TABLE OF CONTENTS

INTRODUCTION....................................................................................................................... 5

European Parliament resolutions on 2011...................................................................................... 6

Priority actions for the Commission...................................................................................... 7

Follow-up to the 2010 discharge resolution........................................................................ 23

The Court of Auditors' Statement of Assurance.................................................................. 26

Horizontal issues................................................................................................................ 27

Budgetary management...................................................................................................... 40

Revenue ........................................................................................................................... 41

Agriculture........................................................................................................................ 44

Market and direct support................................................................................................. 45

Rural development............................................................................................................. 47

Environment, public health and food safety......................................................................... 51

Fisheries 52

Regional policy; energy and transport................................................................................. 53

Employment and social affairs............................................................................................ 58

Bulgaria and Romania........................................................................................................ 62

Control of Structural Funds in the Czech Republic.............................................................. 63

Gender issues.................................................................................................................... 65

External relations, aid and enlargement............................................................................... 66

Aid to Haiti....................................................................................................................... 69

Research and other internal policies.................................................................................... 71

Education and culture........................................................................................................ 74

Administrative and other expenditure.................................................................................. 75

Getting results from the Union budget................................................................................. 78

SR 12/2011 - Have EU measures contributed to adapting the capacity of the fishing fleets to available fishing opportunities?...................................................................................................... 85

SR 13/2011 - Does the control of customs procedure 42 prevent and detect VAT evasion? 89

SR 14/2011 - Has EU assistance improved Croatia’s capacity to manage post-accession funding? 93

SR 16/2011 - EU Financial assistance for the decommissioning of nuclear plants in Bulgaria, Lithuania and Slovakia: Achievements and Future Challenges................................................................... 95

SR 1/2012 - Effectiveness of European Union development aid for food security in sub-Saharan Africa 98

SR 2/2012 - Financial instruments for SMEs co-financed by the European Regional Development Fund 102

SR 3/2012 - Structural Funds: Did the Commission successfully deal with deficiencies identified in the Member States' management and control systems?...................................................................... 107

SR 4/2012 - Using Structural and Cohesion Funds to co-finance transport infrastructures in seaports: an effective investment?....................................................................................................... 113

SR 5/2012 - The Common External Relations Information System (CRIS)....................... 115

SR 6/2012 - European Union Assistance to the Turkish Cypriot Community..................... 116

SR 7/2012 - The reform of the common organisation of the market in wine: Progress to date 117

SR 9/2012 - Audit of the control system governing the production, processing, distribution and imports of organic products............................................................................................................ 121

SR 12/2012 - Did the Commission and Eurostat improve the process for producing reliable and credible European statistics?........................................................................................................... 123

8th, 9th and 10th European Development Funds (EDF).................................................... 130

Performance, financial management and control of EU agencies........................................ 144

Agency for the Cooperation of Energy Regulators (ACER).............................................. 153

Body of European Regulators for Electronic Communications........................................... 154

European Centre for the Development of Vocational Training (CEDEFOP)...................... 155

European Police.............................................................................................................. 156

European Aviation Safety Agency.................................................................................... 157

European Banking Authority............................................................................................ 158

European Centre for Disease Prevention and Control....................................................... 159

European Chemicals Agency........................................................................................... 160

European Environment Agency........................................................................................ 161

European Fisheries Control Agency................................................................................. 162

European Insurance and Occupational Pensions Authority................................................ 163

European Medicines Agency........................................................................................... 165

European Monitoring Centre for Drugs and Drug Addiction.............................................. 166

European Network and Information Security Agency....................................................... 167

European Railway Agency............................................................................................... 168

European Securities and Markets Authority...................................................................... 169

European Training Foundation......................................................................................... 170

European Agency for Safety and Health at Work............................................................. 171

European Foundation for the Improvement of Living and Working Conditions................... 172

European Union's Judicial Cooperation Unit (EUROJUST).............................................. 173

European Police Office (EUROPOL).............................................................................. 174

European GNSS Agency................................................................................................. 175

ARTEMIS - Embedded Computing Systems................................................................... 176

ENIAC Joint Undertaking............................................................................................... 177

Fuel Cells and Hydrogen Joint Undertaking...................................................................... 178

INTRODUCTION

This Commission Staff Working Paper completes the Report from the Commission to the European Parliament and the Council on the Follow-up to the 2011 Discharge. It presents in detail the answers to 387 specific requests made by the European Parliament in its Resolutions forming an integral part of its Decisions on the 2011 Discharge[1]

European Parliament resolutions on 2011

Priority actions for the Commission

Communication of the Commission on the protection of the Union budget

1. (§ 1a) The Commission should adopt annually, and for the first time in September 2013, a communication to Parliament, the Council and the Court of Auditors with a view to making the impact of its preventive and corrective actions as regards the protection of the Union budget public; notes that it should, in particular, disclose in due time all suspensions, interruptions and retentions which aimed to prevent errors and all the amounts (in nominal terms) recovered per Member State, international organisation or third country in the course of the preceding year through financial corrections and recoveries for all management modes at the level of the Union and broken down by Member States; the Commission should demonstrate as far as possible that the financial corrections adequately compensated for errors made, and that they contributed to lasting improvements of the management and control systems.

Commission's response:

The Communication will be issued in September 2013

2. (§ 1b) Financial corrections should be made by the Commission for the total amount of the Union's contribution of a programme if, due to errors or mismanagement of funds by national or regional authorities, the programme fails largely to achieve its aims, even when a part of the programme has been financed and funds have already been dispersed.

Commission's response:

The requested action has partly been taken. The Commission works within a legal framework which defines the possibilities it has. The Commission is bound by decision C(2011)7321 on financial corrections made under articles 99-100 of the reg. 1083/2006. The Commission sets scales of flat rate financial corrections from 10% to 100% when deficiencies are detected in national, Commission or Court audits, or OLAF investigations, and taking into account the principle of proportionality. Flat rates applied depend on the type, gravity and importance of the deficiencies detected, as listed in the Commission’s decision. For individual errors identified by the Court, the Commission or OLAF, the Commission ensures follow-up and that (financial) corrections (and if required recoveries) are implemented.

As regards agriculture, the Commission is bound by Article 31 of Regulation (EC) N° 1290/2005. Financial corrections are applied when expenditure has been incurred in a way that infringed community rules and are proportionate to the gravity of the infringement and the financial damage to the EU.

3. (§ 1c) The Commission should provide the relevant data covering all the policies managed by the Commission in Note 6 "Financial corrections and recoveries", attached to the accounts of the Union.

Commission's response:

This will be included in the Commission Communication of September 2013.

4. (§ 1d) As regards the policies managed by multiannual programmes, the Commission should specify, upon the closure of the programming period, the impact of the recoveries and financial corrections made during that period on the error rate; notes, moreover, that the Commission should demonstrate that the financial corrections adequately compensated for errors made, and that they contributed to lasting improvements of the management and control systems.

Commission's response:

The Commission Communication of September 2013 will include cumulative information on the corrections made for the last three programming periods. The Communication will not however cover the issue of error rates.

5. (§ 1e) The Commission should shoulder greater responsibility for national audit authorities and for control systems in those Member States in which most errors were detected; is of the opinion that the Commission should draw up a proposal in how far the certification and work of audit authorities in those Member States could be further improved; believes that the Commission should publish its findings, and integrate them into the midterm-review of relevant regulations and the MFF.

Commission's response:

The Commission will not be taking the requested action. The reason for this is that the Commission works within a legal framework which restricts the possibilities it has.

As regards cohesion policy, the Commission cannot agree to a formal certification of AAs even if it would consider the idea as acceptable in principle. The Commission is in a way "certifying" the quality, compliance and reliability of the AA work when it grants an article 73 letter, by far the main audit enquiry is about the review of the work of audit authorities which in itself is a building-capacity exercise. The Commission has made the same proposal for 2014-2020 (AA are not under the designation process, but are reviewed and supervised by the Commission which can decide to rely on them), but no systematic ex ante certification (revision of criteria for Commission to review the designation process for MA and CA on risk basis and only for programmes above EUR 250 million of EU allocation in Commission proposal for 2014-2020).

The management for the agricultural funds is shared with the MS as provided for in the financial regulation. It is therefore of fundamental importance that it is the MS who take the responsibility that their national management and control bodies can meet the strict accreditation criteria which are laid down by the Commission. Several proposals for the next programming period aim at improving the assurance about the quality of the controls carried out by the Member States and the accuracy of the data they provide the Commission on the outcome of the controls and the level of error. In the political agreement with the co-legislator on the main elements of the CAP reform, in particular the horizontal regulation, Article 7(5) of the latter provides that where an accredited paying agency does not meet or no longer meets one or more of the accreditation criteria the Member State, on its own initiative or at the request of the Commission, shall withdraw its accreditation unless the paying agency makes the necessary changes within a period to be determined according to the severity of the problem. Furthermore, Article 9 of the horizontal regulation provides for additional work on the part of the certification bodies (independent audit bodies) in order to give greater assurance on the quality of the control underlying the expenditure.

Error rate in shared management

6. (§ 1f) The Parliament calls on the Commission to harmonise the practice of its services concerning the interruption/suspension of payments when significant deficiencies are detected at the level of the supervisory and control systems of Member States.

Commission's response:

The Commission is taking the requested actions. The information contained in various Commission reports shows that interruptions and suspensions are intensively used and it is the Commission's firm intention to continue to use all these tools. The Commission's actions in this regard have also been further harmonized in 2012, in particular in the area of Cohesion policy where both DG REGIO and EMPL now apply a fully aligned approach.

As regards interruptions and suspensions in agriculture, the political agreement with the co-legislators on the main elements of the CAP reform will bring about a further harmonization with the practices of other services. Specifically, Article 43 of the new horizontal regulation will enable the Commission to suspend payments when serious deficiencies are detected.

7. (§ 1g) The Parliament calls on the Commission to urge Member States to communicate to its services the draft eligibility rules in order to adapt national eligibility rules which are not compatible with the relevant Union rules and to intensify the controls on the declaration of costs and the effectiveness of the first-level checks.

Commission's response:

The Commission will not be taking the requested action. The reason for this is that the purpose of defining rules at national level in the current programming period - as agreed by the legislative authority - is to allow MS to use the same national, regional and local rules for both purely national schemes or EU funded projects, thus avoiding additional complexity and addressing the criticism that EU rules were not familiar to the MS administrations in charge of EU programmes.

However, the Commission takes the necessary action when it detects national eligibility rules that are either too complex or not compliant with EU regulations. For instance, as regards the ESF, progress is being made on spreading the use of simplified cost options with a view to replacing in full or in part detailed and sometimes burdensome national eligibility rules. These simplified cost options are promoted for the ERDF co-funded programmes as well, when appropriate.

8. (§ 1h) The Parliament calls on the Commission to collect information from Member States concerning the degree to which national rules render Union legislation on budget management terms unnecessarily complicated (‘gold-plating’) and report to Parliament by October 2013; recalls that an infringement of those national rules represents an error in budget management and that the Commission is ultimately responsible for errors in implementing the Union budget (Article 317 TFEU); requests that this information is sent to the national parliaments once a year and that Parliament's Committee on Budgetary Control is duly informed.

Commission's response:

The Commission shares the concerns regarding the so-called "gold-plating effect", which significantly contributed to the 2011 error rate. However, this is relevant in particular for the ESF since the ERDF and the Cohesion Fund are more affected by infringement of public procurement rules. Therefore, the Commission will present a report to the Discharge Authority on gold plating in ESF programmes in October 2013. To limit as far as possible the effect of "gold-plating", the Commission proposals for 2014-2020 include a clear requirement for all MS to reduce administrative burden for the beneficiaries.

Concerning Cohesion policy in general, the Commission is discussing bilaterally with MS ways of improvement both in the course of implementing the 2007-2013 programmes and during the preparation for the 2014-2020 programmes, when it detected unnecessarily complicated administrative rules for beneficiaries. The Commission will continue working bilaterally with Member States to seek possibilities to apply more systematically simplified cost options.

Concerning the rural development legal framework, the Commission has made specific proposals according to which MS would be required to ensure that all the rural development measures they intend to implement are verifiable and controllable. Commission will raise the awareness of Member States as regards "gold plating" in the framework of the actions to reduce the error rate in rural development. This proposal could be amended by the co-legislators to require Member States to ensure that measures are designed in a way that does not create undue risk of errors.

The Commission is ready to inform the Parliament on its endeavours, together with Member States, to push the use of simplified cost options ahead and to reduce the occurrence of "gold plating". It is important that, when identified, "gold plating" is addressed.

However, a general reporting to the Parliament can only be based on a systematic review of national eligibility rules in force at national, regional or even local level. Such exercise would take valuable resources away from audit and sound financial management of OP's. Therefore, the Commission prefers to work closely together with Member States to advance the use of simplified cost options, which would have the same effect as well as additional positive impacts (for example reduced administrative burden for beneficiaries).

MS should inform their National Parliaments. Therefore, the Commission will not be taking the requested action related to the last part of the recommendation ("requests that this information is sent to the national parliaments once a year and that Parliament's Committee on Budgetary Control is duly informed").

9. (§ 1i) The Parliament calls on the Commission to support the management and control authorities of the Member States in identifying the systemic sources of errors and in particular in ensuring compliant implementation of public procurement rules and give guidance in the form of motivated opinions to those authorities in their simplification efforts; those opinions will be made public.

Commission's response:

The Commission has taken the requested action and reported in the 2012 AARs of the respective DGs. It has made and continues to make considerable efforts to ensure strict compliance with eligibility requirements and the correct application of public procurement rules, through training and guidance on eligibility rules to programme managing authorities to ensure they transmit this knowledge to all bodies in charge of managing the funds. Moreover, when it identifies complex rules at programme level, the Commission makes recommendations to simplify them. It has also shared with Member States an analysis of the types of procurement errors detected by EU audits in cohesion policy during previous years and has launched an exercise to collect best practices and possible answers by Member States to remedy such errors and reduce their occurrence.

The Commission verifies compliance with EU and national eligibility requirements and with public procurement rules through its extensive audit work. It has an audit strategy in place covering all structural fund instruments, which is updated annually. For the 2007-2013 programming period, the control strategy contributing to the assurance building is implemented through the following various strands of controls foreseen in the regulatory framework.

Transparency is already ensured through AARs where the Commission discloses all problems and its assurance per Member State.

Furthermore, regarding simplified cost options, and in particular flat rates, the Commission provides a Member State, on request, with an agreement to the proposed method, or observation on how to obtain this agreement. However, given the technical nature of these exchanges, the Commission does not see the value added of making them public.

As regards rural development, a large exercise, conducted by DG AGRI already in 2012, lead to a list of root causes of errors and possible corrective actions which was discussed with all Member States at different levels.

For 2013, DG AGRI has started a new comprehensive initiative with all Member States which concerns the following elements: Analysis, corrective actions, preventive actions. The Commission has sent by the end of June 2013 a report to Council and Parliament which also covers these activities.

Under shared management, it is the Member States' responsibility to set up the control systems in accordance with the EU legislation and their own particular national administration systems. The Commission provides guidance and assistance to Member States in this respect, but cannot provide a formal ex-ante approval.

10. (§ 1j) The Parliament calls on the Commission to apply the principle of proportionality, without underestimating the rules to reduce administrative burdens and facilitate streamlining of procedures; notes that an additional step towards simplification is the obligatory use of the electronic project application and reporting, as well as the unification and standardisation of documents and procedures for management and implementation of the operational programmes.

Commission's response:

The Commission is taking the requested action and proposed in the area of cohesion policy and rural development the use electronic applications in the next programming period. However, the Commission will not unify/standardise procedures and documents, since this affects the internal organisation of the MS administration. The regulation provides for key designation criteria and key requirements for the management and control procedures.

11. (§ 1k) The Parliament calls on the Commission to harmonise the criteria used by its services for making reservations in its annual activity report and the different methodologies used to quantify public procurement errors in the two policy areas of agriculture and cohesion policy.

Commission's response:

The Commission is taking the requested action. It shares and supports the call for greater coherence. As a follow-up to the 2010 discharge, DG REGIO launched an exercise to update the existing quantification used by the Cohesion Policy services for irregularities linked to public procurement issues. The aim is to prepare a decision - to be adopted by the Commission - for all shared management services and possibly other services as well. This exercise is on-going and the Commission should be in a position to adopt this decision in the second half of 2013. In addition, in November 2012, the Commission horizontal services updated their internal guidance for the determination of error rates and the criteria on whether to qualify the declaration of assurance with a reservation in the case of errors linked to public procurement procedures. This guidance, which took into account the changes in methodology introduced by the Court, was aimed at ensuring transparency and comparability as well as at producing a realistic calculation of the actual financial exposure while adequately considering the possible reputational impact of serious procedural errors. This guidance was applied by the Commission DGs for the first time in their AARs for 2012. The Commission will reassess the need for revising its guidance with the closure of the 2012 reporting cycle.

12. (§ 1l) The Parliament calls on the Commission to speed up the audit and financial correction procedures followed by its own services and in particular, consider merging the different stages of the 'contradictory' procedure leading to a financial correction.

Commission's response:

The Commission has taken the requested action which is already the current practice since 2012 in the Cohesion Policy area. This concerns in particular the closure of contradictory procedures earlier than planned, enabling about 100 operational programmes to be timely closed for launching the financial correction procedure still in 2012. The details of this new approach have been provided in the 2012 AARs of the Services concerned. Other policy areas will follow but for the next financial period where sector-related legislation is not yet finally approved.

Concerning agriculture, fully merging the different stages of the procedure would not be compatible with the Member States' right within the existing contradictory procedure (as agreed in the political agreement with the co-legislator on the main elements of the CAP reform, in particular for a horizontal regulation). The Commission will consider other procedural changes which might speed up the procedure (notably stricter deadlines for each step of the procedure).

13. (§ 1m) The Parliament calls on the Commission to evaluate the progress made in the financial management under the policy groups of the budget of the Union with a view to arriving at a positive statement of assurance and to report about this evaluation by March 2014 in the context of the annual activity reports drafted by the Directors-General and the Synthesis report on the Commission's management achievements for 2013.

Commission's response:

The Commission will evaluate the progress made and report on this in the annual activity reports and the synthesis report for 2013.

14. (§ 1n) DG AGRI should align its practices for the interruption of payments with the best practices of other directorates-general or services as well as put forward proposals for enhanced application and use of suspensions in the policy area of agriculture and rural development.

Commission's response:

Commission Regulation 883/2006 was amended in April 2013 with the objective to facilitate interruptions of Rural Development payments to the MSs already in the current programming period in case of deficiencies in the functioning of the management and control system.

However, a full harmonisation of interruption and suspension activities across all policy areas is not possible under the current legal framework.

For the new programming period 2014-2020, the Commission's proposal for common provisions for the Structural Funds foresees a further harmonisation of the interruption of payments for all these Funds, including Rural Development (See Article 74 of COM(2011) 615 final).

Furthermore, the Commission fully supports the EP amendment of Article 43 of the Commission proposal for the horizontal regulation, which is currently under consideration in Council and Parliament and would allow the Commission to suspend payments when serious deficiencies are detected and no remedial actions are implemented. Depending on the outcome of the CAP reform process these new rules would apply from 1 January 2014.

15. (§ 1o) Taking into account the legal framework, DG AGRI should systematically interrupt and suspend payments when the prime level controls reveal that they are materially affected by error; the payments should be resumed only if sufficient appropriate evidence gathered on the spot proves that the weaknesses have been remedied.

Commission's response:

Commission Regulation 883/2006 was amended in April 2013 with the objective to facilitate interruptions of Rural Development payments to the MSs already in the current programming period in case of deficiencies in the functioning of the management and control system.

However, a full harmonisation of interruption and suspension activities across all policy areas is not possible under the current legal framework.

For the new programming period 2014-2020, the Commission's proposal for common provisions for the Structural Funds foresees a further harmonisation of the interruption of payments for all these Funds, including Rural Development (See Article 74 of COM(2011) 615 final).

Furthermore, the Commission fully supports the EP's amendment of Article 43 of the Commission proposal for the horizontal regulation, which is currently under consideration in Council and Parliament and would allow the Commission to suspend payments when serious deficiencies are detected and no remedial actions are implemented. Depending on the outcome of the CAP reform process these new rules would apply from 1 January 2014.

16. (§ 1p) The Commission should report by the end of June 2013 on the progress made by the working group set up by DG AGRI to assess the root causes of Rural Development errors and develop corrective action for the current and future programming periods; that report should be sent to the Member States, national parliaments and Parliament's Committee on Agriculture and Rural Development so that they can analyse the causes of errors, deliver non-binding opinions and submit proposals for countering those errors.

Commission's response:

A Commission staff working document on the assessment of root causes of errors in the implementation of rural development policy and corrective actions (SWD(2013)244) was transmitted to the EP and Council on 27 June 2013. Some Member States (Portugal, Spain, Bulgaria and Italy) have already amended their rural development programmes in to reduce the risk of errors in implementation.

17. (§ 1q) DG AGRI should take all necessary measures to support the Member States' efforts to eliminate from their programmes those conditions that are intrinsically prone to creating implementation and control difficulties.

Commission's response:

Commission services have been co-operating with the Member States in order to address the root problems causing these errors. Each time that audits have identified related difficulties, the services in charge of the rural development programme concerned have invited the respective Member State to take corrective actions, including modifying the programme. In this context and since 2001, DG Agriculture has followed 322 audit findings, which led to 23 RDP modifications.

For the next programming period, the Commission intends to approve only Rural Development programmes where the design of the measures does not create undue risk of error. Member States are encouraged to establish their draft programmes in such a way that measures are clear, verifiable and controllable. Article 69 of the draft regulation for rural development in the period 2014-2020 establishes that Paying Agencies must undertake ex ante assessments of all the measures, from the controllability and verifiability perspective. To support Member States in this endeavour, the Commission has started establishing guidelines for programming.

18. (§ 1r) The Commission should maintain its original proposals for the general provisions of the 2014-2020 programming period in cohesion policy and should insist, vis-à-vis the Member States, on the absolute need to introduce in the new legislation the principles of net financial corrections as well as streamlined procedures and conditions under which payments can be interrupted or suspended.

Commission's response:

The Commission is taking the requested action and confirms that it will continue to defend its proposal as regards net financial corrections as well as streamlined procedures and conditions under which payments can be interrupted or suspended during the legislative process.

19. (§ 1s) The Commission should also use, as far as possible, net financial corrections to correct serious errors in the current programming period pursuant to Article 99 et seq. of Council Regulation (EC) No 1083/2006; in particular net financial corrections should be applied at the closure of the programming period.

Commission's response:

The Commission is taking the requested action. However, it cannot impose net corrections when the Member States have the regulatory option to accept a correction and reuse the amounts (Art. 98 of Regulation (EC) No 1083/2006). At closure, it will apply financial corrections on the remaining material errors, individual and systemic, after all corrections already implemented by the Member States authorities either on own initiative or at the Commission's request have been deducted. Additional corrections will also be applied when they did not contribute to lasting improvements of the management and control systems up to closure. Financial corrections at closure can be net.

20. (§ 1t) The Commission should defend its initial position not to allow the secondary selection of projects physically completed or fully implemented before the funding application (so-called ‘retrospective projects’) for the funding period 2014-2020.

Commission's response:

The Commission is taking the requested action and confirms that it will continue to defend its proposal as regards "retrospective projects" during the legislative process.

21. (§ 1u) DG REGIO should fully align its payment practices with the best practices of other directorates-general or services, and continue making direct and full use of the legal instruments provided for by the regulations, especially the interruption of payments or whenever necessary by the suspension of operational programmes.

Commission's response:

The Commission has taken the requested action. The information contained in various Commission reports shows that interruptions and suspensions are intensively used and it is the Commission's firm intention to continue to use all these tools. The Commission's actions in this regard have also been further harmonized in 2012, in particular in the area of Cohesion policy where both DG REGIO and EMPL now apply a fully aligned approach.

22. (§ 1v) The Parliament calls for more stringent monitoring and conditions in the case of Member States which manifestly breach Union provisions on budgetary and competition law (particularly with regard to the award of public contracts); calls for systematic suspension of payments for the relevant Structural Fund programmes where Union law is breached until rules are complied with, so that use of the funds in accordance with Union rules is guaranteed.

Commission's response:

The Commission has taken the requested action. It fully uses interruptions and suspensions instruments as soon as irregularities are detected, leading to actions plans to correct past expenditure and to adapt management and control systems. The Commission only resumes payments when it has a reasonable assurance that irregular expenditure have been corrected and that management and control systems are adapted. The respective DGs have reported on this in their 2012 AARs.

23. (§ 1w) The Parliament calls for a tougher suspension policy for the European Regional Development Fund (ERDF) and Cohesion Fund (CF), like that already successfully applied to European Social Fund payments, thus enabling early action to prevent any improper use of Structural Fund monies and underpinning, from the outset, the zero-tolerance approach by the Commission.

Commission's response:

The Commission has taken the requested action. The information contained in various Commission reports shows that interruptions and suspensions are intensively used and it is the Commission's firm intention to continue to use all these tools. The Commission's actions in this regard have also been further harmonized in 2012, in particular in the area of Cohesion policy where both DG REGIO and EMPL now apply a fully aligned approach.

24. (§ 1x) DG REGIO should systematically interrupt the payments and suspend the programmes when the prime level controls reveal that they are materially affected by error; the payments should be resumed only if there is sufficient and reliable evidence that weaknesses have been remedied.

Commission's response:

The Commission has taken the requested action. It fully uses interruptions and suspensions instruments as soon as irregularities are detected, leading to actions plans to correct past expenditure and to adapt management and control systems. The Commission only resumes payments when it has a reasonable assurance that irregular expenditure have been corrected and that management and control systems are adapted. DG REGIO has reported on this in its 2012 AARs.

Error rate in centralised management

25. (§ 1y) By the end of June 2013, the Commission (DG Research) should present a report to Parliament assessing the impact of the simplification measures introduced in 2011.

Commission's response:

The Commission presented to the European Parliament the report on the impact of the simplification measures introduced in 2011 (Ares(2013)2634919).

26. (§ 1z) That report should also assess the improvements announced by the Commission in respect of the ex ante control and the ex post audit strategies and of the improvement in the guidance on the most common errors given to participants in the Seventh Framework Research Programme and to auditors.

Commission's response:

The Commission presented to the European Parliament the report on the progress of Commission’s ex ante control, ex post audit strategy and on the guidance on the most common errors to auditors and participants in the Seventh Framework Research Programme (Ares(2013)2634919).

27. (§ 1aa) In that report, the Commission should explain whether the measures taken to reduce the audit burden, generated by the fact that seven Authorising Officers by Delegation are responsible for the Research budget, have been effective and, if not, propose other solutions.

Commission's response:

See response to § 1z.

Evaluation report (Article 318 TFEU) and enhanced use of performance audits

28. (§ 1ab) The Commission services should develop a new culture of performance, defining in their management plan a number of targets and indicators meeting the requirements of the Court of Auditors in terms of relevance, comparability and reliability; furthermore performance indicators and targets should be fully integrated in all proposals for new policies and programmes.

Commission's response:

a) The Commission will present an action plan as part of the 2013 evaluation report. This action plan will foresee that DG's report back on the performance audits performed by external and internal auditors.

b) Elements of progress and performance management will be included in the Management Plans for 2014: setting objectives, performance indicators and associated targets per programme, evaluations planned.

c) Reporting will be deepened in the Annual Activity Reports on how the financial and human resources have been used to achieve the policy objectives set by the College, and on progress and how these policies have generated EU added value.

d) The peer-review process on the Annual Activity Reports will be strengthened by including increased focus on the performance information included in these reports. Consistency will be improved between Evaluation report and Annual Activity Reports.

29. (§ 1ac) The Parliament asks the Commission to take full account of the remarks and requests formulated in the 'Response of the European Court of Auditors to the Commission's second Article 318 evaluation report'.

Commission's response:

The Commission reiterates its intention to redesign and improve the report in the future in discussion with the Discharge Authority.

The Commission equally points out that this could only be achieved under the new performance framework which will be based on the legislative proposals which have yet to be adopted by the Legislative authority.

Account has been taken of the indications provided by the Court in the preparation of this year's evaluation report to the extent possible within the existing framework of the MFF 2007-13. This report has been adopted on 26 June 2013.

30. (§ 1ad) The Parliament calls on the Commission, until the midterm review in the various areas of policy and programmes, to propose a clear definition of European added value; calls for a review of the programmes with the aim of avoiding national and regional displacement effects and genuinely only financing measures which could not be carried out without impetus from the Union.

Commission's response:

a) The Commission has already proposed a clear definition of EU-added value which has been used as a basis for the proposals it made for the next generation of programmes under the MFF 2014-2020. See report on the added value of EU spending (SEC(2011)867).

b) Most of the new programmes contain a mid-term review. The Commission confirms that programmes should be developed in such a way that displacement effects are avoided.

31. (§ 1ae) In their annual activity reports, the services should measure their performance in summarising the results achieved when contributing to the main policies pursued by the Commission; this "departmental" performance will be complemented by a global evaluation of the performance of the Commission in the evaluation report provided for by Article 318 TFEU.

Commission's response:

In its evaluation report for the financial year 2012, the Commission has presented an action plan for the future development of future evaluation reports.

The Commission Central services will

* deepen the performance framework that should underpin all future AARs. Such a framework consists of a performance-driven culture throughout the organisation, ex-ante setting of objectives, regular monitoring, ex-post measurement and reporting of achievements.

* review the 2013 AAR Standing Instructions and guidelines with a view of including the elements of performance reporting; and

* develop further the content and coverage of the evaluation report, for example by using more performance information and by ensuring consistency between the evaluation report and the AARs.

32. (§ 1af) The Commission should modify the structure of the abovementioned evaluation report, distinguishing the internal policies from the external ones and focussing, within the section relating to internal policies, on the Europe 2020 strategy as being the economic and social policy of the Union; the Commission should place the emphasis on the progress made in the achievement of the flagship initiatives.

Commission's response:

The Commission included in its proposals for the new generation of programmes several elements aimed at delivering a stronger performance framework, which would be more focused on efficiency and effectiveness in the attainment of the overall objectives of the different financial programmes. The Commission relies on Parliament and Council as co-legislators to ensure that the new multi-annual financial framework contains the simpler, stronger framework proposed by the Commission.

The next multi-annual framework also provides the opportunity for stronger monitoring and evaluation arrangements to feed better reporting. The Commission will report on progress in achieving the objectives of the financial programmes which are designed to contribute to the achievement of EU 2020 targets. This reporting should continue to follow the structure of the different budget headings, thereby covering the internal and external policies and actions.

33. (§ 1ag) The Parliament expects that in the framework of a new and enhanced policy on performance, all evaluation reports done or paid for by the Commission will be made available in full to Parliament, which may decide to make them available on its website for consultation.

Commission's response:

In line with the existing evaluation standard, evaluation results must be made publicly available and targeted summary information should be prepared to facilitate communication to the general public. This applies unless there is a justification not to publish the results under Regulation 1049/2001 regarding public access to European Parliament, Council and Commission documents.

The Art 318 report contains a list of evaluations providing hyperlinks to the documents.

Revenues and traditional own resources

34. (§ 1ah) In order to ensure proper protection of the Union's financial interests, and with a view to equipping the Union with sufficient own resources for growth, the Commission should provide Parliament, in time for the 2012 discharge procedure with an evaluation of the cost of postponing the full application of the Modernised Customs Code (MCC), which would quantify the budgetary consequences of such postponement.

Commission's response:

Mr Šemeta replied positively to that request, as mentioned earlier (PA n°4: reply available at http://www.europarl.europa.eu/document/activities/cont/201302/20130225ATT61662/20130225ATT61662EN.pdf) and provided the Parliament with a reply concerning an estimate of the costs related to postponing the full application of the Modernised Customs Code (see Letter of 12/04/2013).

35. (§ 1ai) The Commission should collect reliable data on the customs and VAT gap in the Member States and report every six months to Parliament in this regard.

Commission's response:

While the Commission cannot accept all aspects of this request, it can however act upon certain aspects: No specific study on the customs gap made by the Commission. The Commission however cooperates in the ongoing study launched by the EP. (See Mr Šemeta's) reply mentioned earlier (PA n°4).

The study on the estimation of the VAT gap will be updated and made available by 30 October 2013 at the latest to the other European Institutions. It is the Commission's intention through this update to publish a new estimate of the VAT gap for all 27 Member States following the same approach as in 2009, that is to say by comparing accrued VAT receipts with a theoretical net VAT liability for the economy as a whole.

It is the intention of the Commission - if resources allow - to update this estimation on a regular basis.

36. (§ 1aj) The Commission should identify and implement actions which would increase the effectiveness and efficiency of the collection of customs duties and VAT in the Member States; the Commission and the Member States should implement the Court of Auditors' recommendation in the Special Report No 13/2011.

Commission's response:

Implementation of tax or customs collection is a national competence and the Commission is not in the position to present an action plan. Nevertheless, as pointed out before, the Commission is providing technical assistance to certain Member States, targeting an increase in the efficiency of the tax administration and its tax collection capacities. This is an on-going activity. Furthermore, the Commission has adopted on 6 December 2012, a comprehensive and ambitious action plan on fighting tax fraud and tax evasion. A series of measures are proposed to better fight against tax fraud and evasion, including VAT fraud. The plan includes the Quick reaction Mechanism against VAT fraud that the Commission proposed in July 2012. It provides that Member States would be able to apply a "reverse charge mechanism" which makes the recipient of the goods or services liable for VAT in cases of massive and sudden fraud. This would significantly improve the Member States' capacity of effectively tackling complex fraud schemes, such as carrousel fraud. Moreover, the action plan was accompanied by two recommendations to Member States which promote specific countermeasures to deal with aggressive tax planning and to treat the issue of tax havens.

As for VAT and customs duties, the Commission is thoroughly following up the recommendations made by the European Court of Auditors in the context of past and recent audits, in particular the European Court of Auditors Special Report No 13/2011 "Does the control of customs procedure 42 prevent and detect VAT evasion?". The Commission also put forward an ambitious proposal for a Directive on the fight against fraud to the EU's financial interests by means of criminal law (COM (2012)363). The new rules, when adopted, would harmonise and strengthen notably the protection of EU revenue. However, implementation of tax or customs collection is a national competence.

37. (§ 1ak) The Commission should identify the channels and schemes allowing for tax evasion and tax avoidance, in particular by multinationals and through post box companies, and promote appropriate countermeasures; welcomes in this context the OECD report on tax base erosion and profit shifting and calls on the Commission to cooperate with the OECD who will establish an action plan on how to address this problem by July 2013.

Commission's response:

On 6 December 2012, the Commission adopted a comprehensive and ambitious action plan on fighting tax fraud and tax evasion. A series of measures are proposed to better fight against tax fraud and evasion, including VAT fraud. Moreover, the action plan was accompanied by two recommendations to Member States which promote specific countermeasures to deal with aggressive tax planning and to treat the issue of tax havens.

The Commission cooperates with the OECD in the establishment of the action plan concerning the tax base erosion and profit shifting problem.

38. (§ 1al) The Commission should raise the Member States' and public awareness, in the context of the negotiations on the Multiannual Financial Framework, that effective revenue collection remains an essential feature of sound management of public finances, including the fact that uncollected revenue aspects have an impact on the availability of the Union's own resources, the economic situation of the Member States and the internal market and commission a study which would calculate the potential financial benefits for the Member States in tax revenue terms if an equal level playing field against tax evasion and tax avoidance throughout the Union should be created.

Commission's response:

As revenue collection impacts differently upon each own resource, ranging from no effect for GNI to a direct impact for traditional own resources (TOR), Commission action has varied. For TOR the Commission systematically draws Member States' attention to recovery issues and strengthens awareness by the application of the principle of financial responsibility where non-recovery is attributable to a Member State. For VAT, where by far the greater financial incentive arising from effective recovery of VAT accrues to Member States (for every euro collected a minimum of 97 cents goes to national budgets, with less than 3 cents for the EU), revenue collection has received due consideration in the negotiations on the multi-annual financial framework which have just been completed. With regard to the request for a study on the potential financial benefits, given the current state of data availability on this topic and the limitations of current methodologies, the results of such a study would be rather speculative. Nevertheless in the context of its annual report on 'Tax Reforms in the Member States', the European Commission is collecting all available international and national estimates of the shadow economy. On the basis of this work the Commission will decide how best to tackle the quantification of tax revenue losses. The Commission is currently finalising a study (commissioned to an external contractor) on the computation of the VAT gap (see the Commission's reply to §1ai).

39. (§ 2) The Parliament calls on the Commission to take urgent measures to eliminate the possibilities of diverting thousands of billions of euros away from the normal financial circuit (of offshore financial activities) in order primarily to avoid tax and to hide illegal funds from the tax authorities in the Member States.

Commission's response:

On 6 December 2012, the Commission adopted a comprehensive and ambitious action plan on fighting tax fraud and tax evasion. A series of measures are proposed to better fight against tax fraud and evasion, including VAT fraud. Moreover, the action plan was accompanied by two recommendations to Member States which promote specific countermeasures to deal with aggressive tax planning and to treat the issue of tax havens.

40. (§ 3) The Parliament strongly suggests that the Commission should take measures to ensure that all banking activities related to advising on, and setting up, offshore structures are made illegal and that no bank within the European Union involved in such activities will or can receive European funding under any scheme or benefit from national support measures.

Commission's response:

Offshore structures can be set up for multiple reasons. A blanket approach to defining all services of setting up overseas structures as illegal would be problematic in the context of a free market economy. As a consequence the Commission would not envisage such measures. However, in the area of taxation in general, the Commission has already taken action in its Action Plan and associated recommendations of 6 December 2012 to promote co-ordinated action against tax fraud, evasion and tax avoidance.

41. (§ 4) The Parliament expects to receive, within two months, draft legislative proposals from the Commission to end the practice of the use of tax havens by individuals, companies and even public institutions.

Commission's response:

The Commission made relevant proposals (Action Plan and Recommendations, see COM(2012)722, C(2012)8805 and 8806) in December 2012 which it considers to be the appropriate mix of legislative and coordination initiatives to fight efficiently against tax fraud and evasion. This includes a Recommendation directed towards third countries not complying with good governance standards (tax havens). Possible further initiatives will be assessed in a later stage, where appropriate.

In making Recommendations rather than proposing legislation the Commission took into account the fact that Recommendations could produce quicker results as even if not all MS are supportive some can implement them. A legislative proposal requires unanimity and from experience once a legal proposal has been made MS tend to wait until Council has approved it by unanimity which could take some time.

Follow-up to the 2010 discharge resolution

42. (§ 6) The Parliament asks the Commission to clarify what percentage of the amounts of structural funds implemented through FEIs actually dispersed over the period 2007-2013 went to truly private enterprises, as opposed to majority publicly owned enterprises.

Commission's response:

The Commission will not be taking the requested action. The report on progress made in financing and implementing financial engineering instruments, which is prepared by the Commission, is based on formal annual reporting from Member States. The scope of this reporting, which is set out in Article 67(2)(j) of Council Regulation (EC) No 1083/2006, is limited to certain type of data and does not contain information relating to the ownership of the final recipients.

43. (§ 10) The Parliament calls on the Commission to take concrete steps to significantly improve the use of the FEIs with a view to better protecting the Union's financial interests.

Commission's response:

The Commission is taking the requested action. To reinforce the principles of sound financial management, post 2013 cohesion policy will contain a number of safeguards as proposed by the Commission in the legislative package for 2014-2020. Ex-ante assessment of investment needs will be compulsory for each financial instrument. Moreover, in order to avoid over-allocation of EU resources, managing authorities will need to justify the level of the allocations made to financial instruments on the basis of assessed marked failures and delivery capacity of the mechanism in place. Furthermore, post 2013 managing authorities must make phased payments to financial instruments in accordance with the actual investment progress at project level and anticipated capital requirements. Monitoring and reporting obligations concerning the use of cohesion policy resources in financial instruments will be clearly defined.

44. (§ 11) The Parliament reiterates that Parliament invited the Commission to evaluate objectively and critically the experiences with FEIs in the Cohesion policy for the programming period 2007-2013, to provide a risk assessment considering different FEIs separately, as well as taking into account the risk structure of beneficiaries of the FEIs, and to report annually to Parliament, in time for the respective discharge procedure, on the use of FEIs in Member States, including comparable indicators on the effectiveness, efficiency and economy of FEIs, and also on how the Commission coordinates, ensures consistency and mitigates the risk of overlapping across the policy areas.

Commission's response:

The Commission has taken the requested action. In 2012, the Commission carried out an evaluation through the expert evaluation network on the use of the ERDF to support FEIs. The report of this evaluation was transmitted to the EP in December 2012. In addition, in February 2012 the Commission published a Staff Working Document on financial instruments in cohesion policy, which analysed the experience of implementation of financial instruments in the current period, lessons learnt and proposed strengthening of the regulatory framework for post 2013. Regarding reporting in the current programming period, the amendment of Council Regulation (EC) No. 1083/2006 in December 2011 introduced an obligation for Member States to formally report on FEIs within the Annual Implementation Report. In 2012, the Commission produced on this basis a summary report (which was also transmitted to EP in December 2012). The risk assessment was made on the basis of the summary of data and the "underperforming" cases are being followed by the Commission services. The monitoring takes place also in regular monitoring committee meetings where the Managing Authorities responsible for operational programme discuss the progress of implementation of all relevant operations including financial engineering instruments.

45. (§ 13) The Parliament calls on the Commission to further improve the quality and comparability of the annual activity reports.

Commission's response:

The Commission Central services regularly review the reporting process, draw lessons to improve the value of these reports as instruments for management accountability and revise the AAR Standing Instructions and guidelines accordingly.

The Commission Central services also monitor the consistent implementation of the instructions of the DGs before the AAR are finalised, by reviewing and providing comments on the draft AARs.

46. (§ 14) The Parliament asks the Commission to communicate which steps and measures it will take to ensure that the remaining 10 Member States will grant their permission to access Member States' annual summaries.

Commission's response:

In the area of Structural funds all annual summaries for the financial years 2010 and 2011 have been transmitted to the Parliament.

However, the publication of the annual summaries shall comply with the rules laid down in Regulation (EC) No 1049/2001 of the EP and of the Council regarding public access to EP, Council and Commission documents, as well as in the Framework Agreement on relations between the EP and the European Commission (L 304/47 - Annex II; Forwarding of confidential information to Parliament, point 1.2.3). Therefore the information contained in these documents shall not be published or be made public without prior authorisation of the Member States. Nevertheless, the Commission will insist with the remaining Member States to get their permission in the future.

47. (§ 15) The Parliament welcomes the new rules introduced in Financial Regulation (EU, Euratom) No 966/2012 about the regular clearing of pre-financing and encourages the Commission to continue its efforts to follow the recommendations of the Court of Auditors as regards the relevant accounting data and methods.

Commission's response:

Guidelines were issued and there is continuous follow up as part of BUDG C2's day to day work.

48. (§ 17) The Parliament calls on the Commission to investigate the possibilities of setting up a correctional system for error prone spending areas, in which the total material value of errors in year n will be partially or entirely deducted from the yearly reimbursement requests made by accrediting organizations depending on the severity of the irregularities.

Commission's response:

The Commission has taken the requested action. For cohesion policy, it has proposed for the 2014-2020 period the retention of 10% on each payment claim and it has requested for annual accounts with corrections on all errors identified and net corrections for serious deficiencies detected by EU audits after submission of annual accounts.

For agriculture, net financial corrections are already systematically applied to the CAP expenditure where risks are detected.

The Court of Auditors' Statement of Assurance

49. (§ 34) The Parliament recalls that the most likely error rate for payments in the financial year 2010 was estimated at 3,7 % and in the financial year 2009 at 3,3 %; is dismayed about this increase because it reverses the positive trend observed in the years 2007, 2008 and 2009; calls on the Commission, therefore, to take the necessary steps to achieve a trend that shows a consistent decrease in the error rate.

Commission's response:

There has been a significant reduction in the error rate for the EU budget as a whole and the gap between the error rate and the materiality threshold applied by the Court of Auditors has been reduced significantly over the years. The Commission continues to make improvements to the financial management system of EU funds; these are mostly based on recommendations from the Court of Auditors in its Annual and Special Reports as well as on the follow up to European Parliament discharge resolutions and the Council discharge recommendations. Examples include the reinforced use of interruptions/suspensions of payments and of recoveries/financial corrections in order to protect the EU budget. In its legislative proposals for the Multiannual Financial Framework 2014-2020, the Commission has proposed further structural improvements through simplification, reinforcing the accountability of financial actors under shared management as well as the supervisory and control mechanisms. All of these proposals aim at further reducing the risk of errors.

It is important to note that the error rate presented by the Court of Auditors has to be put into perspective as it does not take into account all actions taken by the Commission to protect the EU budget: for example, in 2011, the Commission imposed financial corrections and recoveries amounting to 1,84 billion euros which represents 1,4% of the payments made in 2011. The Commission will therefore further use the preventive and corrective capacity of supervisory and control systems efficiently and effectively to its full extend. To strengthen the Commission's preventive actions, the application of interruptions and suspensions has been further harmonized in 2012, in particular in the area of Cohesion policy.

The Commission will provide the Parliament with a new report on the protection of the EU budget to give a more detailed insight into the performance of its multi-annual preventive and corrective systems.

Horizontal issues

50. (§ 45) The Parliament expects the future regulation covering the structural instruments to ensure that Member States provide the data on the final beneficiaries of ERDF/CF funds to be published on the Commission's official website in one of the three working languages of the Union and based on a set of common criteria to allow comparison and detection of error.

Commission's response:

The Commission is taking the requested action. In its draft proposal for the new general Cohesion policy regulation 2014-2020, it has proposed a common set of criteria, data formats (only CSV and XML) and data fields for the list of operations, which will ensure full transparency, because the data can be exported, grouped, ranked, sorted, etc. – see Annex V (1) of the general regulation. Moreover, the Commission proposal foresees that the headings of the data fields and the name of the operations in the list of operations will be provided in at least one other official EU language than that of the given Member State.

51. (§ 46) The Parliament calls on the Commission to apply the method of trend analysis to identify financial risks and to take measures to improve Member States' administrative performance in the field of revenue and expenditure in shared management, especially related to detecting irregularities, fraud and errors and financial follow-up in both the customs field and spending of Union funds.

Commission's response:

The Commission will not be taking the requested action. In the field of Cohesion policy, the effective functioning of management and control systems of the Member States is verified by the Commission according to art. 71 (compliance assessment) and 72 (on the spot audits) of Regulation (EC) No. 1083/2006. Legal proceedings such as interruptions, suspensions and financial corrections must be supported by audit evidence.

It is unclear what is meant by trend analysis and at what level it should be applied, keeping in mind that the current legal framework does not give the possibility to apply such methodology to the management of Structural Funds. The Commission does however point out that it has started with a practice called "data mining" which will increasingly allow to detect high risk domains of support.

The AARs provide each year full detail about the actions undertaken by the Commission where the management and control systems have been considered less than satisfactory. This is done in the form of reserves, but also through the reporting on warning letters, interruption of payments decisions, and suspension of payments decisions adopted by the Commission. The Commission imposes, in this context, regularly Action Plans on Member States with a view to addressing the issues identified by audits.

52. (§ 49) The Parliament calls on the Commission to assist the Member States in providing voluntary management declarations as referred to in Article 59(5) of the new Financial Regulation (EU, Euratom) No 966/2012 by promoting best practices; insists that Parliament should receive both the management declarations and the voluntary declarations.

Commission's response:

The Commission has assisted Member States by issuing guidelines which identify the elements which would add value to the existing political national declarations (SEC(2011) 250). Furthermore, these elements have been taken into account for the definition of the content of the mandatory management declarations in the new Financial Regulation.

It should be noted that the new Financial Regulation introduces a reinforced mandatory reporting for the Member States. This includes the accounts accompanied by a management declaration and a summary of final audit reports and of controls carried out. The requirements on the content of the summary report have in addition been enhanced in the new Regulation; the report should include an analysis of the nature and extent of errors and weaknesses identified in the systems, as well as corrective action taken or planned. These documents will furthermore also be subject to an independent audit opinion. The Commission considers that this new system will provide the Commission with substantial additional assurance as to the use of EU funds by Member States and contribute to a more effective reporting by the Member States.

The Commission is of the view that, as these reinforced reporting system is introduced and effectively implemented, the conditions would be set for further promoting the issuance of political national declarations. This approach would allow concentrating first on the removal of any technical difficulties which may be used as a pretext to prevent the introduction of political declarations. The issue of national declarations is currently also formally being discussed in the framework of the inter-institutional negotiations of the MFF and the Inter-Institutional agreement.

On the transmission of these documents to Parliament and in accordance with article 59(5) of the Financial Regulation, it is for each Member State to decide whether the management and voluntary, national declarations should be published. Mandatory publishing of management declarations is not proposed by the Commission as it may risk undermining the value of these declarations as effective accountability instruments. In addition this would entail a large administrative burden (currently 317 ERDF/CF programmes) and it would not be reasonable to request translation of these documents (cf. EP request on annual summaries). It should be taken into consideration that the overall assessments of all the available information received from the Member States will in any case be presented in a synthesised form in the Annual Activity Reports of the concerned Commission Services.

53. (§ 50) The Parliament notes that the Commission should give guidance to Member States to draft meaningful annual summaries; notes that for this purpose, information given on operational programmes under shared management should be standardised as regards form and content; annual summaries should be put at the disposal of Parliament and should not only be made available in the language of the Member State, thus increasing transparency and accountability.

Commission's response:

Guidelines on the form and content of the summaries have been provided to Member States in 2010, including a template. The Commission notes that, in terms of assurance, Annual Control Reports and audit opinions by audit authorities provide the basis for the AAR assurance and more detailed information than the annual summaries. The Commission therefore considers that the added value of the summaries is limited, as shown by an external study which was communicated in May 2011 to the EP (Ares(2011)505770).

In the area of Structural funds all annual summaries for the financial year 2010 have been submitted to the Parliament in the original language. Requesting the MS to transmit their AS in another language than theirs would affect current regulatory provisions on the use of languages by Member States (Regulation 1, article 2). However, even if the EP has also a translation service, and taking duly the principles of proportionality and cost-effectiveness into account, the Commission is committed to provide translation by DGT of the most important elements of those summaries into English provided that there are no confidential information in them that would preclude their translation being externalised by DGT and that sufficient time is allotted for the task. Given the current resources situation, DGT would have to re-invoice the requesting DG for the costs incurred for these translations. If possible, the annual summaries in German and French should not be subject to any translation.

54. (§ 51) The Parliament reiterates its request that the Commission should analyse the strengths and weaknesses of national control systems on the basis of the annual summaries received; and demands that the Commission take immediate action to ensure that the next annual summaries are useful for assessing the performance of beneficiaries.

Commission's response:

The Commission notes that, in terms of assurance, Annual Control Reports and audit opinions by audit authorities provide the basis for the AAR assurance and more detailed information than annual summaries. The Commission therefore considers that the added value of the summaries is limited, as shown by an external study which was communicated in May 2011 to the EP (Ares(2011)505770).

Annual summaries do not assess the performance of beneficiaries but provide a summary of controls over the programme in the previous year (information more easily accessible in the audit opinion in the annual control reports).

55. (§ 53) The Parliament calls on the Member States to issue national management declarations at the appropriate political level and asks the Commission to establish a template for such a declaration.

Commission's response:

The Commission has assisted Member States by issuing guidelines which identify the elements which would add value to the existing political national declarations (SEC(2011) 250). Furthermore, these elements have been taken into account for the definition of the content of the mandatory management declarations in the new Financial Regulation, which will apply to commitments as from 1.1.2014.

It should be noted that the new Financial Regulation introduces a reinforced mandatory reporting for the Member States. This includes the accounts accompanied by a management declaration and a summary of final audit reports and of controls carried out. The requirements on the content of the summary report have in addition been enhanced in the new Regulation; the report should include an analysis of the nature and extent of errors and weaknesses identified in the systems, as well as corrective action taken or planned. These documents will furthermore also be subject to an independent audit opinion. The Commission considers that this new system will provide the Commission with substantial additional assurance as to the use of EU funds by Member States and contribute to a more effective reporting by the Member States.

In the context of the MFF agreement between the Council and the EP, the Commission presented a declaration stating that it is prepared to examine the request to establish a template for national management declarations to be issued by MS at the appropriate political level and is willing to invite both institutions to participate in a working group with a view to issue recommendations by the end of this year.

56. (§ 54) The Parliament calls on the Commission to establish in the short term, in cooperation with Member States, a model for national management declarations which will make them meaningful and comparable; calls on the Commission to openly provide its opinion on those declarations; takes the view that such declarations should, inter alia, certify criteria (such as true and fair accounts, the effectiveness of management and control systems and the legality and regularity of underlying transactions) and specify the scope of assurance reservations and disclaimers.

Commission's response:

With regarding the model for national declarations: See reply to § 53.

Regarding the request that the COM should provide an opinion on national declarations it should be noted that this is already done in the AAR for each of the 4 MS who submitted a declaration under 2007-2013 (see page 84-85 of REGIO AAR 2011 and 49 of EMPL AAR). However in the Commission’s view the AAR should provide a clear situation per MS not per single national declaration, as publishing a Commission opinion for each MS and declaration would go too far.

57. (§ 54) The Parliament asks the Commission to present proposals for decreasing the burden of controls for those Member States or regions that perform consistently well, according to the annual reports of the Court of Auditors and to their own national management declarations; is of the opinion that the Court of Auditors and the Commission should be able to take account of the substance of national management declarations in their audit work.

Commission's response:

The Commission considers that it has already taken action in this direction by the implementation of article 73 (reliance on MS audit work by the Commission). So far reliance has formally been placed on 15 Audit Authorities covering more than 96% of ERDF/CF allocations (51 programmes), and 9 ESF Audit Authorities (covering 10 programmes) thus limiting the audit work of the Commission on these 61 programmes and focussing instead on risks in other programmes ("differentiated approach" based on risk).

Reducing the burden of controls should not only be based on the ECA annual report and the national declarations of the MS. The annual report of the ECA does not provide an opinion per Member State and moreover not all Member States are covered in the ECA’s sample each year. In consequence, other sources of assurance need also to be taken account of notably the Commission’s own audit work and the audit work of the audit authorities in the Member States.

58. (§ 59) The Parliament regrets that the Court of Auditors found weaknesses in the instructions and their implementation, in particular as regards the residual error rate; urges the Commission, as a result of this, to adapt its guidance as an immediate priority.

Commission's response:

The standing instructions for the preparation of the Annual Activity Reports for 2012 have been improved regarding better consistency in the use of terminology, in the presentation of error rates, in the calculation of the amount at risk and the application of materiality criteria as well as the use of the best reliable information available in the shared management area.

59. (§ 61) The Parliament encourages the Commission to make progress in disclosing more precise and reliable data concerning recoveries and financial corrections and to present information reconciling as far as possible the year in which payment is made, the year in which the related error is detected and the year in which recoveries or financial corrections are disclosed in the notes to the accounts.

Commission's response:

The relevant note in the 2012 EU annual accounts has been updated and now includes information on the corrections implemented by Member States themselves. A reconciliation is made with the programming period due to the multi-annual nature of the expenditure concerned.

60. (§ 63) The Parliament calls on the Commission to extend the practice of reporting on financial corrections in 2000-2006 to the other policies managed by multiannual programmes.

Commission's response:

The relevant note in the 2012 EU annual accounts includes information on all areas of EU spending.

61. (§ 64) Recommends, in accordance with the view expressed by the Court of Auditors, that a clear link be established between amounts included in annual activity reports, in particular for establishing the residual error rate, and information on recoveries/financial corrections presented in the accounts.

Commission's response:

A clear link has been established between amounts included in annual activity reports, in particular for establishing the residual error rate, and information on recoveries/financial corrections presented in the accounts. Detailed information appears on these points in the 2012 Annual Activity Reports and in the 2012 Synthesis Report. As from September 2013, the Commission will prepare a user-friendly presentation of the amounts recovered through financial corrections and recoveries in the course of the preceding year. The presentation of the information offered in the AARs will be aligned with this presentation to establishing this link more clearly.

62. (§ 66) Suggests to the Commission that it should request its Directors-General to systematically gather an overview of the corrections of errors and irregularities and publish them in their annual activity reports.

Commission's response:

The Commission is already reporting systematically on corrections of errors and irregularities in the respective annual activity reports. As from September 2013, the Commission will prepare a user-friendly presentation of the amounts recovered through financial corrections and recoveries in the course of the preceding year. The presentation of the information reported by the Director-Generals in the AARs will be aligned with this presentation.

63. (§ 67) The Parliament calls on the Commission to issue in time for the respective discharge procedure annual communications to Parliament, the Council and the Court of Auditors listing, by country and programme, financial corrections and recoveries collected, in order to demonstrate its performance in the protection of the Union's budget; calls on the Commission, on this basis, to draw up a performance ranking.

Commission's response:

The Communication will be issued in September 2013.

64. (§ 68) The Parliament calls on the Commission to make annually public in a communication all the amounts corrected the preceding year through financial corrections and recoveries for all management modes at the level of the Union and by the Member States.

Commission's response:

This will be included in the Commission Communication of September 2013.

65. (§ 69) The Parliament is worried that the Commission itself confirms in the said Note 6 the assessment made by the Court of Auditors on the lack of reliability of supervisory and control systems of the Member States, and deeply regrets that this could affect the reliability of Commission management representations; calls on the Commission to ensure that data communicated by Member States are complete and fully reliable.

Commission's response:

Improvements were noted during 2012 in the reliability of the figures reported by Member States. The relevant Commission services obtained reasonable assurance that a sample of Member States authorities audited have satisfactory arrangements for keeping an account of amounts to recover and for reporting them the Commission. Audits will continue in 2013 and beyond in other Member States.

66. (§ 72) The Parliament consequently reiterates its previous demand that the Commission establish reliable and objective annual activity reports.

Commission's response:

The Commission Central services regularly review the reporting process, draw lessons to improve the value of these reports as instruments for management accountability and revise the AAR Standing Instructions and guidelines accordingly.

The Commission Central services also monitor the consistent implementation of the instructions of the DGs before the AAR are finalised, by reviewing and providing comments on the draft AARs.

67. (§ 75) The Parliament calls on the Member States and the Commission to urgently reinforce first-level checks to address unacceptably high level of mismanagement in the audited regional policy and ESF transactions.

Commission's response:

The requested action has been taken. The Commission continues to remind Member States authorities that they should carry out proper and sufficient management verifications, before accepting and declaring expenditure submitted by beneficiaries. It also audits in priority programmes/areas where management verifications appear to be weak. Audit Authorities continuously review this key requirement in the systems through audits on statistical sample of operations each year. When serious deficiencies are detected, the Commission interrupts/suspends payments for Structural or Cohesion Funds and imposes financial corrections, when necessary.

However, administrative capacity in some Member States and/or programmes needs to be improved further, to make sure that Managing Authorities are adequately staffed or that they address the problems connected to the high turnover of staff in some administrations. But Member States also need to provide training at their turn at all administrative layers, in order to ensure that rules are properly known and implemented, particularly in case of staff turnover. To help them, DG REGIO has set-up in August 2012 a special competence centre for administrative capacity building.

The Commission will continue to verify the functioning of the management and control systems in the Member States through all audit results available at EU and national levels, including reported error rates, and to take action when necessary. In its 2012 AAR (page 42), DG REGIO indicated that by end 2012 91% of the ERDF and Cohesion Fund programmes' management verifications were assessed as working well with only minor or some improvements needed. For the remaining programmes, substantial improvements were needed and remedial action plans linked to interruption/suspension of payments were decided in 2012 and 2013.

Concerning ESF, on 12 November 2012, DG EMPL's Director General sent a letter to all Managing Authorities drawing their attention to the need to improve the reliability of the management verifications and calling upon them to strengthen existing procedures and practices in the light of the Court's findings concerning first level checks. DG EMPL will also carry out in 2013 a number of thematic audits on the effectiveness of first-level checks in a set of operational programmes selected on a risk basis. Furthermore, the Commission will continue encouraging and supporting national authorities in their simplification efforts, in particular the effective implementation of the simplified costs options provided for in the current regulations. In this regard, besides the Sectoral Event on Simplified Costs held on 13 December 2011, to which all Managing Authorities were invited, specific simplification seminars with Managing Authorities have already taken place in Spain, Portugal Italy, Bulgaria, Hungary and Croatia in 2012 and early 2013. Another one will take place in Romania in April 2013. Besides contributing to a further reduction in error rates (and error frequency), the effective implementation of simplified costs would also significantly reduce the administrative burden on beneficiaries and the cost of control.

With a view to the next programming period, the Commission has proposed to build up on experience to reinforce systems to ensure legality/regularity across programmes and improve further management accountability. The formal certification of annual accounts once all national controls have been done, combined with the 10% retention mechanism on interim payments, net corrections following Community audits once accounts have been certified and the requirement of annual management declarations by managing authorities are meant to offset the risk that expenditure claimed are not legal and regular and to improve accountability at national level.

As regards agriculture, the Commission fully agrees with the European Court of Auditors and the European Parliament on the key and irreplaceable role played by the national authorities in protecting EU funds under shared management.

The Commission provides guidance to the Member States and monitors the effectiveness of their control systems on an on-going basis and especially through its annual plan of compliance audit missions. In 2011, for EAFRD, 28 audit missions were carried out, covering 15 Member States. These figures do not include further audit missions carried out in the framework of the clearance of accounts (accreditation of Paying Agencies and certification by independent bodies) and other audit missions carried out for the first pillar and also concerning area-based schemes in the second pillar. From 2013, the audit resources devoted to EAFRD will be reinforced as part of the response to the high error rate.

Whenever weaknesses are found, the Commission protects the Union's financial interests by means of financial corrections imposed on the Member States. The decisions adopted by the Commission in 2011 and 2012 in respect of EAFRD, for non-compliances with EU rules found in previous years, concerned respectively 58 and 67 million euros to be corrected and recovered to the EU budget.

68. (§ 82) The Parliament urges the Member States to identify and report to Parliament, in coordination with the Commission and in consultation with the Court of Auditors, unnecessarily complex national rules on public procurement in order to simplify them.

Commission's response:

The request is primarily addressed at the Member States and not at the Commission. The Commission, therefore, does not see itself in the lead of initiating the request. It, furthermore, refers to its reply to request § 1h.

69. (§ 83) The Parliament calls on the Commission, where breaches of budgetary and competition law are known to have occurred in the Member States (particularly in the award of public contracts), to apply more stringent monitoring and conditions and, in case of doubt, to suspend financing from the Structural Funds immediately until compliance with the rules and hence a use of the funds which accords with Union law are guaranteed.

Commission's response:

As regards cohesion policy, the requested action has been taken and the controls are already in place. DG REGIO and DG EMPL fully use interruptions and suspensions instruments as soon as irregularities, including those linked to the award of public contracts, are detected, leading to actions plans to correct past expenditure and to adapt management and control systems. The Commission only resumes payments when it has a reasonable assurance that irregular expenditure have been corrected and that management and control systems are adapted. However, the Commission notes that the request is vague and does not focus on cohesion policy legislation.

As regards agriculture, DG AGRI is increasing the audits of the implementation by the Member States of the Rural Development Policy. To allow for greater flexibility regarding interruptions and suspensions of payments in rural development already in the current programming period, the Commission has amended the respective Commission rules (Regulation (EC) No 883/2006) in view of covering cases where the Member State does not provide the Commission with the necessary information demonstrating that it is addressing deficiencies in its management and control system or where such information is manifestly insufficient. As regards the new programming period 2014-2020, in the political agreement with the co-legislator on the main elements of the CAP reform, in particular for a horizontal regulation, Article 43 of the latter will enable the Commission to suspend payments when serious deficiencies are detected.

70. (§ 84) The Parliament encourages the services of the Commission to launch a pilot action plan, as DG Employment did in policy sectors with a high error risk, aiming at identifying key areas where simplification could help to reduce the error rate at beneficiary level.

Commission's response:

The requested action has been taken. DG REGIO applies a similar policy as DG EMPL in concentrating efforts of support to Member States that show difficulties in meeting the requirements of adequate management and control systems. Particular attention to overcome structural weaknesses has been paid in this respect most recently to the Czech Republic, Spain and Italy, all Member States that were in particular targeted by interruption and pre-suspensions of payments.

On a more general level and following the adaption of the ERDF regulation to the provisions foreseen in the ESF regulation, DG REGIO had started to apply simplified costs options in particular to sectors that are more exposed to potential errors due to a high ratio of indirect costs. In particular programmes with interventions in RTD have started to take advantage of the modified legal provision in this period.

For the next programming period for 2014-2020, the Commission has proposed a number of provisions for management and control systems ensuring the prevention and detection of irregularities, including fraud, and thus reasonable assurance on the regularity of expenditure. At the same time the delivery system should be as simple and streamlined as possible to ensure efficient implementation and the reduction of administrative burden for beneficiaries. The options proposed for cohesion policy include inter alia different reimbursement options (based on real costs and simplified cost options), a proportional approach entailing risk based control arrangements and eGovernance. If implemented, these provisions will reduce error rates at beneficiaries level.

As regards agriculture, an action plan for rural development is described in the reply to § 1i. This action plan both addresses the authorities and beneficiaries. It will also promote simplification through the analysis of root causes and the discussion with all Member States in the rural development committee and the meetings with the paying agencies. This exchange will allow to compare different practices and to develop best practices. In addition, the guidance documents under preparation will also address simplification issues. The guidance document on simplified costs will contribute to promote administrative practices which simplify the implementation of projects for beneficiaries.

71. (§ 85) The Parliament urges the Commission to develop additional instruments to facilitate the process of consultation with beneficiaries and to strengthen their direct feedback to the national authorities, in line with the efforts to simplify the national rules and to reduce the error rate.

Commission's response:

The Commission is taking the requested action as regards agriculture. It will invite the Member States to use the technical assistance of the rural development programmes in order to organise awareness raising actions with beneficiaries and authorities involved in the implementation of programmes at the occasion of the seminar on error rate in rural development on 16 October 2013.

However, as regards cohesion policy, the Commission will not be in a position to take the requested action. It cannot have direct links with hundreds of thousands of beneficiaries in shared management and, therefore, overpass managing authorities for the management of projects.

72. (§ 86) The Parliament once again requires the Commission to name the Member States responsible for the cumulative quantifiable errors identified.

Commission's response:

The requested action has been taken. In 2011, the Commission published an analysis of errors in Cohesion Policy for the years 2006-2009 (SEC(2011) 1179, 5 October 2011), showing a concentration of errors detected by the Court in that period in Spain, Italy and the UK.

The Staff Working Document also reported that since 2007 operational programmes in Spain and Italy represented approximately 60 % of the number of programmes under reservation. Therefore, special action plans focused on these two Member States have been developed besides the usual corrective and preventive measures applied for all programmes in reservation in the various Member States.

For the 2007-2013 period, error rates for each operational programme are provided by the Member States' audit authorities in their Annual Control Reports and reviewed by the Commission in the framework of the elaboration of its Annual Activity Report. The resulting cumulative (average) risk rate by MS, reservations and corrective actions taken are fully disclosed in the 2012 AARs of DG REGIO (pages 129-133) and DG EMPL (page XX). DG REGIO's 2012 AAR discloses the risks for payments for all Member States (table on p. 7), out of which one can draw conclusions on the Member States contributing most to the risk (AT, EL, SI, FR). In DG EMPL's 2011 AAR, 4 Member States (ES, DE, IT, CZ) represent the highest financial risk and account for two-thirds of the reservations made in the 2011 AAR.

With a view to the Court's 2011 Annual Report, there was less concentration of errors for the ERDF in some Member States/programmes than in previous years, as, due to the increased preventive actions (interruptions/suspensions) in 2011, the programmes more at risk could not be selected for the DAS sample as no payments were made. Results show that a high error rate is not a problem of the policy as a whole, but of some programmes in some Member States; if payments are interrupted to these problematic programmes, the error rate goes down and remedial actions are taken for future payments. All details on programmes under reservation as well as on remedial action plans are provided in DG REGIO's and DG EMPL's Annual Activity Reports (see above).

As regards Agriculture, the Commission already named those Member States that had a residual error rate for second pillar expenditure (rural development) as a whole which was above the materiality threshold (>2%) for the financial year 2011 in the Annual Activity Report 2011 of the Directorate General for Agriculture and Rural Development (Austria, Denmark, Estonia, Spain, France, Ireland, Latvia, Portugal, Romania, Sweden, Slovenia and Slovakia). Two other Member States (Bulgaria and Malta) with a high error rate for measures under Axis 2 were named as well, although they did not exceed, the overall threshold. This reservation has been carried over in 2012 DG AGRI AAR. Further analysis of the errors in rural development was presented in the Commission staff working document on the assessment of root causes of errors in the implementation of rural development policy and corrective actions, adopted by the Commission at the end of June 2013. As for the expendi