EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 9.9.2010 
SEC(2010) 1008 final 
  
REPLY OF THE COMMISSION TO CHAP TER 6 OF THE ANNUAL REPORT 2009 
EXTERNAL AID, DEVELO PMENT AND ENLARGEMENT 
EN 2   EN REPLY OF THE COMMISSION TO CHAP TER 6 OF THE ANNUAL REPORT 2009 
EXTERNAL AID, DEVELO PMENT AND ENLARGEMENT 
INTRODUCTION  
6.8. Most of the actions under the IfS involve responding to situati ons of crisis or emerging 
crisis, as well as pre- and post-crisis capacity building. 
6.10. In cases where the unstable political environment creates an increased level of risk, 
mitigating measures are put in place such as ex-post control missions to be carried out by 
Headquarters or Delegations in addition to th e mandatory external audits organised by the 
beneficiaries in the framework of  their contractual requirements. 
6.17. (a) The Commission notes that significantly mo re final payments were included in the 2009 
sample than was the case in previous years.  
6.18. The Commission welcomes the increase in the ‘frequency’ of transactions which the 
Court judges to be entirely ‘regular’ (at 87
 %) in comparison with the figures for 2008 and 
2007. 
6.20. EU Delegations are responsible for the vast  majority of payments  on the Commission’s 
external aid portfolio. For EuropeAid, 79  % of the EU budget’s ongoing portfolio (outstanding 
commitments) was managed by Delegations in 2009. 
6.21. The Commission believes that detective and co rrective measures prior to final payments 
(e.g. submission of reports, external audits, expe nditure verifications and transactional checks 
by Commission staff) are effective.  In addition, potential irregul arities can still be corrected 
ex-post through the launching of ex-post audits  and appropriate reco veries. Nevertheless, 
controls cannot realistically reduce th e risk of financial error to zero.  
6.22. The Commission believes that the multi-annua l supervisory and control systems for the 
External aid, Development and Enlargement pol icy group are effective 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.  
6.23. The Commission welcomes the Court’s observation that ‘EuropeAid has set up a 
comprehensive control strategy’ and that ‘in 2009 EuropeAid continued to bring significant 
improvements to the design and implementation of  its supervisory and control systems’ (see 
paragraph 54 of the Annual Report 2009 on the EDFs).  
6.24. The Commission welcomes the Court’s acknow ledgement of the improvements recently 
introduced. 
6.26. The new proposal for the revision of the Financial Regulation includes the 
acknowledgement that Artic le 56 assessments can only be unde rtaken progressively due to the 
specific nature of these missions which are created ad hoc  and ex nihilo .  
Regarding the CFSP procurement checklists, these have been finalised and are already in use. 
6.27. The Commission has indeed taken measures re garding the closure of old files (both for 
the RRM and the CFSP) already in 2009. Th ese efforts will be continued throughout 2010. 
6.28. The Director-General of DG RELEX estab lished an Action Plan to follow-up on the 
reservation issued in the AAR 2009 and to improve the quality of assurance for 2010. 
EN 3   EN 6.29. The Commission welcomes the Court’ s acknowledgement of the improvements 
introduced which have continue d in 2010. The measures taken th is year include an improved 
methodology for on the spot controls, the provisi on of training as well as improved guidelines 
for the documentation of results of ex-post controls. 
6.31. The Commission considers the ex-ante contro ls both at headquarters and in the EU 
Delegations to be effective. As acknowledged by the Court, the Commission further improved 
its internal systems and completed the set of instructions. In the A nnual Report 2008, the ex-
ante controls were assessed as effective. 
6.32. In 2009, DG ELARG continued to ensure compliance by the nati onal authorities in 
Croatia and Turkey with the conditions of the (partial) conferral of management powers. It 
maintained the ex-ante controls by the Dele gation in order to mitigate the risks. 
Moreover the substantive transaction testing of  the Court did not re veal any significant 
shortcomings beyond some lack of audit tra il to explain fully the decisions taken by 
delegations. 
(a) As more countries are getting ready to apply for conferral of management, DG ELARG 
has updated its internal guidance note of 2008  to take account of lessons learned from 
conferrals of management in 2008 and pr ovided further guidance in 2009 to all actors 
involved in the process. A full 'Conferral of Management guidance' document is currently in 
preparation in time for the appli cations which will be received in  the next couple of years.  
(b) The role of the Head of Delegation endorsi ng a request for funds is clearly specified in 
internal instruction notes issued by DG ELARG. The checks to be performed according to his 
instructions provide the n ecessary basis for endorsing a specific request for funds. 
6.33. The points raised by the Court relate in es sence to possible improvements of the audit 
trail but not to material errors in applying the rules. Most of them were dealt with at the 
beginning of 2010 through internal inst ructions and clar ification notes.  
6.34. Since the Financial Regulati on and the Implementing Rules were modified in 2003, DG 
ELARG has always applied a procedure fo r clearance of accounts as required by this 
amended Financial Regulation. This procedur e has been regularly updated and is now 
replaced by a more substantial c onsolidated "Policy for clearan ce of accounts in decentralised 
management – Phare and Transition Facility" ad opted in June 2010, which elaborated in much 
more detail how flat rate corrections for syst em weaknesses could be applied where needed 
(such as for the clearance-of-account of  programmes under exte nded decentralised 
management). 
In 2009 alone, DG ELARG closed 375 Final Declar ations, i.e. a much higher number than 
new programmes launched. There remain some cas es for which the contradictory procedure 
takes time and the closure may take several years to complete. 
6.38. The Commission considers that the ex-post controls for decentralised management are 
fully effective. It accepts that the ex-post cont rol function for centralised management has not 
yet been fully launched.  
These further ex-post audits carried out by a se parate horizontal unit and addressed in this 
section are only intended to provide the Author ising Officer by Delegation with an additional 
assurance over and above the require ments of the Financial Regulation. 
6.39. This new strategy adds an  additional layer to give fu rther assurance without being 
required by the Financial Regulation.  
EN 4   EN 6.42. The audit results are available for and us ed in partner assessments. The partners’ 
accreditation also receives input gathered from  the monitoring of projects undertaken and 
gives consideration inter alia to financial, le gal and operational aspect s of the partner. The 
assessment and audits often result in recomme ndations for the partners to improve their 
systems of internal control. Therefore, many aud it reports have directly led to changes in the 
status accorded to partners’ control systems.  The current system of audits and partners’ 
assessment put in place by DG ECHO has resulted in  a control system that gives a balanced 
and effective view of the partne rs’ internal control systems that  aids the prevention of errors 
and irregularities. 
6.43. Although fully sufficient for the establishmen t of a financing decision, the objectives as 
set out in funding decisions for Humanitarian Ai d must be seen together with the detailed 
information on identified needs, the proposed st rategy for and the necessary components of a 
convincing response which are contained in the supporting document of the decision.  
With regard to the complexity of crises situat ions, the multitude of needs and the availability 
of other donors, the detailed needs to be addressed together with the specified response is set out in the proposals submitted by DG ECHO's pa rtners pursuant the Commission's financing 
decision. The Commission considers that the proj ect selection procedures put in place by DG 
ECHO reflects the specificities of humanitarian aid and provide high guarantees with regard 
to the quality of the aid delivered by ECHO partners. Nevertheless, the Commission accepts 
that the documentation of the proposal evalua tion can be further improved, streamlined and 
standardised. 
6.44. The Commission welcomes the Court's overall conclusion.  Concerning Humanitarian Procurement Ce ntres (HPC) the Commission welcomes the 
recognition of their overall usefulness.  
6.45. The Commission welcomes the Court’s asse ssment and confirms its commitment to 
continuing improvement of its follow-up procedure.  
6.48. The Commission carried out a survey to identify the success factors which influence the 
quality of annual activity reports. As a res ponse to the factors identified, a number of 
measures were implemented in order to improve  the quality of the evidence presented in 
support of the assurance and the readabilit y of the reports. The Commission therefore 
welcomes the Court’s positive assessment of th e annual activity report s and will continue 
working towards improving them as a source of evidence for the DAS. 
6.50. The Commission welcomes the Court’s fi nding that the EuropeAid Annual Activity 
Report is ‘clear and informative,  in particular through its use of quantitative indicators’ (see 
EDF report, paragraph 50). The Commission be lieves that the qualitative and quantitative 
indicators set out in the four ‘assurance’ bui lding blocks of the EuropeAid Annual Activity 
Report do indeed provide the necessary evidence to underpin the Director-General’s statement 
of reasonable assurance and give an accurate assessment of financial management in EuropeAid in relati on to regularity.  
CONCLUSIONS AND RECOMMENDATIONS
 
6.52. The Commission has designed its controls to cover the full lifecycle of its multiannual 
projects. It believes that these supervisory and control systems for the External aid, 
Development and Enlargement policy group are effective and have significantly improved 
year on year as reflected in the increase in the proportion 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 these improvements ha ve been recognised by the Court, resulting 
in significant elements of the key cont rol systems being judged ‘effective’. 
EN 5   EN 6.53.  
(a) The Commission accepts the recommendation of  the Court and would like to specify that 
it is already taking measures to address al l recommendations receiv ed regarding ex-post 
controls in DG RELEX.  
(b) The Commission agrees with the Court and woul d highlight that considerable efforts were 
already undertaken in 2009 in orde r to clear the backlog of old pr ojects to be closed. In fact, 
75 % of all RRM contracts open at the beginning of 2009 were  closed by year-end. These 
efforts will continue throughout 2010. 
(c) As more countries are getting ready to a pply for ‘conferral of ma nagement’, DG ELARG 
has updated its internal guidance note of 2008 to take account of lessons learned in 2008 
conferrals of management and provided further advice in 2009 to  all actors involved in the 
process.  
(d) The Commission has already taken the necessary  steps to ensure that  the checks carried 
out by staff in the operational and the finance a nd contract sections are documented in more 
detail.  
(e) There are regular checks on the quality of data  in CRIS, in particular ahead of extracting 
relevant information for the Annual Activity Repor t. The IT management tool where data is 
entered also contains embedded controls of da ta quality. Moreover, the Commission is putting 
great emphasis on trai ning of CRIS users. 
(g) Closures have been a priority for DG ELARG since 2007. In 2009 alone, DG ELARG 
closed 375 Final Declarations. 
(h) The Commission is already working to furt her improve and harmoni se the centralised 
documentation of its assessment of proposals. The introduction of a standardised evaluation 
report is one of the options considered. 
(i) Although the Court’s suggesti on is useful the current prior ities and resource constraints do 
not allow this recommendation to be pursued in the near future. 
6.54. In response to the Court’s recommendations EuropeAid will: 
- consider possible methodologies  for an indicator of the es timated financial impact of 
residual error; 
- assess the cost-effectiveness of its controls in the context of the review of the Tolerable 
Risk of Error; 
- finalise and disseminate a Financial Manage ment Toolkit for implementing organisations; 
- continue efforts to ensure correct an d timely recording of audit information; 
- strive to improve the information t echnology systems supporting its audit work; 
- improve the design and screening of budget support payment criteria through revised 
guidelines and peer review pro cesses (Quality Support Group); 
- implement a revised public finance manageme nt monitoring and reporting framework for 
budget support payments. 
Follow-up of Special Report N° 3/2006 on the Humanitarian Aid Response to the 
Tsunami  
6.65. Design of the Cost of Observed Results (C OR) model will start in 2011 once it has been 
built into an IT tool (Hope/e-tool ). Following testing and data input  it is expected that use of 
the model can be planned to start in 2012. 
EN 6   EN 6.66. The Commission has fully supported the Court’s requests for obtaining necessary 
supporting evidence from UN organi sations, and this principle is  clearly stipulated in the 
Financial and Administrative Framework Ag reement (FAFA). Where the Commission is 
informed by the Court of difficulties encoun tered in this respect, it can approach its 
counterparts at the UN in order to find a soluti on and to ensure that the Court receives the 
information required. 
6.67.  (a) The Commission’s mid-term review of th e Consensus action plan is ongoing and final 
results should be available by year-end 2010. 
(b) Integration of the MIC is alr eady giving rise to s ynergies such as the availability of real-
time information at the onset of natural and other disasters and clos er cooperation between 
DG ECHO’s technical experts on the ground and Me mber State experts despatched for Civil 
Protection activities. 
(c) The Commission welcomes the Court’s r ecognition of the cont ribution of the new 
instruments to the transition process. To reinforce these efforts the Commission has established an interservice group on transition in order to foster  a common view, coordinated 
approaches and common positi ons on policies for ‘transition situations’ where humanitarian, 
development and stabilisation inst ruments are present. The aim is to improve both policy and 
implementation of programmes on the ground and to contribute to the international policy 
debate on transition situations. 
(d) The Commission agrees with this statement by the Court and intends to be in a position to 
provide first results by the end of 2011. 
Follow-up of Special report N° 6/2006 on  the Environmental Aspects of the 
Commission’s Development Cooperation  
6.71. The delay in preparing the strategy was due to a change in priorities whereby the 
environment strategy was no longer to be issued  as a stand-alone communication, but as an 
annex to a wider communication on mainstr eaming all cross-cutting issues (not only 
environmental), scheduled to be adopted by the end of 2008. This approach was proposed 
with a view to reducing the number of Co mmission communications. However, this new 
approach was eventually dropped because of difficulties in putting different mainstreaming 
subjects together in one document and out of r ecognition of the need to have a more focused 
approach on the environment. A meeting with the Member States (and civil society) took 
place in September 2009 to jointly start the preparation of the new strategy. 
6.72. Key quantitative indicators in relation to the existing environmental integration strategy 
were put in place — as requested by the Court — and have been subject to monitoring since 
2006. These indicators relate to the application of  tools such as environmental profiles in the 
preparation of country and regi onal strategies, and environmenta l assessments in relation to 
programmes and projects, the amount of training  offered and number of staff trained. As far 
as qualitative indicators to evaluate envir onmental integration in project formulation are 
concerned, these were defined and applied in a fi rst pilot, ex-post assessment carried out in 
2009. 
6.73. In the context of the Commission’s ‘zero growth’ staffing policy, and as acknowledged 
by the Court, EuropeAid has put the emphasis on strengthening non-specialist staff skills rather than carrying out a specific review of its in house capacity. It has been implementing 
this approach consistently  during the reference period. 
EN 7   EN 6.74. The ex-post review — which was a pilot exercise — was part of a drive towards 
continuous improvement at the project formulation stage.  
6.75. Environmental mainstreaming training is now compulsory for all EuropeAid 
Headquarters operational staff and for all EuropeAid operational staff departing for 
delegations. This was one of the best-attended  training courses during 2009 with more than 
400 participants. A larg e programme of training seminars  has been carri ed out since 2005, 
including some 50 regional seminars held in  cooperation countries and a larger number 
delivered at Headquarters.  
6.76. An evaluation of environmental mainstream ing in development cooperation is planned 
for 2011. A central database of individual projec t evaluations is currently under development 
and will be operational in 2011. Result-oriented monitoring (ROM) assessment reports focusing on environmental projects were carri ed out for Latin America in 2005 and 2009. 
Country-wide evaluations of EC cooperation have addressed envi ronmental aspects as part of 
cross-cutting issues. 
6.77. EuropeAid has improved its capacity to id entify and track expenditure on environmental 
projects, but it remains a very complex ta sk to calculate exac t amounts allocated to 
environmental objectives within actions that pr imarily target other policy goals. Discussions 
with OECD/DAC are ongoing to see how qualitativ e data based on Rio markers can best be 
turned into financial data. 
6.78. The quality of Country Environmental Prof iles (CEPs) and their influence on Country 
Strategy Papers (CSPs) is indeed  still variable but some CEPs  are being updated on the basis 
of the environment integration guidelines and in order to better address climate change issues, 
while the guidelines for the mid-term review have also led to great er consideration of 
environment and climate change issues in the C SPs, especially in the countries covered by the 
Development Cooperation Instrument. 
6.79. New Budget Support guidelines will be issued in 2011 and will include new guidance on 
cross-cutting issues. However, notwithstandi ng the inclusion of specific environmental 
indicators, policy dialogue on environmental i ssues takes place in many countries within the 
Joint Donor Frameworks th at follow General Budget S upport operations. Strategic 
Environmental Assessments requi re consideration of local c ontext and the engagement of 
partner countries in order to be eff ective and therefore cannot be imposed. 
6.81. EuropeAid has developed information not es and guidance documents which make 
references to supporting community-based natural resources management among other 
aspects. A number of EC programmes have  promoted natural resources management 
initiatives at local level. The Thematic Programme for the Environment and Sustainable Management of Natural Resources, including Energy, makes specific reference to working 
with local communities and this was taken up in calls for proposals inviting concept notes that 
took into account ‘securing tenure and right s of local communities, including indigenous 
populations’ in the context of forest governance. 
6.84. EuropeAid has developed a number of in formation notes to promote sustainable 
development with emphasis on community-based  approaches. In addition, the Environment 
Thematic Programme makes specific reference to working with local communities, and this 
was among other things taken up in calls for pr oposals inviting concept notes that took into 
account ‘securing tenure and righ ts of local communities, including indigenous populations’ 
in the context of forest governance.  
6.85. The EC study on sector-wide a pproaches in environment and natural resources has now 
been completed in close coopera tion with a number of EU de velopment agencies and a few 
EN 8   EN EC sector policy support progra mmes in this area ar e now under way. This is clearly a new 
development with respect to th e past. The establishment of EU  Trust Funds may now become 
possible under the proposal for a revision of  the Financial Regulation and Transfer 
Agreements have been put in place to allo w EU Member State cont ributions to the EC-
managed Global Climate Change Alliance (GCCA). Innovative financing mechanisms for the environment also include the establishment of private-public partnerships and the blending of 
loans and grants. 
6.86. The Commission has continued to make use of Member States’ an d private companies’ 
expertise in implementing its environmental strategy. 
6.87. The Commission welcomes the recognition of the significant progress made in 
mainstreaming environmental issues in the Co mmission’s external aid portfolio. The ex-post 
review — which was a pilot exercise — was pa rt of a drive towards continuous improvement. 
This process included the revision of the peer  review (Quality Support Group) procedures 
introducing clearer indications on addressing e nvironmental aspects in the preparation of 
project proposals. 
6.88. The Commission and EU Member States ar e working jointly to produce a first draft 
environment strategy at the beginning of 2011, for adoption in the second half of 2011.  
The Commission intends to carry out further work  on indicators to monitor the effectiveness 
of a new environment strategy and to assess en vironmental integration in its operations. An 
overall evaluation of environmental mainstream ing in development cooperation is planned for 
2011.
 If the results of the evaluation are available on time, they will be fed into the design of 
the new EU strategy. New Budget Support guide lines are also planned for 2011 and will 
include new guidance on cross-cutting issues. In  carrying out this work the Commission will 
continue to seek close coordi nation and harmonisation with EU Member States, in support of 
the aid effectiveness agenda.