers of funds that can be initiated by the Commission's treasury are transfers between its own bank accounts (that are instructed for cash management purposes). The possibility therefore does not exist that funds be transferred to third parties on the initiative of the Commission's treasury department. The above in practice leaves the Commission's treasury operations without responsibilities that could represent any significant potential conflict with those of its Accountant. At the same time within the Commission's treasury department there is a full segregation of duties between the tasks related to the reconciliation of the bank accounts, and the payment execution tasks. The two profiles are incompatible in the Commission's system, so that officials authorised to work on the payment execution have no authorisation to post accounting entries and vice versa. A recent audit of the Court of Auditors on the Commission's treasury management (special report 5/2009) has not revealed any weaknesses or potential risks in this area).

25. (European Parliament, §57 and §58) The EP notes the Commission annual report to the discharge authority (COM(2010)0447) on internal audits carried out in 2009 and that the Commission's internal auditor is of the opinion that an overview at the level of the institution is necessary. The EP invites the Commission to make appropriate bodies responsible for obtaining this overview and for making appropriate recommendations whilst taking care not to reduce responsibility for the implementation of each process; recommends that the Commission's governance framework be adapted to allow for enhanced institutional overview; would appreciate being informed in a timely manner about developments in this matter

Commission's response:

The Commission considers that the current governance framework provides a sound basis for improving the performance of the financial actors within the Commission. According to the Financial Regulation (Article 60) the operational implementation of the budget is delegated by the College to the Directors-General who, as Authorising Officers by Delegation, are responsible for the achievement of their specific policy objectives and for the management of the human and financial resources entrusted to them. The Annual Activity Report and the Declaration of assurance are the main vehicles through which they give account to the College on the performance of their duties and ensure transparency to the discharge authorities. These management representations are examined annually by the Court of Auditors and are made public. In the Commission's view the Annual Activity Reports provide an unprecedented level of institutional overview of the management of the Commission Services.

26. (European Parliament, §59) The EP invites the IAS to allocate part of its resources to an examination of whether the spending by the main DGs is efficient, economical and effective, thereby completing the current financial and compliance audits

Commission's response:

As part of its audit programme for 2011, the Internal Audit Service (IAS) has developed its practice of carrying out a certain number of performance audits, focussing on the effectiveness, efficiency and economy of use of EU resources. The Commission agrees to invite the IAS to further develop these aspects in its future audit programmes.

27. (European Parliament, §60) The EP invites the IAS to audit the methodology to be used for the production of the Article 318 TFEU evaluation report and to assess the work done

Commission's response:

As part of its audit programme for 2011, the Internal Audit Service (IAS) has developed its practice of carrying out a certain number of performance audits, focussing on the effectiveness, efficiency and economy of use of EU resources. The Commission agrees to invite the IAS to further develop these aspects in its future audit programmes.

Single audit

28. (European Parliament, §61 and §62) The EP urges the introduction of a single audit model whereby audits are carried out, recorded and reported to a common standard - as proposed by the Court of Auditors in its Opinion 2/2004 and repeatedly supported by Parliament - where each level of control builds on the proceeding one, with a view to reducing the burden on the auditee and enhancing the quality of audit activities but without undermining the independence of the audit bodies concerned; believes that internal controls should provide reasonable assurance on the legality and regularity of transactions, and compliance with the principles of economy, efficiency and effectiveness and underlines that controls should be coordinated to avoid unnecessary duplication. The EP invites the Commission to present a report on the feasibility of introducing a single audit model applicable to the Union budget putting to an end the current juxtaposition of national and Union internal control systems; invites the Commission to adopt a risk-based approach for the auditing sampling rather than an approach based on statistical sampling

Commission's response:

The Commission's Action Plan Towards an Integrated Internal Control Framework and the Structural Funds Action Plan took account of the multiple recommendations included in the Court's Opinion 2/2004. These recommendations covered the entire control framework and were not limited to single audit, as the Court concluded "there is no single recognised definition of ‘single audit’". The Commission's framework now fulfils the requirement of the Court that there is "a chain of control procedures, with each level having specific defined objectives which take into account the work of the others".

The structures in place therefore aim at avoiding unnecessary duplication, and do not put into question the Court's role as external auditor, or the independence of other bodies outside the internal control framework such as SAIs reporting to national parliaments.

The Commission is already conducting ongoing activity with Member State administrations including the annual sharing of beneficiary data, in order to achieve the maximum level of coordination between national and Union systems. All management modes foresee a coherent interaction between institutions at European, national, and regional level. The current level of positive cooperation between control and audit bodies across the budget will continue to be reinforced, but the work on the integrated control framework showed that there are limitations preventing the introduction of a single model due to the diverse nature of European level policies, management structures, and heterogeneous beneficiaries.

Under the Commission's governance model, it is the responsibility of each Authorising Officer by Delegation to decide on his/her control strategy. This decision encompasses the ex-post "audits" and the sampling strategy chosen. Furthermore, there is no universally preferable sampling strategy, as the decision depends on the objectives to be met in each given case.

In view of the described activities which already take into account the Court's opinion 2/2004 on the single audit principle, there is no need for a feasibility report.

Transparency

29. (European Parliament, §65 and §66) The EP calls on the Commission to follow up on the request of the Court of Justice (cases C-92/09 and C-93/09) and to swiftly propose criteria where the public interest in transparency should override the protection of personal data of Union funds' beneficiaries; recalls that the Court of Justice has proposed criteria such as the periods during which natural persons have received Union funds, the frequency of such aid or the nature and amount of aid (Volker and Markus Schecke GbR, paragraph 89). The EP asks the Commission to define the criteria mentioned by the Court of Justice in the Financial Regulation, sectoral legislation or any other act in a way that allows a high level of transparency, ensuring that data on beneficiaries falling under these criteria can be published again; urges the Commission to monitor the Member States' obligation to publish the data correctly and in a timely manner and requests the Commission to present the results of its monitoring in the next Synthesis Report

Commission's response:

The Court of Justice confirmed the respect of the principle of proportionality and the legality of the publication relating to the data of legal persons. In its judgment the Court did not question or cast doubt on the legality of the publication of data of individuals benefiting from other EU funds. Moreover, the Court did not question the validity of the Financial Regulation. The concerned horizontal legislation continues to apply and Member States have the obligation to implement it.

The Commission will analyse and propose to the legislative authority the provisions considered necessary to maintain the requested level of transparency and foresee publication of information about beneficiaries of EU funds while complying with the principle of proportionality in order to ensure the fair balance between on the one hand, the need to inform the general public on the use of the EU funds and, on the other hand, the right of the beneficiaries to privacy and to protection of personal data. It is foreseen to take account of the Court's judgment through parliamentary amendments in the framework of the review of the Financial Regulation. A meeting between the Commission, the EDPS and the EP was held to this effect. The Commission considers that the Synthesis Report is not the correct instrument to report on the monitoring of this type of actions, which result could be presented, if necessary, in the Annual Activity Report of each service.

30. (European Parliament, §67) The EP recalls its request from its resolution on discharge for the financial year 2008 to standardise the structure and presentation of beneficiaries’ data on national, regional and international sites, including details of recipients and their projects

Commission's response:

The Commission considers that it is fulfilling the requirements of transparency as defined in Article 30 of the Financial Regulation (FR). It directly publishes information related to beneficiaries of EU funds that it implements under centralised management. This information is available through the Financial Transparency System (FTS), a central online search engine.

As for EU funds implemented in a non-centralised management mode by the Commission implementing partners (Member States, third countries, international organisations, etc.), the transparency requirements constitute a pre-condition for the delegation of implementation of EU funds. The Commission considers that it should remain so, as they are the best positioned to have full and reliable information regarding the beneficiaries of the funds they manage.

Finally, a project to publish from one central database, detailed and standardised information on beneficiaries of EU funds under all management modes would be extremely complex and costly to conduct, not only in terms of budget but also in terms of human resources.

31. (European Parliament, §68 and §69) The EP reiterates its belief that transparency is one of the main instruments in achieving legal and regular expenditure and believes that the objective should be the creation of a single and comprehensive online system (a central database) which can be accessed easily by any individual and would therefore allow the public to have easy access to full and complete information about the expenditure of the Union by budget line and by beneficiary; insists that the Commission collect data regarding the beneficiaries of funds in that central database and make the data collected easily accessible and user-friendly; further requests that the data be published in a comparable, machine-readable, searchable and open data format in one of the official languages of the Union. The EP proposes, in order to increase transparency, that the central database regarding the beneficiaries of funds shall make it possible to visualise not only money flows in figures but also the connections between the different actors in a project at different levels, whilst always taking into account the protection of privacy.

Commission's response:

The Commission considers that it is fulfilling the requirements of transparency as defined in Article 30 of the Financial Regulation (FR) and draws attention to the fact that transparency must be balanced against limitations imposed by personal data protection.

The Commission directly publishes information related to beneficiaries of EU funds that it implements under direct management. This information is available through Financial Transparency System (FTS), a central online search engine.

As for EU funds implemented indirectly by our implementing partners (Member States, third countries, international organisations, etc.), the Commission has issued the relevant instructions for standardisation of the information to be presented by the various management authorities involved. For implementing partners, the transparency requirements constitute a pre-condition for the delegation of implementation of EU funds. The Commission considers that it should remain so, as they are the best positioned to have full and reliable information regarding the beneficiaries of the funds they manage. This is particularly relevant for the publication of beneficiaries under shared management, which is clearly the responsibility of Member States. A further coordinated initiative is not envisaged at this point.

Evaluations

32. (European Parliament, §72) The EP calls on the Commission to review its systems for evaluating the effectiveness of expenditure programmes to assess whether they are adding value, delivering value for money, and achieving the objectives for which they were established; insists that such evaluations should be both conducted and then assessed independently; calls therefore for independent evaluations to be submitted to Parliament and its relevant committees for scrutiny

Commission's response:

The Commission has a comprehensive framework for evaluation of EU activities and programmes. In this framework, evaluations address the main evaluation issues including effectiveness, efficiency, utility and EU added value. Procedures target full transparency and objectivity. These include the generalised use of broadly composed steering groups and quality assessments, and the involvement of external consultants as well as external consultations, questionnaires and meetings of stakeholders as a regular part of the process. Results are systematically disseminated in line with the requirements of the Financial Regulation. The Commission is committed to ensuring best practice in its evaluation activities.

Whistleblowers

33. (European Parliament, §75) The EP calls on the Commission to review the briefing and training given to staff regarding 'Title II: Rights and Obligations of officials' of the Staff Regulations so as to ensure that all staff are fully conversant with its terms and particularly with the obligations under Article 22a(96) (whistleblowing); asks that the Commission provide details to Parliament's competent committee of the work undertaken in this area

Commission's response:

The Commission has instructed the external training contractor earlier this year to ensure that the whistleblowing rules are an integral part of the "Ethics and integrity" training given to newcomers. In addition, all newly recruited middle and senior managers are given a briefing concerning the obligations incumbent on staff, which includes the whistleblowing rules.

Reforms of the Staff Regulations of Officials of the EU

34. (European Parliament, §79) The EP notes that the reputation of the Union is strongly influenced by the public perception of its civil service; notes that the last reform of the Staff Regulations did not adapt its provisions to a changed working environment nor lead to a remuneration policy that provides for equal pay for equal work; notes that it contains out-dated perks and benefits; calls on the Commission to present proposals for a comprehensive modernisation of the Staff Regulations, including the end of out-dated perks and benefits

Commission's response:

In June 2011 the Commission took note of a draft proposal amending the Staff Regulations. This proposal strikes a balance between the necessary drive for efficiency and economies and the ability of the institutions to deliver their policies. This proposal foresees the adaptation of some individuals and pecuniary rights (retirement age, new method of calculation of the adjustment of salaries and pensions, the annual trip home, the travel days and travel allowances, etc). In addition, this proposal also preserves the capacity of the Institutions to attract and retain staff of the highest professional competence in various fields of expertise who are able to work in a multicultural and multilingual environment and who are ready to move and stay abroad with their families.

This proposal complements the 2004 civil service reform that made the EU staff law one of the most modern of its time. A performance-oriented and merit-based new career structure, a new contractual status for personnel fulfilling non-core tasks, a reform of the pension system, new working methods and family-friendly working conditions were just some of the numerous changes brought by the first comprehensive reform of the European civil service law since 1968.

Agriculture and natural resources

35. (European Parliament, §82) The EP calls upon the Commission to take steps to ensure that the reduction in the error rate becomes a trend that is maintained year-on-year so as to ensure that the irregularities cease

Commission's response:

The Commission considers that the reduction in the error rate in the domain of Agriculture can already be considered as a trend. In this sense, an error rate which over the recent years is close to 2% confirms the overall positive assessment of previous years. The Commission will continue its efforts to reduce the error rate below 2%.

36. (European Parliament, §93) The EP expects the Commission’s evaluation report to consider the practice by MS of defining used farmland independently and illustrate it with examples

Commission's response:

Member States are required to qualify land as farmland in accordance with the relevant EU rules. The Commission follows up cases of non conformity via the clearance of accounts procedure.

37. (European Parliament, §94) The EP invites the Commission to improve the reliability and completeness of the data recorded in the Land Parcel Identification System and update regularly Parliament about the progress

Commission's response:

The requested action has been taken.

The Commission is on a continuing basis working, together with the Member States, on actions to improve the reliability of information in the LPIS-GIS. As of claim year 2010, Commission Regulation (EC) No 146/2010 introduced the requirement for Member States to perform a quality assessment of the LPIS-GIS on an annual basis according to pre-determined procedures and to report on the results and the actions envisaged to, where required, improve the situation. Whilst 2010 is the first year, this exercise has already been helpful for Member States as regards identification of areas requiring attention.

38. (European Parliament, §94) The EP invites the Commission to take proactive measures to ensure that all the IACS databases provide a reliable and full audit trail for all modifications made, paying particular attention to those countries known to have a poor record and update regularly Parliament about the progress

Commission's response:

The requested action has been taken.

Annex I to Regulation (EC) No 885/2006, as part of the accreditation criteria, already requires that information regarding documentary evidence of the authorisation, accounting and payment of claims shall be available in the paying agency to ensure at all times a sufficiently detailed audit trail. These accreditation criteria are checked by the certification bodies on an annual basis.

39. (European Parliament, §94) The EP invites the Commission to clarify and further enforce the rules so that Union direct aid is not paid to claimants who have neither used the land for farming nor maintained it in Good Agricultural and Environmental Conditions and update regularly Parliament about the progress

Commission's response:

The Commission is taking the requested action.

The issue of the farmer definition has been addressed in the framework of the Health Check by giving Member States the possibility to exclude natural or legal persons from the direct payment schemes whose principal business objects do not consist of exercising an agricultural activity or whose agricultural activities are insignificant (Article 28(2) of Regulation (EC) No 73/2009).

In order to be eligible for SPS payments, areas should be used for an agricultural activity as defined in Regulation (EC) No 73/2009 which at least implies that they should be maintained in Good agricultural and Environmental condition. The issue of maintenance of the areas is being looked into with a view to the reform of the CAP post 2013 as stipulated in the Commission Communication "The CAP towards 2020: meeting the food, natural resources and territorial challenges of the future".

40. (European Parliament, §94) The EP invites the Commission to review and improve the guidelines as regards the work to be performed by certification bodies, in particular the work related to the validation of the Member States' control and inspection statistics, and to provide Parliament with the number and an assessment of the soundness of the existing paying agencies and update regularly Parliament about the progress

Commission's response:

The requested action has been taken.

The Commission considers the overall structure and reporting requirements of the certification bodies to be appropriate. An assessment of paying agencies is already provided in DG AGRI's AAR on an annual basis. With regard to the work related to the control and inspection statistics, the Commission has already put forward a system by which Member States can reinforce the overall framework for gaining reasonable assurance as to the legality and regularity of transactions at the level of the final beneficiary.

41. (European Parliament, §94) The EP invites the Commission to further reduce bureaucracy, to simplify procedures and to avoid adverse effects on farmers arising from the plethora of rules, which in some cases conflict and update regularly Parliament about the progress

Commission's response:

The Commission is taking the requested action.

As of October 2010, a number of simplification related activities have been carried out.

However, the Commission will continue its efforts to further reduce the administrative burden and simplify the CAP. This objective will be particularly pursued in the framework of the discussion on the CAP post-2013.

42. (European Parliament, §95) The EP is of the opinion that the tripartite meetings of the Court of Auditors, the Commission and national authorities should be extended to the policy area of agriculture and natural resources in order to facilitate a harmonised interpretation and application of the rules regarding the management and control of expenditure, as well as a coordinated approach between the Commission and the Court of Auditors

Commission's response:

The Commission is taking the requested action.

DG AGRI will propose tripartite meetings when they are expected to facilitate the handling of individual DAS cases. However, the realisation of such meetings depends on the willingness of all parties involved.

Cohesion

43. (European Parliament, §98) The EP asks the Commission to work decisively to improve and overcome temporary flaws in the management and control systems

Commission's response:

The Commission is continuously taking the requested action. It intends to take measures to that effect and report thereof by 31/03/2013 in the next Annual Activity Reports of the Directors General.

The Commission focuses its audits on high risk programmes and takes appropriate actions, including interruptions and, if necessary, suspension of payments and/or financial corrections. Figures provided to the European Parliament show that the majority of corrections are concentrated on few Member States. Furthermore, it puts in place national remedial action plans aiming at improving the effectiveness of systems and remedying the causes of low performance for those programmes and Member States which are concerned.

As indicated in the Annual Activity Reports for 2010, the emphasis of the reservations lies on some programmes in Member States (and in particular in Spain and Italy as in a number of preceding exercises). Based on an analysis on the main reasons behind the problems in these Member States, a pilot programme with the Spanish authorities has been initiated for the ESF in March 2011 in order to endeavour to identify root causes and implement effective mitigating actions. In case this pilot project is successful, the actions may be extended to the relevant programmes in Italy, too.

44. (European Parliament, §105) The EP asks the Commission and the Court of Auditors to set up a platform for the consultation process on methodology used with regard to the seriousness of the infringements detected in public procurement domain

Commission's response:

The Commission has taken the requested action.

The Commission and its services have invited the Court to launch such a discussion on the quantification of errors in public procurement since 2010. While the assessment of errors in this area is usually the same between both institutions, the Court explained that its quantification of errors linked to public procurement is and will remain distinct from the quantification made by the Commission and the Member States to establish the necessary, appropriate and proportionate financial correction linked to such reported errors.

45. (European Parliament, §107) The EP asks the Commission to analyse the reasons for infringements of public procurement rules and to cooperate decisively with the Member States to overcome the difficulties identified

Commission's response:

The Commission is taking the requested action. It intends to take measures to that effect before 31/12/2012.

In the Single Market Act the Commission has undertaken to put forward proposals, by 2011.

Simplification will be one of the main drivers of the forthcoming revision of the Directives. The Commission is planning to issue its proposal by end-2011. Stakeholders and interested parties have had opportunity to contribute to this process through the consultation process launched with the Green Paper on the modernization of EU public procurement policy.

Moreover, the Commission has issued and discussed with the Member States in the Advisory Committee on Public Procurement a report on more frequent errors on public procurement identified through EC audits and reasons for taking financial correction decisions linked to public procurement procedures (May 2011). Member States were alerted about these recurrent audit findings and asked to share good practices and proposals to overcome such recurrent deficiencies. This initiative intends also to feed into the ongoing consultation on the simplification/revision of the Directives.

46. (European Parliament, §108) The EP calls on the Council and the Commission to finalise the adoption of the reform of the basic Union public procurement rules (Directives 2004/17/EC and 2004/18/EC) by 2012

Commission's response:

Following the consultation launched with the Green Paper on the modernisation of EU public procurement policy, the Commission will make legislative proposals by the end of the year, with a view to simplifying and updating the European public procurement legislation.

47. (European Parliament, §115) The EP calls on Commission DGs to further improve their guidance to the Member States and developing good practices among national bodies

Commission's response:

The Commission is taking the requested action. It intends to take measures to that effect and will report on actions taken in the 2011 Annual Activity Reports of the Directors General.

For the 2007-2013 period the Commission has made a significant upfront investment in terms of guidance (45 guidance notes have been discussed and agreed with Member States), preventive training and support to the Member States. It will maintain its efforts in this respect, for example through the preparation of complementary guidance on annual control reports for the audit authorities, and takes note of the Parliament's request to intensify its efforts. It has also completed its guidance on financial engineering instruments in 2011.

Nonetheless, it recalls that technical assistance monies are also provided to Member States for them to develop their administrative capacity.

48. (European Parliament, §117) The EP requests the Commission to identify and spread best practices amongst the Member States in order to allow an increased absorption of funds and improved beneficiary cash-flow by amending and simplifying the Structural Funds implementing regulations at national level

Commission's response:

The Commission is continuously taking the requested action. It intends to report on the measures taken to that effect in the next Annual Activity Report of the Directors General.

The Commission regularly organises meetings with Member States authorities for example the Committee on the Coordination of structural Funds (COCOF) or at technical level like in the ESF Technical Working Group (TWG). The exchange of best practices on simplification measures and the implementation of the Funds are an essential part of those meetings.

49. (European Parliament, §118) The EP calls on all stakeholders in the Member States and in the Union institutions to work together closely to deal with the phenomenon of organised and planned frauds in the Structural Funds

Commission's response:

The Commission is taking the requested action. It intends to take measures to that effect and to report in the next Annual Activity Reports of the Directors General.

The level of suspected fraud in structural funds is only 0,23% of the Cohesion Policy budget.

In the framework of their Mutual Understanding agreement DG REGIO, DG EMPL and OLAF set up in 2008 a Joint Fraud Prevention Strategy for the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund (CF).The updated Strategy for 2010-2011 was adopted in July 2010 by DGs REGIO, EMPL, MARE and OLAF. It foresees several actions aimed at strengthening the capacity of these services to prevent fraud and to deal with potential cases of fraud and also to perform analysis of fraud types, root causes of fraud and modus operandi of fraudsters. OLAF established a Regional Risk Assessment for one Italian region falling within the convergence objectives and carried out an analysis of modus operandi of fraudsters in Structural Funds reflected in document "Compendium of Common cases in the field of Structural Funds".

The Strategy document is reviewed bi-annually. Moreover, the Commission adopted in June 2011 an anti-fraud strategy that covers the whole EU budget (COM(2011) 376 final). The Commission intends to propose to Member States in the next programming period that they set up clear frameworks for fraud prevention under cohesion policy, proportionate to the fraud risk assessments.

50. (European Parliament, §120) The EP invites the Commission to look, in connection with the revision of the Financial Regulation, into the effectiveness of National Management Declarations as incentives and/or deterrents and the advantages and improvements they could bring in terms of sound financial management

Commission's response:

The Commission services have issued a working document (SEC(2011)250) providing an analysis of national declarations in the assurance process on the execution of the EU budget in shared management. The study contained an evaluation of the national declarations currently issued by four Member States at political level and identified key criteria which could – if observed – add value to management declarations. The management declarations of assurance proposed by the Commission in Art 56 of its proposal for the triennial revision of the Financial Regulation, adopted in May 2010 incorporate these criteria. The Commission's proposal has been subject to inter-institutional discussion.

In the Commission's view, the management declarations proposed would provide the Commission with substantial additional assurance as to the use of EU funds by Member States and reinforce cooperation with Member States in the implementation of the budget by underlining their control and audit obligations stemming from the Lisbon Treaty (Article 317 TFEU). An annual management declaration of assurance (complemented by and subject to an independent audit opinion) signed by a senior national official would allow the relevant Commission managers to take full account of the underlying declarations in framing their own declarations of assurance in the DGs' Annual Activity Reports. This would result in a single logical assurance chain in which the assurance provided is derived directly from the management chain, thereby offering greater assurance. A management declaration of assurance issued by local managers would also have a positive impact on the level of error as audit results show that the main causes of error can be traced to deficiencies in first level management verifications.

51. (European Parliament, §121) The EP calls upon the Commission to intensify the contacts with the Member States’ administrations for the purpose of a mutual exchange of information to tackle pending questions without delay

Commission's response:

The Commission has taken the requested action.

The Commission regularly organizes meetings with Member States' authorities such as the Committee on the Coordination of structural Funds (COCOF), the ESF Technical Working Group (TWG) or regular technical meetings of audit authorities. The exchange of best practices on simplification measures, sound financial management and the implementation of the Funds are an essential part of those meetings. The Commission services are in permanent, daily close contact with all programmes authorities.

52. (European Parliament, §123) The EP invites the Commission to include in the Financial Regulation a request for mandatory NMDs issued and signed at ministerial level and duly audited by an independent auditor as a vital first step towards greater national accountability for Union expenditure

Commission's response:

The Commission has proposed the introduction of mandatory management declarations of assurance in Art 56 of its proposal for the triennial revision of the Financial Regulation. This proposal is currently subject to inter-institutional discussion.

53. (European Parliament, §124) The EP recalls the need to ensure an efficient implementation of regular, tripartite meetings under the budgetary procedure as mentioned in Article 324 of the Treaty on the Functioning of the European Union

Commission's response:

The Commission, as it has done in the past, will continue to fully play its role as defined by Art 324 TFEU.

54. (European Parliament, §125) The EP calls on the Commission to set up a working group with the Member States to prepare uniform auditing standards in order to further enhance the audit work of the certifying/auditing bodies

Commission's response:

The Commission has taken most of the requested action and will complete it by end 2012 and report on its results in the 2011 Annual Activity Reports of the Directors General.

The Commission prepared and discussed with the Member States in 2008 a detailed and comprehensive guidance note on the certification function, providing practical information and best practice on the organisation and functioning of the certifying authorities, based on previous experience. Seminars for certifying authorities, based on this guidance note, were held in 2008, 2009 and 2010.

The Commission notes that the certifying authorities are not audit bodies and are not functioning with auditing standards. The certification function does not aim at directly auditing expenditure or systems, but at ensuring that only legal, regular and eligible expenditure has been included in the payment claims to the Commission and to this view, that the underlying controls have been efficient.

Moreover, the Commission has organised a technical meeting with all audit authorities on 6 May 2011 as a follow-up to its analysis of the first completed annual control reports and audit opinions for 2010. Feedback was provided on discrepancies in audit approaches and evaluation of audit results and reporting of error rates. Follow-up will be provided in the form of additional guidance to be discussed again with audit authorities in October 2011 in the next meeting, on time for the next annual control report and audit opinion to be issued by the audit authorities in December 2011, and by circulation of checklists on audits on operations used by the Commission to help and enhance the methodology of the national audit authorities.

Finally, individual feedback was given to all audit authorities through the recommendations made by the Commission under the review of the most important audit authorities, and in the 2011 annual control coordination meetings with all Member States and Funds.

55. (European Parliament, §126) The EP calls on the Commission to provide Parliament with the number and an assessment of the soundness of the existing managing authorities

Commission's response:

The Commission has taken the requested action.

The number of existing managing authorities for Structural and Cohesion Fund programmes/projects for the 2007-2013 programming period is 280. Managing authorities are assisted by hundreds of intermediate bodies.

The functioning of the managing authorities and of selected intermediate bodies is verified by Commission auditors in the framework of their audits on the national managing and control systems on a risk basis, and by national audit authorities on an annual basis. This is reflected in the Structural Funds DGs' Annual Activity Reports for 2010, where the disclosure of information on the assurance level per operational programme and per Member State has been significantly improved.

Research, energy and transport

56. (European Parliament, §132) The EP recalls that FP6 beneficiaries' cost statements submitted for reimbursement shall be accompanied by an audit certificate issued by an independent auditor certifying reasonable assurance that the declared costs meet the eligibility requirements; draws attention to the fact that, by the Commission’s own admission, the acceptability criteria adopted for obtaining certification are too restrictive

Commission's response:

This recommendation addresses two different issues. The "restrictive" criteria only concern the FP7 ex-ante cost methodology certification of average personnel costs while the issue of the 'audit certificate issued by an independent auditor certifying reasonable assurance that the declared costs meet the eligibility requirements' relates to the FP6 ex-ante certification of cost claims. Further, the procedures are different for each exercise: under FP7 beneficiaries submit an application for cost methodology certification, which is subject to the Commission's approval. Once the certificate is accepted, it is valid for the whole programme. Ex-post audits, if any, will be aimed at verifying whether the certified methodology was used. Under FP6, audit certificates were requested to support the financial statements to give reasonable assurance of the eligibility of the costs claims; ex-post audits will verify once more whether the costs claimed fulfilled the eligibility criteria.

As regards the cost methodology certification, the Commission has recognised that the acceptability criteria for receiving certification of the costing methodologies are too stringent for most beneficiaries.

However, substantial simplification has been already introduced by the Commission to facilitate the use of average personnel costs by beneficiaries within the overall existing legal framework. In this respect, following the Communication on simplifying the implementation of the Research Framework Programmes (COM (2010) 187 final of 29.04.2010) the Commission adopted a Decision of 24 January 2011 (C(2011) 174 final) on three measures for simplifying the implementation of the framework programme. This decision allows beneficiaries to apply their usual accounting methods when requesting reimbursement for average personnel costs.

Furthermore, the experience with ex-ante certification of cost methodologies will be taken into account in the preparation of the rules for the next funding programme.

57. (European Parliament, §136 part 1) The EP invites the Commission to ensure that the independent auditors who have incorrectly certified cost statements are made aware of the eligibility criteria for declared costs and if applicable held accountable. The EP invites the Commission to review the operation of the system for the certification of beneficiaries' costing methodologies

Commission's response:

A formal feedback process is in place to urge the audited beneficiaries to make their certifying auditors aware of the Commission's audit findings and also referring them to the relevant information where the eligibility requirements and interpretations are publicly available.

The decision on simplification adopted on 24 January 2011 has simplified the costing methodologies certification: in respect of average personnel costs, the new acceptability criteria may accommodate more methodologies. As regards the system for certification, the Commission's experience will be taken into account in the preparation of the rules for the next funding programme.

58. (European Parliament, §136 part 2) The EP invites the Commission to reduce the backlog in recovering undue amounts paid and to impose sanctions where necessary

Commission's response:

The Commission is continuously monitoring the procedures for recovering undue amounts paid. In this respect, the Commission has considerably improved this aspect of the FP management. For example concerning FP6 in DG RTD - despite the completion of audits which added €13 million to the amount to be recovered in 2010 - the percentage of total adjustments in favour of the EU effectively recovered has grown from 30,40% in 2008 to 55,61% in 2009 and to 67,87% by the end of 2010.

The communication on the simplification of the recovery process in the framework of the implementation of the audit strategy adopted on 15 December 2009 will contribute to a better management of outstanding recoverable amounts.

The Commission has continued to systematically apply liquidated damages on beneficiaries which had over declared their costs. As an example, by the end of 2010, RTD had considered the application of liquidated damages in a total of 584 cases and had applied liquidated damages for a total of € 0,7 million.

59. (European Parliament, §136 part 3) The EP invites the Commission to further simplify the research funding rules, to significantly improve access to research funding for SMEs and to ensure full accountability for the proper use of Union money

Commission's response:

The Commission is currently working on the preparation of the next Framework Programme for Research and Innovation. In this context, the Commission will present to the European Parliament and to the Council a proposal where the aspects highlighted by the Parliament will be addressed.

Nevertheless, following the Communication on simplifying the implementation of the Research Framework Programmes (COM (2010) 187 final of 29.04.2010) the Commission adopted a Decision of 24 January 2011 (C(2011) 174 final) on three measures for simplifying the implementation of the framework programme. One of them is related to the SMEs, (chapter two on financing of SMEs owners and other natural persons not receiving a salary). SMEs and natural persons participating in a FP7 project have now the possibility to charge personnel costs corresponding respectively to the work performed by a SME-owner or natural persons not receiving a salary on the basis of a flat-rate.

60. (European Parliament, § 137) The EP reiterates its call on the Commission to provide legal certainty by refraining from applying a stricter definition of the rules for participation retroactively and by refraining from asking recipients to recalculate financial statements already approved by Commission services, hence reducing the need for ex-post audits and retroactive corrections; asks the Commission rapidly to resolve prior situations arising from inspections in progress, acting with discernment and respect for the principles of sound financial management; recommends that disputes regarding such prior situations be resolved by agreement between all parties, based for example on an independent re-audit and/or with the intervention of an ad-hoc independent mediator

Commission's response:

The Commission has devised a control strategy aimed to ensure the legality and regularity of Framework Programme expenditure on a multiannual basis for the detection and correction of any errors which could not be identified before making the payment. This is achieved by ex-post auditing and rigorously recovering any amount found to be overpaid to the audited beneficiaries, even for non-audited contracts.

This control strategy responds to the Parliament's concern that the annual DAS on research spending consistently reveals a material level of error in payments to beneficiaries and in the Commission's supervisory and control systems, which do not sufficiently mitigate the inherent risk of reimbursement of overstated costs. The corrections proposed by the Commission do not result from the application of new interpretations, but from the audit of cost statements submitted by beneficiaries. Such audits merely verify compliance with the legal and regulatory framework. Also "refraining from making any retroactive changes" would mean that amounts receivable would not be recovered. Moreover, the possibility of performing independent counter-audits exists since the Commission Communication of 15 December 2009 - SEC(2009)1720.

Further, the Commission has also re-assessed the eligibility of several taxes or charges related to personnel costs, which gave rise to contestations. The additional eligibility criteria are also listed in the Communication of 15 December 2009, they are applicable to FP6 and FP7.

Moreover, the decision on the simplification measures will have a significant impact on the acceptance of personnel costs since beneficiaries are now allowed to charge average personnel costs according to their own accounting practices and SME-owners and natural persons who do not receive a salary have the possibility to charge costs on the project on the basis of a flat-rate. Ex-post audits will be carried out accordingly.

61. (European Parliament, § 139) The EP invites the Commission to ensure that the IAS exercises the same powers over the bodies set up by the Union having a legal personality and receiving contributions from the budget (Joint Undertakings) as those which it exercises over Commission departments, in accordance with Article 185(3) of the Financial Regulation

Commission's response:

The IAS contacted all JUs in December 2010 to inform them of the authority invested by article 185 of FR on the internal auditor of the Commission in relation to those entities. The IAS has sent all of them audit charters and carried out risk assessments. Actual audit engagements will start in 2012.

62. (European Parliament, §140) FP8 should be based on a radical change of view including the introduction of a bonus system partially replacing the current upfront payment system and better access to venture capital in order to enhance efficiency

Commission's response:

The Commission is currently working on the preparation of the next Framework Programme for Research and Innovation. In this context, the Commission will present to the European Parliament and to the Council a proposal where the aspects highlighted by the Parliament will be properly addressed.

This proposal will also include future financial instruments for research and innovation aiming at improving access to risk capital (Equity and Debt finance). Furthermore, an integrated support scheme might be proposed aiming at connecting EU grant funding with risk capital finance in order to better support the transfer of Research and Development results to the market.

External aid, Development and Enlargement

63. (European Parliament, §147, §148 and §149) The EP asks the Commission to cooperate with candidate and potential candidate countries in order to improve management and control systems, to promote best practices for fighting fraud, and to ensure that their practices are in conformity with all Union rules and standards. The EP invites the Commission to provide all potential candidate countries with the necessary know-how and institutional knowledge to efficiently fight corruption and continue the reforms needed.

The EP also invites the Commission and candidate countries to improve dialogue and ensure effective cooperation (in the framework of Commission's ex ante controls)

Commission's response:

Concerning the first part of the point, it has been considered for this reply that the concept of verification mission relates to the activities to be performed in the context of the conferral of management and the waiver of ex-ante controls in the candidate countries benefiting of the instrument of pre-accession assistance (IPA).

DG ELARG has harmonised and compiled into a coherent body the full set of instructions providing guidance for the process of conferral of management earlier published.

This global instruction clarifies the concepts, describes the roles and responsibilities of the different actors and the steps to be taken at the different stages of the process.

It can be used both for the preparation of new conferral of management decisions as well for the monitoring of those currently in force.

Concerning the necessary know-how and the institutional knowledge provided to efficiently fight corruption, the contribution of the Commission, through CARDS- and IPA-funded projects has been the following:

ALBANIA:

A total number of 53 projects have been carried out under CARDS and IPA in the areas of justice and anti-corruption. In the area of judicial reform, the EU has allocated € 30,6 million under the CARDS programme and € 18,3 million under IPA 2007-2010. To date, € 28,2 million has been disbursed under CARDS and € 2,5 million under IPA. Domestic co-financing is foreseen to amount € 1,5 million. The EU allocated € 0,6 million under the CARDS programme and € 2 million under IPA 2007-2010 in the area of preventing, monitoring and combating corruption. To date, € 0,5 million has been disbursed under CARDS and € 1,2 million under IPA. Domestic co-financing is foreseen to amount € 0,1 million.

BOSNIA AND HERZEGOVINA:

A total of 62 projects on judicial reform and fighting corruption have been carried out under CARDS and IPA. In the area of reform of the judicial systems, the EU has allocated € 30,2 million under the CARDS programme 2002-2006 and € 24,2 million under IPA 2007-2010. To date, € 28,9 million has been disbursed under CARDS and € 8,3 million under IPA. Domestic co-financing is foreseen to amount € 6,45 million, which concerns the project "Support to the construction of a State high-security Prison in Bosnia and Herzegovina". The EU has allocated € 177.750 under the CARDS programme 2002-2006 and € 3,9 million under IPA 2007-2010 in the area of preventing, monitoring and combating corruption. To date, approximately € 134.000 has been disbursed under CARDS and € 635.000 under IPA.

KOSOVO:

A total number of 13 projects in the areas of justice and anti-corruption have been carried out under CARDS and IPA. In the area of reform of the judicial systems, the EU has allocated € 5,2 million under the CARDS programme and € 39 million under IPA 2007-2010. To date, € 4,8 million has been disbursed under CARDS and € 4,1 million under IPA. The EU allocated € 1 million under the IPA 2007-2010 in the area of preventing, monitoring and combating corruption. To date, € 650.000 has been disbursed under IPA. Domestic co-financing is foreseen to amount € 14,4 million.

MONTENEGRO:

A total of 10 projects on judicial reform and fighting corruption have been carried out in Montenegro under CARDS and IPA. The total pre-accession funds allocated to the projects in the area of judiciary reform in Montenegro amount to approximately € 412.000 under CARDS and € 3,4 million under IPA. To date € 4,7 million has been disbursed to the beneficiaries. The total estimated national co-financing to the projects in this area amounts to € 50.000. The projects in the area of preventing, monitoring and combating corruption in Montenegro amount to € 2,6 million under IPA. To date, € 1,7 million has been disbursed to the beneficiaries in this area. The total estimated national co-financing to the projects in this area amounts to approximately € 131.900.

SERBIA:

A total of 23 projects on judicial reform and fighting corruption have been carried out in Serbia under CARDS and IPA. In the area of judicial reform, the EU allocated € 5,3 million under the CARDS programme and € 19,5 million under IPA 2007-2010. To date, € 3,5 million has been disbursed under IPA. The EU allocated € 1,3 million under the CARDS programme and € 2,4 million under IPA 2007-2010 in the area of preventing, monitoring and combating corruption. No domestic co-financing is foreseen in these areas.

MULTI-BENEFICIARY COUNTRIES:

4 multi-beneficiaries projects on judicial reform and fighting corruption have been prepared / carried out under CARDS and IPA. The EU allocated 2,8 million EUR under the CARDS programme and 5 million EUR under IPA 2007-2010. To date, 2,5 million EUR have been disbursed under CARDS. Co-financing by the grant beneficiary / contractor for the three CARDS projects is foreseen in the amount 10%.

Main projects carried out include the "Assessment of Corruption and Crime in the Western Balkan" project and the project "Strengthening the prosecutors' network in the fight against organised crime and corruption".

64. (European Parliament, §151) The EP invites the Commission to give greater attention to and derive full benefit from the follow-up of weaknesses revealed by its audits on implementing partners and monitoring the extent of the use of humanitarian procurement centres

Commission's response:

The Commission is taking the requested action in respect of:

- On the use of the Humanitarian Procurement Centres (HPC): The HPC is just a tool offered to DG ECHO partners to ease their procurement. For the 2010 reporting exercise, launched in November 2010, the letter to HPC requesting the annual documentation also requested statistical information on the orders invoiced to DG ECHO Partners in the course of 2009. In addition, the HPCs have been informed of the Commission's commitment to increase monitoring of the use of HPCs by DG ECHO's Partners. Finally, DG ECHO has initiated measures to better inform partners of the need to ensure that the reference number of the DG ECHO-funded Action appears on the invoice issued by the HPC and will continue enhancing the information provided to partners on their working relations with HPC, with an emphasis on early procurement planning. These actions will permit end of 2011 to have first indications, quantitative and qualitative, for further follow-up.

- DG ECHO ensures a systematic follow up of the audit recommendations at each next audit visit of a partner be it at field or HQ level (every 2 to 4 years). A further reinforcement of this follow-up procedure will be a burdensome for our partners and of limited value.

65. (European Parliament, §152) The EP invites the successor of DG RELEX to complete its ex-post control methodology and promptly address related recommendations made by the internal auditor

Commission's response:

The methodology for ex-post controls has been completed and will be further improved throughout 2011 based on experience gained from carrying out the controls. All related recommendations made by the internal auditor are considered to be implemented.

66. (European Parliament, §153) The EP invites DG ELARG to develop and put in place mechanisms to facilitate the analysis and follow-up of the results of the verification missions and to devote sufficient resources to the analysis of the outstanding final declarations submitted by the Member States that have recently joined the Union

Commission's response:

The concept of verification mission relates to the activities to be performed in the context of the conferral of management and the waiver of ex-ante controls in the candidate countries benefiting of the instrument of pre-accession assistance (IPA), not to the Cooperation and Verification Mechanism.

DG ELARG has harmonised and compiled into a coherent body the full set of instructions providing guidance for the process of conferral of management earlier published.

This global instruction clarifies the concepts, describes the roles and respon