EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 9.9.2010 
SEC(2010) 1011 final 
  
REPLY OF THE COMMISSION TO CHAP TER "EDF" OF THE ANNUAL REPORT 
2009  
EUROPEAN DEVELOPMENT FUNDS  
EN 2   EN REPLY OF THE COMMISSION TO CHAP TER "EDF" OF THE ANNUAL REPORT 
2009  
EUROPEAN DEVELOPMENT FUNDS  
INTRODUCTION  
5. The EDF is designed to help countries which are, by definition, in difficulty, and 
development aid policies must ensure that nation al authorities are in charge of development 
strategies. The National Authorising Officer plays a key part in this  process. In or der to ensure 
compliance with the applicable procedures an d rules, a training programme specifically 
designed for staff in the offices of National Authorising Officers has been run for a number of 
years. 
Chapter I - Implementation of the eighth, ninth and tenth EDFs  
Financial implementation 
6. Although each EDF covers a period of around fi ve years, the implementation of projects 
and programmes and the related payments may cover a longer period wh ich is nevertheless 
limited by the regulations. 
9. The exceptional performance in  relation to global and individual commitments testifies to 
the success of the policy adopted by the Comm ission to speed up programme implementation. 
The increase in outstanding payments in 2009 is explained by the particularly high level of 
commitments in 2007 and by the EDF project cycle,  which lasts on average three years, with 
the biggest payments generally being made in th e first year and at the end of the final year. 
Reliability of the accounts 
15. In some cases migration to the new IT sy stem for project management may have caused 
confusion in the encoding of dates. EuropeAi d has organised a large number of training 
courses in Delegations and at headquar ters to improve use of this system. 
At the end of 2009 EuropeAid's central services  also set up a department to monitor the 
quality of information encoded in CRIS, which should further improve the reliability of the 
data used to prepar e the annual accounts. 
As the Court points out, this had no material impact on the annual accounts. 
17. The Commission accepts this obs ervation and the Authorising Officer has recorded the 
necessary corrections in 2010.  
The Commission notes that the Court found a singl e error of 3.5 million euro identified in a 
sample of 39 contracts which was extrapolated.  
18. The Commission accepts the observation, but notes that the Court found a single error 
identified in a sample of 39 c ontracts which was extrapolated. 
21. The Commission would stress that no paym ent was made without the coverage of 
financial guarantees. The Commission welcomes  the finding that budg et support e ligibility 
was demonstrated in a formalised and structured manner. 
24. The Commission would point out that all the errors in calc ulating the reimbursement of 
advances were rectified befo re the end of the contract. 
EN 3   EN 25. The Commission welcomes the observation that a substantial improvement in the 
demonstration of eligibility can be discerned under 10th EDF owing to clearer assessment 
frameworks that are now routinely used. 
In order to underpin this improvement and eliminate such errors, the Commission 
acknowledges the need to further reinforce the structured approach to demonstrating progress 
in public financial management. The Commi ssion has therefore developed a revised 
framework for monitoring and reporting progr ess in public financial management which 
focuses on results achieved against initial base line expectations. This revised format was 
finalised in June 2010 and country reports using this revised approach will be the basis on 
which eligibility will be asse ssed for disbursements for th e remainder of 2010 and beyond. 
Against this background, the Commission expect s to be able to demonstrate continued 
improvement in the level of non-quantifiable e rrors related to this issue in future DAS 
exercises.  
For the emergency instruments referred to (Vul nerability (V) FLEX facility and Envelope B) 
the Commission maintained a rigorous approach  to assessing eligibility as evidenced by a 
number of such programmes wher e disbursements were not made. 
28. EuropeAid has designed its controls to cove r the full lifecycle of its multiannual projects. 
It believes that these supervis ory and control systems are effe ctive and have significantly 
improved year on year as reflected in the increase in the proportion of en tirely regular 
payments found by the Court in its sample. The recommendations  made by the Court in past 
years have been implemented and many of thes e improvements have been recognised by the 
Court, resulting in significan t elements of the key control systems being judged ‘effective’. 
30 The Commission provides continuous training for staff at headquarters and in the 
Delegations under an extensive training progra mme tailored to the needs of external aid 
management. 
32. The Commission welcomes the Court's recogn ition of a sustained improvement in the 
clarity of the assessment frameworks for the general eligibility conditions. 
The Commission recognises the importance of si milar clarity for specific conditions and 
performance-based disbursements. Where approp riate, the Commission is seeking to formally 
address the specific observations made by the Cour t in this regard by means of revisions to 
the respective Financing Agreements. At the same time, this issue is receiving closer attention 
during EuropeAid's peer review process (Quali ty Support Group) for the consideration of new 
programmes. 
33. The Commission welcomes the acknowledgemen t by the Court of these two important 
contributions to ensuring budget support is delive red in a more structured and formalised way. 
35. In addition to the support and technical a ssistance provided by Delegations to National 
Authorising Officers, EuropeAid ru ns a large number of training courses each year for staff in 
the offices of National Authorising Officers and specialised ministries. Extensive information on procedures is also available on EuropeAid's website. 
36. The Commission notes that the c ontrol tools and procedures esta blished in recent years are 
bearing fruit. Nevertheless, it promises to con tinue its efforts to train staff and disseminate 
information on management and control tools. 
a) The Commission expects that the Financial Management toolki t for the beneficiaries to be 
made available towards the end of 2010. The ma in purpose of the Financial Management 
toolkit is to provide ba sic practical guidance in an easy-to-use format to help beneficiaries to 
comply with the financial management rule s in EC financed external aid actions.  
EN 4   EN 37. Delegations conduct a large number of additional checks to offset the weaknesses of 
National Authorising Departments. 
39. The Commission is pleased that  the Court appreciates the m easures taken by EuropeAid in 
following up audits and carry ing out monitoring missions. 
40. In the zero growth environment for Commission posts unt il 2013, EuropeAid is 
addressing staffing matters in Delegation with an active human resources policy within the 
limits of its competences. The issu e of vacancies mainly concerns contract agents; it is not the 
high turnover as such but rather a matter of finding staff with the appropriate expertise. Their selection, previously managed by HQ, has now been delegated to Heads of Delegation to 
shorten this lengthy process. Simultaneously, EuropeAid continues to request regular new 
reserve lists with an adequate number of candida tes to allow recruitments for all profiles and 
for every category of country. 
44. More than 95% of the 2009 aud it reports by the framework c ontractors were presented in 
the 'post 1 October 2007' format as opposed to about 40% in 2008. (see AAR footnote 38 in 
section 3.1.2.1.2.) 
45. While it is true that sta ffing constraints can ha ve a negative impact on the length of the 
audit clearance process, the vast majority of audit reports must be received before the Commission makes final payment and therefore th e risk that funds beco me irrecoverable is 
extremely limited. 
In 2009 EuropeAid continued its efforts in the audit field an d ran six EDF tr aining courses 
covering 15 Delegations which were atte nded by 180 Delegation st aff members and 220 
outside staff (staff from the offices of Author ising Officers, ministri es, project managers, 
NGOs and audit firms). 
46. Delegations are regularly reminded of the need for timely updating of CRIS Audit 
records, including during audit seminars a nd training. Since February 2010, whenever a 
contract is signed for an audi t (CRIS Contract), the date of signature is automatically 
transferred to CRIS Audit. Also, the new results screen is more complete and easier to fill in, 
and an audit cannot be closed if this field is  not completed. This includes the audit opinion 
and the amount of ineligible e xpenditure. Information on recovery  orders issued as the result 
of audits, is included in CRIS Recovery Order module. Some improvements could be 
considered with a view to consolidation, but w ould require further IT developments. 
Information is available on the am ount of final ineligible expe nditure detected and corrected 
at the time of final payment. In 2009 this re presented 0.7% by value of invoiced amounts. 
47. The Commission considers that AIDCO's intern al audit, despite th e disruption of its 
operational capacity in 2009, was e ffective during that year.Desp ite the post of Head of the 
IAC Unit being vacant between 1 July and 15 November the unit finalised 9 follow-up audits (in relation to the 8 planned). As for new aud its, out of the four planned for 2009, one final 
audit report and two draft audit re ports (equivalent to 85 % of a final aud it report according to 
IAS' methodology) were submitted in 2009. 
50. The Commission believes that the qualitative and quantitative indicators set out in the four 
'assurance' building blocks of the Annual Activi ty Report do indeed provide the evidence to 
underpin the Director Ge neral's statement of reasonable a ssurance. Nevertheless, EuropeAid 
recognises that further work coul d be done to develop specific indicators in relation to the 
multiannual control framework, and work started in 2010 on consideration of possible methodologies for the estimated fina ncial impact of residual error. 
54. EuropeAid has designed its controls to cove r the full lifecycle of its multiannual projects. 
It believes that these supervis ory and control systems are effe ctive and have significantly 
EN 5   EN improved year on year as reflected in the in crease in the proportio n of entirely regular 
payments found by the Court in its sample. The recommendations  made by the Court in past 
years have been implemented and many of thes e improvements have been recognised by the 
Court, resulting in significan t elements of the key control systems being judged ‘effective’. 
(a) The Commission started work on the consid eration of possible methodologies for the 
development of a key indicator for the estimated  financial impact of residual errors in 2010, 
as set out in the Commission re plies to the 2008 Annual Report. 
(b) The Commission started work on the review of  its control strategy in  early 2010, as set out 
in the Commission replies to the 2008 Annu al Report. The Commission will produce a 
Communication on the Tolerable Risk of Erro r in the field of external aid in 2010. 
(c) The Financial Management toolkit will be finalised in 2010 and due consideration will be 
given to the issues raised by the Court. 
(d) EuropeAid will continue its efforts to ensure  that information is encoded in CRIS Audit 
accurately and in good time. 
(e) The amount of ineligible expenditure must be introduced in CRIS A udit before closing an 
audit record (mandatory field si nce February 2010). Information on  recovery orders issued as 
a result of audits, is included in CRIS Recovery Order m odule. Some improvements could be 
considered with a view to consolidation but this would require furt her IT developments. 
Information is available on the am ount of final ineligible expe nditure detected and corrected 
at the time of final payment. In 2009 this re presented 0.7% by value of invoiced amounts. 
55. (a) The Commission recognises the importance of  greater rigour in defining performance 
targets, calculation methods and verification sour ces. This issue is receiving greater attention 
during EuropeAid's peer review process (Quali ty Support Group) for the consideration of new 
programmes. 
(b) The Commission has developed a revised framework for monitoring and reporting on 
progress in public financial ma nagement which focuses on results achieved against initial 
baseline expectations. This re vised format was finalised in  June 2010 and country reports 
using this revised approach will be the ba sis on which eligibility will be assessed for 
disbursements for the remainder of 2010 and beyond.