EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 10.9.2010 
SEC(2010) 1012 final 
  
REPLY OF THE COMMISSION TO THE SPECIAL REPORT   
"AUDIT OF THE CLEARANCE OF ACCOUNTS PROCEDURE"  
EN 2   EN REPLY OF THE COMMISSION TO THE SPECIAL REPORT  
"AUDIT OF THE CLEARANCE OF ACCOUNTS PROCEDURE"  
EXECUTIVE SUMMARY  
III. The Commission considers that within the overall framework for the management and 
control of agricultural e xpenditure, the new work required fr om the certification bodies is an 
important and useful element for the purpose of  gaining reasonable assu rance on the legality 
and regularity of the underlying transactions. These new requirements were first introduced 
for financial year 2007 and while modified a nd expanded for financial year 2008 have, since 
then, in substance remained unchanged. The new requirements were also discussed with the 
Certification Bodies in an annual conference. 
As a result the situation in financial year 2009 (after the end of the audited period) has 
improved substantially for all the new elements of assurance mentioned (i.e. those concerning 
legality and regularity of payments). 
IV. The conformity clearance procedure is designed to exclude expenditure from EU 
financing which has been incurred in a way that ha s infringed EU law. In contrast, it is not a 
mechanism by which irregular payments to be neficiaries are recovered which, according to 
the principle of shared management and the rule s of Article 9(1)(a)(ii i) of Council Regulation 
(EC) No 1290/2005 and Article 53b(2)(c) of the Financial Regulat ion, is the sole 
responsibility of Member States. Where irregular payments to i ndividual beneficiaries are or 
can be identified as a result of the conform ity clearance procedures, Member States are 
required to follow them up by recovery actions against these beneficiaries. 
Article 31(2) of Regulation (EC) No 1290/2005 pr ovides that financial corrections shall be 
determined on the basis of the nature and grav ity of the infringement  and of the financial 
damage caused to the EU. Where possible, the am ount 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, in accordance with the legal requir ements, take account of the severity of the 
deficiencies in the national control system in or der to reflect the financial risk for the EU. The 
Commission's system thereby establishes a cl ear hierarchy of methods to be used and 
therefore, the Commission does not agree that in a given case there are " options" open to it as 
to the type of financial correction to be a pplied. The Commission cons iders that there is a 
valid link between the am ount of the correction and the amount of irregular payments made as 
a result of the deficiencies in the system. Conformity clearance includes cases where the deficiencies found are limited to the control sy stem in place and cannot be linked to individual 
irregular payments to beneficiar ies but, because of th e flat rate approach  taken for control 
deficiencies, the risk to the EU budget is  covered, e.g. when a Member State does not 
accomplish the minimum number of controls. 
Moreover, as agricultural expe nditure is implemented under shared management, the Member 
States are better placed than the Commission to  assess and provide evidence of the real 
financial loss or risk for the EU budget. The operational handbook explici tly recognises this 
and requires the Commission to take such eviden ce, if reliable, into account. A more precise 
calculation of the financial loss  for the EU budget therefore requi res the active co-operation of 
the Member State concerned at all levels of the conformity clearance procedure because only 
the Member State has all the necessary informa tion to make such a calculation. Unfortunately, 
however, despite the Commission's requests, Member  States often do not avail themselves of 
this possibility. Since the reform of the syst em in 1996, flat-rate co rrections account for 
EN 3   EN slightly less than 70% of the amount of total corrections by value. However, the Commission 
considers it to be more appropriate to look at  the number of cases with  a financial correction 
where a flat-rate was used. Here, only 45% of al l cases are based on a flat-rate approach and, 
if the last ten conformity deci sions are taken, this percentage  drops further to 37%. This 
demonstrates the Commission's continuous effort to limit the use of flat-rates as much as 
possible. 
Since the methodology used by the Commission to calculate financ ial corrections is based on 
its best estimate of the risk to the EU budget, it cannot by definition amount to a sanction. 
As part of this effort, the Commission recentl y set out to Member States the conditions under 
which it is prepared to limit the amount of a ny financial correction to the error rate found by 
the Member State, in the transactions at final beneficiary level and reported in its control statistics for the aid scheme concerned. 
Financial corrections are an accounting correction and not a sanction on Member States' 
authorities. The flat rate me thodology has been upheld by the C ourt of Justice as being in 
conformity with the legal rules governing the c onformity work,. In particular, the Court of 
Justice has confirmed that it is not up to th e Commission to undertake the checks necessary to 
put a precise figure to the losses incurred, but rather it is for the Member State to show that 
the Commission's estimate was excessive.  
The use of flat rate corrections was also endorsed by the European Parliament in its 2007 
discharge resolution (§ 83) for cases where Me mber States do not comply with their legal 
obligations.  
Alternative methods for the calculation of financ ial corrections referred  to by the Court would 
require a substantial increase in audit resources  which would not be in  line with any cost-
benefit analysis.  
V. The financial clearance decision is taken ar ound six months after the end of the financial 
year in question. Through this decision, th e Commission establishes the amount of 
expenditure recognised as chargeab le to the EU budget fo r that year. The fact  that the decision 
is without prejudice to subse quent conformity decisions im posing financial corrections on 
Member States is explicitly provided for in Article 30 of Regulation (EC) No 1290/2005 
which has the same legal status as the Financia l Regulation. Moreover, in substance, it is fully 
compatible with the Financial Regulation, which for any other expenditure  provides that the 
Commission can make ex-post check s up to 5 years after the disc harge decision on the year in 
which the final payment was made. Otherwise, all budgetary expe nditure would be  considered 
provisional until an ex-post check is made  or the 5-year period has lapsed.  
The amount of expenditure which is likely to be excluded from financing by future 
conformity decisions is disclosed as a conti ngent asset in the Commission's accounting system 
and in a note to the financial statements. Together with the fi nancial clearance decision, this 
disclosure provides the Europ ean Parliament and the Council with the information they 
require for the discharge procedure. 
The observation of the Court relates to a funda mental principle of the clearance of accounts 
systems as provided for in its current legal basis, which the Commi ssion is bound to apply 
(since 1996). It was not objected to by any of the parties interv ening in the adoption of the 
legislation. As such the observa tion could be best considered  in the context of a possible 
review of the legislation. 
VI. The Commission considers the current system to function well and to achieve its overall 
objectives. It will, however, continue to improve its oper ations in practice and, where 
EN 4   EN necessary, submit appropriate proposals for furt her improvements to the European Parliament 
and the Council for the post-2013 period.  
INTRODUCTION  
2. Article 42(1) of the Implem enting rules dealing with the implementation of Articles 53b 
and 53c of the Financial Regulation defines that  the purpose of the clear ance of accounts shall 
be to ensure that expenditure by the Member States in the cont ext of shared management […] 
and which may be chargeable to the EU budget is in order and c onsistent with the applicable 
EU rules. 
5. The Belle working group set up by the Co mmission in 1991 was mandated to study the 
operations involved in the clearance of account s procedure in order both to assess their 
effectiveness and efficiency in achieving th e general aims of the CAP and the Financial 
Regulation and, if necessary, to propose legislative and/or admi nistrative means of enforcing 
those operations.  
(b) Each financial correction included in a conf ormity decision is linked to a specific financial 
year which is identified in the Annex of this decision. 
BOX 1 
(b) The checks undertaken by the PAs are ba sed on management and control systems for 
which the minimum requirements are laid down by the Commission. 
6. Under the reformed system, the financial cl earance decision is adopted by 30 April of the 
year following the financial year concerned.  Thus the reformed clearance of accounts 
procedure has significantly accelerated the timescale for clearing the PAs' accounts.  
PART I - THE FINANCIAL  CLEARANCE OF ACCOUNTS 
21. Reliance on the work of other auditors, wh ere judged appropriate, is foreseen in 
International Auditing Standards and the Comm ission's guidelines. The CBs may rely on the 
work of the internal audit units (IAU) if th ey have sufficiently verified such work.  
An audit mission in November 2009 to the Da nish CB, covering primarily financial year 
2009, did not reveal any major deficiencies in either body with regard to working documents 
and checklists.  
With regard to the Court's obs ervation in footnote 9 that in Denmark the IAU was involved in 
the selection process of the CB, which was finally contracted di rectly by the PA after proposal 
by the IAU, it should be noted that the CB's c ontract was renewed for financial years 2009 
and 2010 with the signatory be ing the Competent Authority. 
22. In the majority of cases the Court’s findings relate to weaknesses in the CBs’ 
documentation of their audit work, rather than the work itself. 
CBs should compile sufficient audit evidence in support of their findings. The Commission 
considers this issue as part of its risk analys is, although it can only assess this directly during 
its visits to the CBs selected for audit. A lthough the exact layout a nd content of working 
papers and checklists should be left to the pr ofessional judgment of CBs, the Commission has 
made (and will continue to make) recommendations in this key area where it finds weaknesses. 
Beyond the general requirements for substantive te sting of expenditure according to guideline 
No 3, CBs are required for SPS to check that the payments can be derived from the underlying entitlements. However, there is no re quirement to verify within the substantive 
testing the entitlements as such.  
EN 5   EN 24. The guidelines have been revised for financial year 2009 to further clarify how the test of 
completeness and accuracy of the debtors' ledge r and Annex III/IIIA of  Regulation (EC) No 
885/2006 should be carried out and reported upon. An analysis of the certification reports 
with regard to financial year  2009 shows that since the Court’s audit improvements have been 
made in this respect.  
In addition to the work carried out by the CBs, the Commission has over the past three years 
audited 14 PAs in 11 Member States as regards their follow-up of irregularity cases and their 
reporting under Annex III of Regulation (EC) No 885/2006. In general, the PAs have adequate procedures in place to protect the financial interests of the European Union. Deficiencies found during these audits are be ing followed in the context of conformity 
clearance procedures. 
26. The Commission has recentl y put forward a system
1 by which Member States can, from 
2010, reinforce the overall framework for gain ing reasonable assurance on legality and 
regularity of transactions at th e level of final beneficiaries. To this end, CBs should extend 
their work beyond the present requirements by fully reperforming, for a given expenditure 
population, a representative sample  of transactions which the PA in question has checked on-
the-spot. The work would cover the entire ha ndling of the file, from receipt of the aid 
application to the calculation and execution of the final payment. 
28. The Commission agrees that further improve ments can and should be made and it is 
regularly raising the issue with the Member Stat es. However, there is no requirement to test 
and assess each key and ancillary contro l that should be in place at the PA. 
29. In the view of the Commission, an opinion on the internal control procedures would not 
require specific testing and as sessment of the reliability of each key and ancillary control. 
Regulation (EC) No 885/2006 does not require the CB to concl ude on whether all possible 
controls are operational, but it only requires the CB to review the paying agency's compliance 
with the accreditation criteria (Anne x I of Regulation (EC) No 885/2006).  
However, CBs would be required to assess th ese aspects under the ne w system described in 
the Commission's reply to point 26.  
30. Where necessary the Commission has pointed out in formal communi cations to MS that 
delegated bodies shall also be identified and tested. There is, however, no requirement to visit 
and test every delegated body every year.  
31. The modification aimed at clarifying obliga tions which already existed before and at 
improving the reporting from the CBs.  
32. The Commission considers that th e revised guidelines adequately  specify the full scope of 
the audit task. PAs are expected to reconc ile all information in their submitted annual 
questionnaires to the underlying database inform ation. CBs are to check that this has been 
done and to indicate whether discrepancies ha ve been found. They should also check the 
existence and adequacy of the audit trail. 
To test the accuracy of the data base, CBs must take a sample of at least 20 field inspection 
reports per set of statistics and check that the da ta they contain has been correctly entered into 
the database. 
                                                 
1 Document D/413722/2009. 
EN 6   EN CBs are required to clearly conclude on the above el ements. Notwithstanding the 
improvements in this area in financial year  2009, the Commission will  consider whether 
further clarification in the guidelines is needed. 
33. (a) PAs are expected to perform this reconciliation. CBs are expect ed to check that it has been 
done properly. This was made very clear to Member States in the summary report for 
financial year 2008
2 and recommendations have been made in this respect to Member States 
(PAs and CBs) where appropriate. As a result, the Commission considers that the situation 
improved for financial year 2009. According to th e reports of the CBs for financial year 2009, 
a complete reconciliation was accomplished for the majority of paying agencies. 
(b) – (c) Joint reply to points (b) and (c): The Commission acknowledges the deficiencies identified by the Court concerning financial 
year 2007 and 2008 and has raised  these issues with the Memb er States concerned. As a 
result, the Commission considers that the situation has improve d significantly for financial 
year 2009. An analysis of certification reports  shows that in around 90% of cases, the CBs 
carried out the work at the levels require d by the Commission's guidelines, with a few 
exceptions. 
34. For the reasons set out below, the Commission takes the view that the shortcomings 
identified do not place significant limitati ons on their use for assurance purposes by the 
Commission: 
– The error rates established by the Commissi on on the basis of the control statistics 
provided by the Member States are consistent over several years. 
– An analysis of the certificatio n reports with regard to fina ncial year 2009 shows that clear 
improvements have been made by CBs. 
– The statistical information is the result of a very large sample of applications checked
3 and 
even if a safety margin of a 25 % increase in the error rates were applied, the residual error 
rates would still be below 2 %. 
– The error rates established by the Court in it s DAS 2008 exercise are consistent with the 
residual error rates established by the Commis sion on the basis of the control statistics 
provided by the Member States.  
With regard to the sampling methodologies used  by the PAs in selecting claims for on-the-
spot checks, random based samples are nor mally required. Althou gh the random based 
samples do not follow a statistical methodology su ch as monetary unit sampling (MUS), the 
samples are normally large enough to provi de reasonable assurance as to their 
representativeness. 
35. The Commission acknowledges the deficiencies  identified by the Court concerning 
financial years 2007 and 2008 and it has already disclosed the information in the AAR of 
those years. It has raised these issues with th e Member States concerned and considers that, as 
a result, the situation has impr oved significantly for financial y ear 2009. An analysis of the 
CBs reports shows that they carri ed out the work at the levels required by the guidelines, with 
                                                 
2 AGR/2009/80073-00-03/EN of 3 April 2009 
3 SPS/SAPS: 600 315 applications checked; animal s: 798 119 animals checked (suckler cow premium 
and special beef premium); export re funds: 13 023 declarations checke d; 275 491 checks carried out on 
beneficiaries for area related rural development measures (cfr. Annual Activity Report 2009 of DG 
Agriculture and Rural Development, footnote 33, page 61). 
EN 7   EN a few exceptions, in over 90% of the IACS cases (both Funds), concluding in 92% (EAGF) 
and 87% (EAFRD) of these case s that the quality of the on -the-spot checks was at least 
adequate. For the non-IACS populations, CBs met the work requirements, with a few 
exceptions, in over 80% of cases, and conc luded similarly in 90% (EAGF) and 87% 
(EAFRD) of all cases. 
The Commission considers that these modifications  have been introduced (the English version 
of the revised guidelines was introduced alr eady in July 2008) sufficiently in advance to 
enable CBs to comply with the new guidelines. 
36. The Commission agrees that further improve ments can and should be made and it is 
regularly pursuing the issue with the Member States. 
37. Even though the Commission agrees that, in gene ral, a re-performance of a previous check 
provides a better assessment of the quality of the on-the-spot checks, it is still possible to 
evaluate the control environment through inspect ions accompanied by the CB. In certain cases 
it may also not be possible to re-perform a ch eck. These problems are inherent in many ex-
posts controls performe d by external auditors. 
Moreover, accompanied field inspections woul d reduce the administrative burden on the 
farmer. 
38. For the reasons set out in its  reply to point 34, the Commi ssion considers that the Court’s 
findings do not place significant limitations on the use that can be made of the control 
statistics for assurance purposes. 
The new system for the reinforcement of assuranc e referred to is not a reaction to weaknesses 
in the work of the CBs but, rather, an attempt to reinforce the assurance already given by the 
current system. 
41. By issuing the guideline No 4 on the statem ent of assurance, a common methodology is 
provided on how to draw up the SoA. It sets ou t the applicable legal provisions and provides 
recommendations from the Commission with a vi ew to ensuring that the SoAs are drawn up 
on the basis of comparable criteria. 
43. The revised guideline on the SoA was presented to  the Member States for the first time in 
June 2008 and finalised in July 2008. This was su fficiently in time for the directors of the PAs 
to prepare their SoA to be signed by Janua ry 2009. An earlier revision was not possible 
because the results of the previous year's  exercise first needed to be evaluated. 
The Commission considers that th e guidelines are adequately de tailed. Further to analysing 
the SoAs received for financial year 2008, the guideline was further revised. The 2009 
revision treats in separate annexes how to carry  out the analysis of the control statistics 
explicitly requesting detailed information wher e the error rate in a population is above 2%, 
where the comparison with the situation in the previous financial year shows a significant 
deterioration or, where the error rate in a populat ion is implausibly low and how to deal with 
the requirement to disclose the basis on which the statement of assurance is drawn. Templates 
for transmission of control statistics were pr ovided by the Commission in order to ensure 
uniformity of the data supplied by th e Member States to the Commission. 
44. The requirement that each statement of assurance should be accompanied by a list of the 
documents examined and the work performed by the director of the paying agency before 
signing his statement, was fulfilled in 75 out of  82 cases for financial year 2008. The analysis 
of the control statistics was pr ovided in 32 cases and the compar ison with the situation in the 
previous year in 24 cases. 
EN 8   EN The Commission analysis shows that, for the fi nancial year 2009, the s ituation improved: all 
88 PAs provided a list of the documents examined  and a summary of the work performed and 
83 PAs provided the required analys is of the control statistics. 
45-46.  The assurance model underlying the SoAs follows  from the Commission's guidelines and was 
discussed at the first meeti ng with the directors of the PAs in December 2007. At that 
occasion, the Commission also e xplicitely stated that the so-called cascade model based on 
"sub-SoAs" was insufficient and even discouraged its use, in particular for the execution of 
payments. 
47. For financial year 2008, the analysis of the control statistics was provided in 32 cases and 
the comparison with the situati on in the previous year in 24  cases. For financial year 2009, 
guideline No 4 has been revised with a view to  improving this situation. In consequence, for 
this financial year, the required analysis of th e control statistics was carried out by 84 out of 
88 PAs. 
48. The analysis of the control stat istics is required to be carried  out at aid scheme level, the 
threshold above 2% (at the leve l of a population) giving an indi cation for consideration of a 
reservation. However a reservati on is only required if the foll owing factors are cumulatively 
fulfilled: 
- the examination of the qualitative aspects lead s to a finding of significant deficiencies in a 
national control system as defined in point 4.2 (Q ualitative aspects ) of guideline No 4 and  
- the amount of undue payments is estimated to  exceed 2 % of the total payments made in 
the financial year in questio n under any of the populations  referred to in point 4.3 
(Quantitative aspects) of guideline No 4 and 
- it has not been possible to c ounter the impact of the deficiencies by corrective measures. 
The director of the PA is expected to make a reservation only if all these three conditions are 
fulfilled. 
49. For the reasons set out in its reply to  point 34, the Commission does not question the 
reliability of the control statistics.  
51. It is correct that the work performed in th e context of the certific ation would to a large 
extent provide an adequate basis also for the opinion on the SoA.  
However, the CB should in addition chec k: whether the supporting information 
accompanying the Statement of Assurance is ad equate and it should provide an opinion: 
• (if applicable) whether the Paying Agency Di rector's reservations have been correctly 
disclosed; 
• (if applicable) which audit population(s) should, in its opini on, have received a 
reservation, but did not; 
• (if applicable) which aud it population(s) did receive a reservation that was not 
required (i.e. the underlying issue( s) was/were not material); 
• whether, in its opinion, the SoA complies in all material respects with Article 3 of 
Regulation (EC) No 885/2006 (Commission guideline No  4) for the financial year 16/10/xx to 
15/10/xx+1. 
Thus, the Commission is of the view th at the opinion provides added value. 
In financial year 2009, the French CB did follow the model required by guideline No 7.  
EN 9   EN 52. From financial year 2009 onwards, the CBs have been better placed to assess this 
information because the revised guideline No 4 includes templates to be completed by the PA. 
PART II - THE CONFORMITY CLEARANCE OF ACCOUNTS 
54. The Court's graph 1 shows when the various conformity clearance de cisions were adopted 
rather than the amounts excluded in respect of each financial year. The financial corrections 
on expenditure for each financial year, including estimates of future corrections, are shown in 
Commission Graph 1. 
56. The Central Risk Analysis serves as a planning  tool. In fact agricult ural expenditure of the 
year N-2 was allocated to 76 different audit fi elds, each audit field is subject to a similar 
management and control system. As the expend iture under these audit fi elds was effected by 
different paying agencies, for planning purposes , 1 807 audit field/paying agency pairs were 
identified. For these audit field/paying agency pa irs the following risk factors are taken into 
account: materiality (amounts of de clared expenditure), last aud it year (period elapsed since 
the last audit of the measure in question), inhe rent risk of the measure in question, control 
system risks (risk associated with the control sy stem), paying agency ri sk (risk related to the 
paying agency) and finally taking into acc ount the OLAF risk (related with OLAF 
denunciations and irregularities) an d the Court of Auditors risk (r elated with the findings from 
the ECA). The composite risk is calculated by audit field/paying agency pair by multiplying 
materiality and the "weighed risk" which is a weighted average of  the various risk indicators 
mentioned above. Based on the composite risk, th e ranking of the audit field/paying agency 
pairs is established for the whole Directorate. 
57-58.  For financial year 2009, the part of the expe nditure covered by the Commission's conformity 
audits increased to 61%
4. The Commission considers this to be an impressive and sufficient 
coverage and, therefore, does not consider that, as a result of the risk analysis, only a limited 
number of measures and PAs identified as pr iorities are subject to conformity audits. 
Moreover, for direct aids, which in financial year 2009 accounted for 72% of total agricultural 
expenditure and are covered by the IACS, a ll Member States with the exception of 
Luxembourg were audited ove r the past three years. 
59. The 24 month rule is a deliberate choice of the EU legislator with a view to ensuring legal 
certainty for Member States. It is inherent in the application of this rule that certain expenditure cannot be subject to financial corrections although it ma y be affected by 
deficiencies. The Commission has repeatedly proposed an extension of this time limit, but 
these proposals were turned down by both the Council and the European Parliament. 
60. The Commission considers that a complete cove rage of all audit ar eas over, say, a three 
year period would not be possible even with significantly increased resources, and would go 
against the single audit concept
5. It would be inefficient to  devote human and financial 
resources to the audit of audi t field/paying agency pairs with  limited expenditure and a low 
risk. Therefore, the Commission carri es out its conformity audit work on the basis of a central 
risk analysis, which incorporates all the n ecessary risk factors and is in line with 
internationally accepted auditing standards. 
BOX 3 
                                                 
4 26.5% for "Intervention on agricultural markets" , 70.9% for "Direct aid" and 43.6% for "Rural 
development". 
5 This would require the audit of some 1.800 audit areas over this time span in order to avoid that certain 
parts thereof can no longer be corrected due to the 24 month rule. 
EN 10   EN In the case referred to by the Court, the Comm ission has reacted on time to the information 
received and the risk has been correctly covered. Therefore, the Commission does not 
consider that the EUR 100 million referred to by the Court should have been subject to a 
financial correction. 
The 24 month rule is a deliberat e choice of the EU legislator with a view to ensuring legal 
certainty for Member States. It is inherent in  the application of this rule that certain 
expenditure cannot be subject to financial corrections although it ma y be affected by 
deficiencies. The Commission has repeatedly proposed an extension of this time limit, but 
these proposals were turned down by both the Council and the European Parliament. 
61. For direct aids, which in financial year 2009 accounted for 72% of total agricultural 
expenditure and are subject to  the IACS, all Member Stat es with the exception of 
Luxembourg were audited over the past three years 2007-2009 and, thus, within a time span 
which prevents the exclusionary  effect of the 24 month rule. 
The number of audit field/paying agency pairs is the consequence of the large number of 
different control systems for the various ag ricultural aid schemes and the number of PAs 
established by the Member States. Direct aids, however, only represented 12 audit fields in 
the 2008 risk analysis.  
63. The Commission considers that the use of flat rates is fully in line with the objective of the 
conformity clearance and the mo st effective and efficient way of achieving this objective, 
notably if the deficiencies f ound concern only the Member State's management and control 
system. It takes account of the fact that it is not  possible to take a statistically valid sample in 
the context of each of the around 150 confor mity missions carried out by DG AGRI each 
year. The Commission estimates that such subs tantive testing would, in fact, require on 
average some 100 individual files to be audited in each case, thus amounting to more than 15 
000 files per year.  
The use of flat rate corrections has been upheld by the Court of Justice as being in conformity 
with the legal rules governi ng the conformity work.,  
64. For all the 32 conformity decisions adopted  from 1996 to the end of 2009, slightly less 
than 70% of the total amount of  financial corrections were de termined by using flat rates. 
However, the Commission considers it to be pertinent to look at the number  of cases rather 
than the amounts involved because each conform ity audit is equally important within the 
overall annual audit programme. Here, flat rates were used in only 45% of all cases and, if the 
past ten decisions are taken, this  percentage decreases further to 37%. This demonstrates the 
Commission's continuous efforts to calculate or extrapolate the financial loss for the EU 
budget whenever this is possible. 
As part of this effort, the Commission recentl y set out to Member States the conditions under 
which it is prepared to limit the amount of a ny financial correction to the error rate found by 
the Member State, in the transactions at final beneficiary level and reported in its control statistics for the aid scheme concerned.  
65. The Commission considers that by focusing on the functioning of Member States' 
management and control systems, the system ba sed audit approach is the most effective and 
efficient way of achieving this objective. To su pplement this work by a substantive testing of 
a representative sample of individual paymen ts in the context of each of the around 150 on-
the-spot conformity audits carried out by DG AGRI each year would require a substantial 
(more than twofold) increase in  the current audit resources wh ich would not be  in line with 
any cost-benefit analysis. The increase would be  even higher (fivefold) if the Commission had 
to carry out such substantive testing on all audit fields ov er, say, a three year period.  
EN 11   EN Nor would it take account of the fact that in dependent audit bodies ar e certifying the PAs' 
accounts and the functioning of th eir internal control proce dures and are verifying and 
validating their control statistics, an element covering the legality and regularity of the 
underlying transactions which is cu rrently being further reinforced. 
Nor would it be possible to limit such substan tive testing to cases where the "consequences 
are quantifiable and signif icant" as those conclusions cannot be drawn at the time of the audit 
and, if it were implemented towards the end of  the procedure such su bstantive testing may 
well be irrelevant and/or impossible.  
66. Flat rate corrections reflec t the degree of financial risk  for the EU budget which results 
from the deficiencies in the Member States' ma nagement and control systems. Therefore, the 
Commission considers that there is  a correlation between the flat  rate used and the level of 
irregular payments to final beneficiaries. The guidelines in work ing document VI/5330/97 
have established a clear, objective and stable system for the application of the flat-rate 
corrections, avoiding subjectivity as well as unequal treatment. 
The Commission's operational handbook explicitly st ates that the system of flat rate 
corrections is used to link the weaknesses identi fied to the risk for th e EU budget and that this 
risk is the overriding element in the assessment of the level of financial corrections. Therefore, the auditors are required to asse ss whether there are a ny factors which would 
mitigate, or amplify the risk. The conformity decisions provide ample examples that this assessment is taking place and, where justified, lead s to a reduction or increase of the level of 
financial corrections. 
Moreover, as agricultural expe nditure is implemented under shared management, the Member 
States are better placed than the Commission to  assess and provide evidence of the real 
financial loss or risk for the EU budget. The operational handbook explici tly recognises this 
and requires the Commission to take such eviden ce, if reliable, into account. A more precise 
calculation of the financial loss  for the EU budget therefore requi res the active co-operation of 
the Member State concerned at all levels of the conformity clearance procedure because only 
the Member State has all the necessary informa tion to make such a calculation. Unfortunately, 
however, despite the Commission's requests, Member  States often do not avail themselves of 
this possibility. The Court of Justice has confirmed that it is not up to the Commission to undertake the checks necessary to put  a precise figure to the losses incurred, but rather it is for 
the Member State to show that the Commission's estimate was excessive. 
In this context, the Commission has recently se t out to Member States the conditions under 
which it is prepared to limit the amount of a ny financial correction to the error rate found by 
the Member States in the transactions at fina l beneficiary level and reported in its control 
statistics for the aid scheme concerned. 
BOX 5  
In the case in hand, the testing of  representative sample of file s, suggested by the Court would 
have potentially treated the UK differently to ot her Member States. In order to treat Member 
States equally, such subs tantive testing would have to be carr ied out systematically, at least in 
all cases where there is a poten tial financial correction. Such an approach would require a 
significant increase in audit resour ces and is not in line with a cost-benefit analysis. This is 
why the Commission has decided on an system ba sed audit approach with a hierarchy of 
corrections of which the flat rate approach is  but one and which has been upheld by the Court 
of Justice. Furthermore, Member States are in all cases invited to calcu late more precisely the 
financial loss for the EU budget but they do not always avail themselves of this possibility. 
Nevertheless, the Commission developed an alte rnative method in order to better determine 
EN 12   EN the real residual risk and ha s set this out to Member St ates (see point 104 e final 
subparagraph).  
See also replies in 65 and 66.  67. In its 2007 discharge resolution, the Parliame nt explicitly requeste d that "flat-rate 
corrections are applied to those Member St ates which fail to meet their obligations"
6.  
To date the percentage of financial correction ( by value) determined on the basis of flat rates 
amounts to slightly less than 70%.  
Moreover, in December 2009, the Commission set out to Member States the conditions under 
which it is prepared to limit the amount of a ny financial correction to the error rate found by 
the Member State, in the transactions at final beneficiary level and reported in its control statistics for the aid scheme concerned. 
68. The 1996 reform introduced an annual financial clearance to be completed by 30 April of 
the year n + 1 and the 24 month rule for conformity clearance. By doing so, a major 
contribution was made to the discharge pro cedure (and now the AAR) taking into account 
their timing To conclude the conformity clearan ce work within such a timetable would impair 
the conformity clearance process. 
69. The time needed for completing the conformity procedure depends on a number of 
factors, some of which are outside the Commi ssion's responsibility and control. Such factors 
include, for example, the complexity of the ca se, requiring additional work or even additional 
missions, the respect of deadlines by the Memb er States, translati on requirements and the 
follow-up of the recommendations of the Conc iliation Body. Furthermore, quite often the 
target is exceeded in order to fully respect th e Member State's right of defence, which is a 
fundamental principle of the conformity cl earance procedure and explicitly required by 
Article 42(2)(c) of the Implementing Rules to the Financial Regulation. 
71. Member States are aware of  any deficiencies found shor tly after the mission and can 
immediately take corrective acti on. The audit results are known and taken into account for the 
AAR for the year concerned. The length of time  to determine the amount of the financial 
correction is a sec ondary issue if the deficiencies have already b een notified and corrected.  
Shortening the deadlines for the conformity cl earance procedure would im pact negatively on 
the Commission's ability to carry out the necessa ry audit work which would be neither in the 
interests of the EU nor of the Member States . The Commission will nevertheless continue to 
work at reducing the time needed to comp lete conformity clearance procedures. 
72. None of the parties involve d in the legislative procedur e proposed any changes to the 
conciliation procedure in their opinions  on the Commission's proposal for a Council 
Regulation on financing of the common agricultur al policy, which was subsequently adopted 
as Regulation (EC) No 1290/2005. 
In 2006, the Commission adopted measures to reduce the number of cases going to 
conciliation by doubling the thre shold above which cases are considered admissible. The 
Conciliation Body has not seen the increase in cases which would be commensurate with the 
increase in size of the EU. 
                                                
 
6 See paragraph 83 of the European Parliament resolution of 23 April 2009 on the discharge for 
implementation of the European Union general budget for the financial year 2007, Section III – 
Commission (P6_TA(2009)0289). 
EN 13   EN The Commission considers the conciliation procedur e to be a useful element in the conformity 
procedure. This is demonstrated by the Conciliation Body's impact on the financial 
corrections proposed. In 28% of cases a redu ction of more than 10% in the amount of 
financial correction resulted from the procedure,  in 13% of cases, there was a reduction of less 
than 10% while in 3.5% of cases the Comm ission decided to wit hdraw its correction. 
73. Whether the time-target can be met in a give n case depends on a number of factors, some 
of which are outside the Commission's responsib ility and control. Such factors include, for 
example, the complexity of the case, requiri ng additional work or ev en additional missions, 
the respect of deadlines by the Member States  and the follow-up of the recommendations of 
the Conciliation Body. Quite  often, the target is exceeded in order to fully respect the Member 
State's right of defence, which is a fundame ntal principle of the conformity clearance 
procedure. 
At the end of 2009, only 10 audits carried out in the years 2004 and before , allowing financial 
corrections of expenditure from the period pr ior to 2003, had not been closed. The financial 
corrections related to these a udits as regards expenditure fr om the period prior to 2003 are 
estimated to be around EUR 15 million. This mean s that the conformity work on expenditure 
incurred in the years prior to  2003 had largely been completed. 
PART III – THE CLEARANCE OF ACCOUNTS PROCEDURE AS A WHOLE 
76-77.  
The financial clearance decision is taken around si x months after the end of the financial year 
in question. Through this decision, the Commis sion establishes the amount of expenditure 
recognised as chargeable to the EU budget for that  year. The fact that the decision is without 
prejudice to subsequent conformity decisi ons imposing financial corrections on Member 
States is explicitly provided for in Article 30 of Regulation (EC) No 1290/2005 which has the 
same legal status as the Financial Regulation. Mo reover, in substance, it is fully compatible 
with the Financial Regulation, which for any other expenditure provides that the Commission 
can make ex-post checks up to 5 years after th e discharge decision on th e year in which the 
final payment was made. Otherwise, all b udgetary expenditure w ould be considered 
provisional until an ex-post check is made  or the 5-year period has lapsed.  
The amount of expenditure which is likely to be excluded from financing by future 
conformity decisions is disclosed as a conti ngent asset in the Commission's accounting system 
and in a note to the financial statements. Together with the fi nancial clearance decision, this 
disclosure provides the Europ ean Parliament and the Council with the information they 
require for the discharge procedure. 
This role of the financial clearance decision was already set out explicitly in the memorandum 
of March 1993 by which the Commission approve d the guidelines for the reform of the 
clearance of accounts system which became app licable in 1996 (SEC (93) 306) and was not 
called into question by any of  the parties involve d in the adoption of the subsequent 
legislation. 
78.  (a) Each financial correction included in a conformity decision is linked to a specific financial 
year which is identified in the Annex to this decision. 
(b) As already indicated in the reply to point  73, by the end of 2009, the conformity work on 
expenditure incurred prior to 2003 had largely been completed. 
The financial statements include the per tinent information concerning the financial 
corrections of the year. 
EN 14   EN See also reply to points 76-77. 
79. What the Court describes as limitations are, rather, positive features inherent to a system 
which has proven its value in safeguardi ng the financial interests of the EU.  
80. Conformity clearance decisions disclose the amounts excluded from EU financing per 
year of expenditure and per Member State. The amounts per Member State are disclosed in 
note 6 to the financial stat ements 2009 of the Commission. 
Annex 36 to the Commission Staff Working Document accompanying the financial report on 
the EAGF 2008 financial year provides inform ation on the financial corrections made on 
expenditure from each financial year. Informa tion on the distribution of these corrections 
between Member Sates and between sectors is  provided in the Commission's fact sheet 
"Managing the agricultural budge t wisely", which is publishe d under the following internet 
address: 
http://ec.europa.eu/agricu lture/publi/fact/index_en.htm . 
81. The financial clearance decision  is taken around six months af ter the end of the financial 
year in question. Through this decision, th e Commission establishes the amount of 
expenditure recognised as chargeab le to the EU budget fo r that year. The fact  that the decision 
is without prejudice to subse quent conformity decisions im posing financial corrections on 
Member States is explicitly provided for in Article 30 of Regulation (EC) No 1290/2005 
which has the same legal status as the Financia l Regulation. Moreover, in substance, it is fully 
compatible with the Financial Regulation, which for any other expenditure  provides that the 
Commission can make ex-post check s up to 5 years after the disc harge decision on the year in 
which the final payment was made. Otherwise, all budgetary expe nditure would be  considered 
provisional until an ex-post check is made or  the 5-year period has lapsed. The amount of 
expenditure which is likely to be excluded from  financing by future conformity decisions is 
disclosed as a contingent asse t in the Commission's accounting system and in a note to the 
financial statements. Together with the financ ial clearance decision, th is disclosure provides 
the European Parliament and the Council with the information they require for the discharge 
procedure.  
The financial statements already include a ll the information required by the Financial 
regulation and the accounting rules. See also reply to paragraph 76-77. 
82. Under the reformed system, th e financial clearance decision is adopted by 30 April of the 
year following the financial year concerned.  Thus the reformed clearance of accounts 
procedure has significantly accelerated the timescale for clearing the PAs' accounts.  
83. With the adoption of the annual financial clearance decision, the Commission accepts the 
accounts of the accredited paying agencies and the corresponding expenditure therefore 
becomes definitive. This acceptance is not called into question by the possibility of subsequent financial correcti ons under the conformity clearance process. The amount of 
expenditure which is likely to  be excluded from EU financi ng by such future conformity 
decisions is disclosed as a contingent asse t in the Commission's accounting system and 
disclosed in a note to the financia l statements of the Commission.  
The financial statements give all the informa tion required by the Financial Regulation and the 
accounting rules. In particular they include as a contingent asset an estimate of future 
financial corrections.  
84. The Financial Regulation and the sectoral regulations regarding agriculture give the 
Commission the right to make ch ecks on all expenditure for some years after it is incurred. 
The accounts should not imply that, because of  this right, all the expenditure concerned 
EN 15   EN remains to be accepted. Where the amounts of pot ential recoveries are quantifiable, they are 
disclosed in notes 5.3 and 5.4 to the consolidated accounts. 
These conformity clearance decisions disclose  the amounts excluded from EU financing per 
year of expenditure and per Member State. The amounts per Member State are disclosed in 
note 6 to the financial stat ements 2009 of the Commission. 
85. The purpose of recording the contingent assets in the Commission's accounts is to disclose 
the (potential) receivables, based on the results  of its audits, and has not been intended to 
provide any assurance as to the legality a nd regularity of the underlying transactions. 
The amount included in the contingent asset corresponds to the best estimation of the 
expenditure which is likely to be excluded from EU financing by future conformity decisions. 
This amount is disclosed in a note to the financ ial statements of the Commission, divided into 
EAGF and EAFRD.  
88. The annual accounts presen t all information. required by the accounting rules and 
financial regulation. In particul ar, the amount of expenditure wh ich is likely to be excluded 
from EU financing by future conformity decisi ons is disclosed as a c ontingent asset in the 
Commission's accounting system and in a note to the financial statements of the Commission 
The accounts are not amended by subsequent confor mity decisions. The financial effect of a 
conformity decision falls in the financial year  in which the decision  is executed and does, 
thus, not amend the accounts of  previous financial years. 
89. The conformity clearance is designed to ex clude expenditure from EU financing which 
has not been executed in compliance with EU  rules, thus shielding the EU budget from 
expenditure that should not be charged to it. In contrast, it is not a mechanism by which 
irregular payments to beneficiaries are recove red, which according to the principle of shared 
management is the sole responsib ility of Member States, as refe rred to in Article 9(1)(a)(iii) 
of Council Regulation (EC) No  1290/2005 and Article 53b(2)(c) of the Financ ial Regulation. 
The Commission considers that the conformity clearance has over the years proven to be a 
strong incentive for Member Stat es to improve their management and control systems and, 
thus, to prevent or detect and recover irregular payments to fi nal beneficiaries as reflected by 
the decreasing error rates at the final beneficiary level. 
90. (a) The conformity clearance is not a mechanism by which irregular paymen ts to beneficiaries 
are recovered, which according to the principle of shared management and the rules of Article 
9(1)(a)(iii) of Council Regulation (EC) No 1290/2005 and Article 53b(2)(c) of the Financial 
Regulation is the sole responsibility of Me mber States. Where ir regular payments to 
individual beneficiaries are or can be identified as a result of the conformity clearance procedures, Member States are required to fo llow them up by recovery actions against these 
beneficiaries.  
(b) Even where financial corrections only rela te to deficiencies in  the Member States' 
management and control and not to irregular payments, these corrections are an important 
means to improve the Member States' manageme nt and control 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. Moreover, agricultural legisl ation provides for effective, dissuasive and 
proportional sanctions to be imposed on benefici aries who have received irregular payments. 
91. Financial corrections are not sanctions on Me mber States as the Commission said already 
in the memorandum of March 1993 by which it a pproved the guidelines for the reform of the 
EN 16   EN clearance of accounts system which became a pplicable in 1996 (SEC(93) 306). The current 
conformity clearance mechanism, including the use of flat-rate correct ions, has been upheld 
by the Court of Justice, which implies that it is not a sanction mechanism as sanctions on 
Member States are the prerogative of the Court of Justice.  
CONCLUSIONS AND RECOMMENDATIONS  
93. The Commission welcomes the Court's c onclusion that the clearance of accounts 
procedure, as regards the relia bility of the accounts, provides reasonable assurance and 
sufficient information for the Commission to ta ke its annual financial clearance decision 
94. The Commission acknowledges the shortcomi ngs identified by the Court concerning 
financial years 2007 and 2008 and has raised these issues with Member States. As a result, for 
financial year 2009, the situation has improved  for all the new elements of assurance 
mentioned. 
In the view of the Commission, an opinion on the internal control procedures would not 
require specific testing and assessment of the reliability of each key and ancillary control 
(conformity aspects). The CB is only to check that the PA has an ad ministrative organisation 
and a system of internal control complying with  the criteria set out in Annex I to Regulation 
(EC) No 885/2006.  
For the reasons set out in its reply to point 34, the Commission consid ers that the control 
statistics are sufficiently reliable to be used for assurance purposes. 
For the reasons set out under poi nt 51 above, the Commission is of the view that the CBs' 
opinions on the SoA do provide added value.  
95. The Commission does not consider that significant shortcomings affect the 
implementation of the conformity clearance pr ocedure. The Court's criticism essentially 
relates to the design of the pr ocedure as such and not to its implementation which, as the 
Commission has set out in its replies to point s 76-77, 78b, and 81, is fully in line with the 
current rules, as acknowledged by the Court of Justice, and has over the past 15 years 
demonstrated its value in excluding non-c onform expenditure from EU financing. 
96. For financial year 2009, the part of th e expenditure covere d by the Commission's 
conformity audits increased to 61%7. The Commission considers th is to be a sufficient 
coverage and, therefore, that the risk analysis results in an adequate number of measures and 
PAs identified as priorities for conformity audits. 
The Commission considers that a complete coverage  of all audit areas over, say, a three year 
period would not be possible even with si gnificantly increased resources, and would go 
against the single audit concept. It would be disproportiona te to devote human and financial 
resources to the audit of audi t field/paying agency pairs with  limited expenditure and a low 
risk. Therefore, the Commission carri es out its conformity audit work on the basis of a central 
risk analysis, which incorporates all the n ecessary risk factors and is in line with 
internationally accepted auditing standards. 
Moreover, for direct aids, which in financial year 2009 accounted for 72% of total agricultural 
expenditure and are covered by the IACS, a ll Member States with the exception of 
Luxembourg were audited ove r the past three years. 
                                                 
7 26.5% for "Intervention on agricultural markets" , 70.9% for "Direct aid" and 43.6% for "Rural 
development". 
EN 17   EN The 24 month rule is a deliberat e choice of the EU legislator with a view to ensuring legal 
certainty for Member States. It is inherent in  the application of this rule that certain 
expenditure cannot be subject to financial corrections although it ma y be affected by 
deficiencies. The Commission has repeatedly proposed an extension of this time limit, but 
these proposals were turned down by both the Council and the European Parliament. 
97. The Commission considers that by focusing on the functioning of Member States' 
management and control systems, the system ba sed audit approach is the most effective and 
efficient way of achieving its objective of sound fi nancial management. To supplement this 
work by a substantive testing of a representative sample of indi vidual payments in the context 
of each of the around 150 on-the-spot conform ity audits carried out by DG AGRI each year 
would require a substantial (more than twofold) increase in the current audit resources which 
would not be in line with any cost-benefit analysis. The increase would be even higher 
(fivefold) if the Commission had to  carry out such substantive test ing on all audit fields over, 
say, a three year period.  
Nor would it be possible to limit such substan tive testing to cases where the consequences are 
quantifiable and significant as t hose conclusions cannot be drawn at  the time of the audit and, 
if it were implemented towards the end of the procedure such substantive testing may well be 
irrelevant and/or impossible. (See reply to paragraph 65).  
Flat rate corrections reflect the degree of fina ncial risk for the EU budget which results from 
the deficiencies in the Member States' mana gement and control systems. Therefore, the 
Commission considers that there is  a correlation between the flat  rate used and the level of 
irregular payments to final beneficiaries. Conformity clearance includes cases where the 
deficiencies found are limited to the control sy stem in place and cannot be linked to individual 
irregular payments to beneficiar ies but, because of th e flat rate approach  taken for control 
deficiencies, the risk to the EU budget is  covered, e.g. when a Member State does not 
accomplish the minimum number of controls. 
98. The main objective of the 1996 reform of th e clearance of accounts procedure was to 
enforce the effectiveness and efficiency in achieving the general aims of the CAP and the 
Financial Regulation.  
At the end of 2009, the conformity work on e xpenditure incurred in the years prior to 2003 
had largely been completed. 
99. Each financial correction included in a confor mity decision is linked to a specific financial 
year which is identified in the Annex to this decision. 
100. The financial clearance decision is taken ar ound six months after th e end of the financial 
year in question. Through this decision, th e Commission establishes the amount of 
expenditure recognised as chargeab le to the EU budget fo r that year. The fact  that the decision 
is without prejudice to subse quent conformity decisions im posing financial corrections on 
Member States is explicitly provided for in Article 30 of Regulation (EC) No 1290/2005 
which has the same legal status as the Financia l Regulation. Moreover, in substance, it is fully 
compatible with the Financial Regulation, which for any other expenditure  provides that the 
Commission can make ex-post check s up to 5 years after the disc harge decision on the year in 
which the final payment was made. Otherwise, all budgetary expe nditure would be  considered 
provisional until an ex-post check is made  or the 5-year period has lapsed.  
The amount of expenditure which is likely to be excluded from financing by future 
conformity decisions is disclosed as a conti ngent asset in the Commission's accounting system 
and in a note to the financial statements. Together with the fi nancial clearance decision, this 
EN 18   EN disclosure provides the Europ ean Parliament and the Council with the information they 
require for the discharge procedure.  See replies to paragraphs 76-77. 
101. With the adoption of the annual financial clearance decision, the Commission accepts the 
accounts of the accredited paying agencies and the corresponding expenditure therefore 
becomes definitive. This acceptance is not called into question by the possibility of subsequent financial correcti ons under the conformity clearance process. The amount of 
expenditure which is likely to  be excluded from EU financi ng by such future conformity 
decisions is disclosed as a contingent asse t in the Commission's accounting system and 
disclosed in a note to the financ ial statements of the Commission. 
102. Financial corrections are not sanctions but an exclus ion from EU financing of 
expenditure which has not been effected in conformity with EU rules. These financial 
corrections are not "negotiable", but are dete rmined by the Commissi on on the basis of the 
principles set out in its working document VI/5330/97 and the information received in the 
course of the administrative procedure lead ing to the conformity decision. The Member 
State's participation in this procedure is part  of the principle "audi et alteram partem", 
allowing the Member State to give its opinion  and to present its point of view, and the 
Commission is and should be willing to listen to the Member State's arguments and to take 
these into account. The number of financial corrections upheld by the Court of Justice 
demonstrate that the amounts are, in  general, clear and indisputable. 
103. The conformity clearance is not a mech anism by which irregular payments to 
beneficiaries are recovered whic h, according to the principle of  shared management and the 
rules of Article 9(1)(a )(iii) of Council Regulation (EC)  No 1290/2005 and Article 53b(2)(c) of 
the Financial Regulation, is the sole responsib ility of Member States. However, where such 
irregular payments are, or can be, identified as a result of the conformity clearance procedure, 
Member States are required to follow them up by  recovery actions against the beneficiaries. 
104. The Commission considers the current system to function well and to achieve its overall 
objectives. It will, however, continue to improve its oper ations in practice and, where 
necessary, submit appropriate proposals for furt her improvements to the European Parliament 
and the Council for the post-2013 period. 
(a) The Commission considers that, in general, the rules and responsibilities of the different 
parties are sufficiently clearly defined in the existing regulations while  taking account of the 
need to maintain the necessary flexibility. It wi ll, however, consider whether to define in more 
detail the role of the CBs in the rules for the post-2013 period. 
(b) The existing rules already provide for a time  limit for the adoption of the annual financial 
clearance decision. Time limits for the conclusi on of conformity clear ance procedures would 
go against the objective of prot ecting the EU's financial inte rests as they would exclude 
financial correction after the deadline has elap sed. Therefore, the Commission does not intend 
to propose the introduction of such additional time limits. 
(c) The financial clearance decisi on is taken around six months after the end of the financial 
year in question. Through this decision, th e Commission establishes the amount of 
expenditure recognised as chargeab le to the EU budget fo r that year. The fact  that the decision 
is without prejudice to subse quent conformity decisions im posing financial corrections on 
Member States is explicitly provided for in Article 30 of Regulation (EC) No 1290/2005 
which has the same legal status as the Financia l Regulation. Moreover, in substance, it is fully 
compatible with the Financial Regulation, which for any other expenditure  provides that the 
Commission can make ex-post check s up to 5 years after the disc harge decision on the year in 
EN 19   EN which the final payment was made. Otherwise, all budgetary expe nditure would be  considered 
provisional until an ex-post check is made  or the 5-year period has lapsed.  
The amount of expenditure which is likely to be excluded from financing by future 
conformity decisions is disclosed as a conti ngent asset in the Commission's accounting system 
and in a note to the financial statements. Together with the fi nancial clearance decision, this 
disclosure provides the Europ ean Parliament and the Council with the information they 
require for the discharge procedure. 
This role of the financial clearance decision was already set out explicitly in the memorandum 
of March 1993 by which the Commission approve d the guidelines for the reform of the 
clearance of accounts system which became app licable in 1996 (SEC (93) 306) and was not 
called into question by any of  the parties involve d in the adoption of the subsequent 
legislation.  
See also reply to paragraph 97. (d) The estimated amount of expenditure which is likely to be excluded from EU financing by 
future conformity decisions is disclosed as a contingent asset in the Commission's accounting 
system and disclosed in the note to the financ ial statements of the Commission. It would not 
be appropriate to make an assessment by Memb er State or by budget area of these amounts, 
which are at present a best estimate and may ch ange when a final decision is taken, nor to 
include such detailed information in the financial statements.  
The conformity clearance decisi ons identify the amounts exclud ed from EU financing per 
year of expenditure and per Member State. The amounts per Member State are disclosed in 
note 6 to the financial stat ements 2009 of the Commission. 
(e) Under the reformed system, the financial cl earance decision is adopted by 30 April of the 
year following the financial year concerned.  Thus the reformed clearance of accounts 
procedure has significantly accelerated the timescale for clearing the PAs' accounts.  
The time needed for completing the conformity procedure depends on a number of factors, 
some of which are outside the Commission's res ponsibility and control. Such factors include, 
for example, the complexity of the case, requiring additional work or even additional missions, the respect of deadlines by the Member States and the follow-up of the 
recommendations of the Conciliation Body. Furtherm ore, quite often the target is exceeded in 
order to fully respect the Member State's right of  defence, which is a fundamental principle of 
the conformity clearance procedure and explicitly required by Article 42(2)(c) of the Implementing Rules to the Financial Regulation. 
The use of flat rates is fully in line with the objective of th e conformity clearance and the 
most effective and efficient way of achieving this  objective. It takes account  of the fact that it 
is not possible to take a statistically valid sample in th e context of each  of the around 150 
conformity missions carried out by DG AGRI each  year. Nor would it be possible to limit 
such substantive testing to cases where the "c onsequences are quantifia ble and significant" as 
those conclusions cannot be drawn at the time of the audit and, if it were implemented towards the end of the procedure such substa ntive testing may well be irrelevant and/or 
impossible.  
Furthermore, as agricultural expenditure is implemented under shared management, the 
Member States are better placed than the Co mmission to assess and provide evidence of the 
real financial loss or risk for the EU budget.  The operational handbook explicitly recognises 
this and requires the Commission to take such evidence, if reliable, into account. A more 
precise calculation of the financial loss for the EU budget therefore requires the active co-
operation of the Member State concerned at all levels of the conformity clearance procedure 
EN 20   EN because only the Member State has all the necessary information to make such a calculation. 
Unfortunately, however, despite the Commission's requests, Member States often do not avail 
themselves of this possibility.  
Moreover, the flat rate methodology has been accep ted by the Court of Justice as being in 
conformity with the legal rules governing the c onformity work.. In particular, the Court of 
Justice has confirmed that it is not up to th e Commission to undertake the checks necessary to 
put a precise figure to the losses incurred, but rather it is for the Member State to show that 
the Commission's estimate was excessive.  
The Commission has recently put forward a sy stem by which Member States can, from 2010, 
reinforce the overall framework for gaining reasonable assurance on legality and regularity of transactions at the le vel of final beneficiaries. To th is end, CBs should extend their work 
beyond the present requirements by fully re-per forming, for a given expenditure population, a 
representative sample of transactions which the PA in question has checked on-the-spot. The 
work would cover the entire handling of the file , from receipt of the aid application to the 
calculation and execution of the final payment. 
(f) Financial corrections imposed on Member St ates through conformity  clearance decisions 
are not sanctions but an exclusion from EU financing of expenditure which has not been 
effected in conformity with EU rules. This is also confirmed by the ju risprudence of the Court 
of Justice. 
(g) The Commission will continue to supervise the work of the certif ication bodies through 
specific audit visits. 
EN 21   EN 0100200300400500600700800Million EUR
1999 2000 2001 2002 2003 2004 2005 2006 2007
Financial YearGraph 1 - Amounts excluded in respect of each  financial year 
(incl. estimates of future corrections)
Estimated on basis of historic average
Corrections under preparation
Decisions 30-32
Decisions 1-29