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Brussels, 24.10.2006

SEC(2006) 1376

COMMISSION STAFF WORKING DOCUMENT

Annex to the report from the Commission to the European Parliament on the follow-up to 2004 Discharge Decisions {COM(2006) 641 final}

TABLE OF CONTENTS

INTRODUCTION 1

Annex to the report from the Commission to the European Parliament on the follow-up to 2004 Discharge Decisions 2

Reliability of the accounts 3

Integrated internal control framework 5

Declarations 8

Transparency 12

Annual activity reports 14

Further horizontal recommendations 17

Revenue 20

Common Agricultural Policy 21

Structural measures 25

Internal policies, including research 27

External actions 42

Pre-accession strategy 52

Administrative expenditure and issues concerning the agencies 54

European Development Funds 58

Recommendations in the resolutions concerning individual agencies 70

INTRODUCTION

This Working Document completes the Report from the Commission to the Parliament on the Follow-up to 2004 Discharge Decisions {COM(2006) 641 final}. It presents in detail the answers to the 150 specific recommendations made by the European Parliament in the comments accompanying its Resolutions on the 2004 Discharges.[1] In the Working Document reference is made to the Commission’s proposal for a revised Financial Regulation[2] and the Commission’s draft Regulation on the “linked” implementing rules[3] which follow up the simplification measures suggested in the proposal for amending the Financial Regulation. The latest revision of the Implementing Rules of the current Financial Regulation entered into force on 22 August 2006[4]. Further information can also be found in e.g. the Interinstitutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management (OJ No C 139 of 14.6.2006), the 2005 Synthesis Report on the Annual Activity Reports “Synthesis of the Commission’s management achievements in 2005” (COM(2006) 277 final of 7.6.2006), the Commission’s Action Plan towards an Integrated Internal Control Framework (COM (2006) 9 final of 17.1.2006), the Commission’s communication on risk management (SEC(2005) 1327 of 25.10.2005 and the Commission’s Green Paper on the European Transparency Initiative (COM (2006) 194 final of 3.5.2006.

Annex to the report from the Commission to the European Parliament on the follow-up to 2004 Discharge Decisions

Reliability of the accounts

1. Address urgently the shortcomings related to the establishment of the opening balance for 2005 in order to avoid consequences for the reliability of the 2005 financial statements. (§ 3)

Commission's response:

The recommended action has been taken. The Commission has established its opening balance sheet and it was included as part of the 2005 provisional annual accounts. These accounts were presented on time to the Court of Auditors on 31 March 2006, as required by the Financial Regulation.

2. The authorising officers have to validate the figures needed for the establishment of the opening balance 2005 and the accounting officer has to present this financial information and be sure that it gives a "true and fair view" (paragraph 1.45 of the Court's annual report), thus enabling the President of the Commission to sign the accounts on behalf of the Commission as a college and in accordance with the Treaty. (§ 4)

Commission's response:

The recommended action has been taken. The authorising officers validated their opening balance sheet figures and the Commission established its opening balance sheet, which was included as part of the 2005 provisional annual accounts. These accounts were presented on time to the Court of Auditors on 31 March 2006, as required by the Financial Regulation. It should be noted that the accounts are adopted by the Commissioner responsible for the Budget on behalf of the Commission and not the President of the Commission.

3. The results of the review of unknown bank accounts related to Commission activities launched by the Commission in October 2005 should be communicated completely to Parliament and be followed-up, while the accounts thereby established should be audited and the funds credited to the accounts should be entered in the general budget. (§§ 6 and 7)

Commission's response:

The recommendation is accepted. The Commission has completed the review that it started at the end of October 2005 on bank accounts opened and/or managed by staff members other than the Commission’s Accounting Officer.

The Commission lodged with Parliament in June 2006 a complete list of these accounts. That list contains details about the legal bases under which they were opened and operate. Where possible, accounts that are no longer really needed will be closed.

These accounts are open to audit by the European Court of Auditors which received the details collected in this review.

4. The Commission should ensure a sound policy (avoiding excessively generous advances and excessively long delays for closing programmes and projects) as regards pre-financing in order to limit the financial importance of unused amounts and/or amounts not yet finally accepted as eligible expenditure and it should put forward a proposal to Parliament's responsible committee on how it plans in future to manage pre-financing in line with those principles. (§ 9)

Commission's response:

The recommendation is accepted. In the context of the review of the Financial Regulation, it has been proposed that the rule governing interest generated by pre-financing be simplified (new Art. 5(4) FR). The amount of interest generated by pre-financing payments would be assigned to the programme or the action concerned, and set off against the final payment to the beneficiary. This would contribute to improving the management of pre-financing.

Integrated internal control framework

5. Ensure together with Member States that the Court of Auditors will be able to find audit evidence of progress towards an adequate management of the risk of error. (§ 16)

Commission's response:

The recommendation is accepted. The objective of the Commission's action plan towards an Integrated Internal Control Framework [COM(2006)9] is to ensure and provide evidence that supervisory systems and controls are in place to keep the risk of illegality or irregularity of the transactions within reasonable limits.

The Commission has had preliminary contacts with the Dutch Ministry of Finance, which is carrying out a feasibility study regarding a possible national statement to be prepared by the Netherlands as part of its commitment to providing support to the Commission in improving control over EU funds and the ultimate aim of a positive DAS. The Commission strongly supports this pro-active initiative and is keen to see this approach being considered by other Member States.

6. Ensure a close monitoring of progress in financial management in the Commission and in the Member States. (§ 17)

Commission's response:

The recommendation is accepted. An important step forward was achieved with the adoption of the Inter-institutional Agreement where Paragraph 44 states: “Member States therefore undertake to produce an annual summary at the appropriate national level of the available audits and declarations.” The sectoral legislation relating to agriculture (Commission Regulation 1663/95 Article 7(5)) has already adapted along these lines. Implementation relating to structural measures will proceed via the coordinating body foreseen in the proposed legislation. A corresponding Implementing Rule has also been drafted. This improved reporting from Member States will be taken into account in ongoing Commission monitoring activities and in drawing up the DG's Annual Activity Reports.

7. Publication and presentation to COCOBU of a detailed scoreboard for each area of the financial perspectives with precise targets to be achieved in a set timeline for the implementation of measures identified as necessary for establishing an integrated internal control framework and to report on progress to its competent committee every six months. (§ 19)

Commission's response:

The recommendation is accepted. It is important that the Commission runs the Commission's action plan towards an Integrated Internal Control Framework [COM(2006)9] to its end within the expected time frame, therefore a six-monthly reporting to Council and the European Parliament has been agreed. The first progress report was issued on 19 July 2006 (SEC(2006) 1001)..

8. The integrated control framework should be implemented as from 1 May 2009, allowing the Commission to set a target date for a positive DAS. (§ 19)

Commission's response:

The recommendation is accepted. The Commission's action plan towards an Integrated Internal Control Framework [COM(2006)9] foresees 16 actions under four broad themes aimed at simplifying and harmonising control practices, via information sharing and the use of a ‘single-audit’ approach to better target the limited control resources available. At this stage, priority actions have been launched, while others which depend on the results of prior actions, will be developed during 2007. Sufficient progress is expected to be made by the beginning of 2009.

9. Submission as part of the preparation of the 2005 discharge procedure of further detailed information at Commission level and Member State level, and at regional level if needed, on measures implemented and not implemented, reasons for delays, deadlines, effectiveness of implementation and such like, so as to be allowed to have a complete overview of results obtained and outstanding issues still to be dealt with. (§ 20)

Commission's response:

The recommendation is accepted. A six-monthly reporting to Council and the European Parliament has been agreed.

10. Ensure a successful outcome of the 16 actions foreseen in the Action Plan towards an integrated internal control framework in the interests of the European Union and its citizens. (§ 22)

Commission's response:

The recommendation is accepted. The Commission highlights that this ambitious work programme will need the active cooperation of all services and Member States partners in order to ensure a successful outcome.

11. As regards financial control, ensure simplicity and transparency, and when designing schemes and programmes, consider the relationship between the desired outcomes of a particular scheme, the complexity of the rules governing it and the likelihood of an error occurring. (§ 26)

Commission's response:

The recommendation is accepted. The Commission's action plan towards an Integrated Internal Control Framework [COM(2006)9] sets simplification as a goal for the next programming period. The legislative authority should pay the necessary attention to the feasibility of expected controls and their cost/benefit, so that the correct application of controls is as straightforward as possible. For example, the Commission’s proposal for the Rules for Participation for the 7th Framework Programme foresees that greater recourse would be made to the use of flat rates (including scale of unit costs) and lump sums within the terms of the Financial Regulation.

Declarations

12. Production of a report on the effectiveness of the existing regulatory framework regarding management, assurance and certification systems of declarations of the Member States' various bodies, taking into consideration:

- the precise degree of implementation of the existing legislation by Member States and the regulatory mechanism;

- its bureaucratic and administrative cost to the European taxpayers;

- its value added in the prevention of misadministration and the recovery of Community funds;

- its influence in the correct attribution of responsibilities;

- the coherence of the various existing declaration systems;

- the advantages of instituting a single Member State declaration procedure in the context of the Financial Regulation instead of disperse sectoral legislation and depending on the results of the above mentioned analysis, elaboration of the appropriate legislative proposals. (§ 27)

Commission's response:

The recommendation is not accepted. It asks for a report which would cover the results of several current actions of the Commission's action plan towards an Integrated Internal Control Framework [COM(2006)9]. It is too soon to assess the effectiveness of measures that are currently being set up. The Commission refers Parliament to the regular progress reports (in particular on action 3, 5, 6, 7, 10, 11, 13) which will provide consolidated information on the results achieved in co-operation with the other institutions, Member States and relevant bodies in the Member States as regards the effective functioning of the control systems. Furthermore, the Commission has already established a consolidated assessment of the gaps in the control systems and intends to provide further clarification on outstanding questions while implementing the specific actions (action 12). An additional reporting on the current status of control systems would absorb capacities in the Commission and Member States which are directed at the improvement of the existing framework.

13. Strive for the same geographical location of paying agencies (Common Agricultural Policy - CAP) and managing authorities (Structural Funds) and whenever possible combine the two in each Member State in order to enable it to keep a good track of where, when and how EU funds are being spent in each Member State. (§ 33)

Commission's response:

The Commission will not be taking the recommended action. The rules for the new Rural Development Fund take a significant step in this direction. However, it would not be feasible to combine CAP paying agencies and Structural Funds managing authorities, given the differences between the two systems which are justified by the nature of the support granted.

Managing authorities for the Structural Funds are already required to keep track of where, when and how funds are being spent. They must have good information systems and must monitor projects and carry out on-the-spot checks. Paying authorities are required to carry out further systematic checks on payment claims received from projects. There is scope, however, for improving the performance of SF managing and paying authorities and the Commission is discussing best practices in these areas with Member States.

14. As responsibilities are entrusted to so many existing audit bodies, initiatives aimed at bringing about standardisation of audit arrangements should be welcomed and supported. (§ 34)

Commission's response:

The Commission is taking the recommended action. Steps to align standards for controls and audits per policy family are included in the Action Plan towards an integrated internal control framework (particularly Actions 14 and 16). This action responds to the recommendation of the European Court of Auditors in its Single Audit opinion (2/2004, points 45-48). The gap analyses conducted by the Commission services for the various management modes confirmed that there was scope for such alignment and the Council, too, accepted the need for moves in this direction. This has resulted, for example, in more harmonised provisions on audit methodology in the regulations for the Structural Funds for the 2007-13 period.

15. Request assurance from each Member State that their control responsibilities have been fully met, and in particular that the risk of error in the underlying transactions is being sufficiently managed. (§ 36)

Commission's response:

The recommendation is partially accepted. The Commission considers that assurance given at the Member State level on the functioning of the control systems would enhance the Commission’s insight into Member States management and control systems. In its conclusions on the Roadmap to an integrated internal control framework (COM(2005) 252), the ECOFIN Council of 8 November 2005 considered the key proposal made by the Commission of annual management declarations to be provided by Finance Ministers. However, the proposal was refused. As part of the Action Plan, the Commission has promoted operational level management declarations and synthesis report at national level. With the adoption of the Inter-institutional Agreement an important step forward was achieved. Paragraph 44 states: "Member States therefore undertake to produce an annual summary at the national level of the available audits and declarations". The Commission has proposed further provisions to this extent in the revised Financial Regulation (Art. 53b) and Implementing Rules.

16. Simplification of the underlying legislation is a pre-requisite for the strengthening of the internal control. (§ 38)

Commission's response:

The recommendations is accepted and in implementation with action 1 of the Commission action plan towards an Integrated Internal Control Framework [COM(2006)9]. A six-monthly reporting to Council and the European Parliament has been agreed.

17. In order to achieve a positive DAS, priority should be given to sound financial management for funds under shared management and provisions to this end could be laid down, as appropriate, in the basic legislative acts concerned. (§ 38)

Commission's response:

The recommended action has been taken. To provide for a control structure capable of delivering reasonable assurance on the legality and regularity of transactions, in the legislation for the 2007-13 programme period existing control requirements have been clarified and the framework has been strengthened with a number of new provisions. These include, in the Structural Funds, an annual audit opinion intended to provide reasonable assurance that the statements of expenditure presented to the Commission are correct and an ex ante compliance assessment. In agriculture, rural development expenditure will fall largely under Guarantee rules (for example accredited paying agencies, annual certification and clearance of accounts procedures). These elements, with the envisaged management declarations and national synthesis reports, are already foreseen in the new rules (Council regulation 1290/2005 (Article 8) and Commission Regulation 885/2006 (Articles 3 and 7).

18. Consider with the Council the alternative approach inspired by the Council's interest in declarations at sector level as expressed in paragraph 9 of the ECOFIN Council conclusions of 9 November 2005. (§ 41)

Commission's response:

The recommendation is accepted. An important step forward was achieved with the adoption of the Inter-institutional Agreement where Paragraph 44 states: “Member States therefore undertake to produce an annual summary at the appropriate national level of the available audits and declarations.” For agriculture, the envisaged management declarations and national synthesis reports are already foreseen in the new rules (Council regulation 1290/2005 (Article 8) and Commission Regulation 885/2006 (Articles 3 and 7)). Implementation relating to structural measures will proceed via the coordinating body foreseen in the proposed legislation. This improved reporting from Member States will be taken into account in ongoing Commission monitoring activities and in drawing up the Directors-General's Annual Activity Reports.

19. In the context of the implementation of the Action Plan towards an Integrated Internal Control Framework, present proposals as regards the form and content of complementary arrangements to be taken by Member States for the consolidation of individual certificates and/or audit reports within each major sector. Confirm along with the Court of Auditors that consolidation at central Member State level and for each area of the financial perspective by which the quality of individual reports and/or audit reports is guaranteed will be an effective measure in support of an overall declaration at political level covering all Community funds in shared management. (§§ 45 and 46)

Commission's response:

The recommendation is accepted. Action 5 of the Commissions action plan towards an Integrated Internal Control Framework [COM(2006)9] strives for the promotion of operational level management declarations and synthesis report at national level With the adoption of the Inter-institutional Agreement an important step forward was achieved. Paragraph 44 states: “Member States therefore undertake to produce an annual summary at the national level of the available audits and declarations”. Further provisions on this will be included in the revised Financial Regulation (Art. 53b) and Implementing Rules for which the Commission's proposals were adopted on 4 July 2006.

20. Apply fully Article 53(5) of the Financial Regulation under which the Commission assumes final responsibility for the implementation of the budget in accordance with Article 274 of the Treaty through "clearance-of-accounts procedures or financial correction mechanisms" and set up more intense programmes when assurance from Member States cannot be gained. (§ § 51 to 53 and 55)

Commission's response:

The Commission is taking the required action. For Structural Funds, it applies financial corrections whenever audits detect ineligible expenditure. However, the Commission considers that the main incentive to improve systems is effective audit work and timely follow up to ensure recommendations are implemented.

In agriculture, the clearance of accounts procedure, a proven control mechanism, continues to operate for EAGGF Guarantee expenditure. The Commission imposes financial corrections where risks to the Fund are identified. Furthermore, the Integrated Administration and Control System (IACS), which the European Court of Auditors considers to be effective in limiting the risk of irregular expenditure, operates a dissuasive system of sanctions on farmers, whereby penalties (in the form of payment deductions) are imposed on those making incorrect declarations.

Transparency

21. Expect that transparency initiative will lead to concrete actions and legislative initiatives that will lead to transparency regarding the way EU funds are spent and managed. (§ 56)

Commission's response:

The recommendation is accepted. With the European Transparency Initiative, the Commission also expects that the results of the open debate covering a broad spectrum of issues will gain support for the Commission’s commitment to better account for the use of public money.

22. Induce Member States to give public access to information about the projects and beneficiaries of EU funds in shared management. (§§ 57 and 58)

Commission's response:

The recommendation is accepted. The Commission is responsible for implementing the EU budget. It is accountable to the taxpayer and considers it to be in the general public interest to provide information on how EU funds are spent, which it already does for the EU-funded policies which it manages centrally and directly.

Information on beneficiaries of Community funds spent in partnership with Member States is currently in the hands of each Member State and any disclosures on the subject are left to their discretion. The extent to which information is made public differs significantly and often based on national law or practices on data protection.

Any coherent overall obligation on Member States would therefore have to be based on a new EU legal framework, directly applicable in all Member States, to ensure a consistent approach to all beneficiaries of EU funds.

The Commission issued a Green Paper on this issue in May 2006. The consultation of the public is ongoing until end of August. Besides, the Commission has proposed such an obligation in its revised proposal to modify the Financial Regulation. Negotiation is on-going in the Council.

23. Resolve the problems in the application of the rules of ex ante and ex post publicity to the funds managed under centralised direct management, in that retrieving the information is difficult because the Directorates-General have different ways of publicising the data on the internet. (§ 59)

Commission's response:

The recommendation is accepted. The Commission is already working on devising the best way of providing information to the public and has given a commitment to provide this information for the EU-funded policies which it manages centrally and directly in a more user-friendly manner. The Internet site will also contain links to websites of the Member States where data on the beneficiaries of EU funds under shared management can be found.

24. Increase openness with regard to the different types of expert groups advising the Commission and the committees working within the comitology procedure and make information easily available to the public about the different types of expert groups, including data about the activities and membership of those groups. (§§ 60 and 61)

Commission's response:

The recommendation is partially accepted. The Commission is committed to achieve high levels of openness and transparency. Article 16 of the framework agreement between the Parliament and Commission already ensures the communication of the Commission's committees and expert groups, which are also rendered public through existing websites.

Nevertheless, publication of lists of members of expert groups must respect the protection of freedoms and fundamental rights of physical persons and their private lives when dealing with personal data (Application of Regulation 45/2001 on the treatment of personal information (OJ L 8, 12.1.2001)).

Finally, for certain sensitive domains, it may be appropriate not to identify members of the expert groups in order to avoid external pressures that could hinder their expected independence and impartiality.

Annual activity reports

25. The Commission, and in particular the central departments responsible for the guidelines for annual activity reports and declarations, should give priority to the elaboration of indicators which have a direct link to legality and regularity. (§§ 70 and 71)

Commission's response:

The recommendation is accepted. The 2004 Synthesis action on objectives and indicators is ongoing and aims precisely at analysing and defining relevant objectives and indicators for legality and regularity of operations. In addition, the Action 3a of the Commission’s action plan towards an integrated internal control framework [COM (2006)9] should in future provide the ECA with a standardised and comprehensible set of indications on internal control to support the reasonable assurance.

26. Commission's Directorates-General should better describe the source of their assurance and ensure that their declarations give a true and fair view of the adequacy of their management of the risk of error in the underlying transactions. (§ 73)

Commission's response:

The new guidelines for the setting up of the Directorates-general 2005 Annual Activity Reports already ask for an appreciation of the effectiveness of management and control systems and of the elements of the management and control systems that support the assurances required in the annual declaration and whether weaknesses exist that could lead to reservations.

Based on this analysis, the Directorates-General are required to assess the nature, cause and impact of identified weaknesses, justify judgements concerning their materiality and define their impact on the assurance contained in the annual declaration.

Action 3a of the Commission’s action plan towards an integrated internal control framework [COM (2006)9] should in future provide the ECA with improved presentation of the key internal control indicators used to support reasonable assurance. Ongoing work on the 2004 Synthesis action on objectives and indicators, which aims at analysing and defining relevant objectives and indicators for legality and regularity of operations, will also contribute to this objective.

27. Forward position to COCOBU in the form of a detailed and comprehensive report explaining and discussing the following issues:

- the Director-General for Budget should give a formal opinion on the quality and efficiency of the internal control systems;

- the Secretary-General, who has ultimate operational executive responsibility for the bureaucracy, should give a formal declaration of assurance as regards the quality of the individual declarations from the line managers (Directors-General);

- the internal auditor of the Commission should give his assessment of the quality and effectiveness of the controls as described in the management's annual activity reports and Synthesis report in the form of an audit opinion as regards the adequacy of the Secretary-General's assurance statement;

- the responsible Commissioner should co-sign, possibly in the form of a negative assurance so as to avoid any undermining of the responsibilities attributed to the authorising officers, the declaration given by the Director-General, as this would bridge the gap between the Director-General's individual assurance declarations and the College's institutional assurance declaration.

In case of disagreement, explain how the Commission will be able to obtain the assurance required to fulfil its responsibility under Article 274 of the EC Treaty. (§§ 79 and 80)

Commission's response:

The Commission would like to point out that it is its firm conviction that, under the existing accountability architecture issued from the reform, the implementation of the proposed measures would call into question Directors-General’s individual responsibility and the differentiation between political (College) and management responsibilities/accountabilities (Director-General).

Moreover, an opinion on the quality and efficiency of the internal control systems can only be given following detailed verification of those systems and, according to article 86 of the Financial Regulation, is one of the responsibilities of the Commission’s Internal Auditor. The role of the Secretary General is not conceived to produce formal declarations of assurance concerning the Annual Activity Reports and would lead both to a potential interference between Commissioners and their Directors-General and to an important increase in administrative processes (against the main simplification goal). Finally, the Commission’s Internal Auditor is already responsible for issuing independent opinions on the quality of management and control systems and a double signature of the Annual Activity Reports would lead to a blurring of responsibility and to a “de-facto” de-responsibilisation of Directors General.

The adoption of the synthesis report is the major act where the Commission fully assumes its political responsibility for the implementation of the budget under the Treaty and where the Commission’s political accountability to the discharge authority is expressed.

First, when adopting the Synthesis, the Commission takes stock of the way management and internal control are addressed by its services and in particular of the reservations expressed.

Second, the Commission instructs the services to implement the specific action plans laid down to remedy to the deficiencies disclosed in the Annual Activity Reports.

Third, the Commission recalls the responsibility of Commissioners for following up on the implementation of the above remedial actions in the services under their portfolio.

Finally, the Synthesis report adopted by the College identifies any systemic problems and adopts corrective actions needed at the Commission level to address major cross-cutting management and internal control issues.

It is the Commission's firm opinion that, either by its content or its form, the Synthesis report is therefore fully in keeping with the Commission’s Treaty responsibility and that it serves the common goal of enhanced accountability and clear lines of responsibility.

Further horizontal recommendations

28. In line with private sector best practice, the accounting officer should be upgraded to Chief Financial Officer with special responsibility for the quality of the Commission's financial reporting and its system of internal control as a whole. (§§ 82 and 83)

Commission's response:

The Commission has taken the recommended action. Its proposal for amending the Financial Regulation provides that the responsibilities of the accounting officer will be adapted. It will require that, before the adoption of the accounts by the institution, the accounting officer shall sign them off, certifying that they present a reasonable true and fair view of the financial situation of the institution. He shall satisfy himself that the accounts have been prepared in accordance with the accounting rules, methods and accounting systems established under his responsibility as laid down in the Financial Regulation for the accounts of his institution, and that all revenue and expenditure is entered in the accounts. However, the authorising officers shall remain fully responsible for the proper use of the funds they manage as well as the legality and regularity of the expenditure under their control.

The accounting officer shall be empowered to check the information received as well as to carry out any further checks he deems necessary in order to sign off the accounts. The accounting officer shall make reservations, if necessary, explaining exactly the nature and scope of such reservations.

While the accounting officer does, in accordance with the Financial Regulation, validate the systems used by the authorising officers, this does not mean that he assumes responsibility for the system of internal control as a whole. It is not envisaged that the accounting officer be responsible for the system of internal controls, which remain the responsibility of the authorising officers, as laid down in Art. 60(4) of the Financial Regulation.

29. The Chief Financial Officer who is accountable for the quality of the Commission's financial reporting and its system of internal control must have the necessary competence and adequate resources to ensure such quality, and that this includes a means of testing the assurances given by the Directors-General. (§ 84)

Commission's response:

The Commission has taken the recommended action. Its proposal for amending the Financial Regulation provides that the responsibilities of the accounting officer will be adapted. It will require that, before the adoption of the accounts by the institution, the accounting officer shall sign them off, certifying that they present a reasonable true and fair view of the financial situation of the institution. He shall satisfy himself that the accounts have been prepared in accordance with the accounting rules, methods and accounting systems established under his responsibility as laid down in the Financial Regulation for the accounts of his institution, and that all revenue and expenditure is entered in the accounts. However, the authorising officers shall remain fully responsible for the proper use of the funds they manage as well as the legality and regularity of the expenditure under their control.

The accounting officer shall be empowered to check the information received as well as to carry out any further checks he deems necessary in order to sign off the accounts. The accounting officer shall make reservations, if necessary, explaining exactly the nature and scope of such reservations.

While the accounting officer does, in accordance with the Financial Regulation, validate the systems used by the authorising officers, this does not mean that he assumes responsibility for the system of internal control as a whole. It is not envisaged that the accounting officer be responsible for the system of internal controls, which remain the responsibility of the authorising officers.

As regards resources available to the accounting officer, they include the central accounting department of the Directorate-General for Budget and the local accounting correspondents in the Directorates-General and Services, in addition to the reporting facilities in ABAC.

30. Set up a network for financial control organisations and bodies, including an annual meeting in the presence of the members of its Committee on Budgetary Control, to discuss and exchange experiences as regards general EU internal control systems (including internal audit) and accountability issues and thereby foster more effective cooperation between Member States and the European Union (§ 88)

Commission's response:

The recommended action has been taken. Such a network already exists for the Structural Funds under coordination arrangements provided for in the regulations. It involves all national authorities with responsibilities for audit of Structural Funds. The Commission convenes the members to an annual "Homologues' Group" meeting, at which technical issues of audit coordination and methodology are discussed, and to ad hoc technical meetings in Brussels. Documents are exchanged through a dedicated website. The European Court of Auditors is invited to all meetings. In agriculture, Paying Agency Directors meet regularly to discuss the implementation of CAP rules as well as to exchange ideas on best practice.

31. As part of the interinstitutional dialogue on this subject in 2006, make a detailed proposal on the level of tolerable risk of error, indicate which areas of the budget are high, medium or low risk and adapt control and audit activities accordingly. (§§ 95 and 97)

Commission's response:

The recommendation is accepted. Action 4 of the “Commission's action plan towards an Integrated Internal Control Framework”[COM(2006)9] aims to “initiate inter-institutional dialogue on the basis principles to be considered regarding the risks to be tolerated in the underlying transactions”. The Commission has already made significant progress by including the issue in the proposed revision of the Financial Regulation and drafting the corresponding Implementing Rules which will define the practical application of these principles.

32. Along with the Court of Auditors, make public information about the strengths and weaknesses of Member States' control systems. (§ 104)

Commission's response:

As regards the Commission, the Directorates-General managing the bulk of the budget enter reservations in their declarations where the information they have built up from their own and the Member States' audit work on the functioning of systems indicate significant deficiencies posing a material risk to the Community budget that can not be adequately managed through the normal corrective mechanisms of the control system. In those cases, the Member States' control systems concerned are explicitly mentioned in the annual activity reports.

Revenue

33. As regards the GNI own resource, invites the Commission to inform its competent committee on which measures it has or will take to improve the reliability, comparability and exhaustiveness of national accounts (§ 109)

Commission's response:

Since the introduction of the fourth own resource based on GNP/GNI, the Commission has been working in close co-operation with Member States to improve the reliability, comparability and exhaustiveness of national accounts. The measures taken in this context are notably described in the reports from the Commission to the European Parliament and the Council on the application of the GNP Directive (COM (96)124 final of 27.03.1996) and of the GNI Regulation (COM (2006) 199 final of 8.05.2006). The Commission is willing to inform directly the competent European Parliament committee about these measures.

Common Agricultural Policy

34. Require certifying bodies to test the operation of the primary-level controls in order to provide assurance that the information supplied by claimants is correct (paragraph 4.60). (§ 113)

Commission's response:

The recommendation is partially accepted. The Commission takes the view that the comprehensive system for the management and control of agricultural expenditure already provides reasonable assurance as to the effective management of the risk of error in the legality and regularity of the underlying transactions in agriculture.

However, in order to further improve and reinforce the overall system for providing reasonable assurance, the Commission is prepared to implement the Court's recommendation that the certifying bodies should do more work to verify and validate inspections statistics and post-payment checks. To this end, the certifying bodies will be required in the new guideline on reporting to review more in detail the administrative capacity of the paying agency as regards on-the-spot checks. They will have to gain assurance as to whether the system (for on-the-spot checks) in place has operated satisfactorily by reviewing in detail elements like accuracy of control statistics, instructions and manuals, human resources, training and competencies of controllers, agreements with delegated bodies, monitoring and supervision systems in place by the paying agency, application of sanctions etc.

35. Extend post-payment checks to as many Member States as possible in order to attain reasonable assurance on compliance with Community legislation. (§ 114)

Commission's response:

The Commission has taken the recommended action. 10 audit visits were carried out in 2004 and 2005. Eight further missions on the application of Regulation 4045/89 to cover general aspects are envisaged for 2006. In that respect, the compliance units will continue in 2006 to evaluate the Regulation as part of their missions covering specific sector related issues. Furthermore, an amendment to Regulation 4/2004 laying down detailed rules for the application of Regulation 4045/89 was adopted by the Commission on 10 January 2006. These changes address the weaknesses indicated by the Court in the 2004 Annual Report with regard to reporting requirements.

36. Introduce a minimum of common terminology according to the different climate zones in the Union and use these in order better to target EU forestry measures and spending. (§ 115)

Commission's response:

The Commission is taking the recommended action. With the adoption of Council Regulation (EC) N° 1698/2005 a more targeted approach has been introduced into rural development. In its implementing rules, which are currently under discussion, the Commission has proposed common definitions of ‘forest’ and ‘other wooded land’.

37. Complete the accreditation of the EAGGF paying agencies in some new Member States as soon as possible. (§ 116)

Commission's response:

The Commission has taken the recommended action. All paying agencies (PAs) in the new Member States (NMS) have received final accreditation.

Each NMS is responsible for the accreditation of the PAs. Provisional accreditation was granted provided the PAs’ control systems reached the minimum acceptable standard. Final accreditation was only granted when all significant issues identified in the pre-accreditation audits were resolved. The Commission has closely monitored the situation, notably via audit missions to each paying agency in each NMS.

38. Focus human resources, which have to deal with the administration of the premiums of the major instrument for afforestation (whose amount largely exceeds the funds allocated to the programme), on current objectives. (§ 117)

Commission's response:

The Commission has taken the recommended action. Continuity needs to be ensured in forestry. The existence of long-term contracts providing compensation for loss of income is a core element to make afforestation of productive agricultural land attractive to farmers. Thus, by its nature, such support needs to span more than one programming period. The Commission has responded to the Court’s observations and proposed a reduction of the aid ceilings and a shortening of the maximum period to compensate income foregone resulting from the afforestation of agricultural land from 20 to 10 years. The Council, in its Regulation (EC) N° 1698/2005, decided on a reduction to 15 years.

As to the human resources in particular, it has to be highlighted that the Commission services currently focus on the implementation of the current objectives, i.e. those fixed for the programming period 2007-2013. The management and execution of payments resulting from previous periods is the competence of the Member States.

39. Table proposals to avoid that the premiums of the major instrument for afforestation largely exceed the funds allocated. (§ 117)

Commission's response:

The Commission has taken the recommended action. Continuity needs to be ensured in forestry. The existence of long-term contracts providing compensation for loss of income is a core element to make afforestation of productive agricultural land attractive to farmers. Thus, by its nature, such support needs to span more than one programming period. The Commission has responded to the Court’s observations and proposed a reduction of the aid ceilings and a shortening of the maximum period to compensate income foregone resulting from the afforestation of agricultural land from 20 to 10 years. The Council, in its Regulation (EC) N° 1698/2005, decided on a reduction to 15 years.

40. Evaluate the verifiable character of sub-measures at the time of approving the rural development programmes. (§ 120)

Commission's response:

The Commission is taking the recommended action. In the 2000-2006 programming period it checked, during the examination of the Rural Development Plans (RDPs), that the measures defined by the Member State were acceptable and relevant. It refused to accept certain proposals because their added value, and/or their controllability, was inadequate, e.g. fertilizer reduction by less than 20 %. However, the checks on verifiability were not exhaustive during the programme approval period (2000/2001).

For the 2007-2013 programming period the following steps are envisaged:

1. The Commission will issue guidance and discuss with MS what undertakings can be reasonably controlled by the MS. This guidance document will establish a classification of controllability for the different undertakings. It shall be used by the Commission services in the assessment of Rural Development Programmes and may lead, where necessary, to a refusal of measures.

2. The proposition of a control system aligned as far as possible with control systems related to cross compliance for first pillar payments as well as the clearer allocation of responsibilities between Member States and Commission will strengthen controllability.

41. Ensure, together with the Council and Parliament, that initiatives financed are sufficiently verifiable when implementing the proposals for agri-environment expenditure in the 2007 to 2013 planning period, without increasing control costs and bureaucracy. (§ 122)

Commission's response:

The Commission is taking the recommended action as regards verifiability of measures. For the next programming period, the Commission inserted in the draft proposal for the implementing regulation the following provision (art.48 (1)):

“…Member States shall ensure that all the rural development measures they intend to implement are verifiable and controllable. To this end, Member States shall define control arrangements that give them reasonable assurance that eligibility criteria and other commitments are respected.”

As to the calculation of aid levels (i.a.) for agri-environment expenditure, the following is added (art. 53 (2) a):

“…Member States shall ensure the following for the calculations and the corresponding aids referred to in paragraph 1:

(i) they contain only elements that are verifiable,…”

Structural measures

42. Along with Member States, take all necessary measures in order to bring "day-to-day management" up to the required standard. (§ 125)

Commission's response:

The Commission is taking the recommended action. It recently issued a note of good practice for day-to-day checks by management in Member States. It requires improvements whenever it finds in its audits that that the checks are not being done properly. Where the deficiencies are serious, it agrees action plans with the national authorities and monitors implementation of the plans.

43. Managing authorities should not be allowed any longer to delegate actual payment decisions. (§ 126)

Commission's response:

The Commission will not be taking the recommended action. In the Structural Funds, while the processing of payment claims from beneficiaries can be delegated to intermediate bodies in accordance with the provisions of the regulation, the managing authority remains responsible for payment decisions and is therefore expected to issue instructions on the standards to be applied and to supervise the activity. The paying authority carries out further checks for the purposes of certification before claiming reimbursement from the Commission. The Commission therefore does not consider that it is a problem if the managing authority delegates payment functions to an intermediate body, provided both the managing and paying authorities carry out their supervisory roles properly.

44. Disseminate good practices of controls to Member States (§ 128)

Commission's response:

The recommended action has been taken. In 2006 the Commission issued notes setting out good practice on day-to-day management checks and performance of the certification function by paying authorities. In 2003 guidance was issued on the execution of sample checks by audit bodies to promote satisfactory and consistent standards for this work. The Commission has also published detailed audit manuals for the Structural Funds and the Cohesion Fund. Control and audit methodology is discussed at regular bilateral and multilateral coordination meetings between the Commission and Member States.

45. For the next programming period, implement together with Member States the proposed sectoral declarations at central Member State level, make arrangements for Commission's approval of management and control bodies set up at that central level and present as soon as possible a proposal which would require the audit body proposed in the 2007-2013 regulations to certify the claims made on all structural funds in the course of any given year, and not just the claims under the 2007-2013 programmes, because 2000-2006 expenditure continues until 2010. (§§ 131 to 133)

Commission's response:

The recommended action is being taken. In its proposal made in July 2006 for an amended Financial Regulation and its implementing rules, the Commission has incorporated the Council's commitment to produce at the appropriate national level annual summaries of audits and declarations and has specified their content and timing. The regulations for the 2007-13 period of Structural Fund programmes require the Member States to submit to the Commission before lodging of the first interim payment claim and at the latest within twelve months of the approval of programmes a description of the management and control system, and the main bodies involved, and an assessment of their compliance with requirements. The Commission can object to arrangements that appear not to guarantee the necessary independence or separation of functions. With regard to the recommendation to require the audit authority to certify claims from 2000-06 period programmes, however, the Commission has no legal basis for making an annual audit opinion mandatory for 2000-06 programmes. Payment claims made in 2007 and 2008 will continue to be certified by paying authorities in accordance with the current regulations and, before closure starting in 2010, the winding-up body will issue an audit declaration on all the expenditure declared throughout the programme period.

46. In cooperation with the Member States, ensure that the lessons drawn from the closing of programmes for the 1994/1999 period are applied for the 2000/2006 period and future periods of the implementation of Structural Fund programmes and Cohesion Fund projects. (§ 134)

Commission's response:

The recommended action has been taken. The Commission has already issued a detailed guidance document for the 2000-06 period closure. In the new period the new regulatory requirements (ex ante compliance assessment and annual audit opinion) will ensure that the supervisory and control systems can operate effectively from the beginning, despite simultaneous work on closing 2000-06 programmes. The provisions on partial closure should also achieve an even more significant improvement in the closure arrangements.

47. Present every six months a scoreboard showing Member States' progress as regards efficient implementation of supervisory and control systems as described in the regulations. (§ 135)

Commission's response:

The recommended action has been taken. Such information is already provided, on an annual basis, in the Annual Activity Reports of the Directorates General concerned. In the AARs the Directorates General identify weaknesses in national systems in particular Member States. These assessments are based on the Commission's own audit activity and management information and on the Member States' annual control reports. The Directorates General follow their annual work programme and review progress on a regular basis. Periodically, the Commission services issue other reports on the operation of management and control systems, such as that on ERDF systems which was presented to Parliament in April 2003.

Internal policies, including research

48. Work towards a maximum of standardised procedures in internal policies, thereby facilitating financial controls and reducing the administrative burden for beneficiaries. (§ 136)

Commission's response:

The Commission is taking the recommended action. The Commission shares the concern that a maximum number of common procedures should be sought, particularly as regards Research, where management involves several Directorates-General. In addition to its implementation of the internal control standards introduced at Commission level, the Research family is striving to define as many common methods as possible and as many mutually compatible tools as possible whether shared or integrated. Concerning simplification of the implementation modalities:

1/ * The Commission has established an Action Plan for the Rationalisation and Acceleration of FP6,

2/ * in the Commission’s Staff Working Paper on FP7 adopted on 6 April 2005, a first set of 10 measures is proposed. These include more extended use of flat-rate financing and lump sum financing; a single common electronic registration desk for participants to submit their basic legal, administrative and financial data; consistent application of ex-ante controls guaranteeing the protection of Community’s financial interests; full operational autonomy entrusted to consortia avoiding micro-management by the Commission’s services; simplification of eligible costs based on contractors’ usual accounting and management practices and principles.

3/* In addition, the workshop of 16/17 June 2005 on simplification, with participation of the Court of Auditors, representatives of Member States and stakeholders, helped to consolidate these proposals and to identify further actions.

4/* A Sounding Board of smaller participants (SMEs, small research institutes and universities) has been set up to ensure that their interests are taken into consideration when establishing FP7 rules.

5/* A further conference on simplification with representatives of participants in Community-funded RTD projects was held in September 2005 and a dedicated web site established to consult participants and gather their views.

The Commission’s proposal for the EC Rules for participation (COM(2005) 705 final), adopted on 23 December 2005, includes the first set of rules reflecting these discussions.

Regarding the Trans-European Network of Transport programme (TEN-T), the Commission has taken the first steps towards simplifying the administrative process (by merging the preliminary and detailed application for non-MIP proposals in 2004). Cost statement models are annexed to the TEN Decision since 2005. The Commission is examining how to further simplify the application and evaluation process.

49. Establish a common or integrated IT system for the management of the fifth, sixth and further framework programmes for research, technological development and demonstration activities. (§ 136))

Commission's response:

The Commission is taking up the recommended action. The situation depends on the Framework Programme:

Concerning the 5th Framework Programme:

The formal implementation period of the 5th Framework Programme is closed, though projects are still ongoing. The action that has been taken was to implement a common data warehouse with information on financed projects that can be used for consultation or reporting. Moreover a common expert registration tool and a common electronic submission tool (Pro-tool) have been created and used.

Concerning the 6th Framework Programme:

A common management structure for supervision (IT Programme Steering Committee) was implemented in Summer 2004 between all research DGs replacing earlier arrangements.

A Commission corporate IT system has been implemented for those procedures where the different services use similar, integrated workflows (Proposal submission, Expert registration and selection, Proposal evaluation, Contract Preparation, Contract Management). However, the research family has also to meet the needs of other programmes which are managed outside the framework programme supported by dedicated IT-Systems. For federating these systems a common data warehouse is under development and "calibration exercise" are recommended by the supervising body (IT Programme Steering Committee) because of different user requirements and workflows.

Concerning the 7th Framework Programme:

The specific development can take place when the business procedures for FP7 and their supporting reference documents are available. In the meantime, however, the following actions are being taken:

Follow a two-step strategy towards IT provision accepted by the IT Programme Steering Committee:

• Step 1 (for initial operations of FP7 from 1st January 2007): adapt existing FP6 IT systems to FP7 processes as they emerge (this requires FP7 processes to be streamlined and information systems to be developed in parallel). Analyse in that context the results of the integration of the IT systems developed for FP6 and improve the systems where possible.

• Step 2 (within 2-3 years from initial operations of FP7): renew the information systems in the light of the establishment of external agencies, and of the experience of the initial operations in FP7. For that process, mandate accordingly an IT steering group and embrace "RUP" development methods (in accordance with the governance recommendations of DG DIGIT) for all services, in order to narrow down the gap between business decisions/actions and IT decisions/actions.

50. Simplify procedures in order to remedy the persistent high risk of errors caused by incorrect declarations of costs by final beneficiaries. (§137)

Commission's response:

Concerning the clarification of the procedures and instructions in previous Framework Programmes, this recommendation has been accepted. It has been implemented within the Action Plan elaborated following the Synthesis Report of the Annual Activity Report 2001.

Several measures have been adopted in order to improve the contract management such as:

For FP5:

• towards the contractors: informing them at the time of signature of contract and at the time of payment of each cost statement and reminding them of the possibility of financial audit; reminding co-ordinators of their responsibilities; improving and structuring the CORDIS 5FP management helpdesk on contract questions; providing contractors with the main results and problems identified during financial audits, in order that they avoid similar errors and problems; increasing the number of “desk audits”;

• towards the Commission’s officials: further and common training DGs on financial management issues in order to ensure that a reasonable number of projects is being managed by closing off contracts as soon as possible (ensuring the timely financial closure of projects), minimising contract extensions etc.

For FP6:

• towards the contractors : the model contract web site is kept updated with all the relevant information relating to special clauses and associated guidance for their use, guidelines for amendments, guide to financial issue, FAQs, translations of model contracts, etc. to ensure that contractors are aware of contractual issues;

• towards the Commission’s officials : a number of documents have been provided to clarify and coordinate actions between the research DGs; two cross-DG seminar on legal aspects relating to FP6 projects have been held in December 2004 and February 2005.

Regarding the Trans-European Network of Transport programme (TEN-T), the Commission has taken the first steps towards simplifying the administrative process (by merging the preliminary and detailed application for non-MIP proposals in 2004). Cost statement models are annexed to the TEN Decision since 2005. The Commission is examining how to further simplify the application and evaluation process.

51. Increase the number of on-site project assessments in the area of employment and social affairs. (§139)

Commission's response:

The Commission is taking the recommended action. Given the high volume of projects within the European Social Fund (ESF) programmes and in order to maximise the use of resources available, the audit strategy adopted by the Directorate-General for Employment, Social Affairs and Equal Opportunities was intended, in the first instance, to give priority to the audit of the systems implemented by the Member States. The different stages of this strategy are:

- a desk analysis of the management and control systems set up by the Member States (based on the descriptions provided under Article 5 of Regulation 438/2001) and audits on-the-spot at the level of the national authorities;

- a limited number of controls of projects for testing the systems set up;

- the strengthening of the control of projects by establishing a contract with a provider to carry out the controls.

The audit strategy followed by the aforementioned Directorate-General resulted in the identification of a certain number of systemic weaknesses and in the implementation of the necessary improvements and financial corrections by the Member States. For ESF, one indicator of the improvements made to the management and control systems set up in the Member states is the percentage of programmes with systems that were judged non compliant by the Director-General for Employment, Social Affairs and Equal Opportunities in its annual activity report. This percentage dropped from 46% in 2004 to 16% at the end of 2005.

52. Ensure, together with Member States, that appropriations from the Structural Funds are properly allocated in the area of employment and social affairs. (§ 140)

Commission's response:

The recommended action has been taken. Evaluations of programme proposals and performance are carried out at the beginning, in the middle and at the end of the programme cycle. Their results are considered in the initial design of programmes, in the review of their performance mid-way in the programme period, and in the thinking about the general objectives and direction of the policy respectively. At individual project level, the selection criteria are intended to ensure that only projects contributing to the programme's objectives are accepted for co-financing, and managing authorities are required to monitor how projects perform and to consider the lessons to be learned from their implementation.

53. Issue a memorandum concerning good practice as regards controls on management of national expenditure and assess the results of all kinds of financial resources in the area of employment and social affairs. (§ 141)

Commission's response:

The problems with updating the follow-up of recommendations, in the electronic system, arising from audits in the Directorate-general for Employment, Social Affairs and Equal Opportunities were remedied in 2005. The Commission has already issued notes of good practice in day-to-day management checks, for the certification function of paying authorities, and guidance on the execution of sample checks by audit bodies. It has also published detailed audit manuals for the Structural Funds and the Cohesion Fund.

54. Continue, together with Member States, efforts to ensure greater social cohesion in the area of employment and social affairs. (§ 143)

Commission's response:

The Commission notes that the European Council of March 2006 approved the new objectives for the streamlined open method of coordination on social protection and social inclusion, which make clear that greater social cohesion and, in particular, efforts to promote social inclusion, remain key priorities for the Union and the Member States. From 2007, the open method of coordination will be supported by the new PROGRESS programme.

55. Verify continuously whether cost-reimbursement systems could be simplified and the procedures and instructions governing the various programmes be formulated more clearly in the area of employment and social affairs. (§ 145)

Commission's response:

The recommended action has been taken. Regarding direct management, the four programmes currently managed by DG Employment, Social Affairs and Equal Opportunities have been regrouped into a single programme entitled PROGRESS, which will enter into force in 2007. Common instructions will be issued to cover the financial implementation of cofinanced projects to ensure harmonised and simpler application, and information sessions targeting beneficiaries will come on stream as grants are awarded, to prepare the ground for the financial management of the projects.

Ex-ante sampling checks on documents supporting final financial statements presented by beneficiaries have also been stepped up among operational units, thereby minimising the possibility of undue payments. The DG in question has introduced an additional ex-ante sampling check into its financial circuits, considerably improving the level of assurance.

In parallel to that, the proposed amendments to the Financial Regulation and its implementing rules recommend a simplification of the procedures, which would clarify the specific rules applicable at Commission level.

As far as ESF is concerned, the procedures and instructions governing the management and control systems of the Member States have been developed in such a way as to ensure that the same standards apply across all programmes and that the assessment of those systems can be done without jeopardising the principle of equal treatment.

A set of Regulations was approved at the beginning of the current programming period to ensure that Member States were aware of the standards applicable during the whole period. Moreover, guidance and clarification have been provided on an ongoing basis through dissemination of that information in the respective Committees.

Furthermore, in 2003, a Commission's Communication was issued in order to simplify certain issues pertaining to the management and control of programmes.

56. Take practical measures to facilitate procedures for the adoption of proposals for participation in Community programmes in the area of employment and social affairs. (§ 146)

Commission's response:

The Commission is taking the recommended action. Computerisation of grant requests and their evaluation is being finalised (via SWIM – the Saga Web Input Module system). In 2007, most budget programmes and lines in the area of Employment and Social Affairs will offer grant applicants the possibility of making their request electronically. Online assistance will be available to help applicants fill in the forms, and to recall the principles that must be abided by when establishing the budget of an action to be cofinanced.

The system will automate the gathering of essential data, and enable the creation of tables comparing applications within the framework of each call for proposals. This will considerably reduce the time spent dealing with calls for proposals: the evaluation procedure will be faster, and decisions and notifications to applicants about acceptance or refusal of their projects will be speeded up considerably.

57. Develop further assistance to applicants in the context of multi-annual programmes in order to avoid the submission of project applications not eligible for funding or of poor quality in the area of environment, public health and food safety. (§ 148)

Commission's response:

The Commission is taking the recommended action. The Commission has already done a lot but will do more. According to the draft Implementing Rules linked to the ongoing revision of the Financial Regulation (linked IR) the Commission will improve the 'grant management'.

In order to assist the applicants, to improve the quality of proposals and to increase the efficiency of the calls for proposals, the Commission will lay down joint standards for application forms for similar grants and monitor the size and readability of the application forms, provide information and guidance to the applicants in several languages about the rules applicable to the award of grants by means of organising seminars and providing handbooks. In the same spirit, it should inform as soon as possible the applicants of the possibility of success of their applications. The procedure of submission and the procedure of evaluation may be divided in different stages, allowing to reject at an early stage the proposals which cannot have any prospect of success after this stage of the procedure. In order to clarify which costs may be eligible for Community financing an indicative list is provided for. Provisions are inserted to determine the conditions for submission of the applications, especially for applications submitted by electronic means. Finally, additional information may be asked of the applicants during the award procedure, in particular in the case of evident material errors in the applications.

In order to protect the interests of the beneficiaries and to increase legal certainty, modifications of the content of the call for proposals have to remain exceptional, and applicants have to benefit of a supplementary deadline if these modifications are substantial. They shall be subject to the same conditions of publication as the call itself.

The Commission is considering the possibility of restricting a call for proposals to a targeted category of beneficiaries. An example is twinning schemes in external relations where the target organisations are national administrations of the Member States who should "twin" with administrations in third countries and provide them with experience.

58. Examine procedures to see if the implementation of payment appropriations could be improved (increase payment rates above 80%) in the area of environment, public health and food safety. (§ 149)

Commission's response:

The Commission is taking the recommended action. For the public health programme, efforts are made to bring the programming cycle forward, aiming to have the Financing Decision for expenditure in the Public Health activity adopted earlier. The call for proposals is also more focused and specific, thus decreasing the number of proposals received and allowing the shortening of the evaluation process.

In addition, the Director General has put in place a formal structure to ensure that SANCO’s management team is more regularly informed in a structured way on issues related to financial management. Reports on budget implementation are now presented and discussed in a budget committee that feeds the information into the management committee.

It is worthwhile mentioning also the creation of an executive agency in the field of public health (Commission Decision No 2004/858/EC, OJ L 369/73 of 16.12.2004). As a result, a significant body of qualified staff dedicated to this activity will be handling the programme implementation, which therefore should lead to improved efficiency.

As for the environmental aspect, in order to address timely the concentration of financial transactions in the last quarter of the year, DG ENV has issued several notes promoting the multi-annual planning concept and a more balanced way of committing throughout the year. This should have a positive impact on the first payments posted to these commitments. Financial reporting on budget execution is issued every fortnight to management. Meanwhile DG BUDG has developed an 'early warning tool' aiming to minimise the risk of end-of-year surpluses of appropriations by means of comparing the real budget execution with the forecasting.

59. Avoid unnecessary delays in awarding grants or selecting projects to be financed in the area of environment, public health and food safety. (§ 150)

Commission's response:

Commission departments are likewise keen to speed up the signing of grant agreements.

It should be borne in mind that the length of the project selection process also depends on the requirements of financial regulations and on the length of time required to carry out an in-depth evaluation of proposed projects, so that objectives can be verified and available financial resources allocated as efficiently as possible.

In addition, it is hoped that the outcome of the process to change the current Financial Regulations and Implementing Rules will contribute to a further simplification of procedures that ought to be followed, which can then also contribute to reducing any delays.

60. Ensure proper implementation of annual calls for proposals for specific consumer protection projects in the area of environment, public health and food safety. (§ 153)

Commission's response:

The Commission is taking the recommended action. Despite the fact that the legal base only establishes the need to have the Call for Specific Projects at least once every two years, SANCO has made a call in 2004, 2005 and 2006. The 2006 call is currently open (deadline 30 June). The 2005 call was processed within the three months required by the EP.

61. Translate the lessons learnt during the execution of the current consumer programme in designing the new programme for 2007-2013, allowing for alternative beneficiaries that would be better equipped to undertake the actions envisaged. (§ 153)

Commission's response:

The Commission is taking the recommended action. On the new programme, actions on specific projects in favour of consumer organisations have been deleted. Experience has shown that, even if they may give consumer organisations a short term boost, they do little to develop the capacity of the consumer movement in a sustainable way. However, capacity building actions for national consumer organisations remain a priority through other support instruments, like training for NGO's staff. This has proven to be a very cost effective means to give effective support to consumer organisations, because it enhances their long term capacity and sustainability.

62. Follow-up effectively observations by the Court concerning internal audit capabilities and failures to meet accepted standards in the area of internal market and consumer protection. (§ 154)

Commission's response:

The recommended action has been taken: new auditors were recruited to the two vacant posts in the second half of 2004. At present all the three internal auditor posts have been filled in. Staff limitations will thus no longer prevent the Internal Audit Capability of DG SANCO from carrying out its annual audit plan.

63. Take further action to reach the audit target of 20 % of projects and 35 % of total project costs in the area of transport and tourism. (§ 156)

Commission's response:

The Commission will not be taking the recommended action: in 2004, when DG TREN started auditing Trans-European network projects (TEN) the sample initially selected covered more than 35% of the total costs of the projects finalised in 2003, which DG TREN considered highly significant. The aim of maintaining this target was fixed at this time together with the intention of covering 20% of the projects finalised. After issuing the drafts of the first batch of 20 audits, DG TREN realised that for cost efficiency reasons the target of auditing 20% of the projects was not realised. It has appeared from the experience gained that audits of TEN projects are rarely followed by financial adjustments as the budget of the projects (mainly public works for road/trains) is always largely overrun and as in most cases, audit adjustments are compensated by eligible costs in excess of the amount foreseen in the decision. Overpayment risk is thus very low. Furthermore, TEN beneficiaries are almost the same from one year to another (public authorities or national bodies).

DG TREN decided to stick to its audit policy of auditing a large part of the budget and to cover as many beneficiaries as possible but with a risk based approach and with reasonable audit costs. DG TREN considers the number of 20 audits of TEN projects per year as sufficient, this figure covers more than 10% of the projects finalized each year. At the same time this sample size will always cover a significant part of the total costs of the projects finalised each year.

64. Define model costs statements in the area of transport and tourism. (§ 156)

Commission's response:

The recommended action has been taken and cost statements model are annexed to the TEN Decision since 2005.

65. Distinguish between studies and works for audit purposes in the area of transport and tourism. (§ 156)

Commission's response:

The Commission is taking the recommended action. DG TREN already introduced clear definitions in the decision text of binding models for the financial and technical reporting. This inclusion has been welcome by the budgetary authority in its report 2004. The new draft TEN Regulation (applicable in 2007) contains clear definitions of works and studies. However, DG TREN will further discuss this point with the Court in order to find an agreement on definitions that address the concerns of both institutions.

66. Increase payment appropriations deployed for transport safety. (§ 158)

Commission's response:

The Commission is taking the recommended action. The low rate of execution of payment appropriations in 2004 is due to the delayed launch of the call for proposals which lead to less advance payments than foreseen. The 2005 consumption of payment credits is better even though it is globally difficult to obtain bank guarantee permitting to launch advance payments.

67. Increase commitments and payments available for protecting passengers' rights. (§ 159)

Commission's response:

The Commission is taking the recommended action. This budget line was created in 2004. It is thus the first year that the credits were available for this policy. DG TREN has developed a policy in this sector and the available appropriations in 2005 are much higher than in 2004. The execution rate in 2005 amounted to 79% on commitments and to 91% on payments. The execution in 2005 is thus much higher than in 2004 and the execution 2006 appears to be at the same level.

68. Increase in future payment appropriations available for the TEN-T budget. (§ 161)

Commission's response:

The Commission is taking the recommended action. The payment credits for TEN-T between 2004 and 2006 have slightly increased. However, the projects nature does not permit the Commission to increase massively the level of used payment credits. The duration of projects and the procedures linked to the closure of commitments (i.e. on-the-spot visits, audits, etc) make it difficult for the Commission to further decrease significantly the existing RAL.

69. Reduce the risk of errors, in the light of the specificities characterising beneficiaries of grants within EU programmes on education, culture, youth and the media. (§ 162)

Commission's response:

The Commission is taking the recommended action. A whole set of measures to this effect are foreseen in the proposed legal bases for the new programmes in the fields of education, culture, youth and the media. The various measures will be spelled out in the implementing rules applicable to each of the programmes as well as in accompanying guidelines and other related documentation. These documents currently in preparation will be published when the programmes have been finally adopted. They will include elements like the use of lump sums in line with the Financial Regulation and simplified contracting arrangements for small scale grants.

70. Identify solutions to procedural difficulties and bottlenecks in the management of projects encountered by beneficiaries of grants and present them in the form of lessons to be learnt and disseminated among those beneficiaries, as well as to be used for improving inputs for internal procedures in the area of culture and education. (§ 164)

Commission's response:

The Commission is taking the recommended action. The preparation of the new programmes in the fields of education, youth and culture took careful account of the results of related external evaluations and stakeholder reviews. The new programmes have thus been constructed in the light of the findings and results achieved. Various measures have been incorporated in order to simplify management structures throughout the lifetime of a project including selection procedures, contractual arrangements and financial rules. Relevant documentation and guidance is currently under preparation awaiting adoption of the programme proposals by the competent authorities. Documentation and guidance will also be provided to potential and actual beneficiaries throughout the lifetime of the programmes.

71. Use widely assessment indicators on the evaluation of the future Lifelong Learning, Culture, Media, Youth and Citizens for Europe Programmes. (§ 165)

Commission's response:

The Commission is taking the recommended action. Detailed evaluation measures have been incorporated into the proposals for the new programmes. The comprehensive series of assessment indicators proposed for the ex-ante evaluation for the Lifelong Learning programme will be updated and agreed with the programme committee at the start of the new programme period. For the other programmes the Commission is currently working on developing equivalent indicators

72. Strengthen multi-lingual procedures in relation to calls for proposals addressed to citizens and potential beneficiaries of EU programmes in the area of culture and education. (§ 166)

Commission's response:

The Commission is taking the recommended action. Noting that every citizen is entitled to communicate with the Commission in any of the official languages it is also the intention of the Commission to publish calls for proposals for the larger programmes in all the official languages. Under centralised indirect management the national agencies managing programmes in the field of education play a crucial role in informing the citizen and potential beneficiaries in their language.

73. Increase the implementation rate of some key press and communication-related budget lines to ensure a communication policy capable of reflecting the current need for debate about the future of the Union in the area of culture and education. (§ 167)

Commission's response:

The Commission is taking the recommended action. Measures have been taken in 2005 like the adoption of the action plan to improve the communication of the Commission on Europe as well as the adoption of the Plan-D for Democracy, Dialogue and Debate which already have lead to an increase of 8% in the budget implementation rate of DG COMM's budget.

74. Look at a very broad range of Community policies and measures from the point of view of equal opportunities pursuant to the provisions of the Treaty of Nice. (§ 170)

Commission's response:

The Commission is taking the recommended action. The Commission is already applying the gender mainstreaming principle pursuant to the EC Treaty. In the Roadmap on equality between women and men 2006-2010 (COM(2006) 92), the Commission has reaffirmed the dual approach of gender mainstreaming and specific actions, underlining that gender mainstreaming must be strengthened in all policies and in particular in the areas identified in the Roadmap.

The Roadmap presents key measures and actions that the Commission will implement in six priority areas during the period 2006-2010. The priorities are: achieving equal economic independence; enhancing reconciliation of work, private and family life; promoting equal participation of women and men in decision making; eradicating gender-based violence and trafficking; eliminating gender stereotypes in society; promoting gender equality outside the EU. Moreover, the Roadmap devotes a specific chapter to "Improving governance for gender equality", where particular attention is given to support gender impact assessment and monitoring progress which are both fundamental tools for gender mainstreaming.

75. Provide budgetary data concerning funding allocated to the promotion of gender equality in the different budget lines. (§ 171)

Commission's response:

The Commission will take the recommended action. At present some Commission services (RELEX, ECHO, RTD) apply in some of their activities gender budgeting. This will be the basis for a feasibility study of gender budgeting methodology in EU budget which is under preparation. This action is planned to be financed from Equal opportunities budget line of PROGRESS programme

The Commission has introduced the new impact assessment guidelines, which do now also include the issue of gender equality to be considered when assessing the social impact of a proposal. To consider the aspect of gender equality in accordance with these guidelines facilitates the integration of the gender dimension in the subsequent monitoring, reporting and evaluation of an activity.

76. Deliver relevant information on gender mainstreaming policies in the discharge reports. (§ 172)

Commission's response:

The Commission will take the recommended action and deliver relevant information on gender mainstreaming policies in the discharge reports upon request.

Furthermore the Commission would like to highlight that it is actively applying the gender mainstreaming principle pursuant to the EC Treaty. In the Roadmap on equality between women and men 2006-2010 (COM(2006) 92), the Commission has reaffirmed the dual approach of gender mainstreaming and specific actions, underlining that gender mainstreaming must be strengthened in all policies and in particular in the areas identified in the Roadmap. The Roadmap devotes a specific chapter to "Improving governance for gender equality", where particular attention is given to support gender impact assessment and monitoring progress which are both fundamental tools for gender mainstreaming.

77. Increase payment implementation rate as regards the "Daphne" programme. (§ 174)

Commission's response:

The Commission accepts the recommendation. The Commission has initiated the following actions to increase the payment implementation rate for the Daphne programme:

- improved reporting formats for the final implementation report and the final financial statement, including guidelines and a standard format for payment requests. All documents are available on the Daphne web page;

- recruitment of one additional person to strengthen the Daphne team.

Early results are encouraging: while the rate of execution for the whole year was 24% in 2004 and 39% in 2005, it was already 33% by the end of May 2006.

78. Collaborate with Member States to the proper implementation of appropriations committed, particularly as regards Structural Funds in the area of gender equality. (§ 175)

Commission's response:

In the recently adopted Roadmap for equality between women and men, 2006-2010, the Commission stresses that accountability is central to effective governance. The Commission inter-service-group on gender mainstreaming represents an important forum for coordination between Directorates-General and for follow-up of gender equality activities foreseen in the Roadmap. Moreover, in the Roadmap the Commission undertook to take greater account of the gender perspective in the impact assessment of Community policies and legislation and to explore the possibilities of developing gender budgeting at EU level, particularly in the Structural Funds within the possibilities of shared management. This would help enhance sound financial management and proper implementation of the appropriations committed. In addition to that, DG REGIO has set up a High Level Group for gender mainstreaming in the Structural Funds with a view to improving the implementation of a gender perspective in the Funds' operations. Since its creation on 1st June 2004, the high level group has met four times: twice in 2004 and twice in 2005. The Group has played a useful role in sharing best practices between Member States.

On a more global basis, the cooperation between Member States and the Commission on the proper implementation of the Funds is done throughout the programming period through the implementation of the audit strategy mentioned under point 51 , through the establishment of interpretation/guidance notes and the dissemination of information to the Technical Working Group of the ESF Committee.

This is common to all programmes which are implemented with ESF funding.

79. Take practical measures aimed at making the submission of proposals to participate in the different Community programmes easier and at reducing the expenditure incurred during submission in the area of gender equality. (§ 176)

Commission's response:

The Commission is taking the recommended action. Computerisation of grant requests and their evaluation is being finalised (via SWIM – the Saga Web Input Module system). In 2007, most budget programmes and lines in the area of Employment and Social Affairs will offer applicants the possibility of making their requests electronically. Online assistance will be available to help applicants fill in the forms, and to recall the principles that must be abided by when establishing the budget of a cofinanced action.

The system will automate the gathering of essential data, and enable the creation of tables comparing applications within the framework of each call for proposals. This will considerably reduce the time spent dealing with calls for proposals: the evaluation procedure will be faster, and decisions and notifications to applicants about acceptance or refusal of their projects will be speeded up considerably.

80. Further improve the implementation of the budget and reduce RAL in the area of freedom, security and justice. (§ 177)

Commission's response:

The Commission accepts the recommendation. It should be borne in mind that the increase in outstanding commitments in the area of freedom, security and justice is a reflection of increased activity in this area. Similarly, the implementation rate for payments depends on the capacity of beneficiaries or Member States to implement the actions for which grants are being made within the agreed timeframe.

DG JLS has already adopted a number of measures to improve budget implementation and control the increase in RAL, stepping up human resources assigned to financial management, introducing new indicators to measure budget implementation and outstanding commitments, and optimising the management of final payments, notably via an approach based on risk analysis and sampling checks.

81. Provide appropriate training for Member States' officials in time for the new programmes in the area of freedom, security and justice. (§ 178)

Commission's response:

The Commission accepts the recommendation. The introduction of control systems inside the Member States is primarily their own responsibility, but Commission monitoring visits and ex-post checks and audits by the Court of Auditors provide an opportunity to identify practices that should be improved at the level of individual Member States. The Commission will step up these visits and inspections.

In addition, in early 2006, after consultation with the Member States, the Commission adopted the rules for implementing the European Refugee Fund for 2005-2010. These implementing rules will be the subject of a special training and communication drive to provide any additional practical information that may be required. Special ERF Committee meetings have been organised in 2006 covering the rules for management and checks, and monitoring visits to the Member States began in early 2006.

82. Approve the financial regulation of Eurojust. (§ 179)

Commission's response:

The Commission has implemented the recommendation. The Decision giving Eurojust the derogations requested for its Financial Regulation was adopted by the Commission on 30 March 2006 (C(2006)1479) and notified by the Secretariat General to Eurojust on 31 March 2006.

External actions

83. Clarify with the UN agencies the Court's right of access to projects managed by such agencies in order to enable the Court to carry out the necessary on-the-spot checks. (§ 180)

Commission's response:

Issues relating to the implementation of the verification clause are addressed in the regular meetings of the working group established under article 13.1 of the Financial and Administrative Framework Agreement and in the UN-EC sub-group which has been created to better operationalise the verification clause.

84. Inform Parliament's competent committee when and why the Commission contributes in a substantial way to UN agencies. (§ 181)

Commission's response:

Detailed information on the financial contributions of the Commission to the UN Funds, Programmes and specialized agencies is compiled annually and has been made available to Parliament (Committee on Budgets) in 2005. Information available covers contributions, by UN body, from 1999, with more detailed information available since 2004. The report is available on-line on http://ec.europa.eu/comm/europeaid/reports/final-statistiques-un-2004-vers9_en.pdf.

85. EuropeAid to pay particular attention to the implementing level in its overall risk assessment and to intensify its audits of implementing organisations. (§ 183)

Commission's response:

The Commission is taking and has in recent years already taken a number of actions to address these issues. These include a comprehensive audit strategy and the establishment of annual audit plans based on a risk analysis of the projects to be audited.

Improvements in the quality of the already extensive control checks are also being pursued, notably through the use and improvement of standard contract provisions, including the audit certificates to be submitted by the beneficiaries of Community funds prior to final payments. For instance, standard Terms of Reference including a reporting model for expenditure verifications included in terms and conditions of grant and service contracts have been recently issued. These specifically address compliance with the contract terms including those relating to procurement and eligibility.

At project level, the standardised toolbox of planning, partners’ selection and monitoring instruments in use in the Commission allows due account to be given to risks and to take action to manage or mitigate them all along the project lifecycle.

In October 2005 the Commission adopted a Communication on risk management which sets a more strategic and comprehensive methodological framework to deal with risks at each level of its activities. Introduced on a pilot basis this year, this methodology complements existing risk assessment mechanisms and should allow for a better integration of implementing partners into the Commission approach to risk management.

86. Ensure that information on all audits, including those contracted by delegations and implementing organisations, is introduced in EuropeAid's CRIS financial information system as soon as possible, thereby linking it to the respective project monitoring information and making it available for the headquarters' services. (§ 184)

Commission's response:

Audit contracts managed by the Commission are all recorded in CRIS. As regards CRIS-Audit, the Commission intends to further improve its operation building on the experience gathered. The aim is to simplify and standardise the data to be introduced with a view to allow a better exploitation of the system at both Headquarters and Delegations. The Commission will examine the feasibility to include audits contracted by implementing organisations in CRIS.

87. Place equal emphasis on both programme quality and commitment and disbursement rates. (§ 186)

Commission's response:

In order to increase the quality of aid delivery as well as aid disbursement rates, EuropeAid has over recent years constantly improved its quality support and monitoring functions. These include the reorganisation of the Office in March 2005 which reinforced geographical coordination and the structure for quality support (through a new Operations Quality Support Directorate and Quality Support Groups), as well as the refinement of key performance indicators relating to financial management, quality and speed.

Indicators were refined and expanded to cover especially qualitative aspects of implementation such as rating of on-going projects in terms of relevance, efficiency, effectiveness, impact and sustainability (Results-Oriented-Monitoring), indicators in relation to the percentage of projects performing without major problems, percentage of assistance spent on budget support and sector approaches, and an indicator tracking the Commission internal coverage of quality support assistance in the design phase. More 'traditional' indicators on e.g. financial management were refined to include contracting levels as a step after commitments.

All data is based on detailed performance indicators per regional programme. The aggregate data is the basis for discussions on external assistance performance in the group of External Relations Commissioners and is made available to the public at large on the EuropeAid website:

http://europa.eu.int/comm/europeaid/general/index_en.htm.

88. Inform Parliament's competent committee on the Commission's current concrete measures and future plans to reduce the risks of implementing and funding projects in a notably highly corruption-prone environment with feeble checks and balances and governance structures, including whether and to what degree the resulting risks are manageable under the provisions of the Treaty. (§ 187)

Commission's response:

The Commission has already provided information on the risks involved in external aid to Parliament. These risks were outlined in the Commission’s staff working paper SEC (2004) 318, transmitted to the Council, the European Parliament and the European Court of Auditors the 12 March 2004.

89. Deplores the Commission's intention to move to a "results-based approach" to development policy without establishing a methodology to measure the specific results of Community cooperation against the key objectives of the Millennium Development Goals (MDGs). (§ 189)

Commission's response:

The Mill