Content of this annex. 3

1. Statistical data. 3

1.1. Implementation of the 2013 audit plan. 3

1.2. Statistical data on IAS recommendations. 4

2. Horizontal audits. 5

2.1. Management letter on the delegation of new tasks to Executive Agencies (multi-DG). 5

2.2. Limited review - Performance of Coordination with EU Decentralised Agencies (DGs SANCO, HOME, JUST, ENV, MOVE, ENTR). 8

2.3. Performance Audit on the Effectiveness of HR management to support the financial crisis in DG ECFIN, DG COMP, DG MARKT. 9

3. Agriculture, Natural Resources and Health. 16

3.1. Limited review of residual error rate calculations in DG AGRI (pillar 1 and 2). 16

3.2. Audit on Control Strategy - Implementation in DG AGRI 18

4. Cohesion. 22

4.1. Implementation of ESF 2007-13 (DG EMPL). 22

4.2. Performance Audit of DG REGIO Performance Measurement Systems. 25

4.3. Performance Audit of DG EMPL Performance Measurement Systems. 28

5. Research, energy and transport 33

5.1. Limited Review of the calculation and the underlying methodology of DG RTD's residual error rate for the 2012 reporting year. 33

5.2. Joint IAS-IAC Audit on Grant Management in TEN-T EA.. 35

5.3. European Economic Recovery Plan (DG ENER). 36

5.4. Audit on Control Strategy in EACI 39

5.5. Implementation of FP7 Control Systems in REA.. 42

6. External Aid, development and enlargement 45

6.1. Limited Review of DG DEVCO's Methodology and Calculation of the Residual Error Rate (RER) 45

6.2. DG DEVCO's state of preparedness for the revised ECA DAS Methodology (Performance Audit) 48

6.3. Audit on Financial Management Humanitarian Aid (DG ECHO). 49

6.4. Procurement – decentralised (DG DEVCO). 52

7. Education and citizenship. 54

7.1. Performance audit of National Agencies (DG EAC). 54

7.2. Performance Audit on Risk Management in DG COMM... 57

8. Economic and financial affairs. 59

8.1. Performance Audit of GMES/Copernicus Programme (DG ENTR). 59

9. General services and HR.. 62

9.1. DG ESTAT's preparedness to fulfil its role in the Economic Governance Framework (Performance Audit) 62

9.2. Performance audit on the efficiency and effectiveness of the design and implementation of the financial circuits in OIB. 66

10. IT audits. 68

10.1. Performance Audit on Management of Local IT in DG ESTAT. 68

10.2. Agrex 3 (DG AGRI). 72

10.3. Performance Audit on the management of the security of EU ETS IT system (DG CLIMA, DG DIGIT and DG HR Security Directorate). 72

10.4. SYGMA - Phase 1 - audit on development process (DGs RTD and CNECT) (Performance Audit) 76

11. Follow-up engagements (summarised) 79

11.1. 2nd Follow-up on DG DEVCO audit - Financial Management of main programmes in Latin America 79

11.2. 2nd Follow-up on DG DEVCO audit - Financial Management of main programmes in Neighbourhood 79

11.3. 2nd Follow-up on DG DEVCO audit - Implementation of the framework agreement with UN agencies 80

11.4. 2nd Follow up of AFIS (OLAF). 80

11.5. 2nd Follow up on the financial management of the Common Foreign Security Policy budget (FPI) 80

11.6. Follow-up on Management of Guarantees (multi-DG). 80

11.7. Payment deadlines (BUDG, ENER/MOVE, DEVCO, ECHO) (including IT part). 81

11.8. Follow-up of Joint Audit on Implementation by the EIF of the High Growth and Innovative SME Facility (GIF) under the Entrepreneurship and Innovation Programme (EIP) in DG ECFIN.. 82

11.9. Follow-up on the Spot Controls/Fraud in DG CNECT. 82

11.10. 2nd Follow-up on DG DEVCO audit - Financial Management of Regional Programmes. 83

11.11. 2nd Follow-up on DG DEVCO audit - Eligibility of Costs under the Financial and Administrative Framework Agreement with the United Nations by DG AIDCO.. 83

11.12. Follow-up on Risk Management Implementation (SG, BUDG, RELEX, ENV). 83

11.13. Follow-up on Business Continuity Management (DG DIGIT). 84

11.14. 2nd Follow-up on Set up of Internal Control and Financial Management Systems in REA.. 84

11.15. Follow up of Control Strategy audit (TEN T-EA). 84

11.16. 2nd Follow up of Operational Budget management audit in the TEN-T EA (recommendation addressed to DG MOVE). 84

11.17. 2nd FU on Recoveries (multi-DG). 84

11.18. Follow up on the Monitoring and Supervision of DG EAC National Agencies. 85

11.19. 2nd Follow up of Enterprise Europe Network Audit. 85

11.20. 2nd Follow up: Management of the operational budget of EAHC. 85

11.21. 2nd Follow up on Ex-post control activities and implementation of financial circuits in EACEA 85

11.22. 2nd Follow up: Procurement in EAHC. 86

11.23. Management of local IT - the 2nd follow up (SJ). 86

11.24. 2nd follow-up on Treasury and Accounting System (DG ECFIN). 86

11.25. 2nd follow up audit on Grant Management of Schengen Facility (DG HOME). 86

11.26. Follow up audit on EFF Control Strategy (DG MARE). 86

11.27. 2nd follow-up on the management of procurement contracts in OIL. 86

11.28. Management of local IT - the 2nd follow up (PMO). 87

11.29. Follow up on Development of IT systems to support Horizon 2020 programmes under DG RTD, Part I (URF/PDM & SEP). 87

11.30. Follow up of audit on Fraud Prevention and Detection (DG HOME). 87

11.31. Follow up of audit on Fraud Prevention and Detection (DG JUST). 87

11.32. 2nd follow-up of Security of IT environment in subcontracted projects (DG REGIO). 87

11.33. Follow up Programme Estimates (DG DEVCO). 88

11.34. Follow up EDF grants (DG DEVCO). 88

11.35. Follow up of Competitive Activities audit (JRC). 88

11.36. 2nd Follow up on HR management, part II (DG HR). 88

11.37. Follow up of EIP Performance audit (DG ENTR). 89

11.38. 2nd Follow up of GNSS Audits (DG ENTR). 89

11.39. HR IT Corporate Application - NAP - the Follow-up (PMO). 89

11.40. Follow up of Control Strategy audit (DG ENER). 89

11.41. Follow up: Procurement (OIB). 90

11.42. Follow up of Local IT in DG EMPL. 90

11.43. Follow-up on Thematic Budget Lines (DG DEVCO). 91

11.44. Follow-up on Fraud prevention and detection in OLAF. 91

11.45. 2nd Follow-up on DG DEVCO audit - Financial Management of main programmes in Asia. 91

11.46. 2nd Follow-up on DG DEVCO audit - Ex-Post Control Activities. 91

11.47. Follow-up of IPA Grants (DG ELARG). 92

11.48. Follow-up on Monitoring of Public Procurement in the Member States (DG MARKT). 92

Content of this annex

This annex contains the introduction, the objectives and scopes, the strengths and the critical and very important recommendations of the original executive summaries reflecting the state of play when the audit engagements were finalised (cut-off date for the exercise 31/01/2014).

Each executive summary underwent the applicable standard professional validation and contradictory procedures between auditor and auditee at the time of the finalisation. It aims to provide a quick understanding of the audit and its main results.

1. Statistical data 1.1. Implementation of the 2013 audit plan[1]

By the cut-off date of 31 January 2014, the IAS.B had implemented[2] 100% of its planned engagements (target 100%).

Eighty-seven reports (including audits, follow-ups, limited reviews and one management letter) were finalised, and can be broken down as follows:

|| 2013 || 2012 || 2011

|| Engagements || Reports || Engagements || Reports || Engagements || Reports

Audit || 22[3] || 23 || 29 || 49 || 20 || 23

Follow-up || 48 || 59 || 32 || 37 || 41 || 50

Limited Review || 4 || 4 || 1 || 1 || 3 || 3

Management Letter || 1 || 1 || 1 || 1 || ||

Consulting || 0 || 0 || 1 || 1 || 1 || 1

Total[4] || 75 || 87 || 64 || 89 || 65 || 77

In order to ensure an efficient and effective implementation of the audit plan, the IAS plans its audit work on the basis of a risk assessment and a capacity analysis. The implementation is then regularly monitored and adjustments are made as necessary.

1.2. Statistical data on IAS recommendations[5]

The IAS issued the following number of recommendations (including their acceptance rate) in 2013:

|| New recommendations || Accepted recommendations || Non-accepted recommendations

Priority || || || % || || %

Critical || 2 || 2 || 100% || 0 || 0%

Very Important || 59 || 59 || 100% || 0 || 0%

Important || 67 || 67 || 100% || 0 || 0%

Desirable || 6 || 6 || 100% || 0 || 0%

Total || 134 || 134 || 100% || 0 || 0%

For all accepted recommendations, the auditees drafted action plans, which were submitted to and assessed as satisfactory by the IAS.[6]

With respect to the period 2009-2013, the auditees reported that 79% of the accepted recommendations were implemented in the beginning of 2014 as follows:

Year || Priority || Total || Implemented[7] || In progress (by number of months overdue)

Nr || % || Nr || % || No delay || 0 - 6 || 6 - 12 || 12+

2009 || Critical || 2 || 2 || || 0 || || 0 || 0 || 0 || 0

Very Important || 131 || 130 || || 1 || || 0 || 0 || 0 || 1

Important || 143 || 141 || || 2 || || 0 || 0 || 0 || 2

Desirable || 13 || 13 || || 0 || || 0 || 0 || 0 || 0

2009 Total || 289 || 286 || 99% || 3 || 1% || 0 || 0 || 0 || 3

2010 || Critical || 2 || 2 || || 0 || || 0 || 0 || 0 || 0

Very Important || 120 || 113 || || 7 || || 1 || 0 || 0 || 6

Important || 150 || 139 || || 11 || || 0 || 1 || 0 || 10

Desirable || 11 || 11 || || 0 || || 0 || 0 || 0 || 0

2010 Total || 283 || 265 || 94% || 18 || 6% || 1 || 1 || 0 || 16

2011 || Critical || 0 || 0 || || 0 || || 0 || 0 || 0 || 0

Very Important || 47 || 44 || || 3 || || 0 || 1 || 0 || 2

Important || 101 || 93 || || 8 || || 0 || 0 || 1 || 7

Desirable || 10 || 10 || || 0 || || 0 || 0 || 0 || 0

2011 Total || 158 || 147 || 93% || 11 || 7% || 0 || 1 || 1 || 9

Year || Priority || Total || Implemented[8] || In progress (by number of months overdue)

Nr || % || Nr || % || No delay || 0 - 6 || 6 - 12 || 12+

2012 || Critical || 0 || 0 || || 0 || || 0 || 0 || 0 || 0

Very Important || 81 || 49 || || 32 || || 24 || 7 || 1 || 0

Important || 110 || 77 || || 33 || || 18 || 10 || 3 || 2

Desirable || 0 || 0 || || 0 || || 0 || 0 || 0 || 0

2012 Total || 191 || 126 || 66% || 65 || 34% || 42 || 17 || 4 || 2

2013 || Critical || 2 || 1 || || 1 || || 1 || 0 || 0 || 0

Very Important || 59 || 4 || || 55 || || 55 || 0 || 0 || 0

Important || 67 || 5 || || 62 || || 61 || 1 || 0 || 0

Desirable || 6 || 0 || || 6 || || 5 || 1 || 0 || 0

2013 Total || 134 || 10 || 8% || 124 || 93% || 122 || 2 || 0 || 0

TOTAL 2009-2013 || 1055 || 834 || 79% || 221 || 21% || 165 || 21 || 5 || 30

Out of all recommendations rated 'very important' or 'critical' and issued in the period 2009-2013, ten very important recommendations (2.3%) were overdue by more than six months with respect to the deadline set in the initial action plan[9]. Three additional overdue very important recommendations were issued before 2009[10]. No critical recommendation is outstanding. The Audit Progress Committee (APC) was regularly informed of critical or very important recommendations overdue for more than six months.

The total number of accepted recommendations issued during 2009-2013 and for which the IAS had conducted follow-up audits by the end of 2013, amounts to 686 (65%).

The follow-up work carried out by the IAS confirmed that overall recommendations are being implemented in a satisfactory way thus contributing to the improvement of the control systems in the audited services. The IAS closed 96% of the recommendations followed-up during this period.

2. Horizontal audits

2.1. Management letter on the delegation of new tasks to Executive Agencies (multi-DG)

Introduction

In order to concentrate on its institutional tasks, such as policy-making and strategic management, the Commission has delegated responsibility for the implementation of some Community programmes to third-party bodies (executive agencies). This has proved to be successful in terms of cost savings, the provision of better service delivery (reduced time for contracting, more rapid approval procedures for technical and financial reports, lower payment delays) and simplification of processes. It has also resulted in increased external communication and dissemination of results, which contribute to enhance the visibility of the EU.

The next Multiannual Financial Framework (MFF) will bring new challenges due to the financial and economic crisis, constraints in public spending and a 5% reduction of staff in each EU Institution, body and agency over the period 2013-2017. To address these challenges, the Commission has committed, amongst others, not to create new executive agencies for the implementation of programmes but to make use of the existing ones through, where appropriate, an extension of their mandate.

Objectives and scope

The purpose of this management letter addressed the main issues of a horizontal nature raised in the 2010 IAS overview report on executive agencies and subsequent audits conducted in this field and to help those responsible for the design and implementation of the process to delegate tasks to executive agencies to mitigate the attendant risks. It was not intended to provide an assessment of the state of implementation of the recommendations contained in these reports nor to provide an opinion on the design or effective implementation of on-going actions or processes not yet subject to an audit, such as the Cost Benefit Analysis currently being performed.

Main issues for consideration

Cost benefit analysis

The cost benefit analysis used to assess the various options should be based on a well-defined and consistent methodology, including the use of appropriate tools and methodologies to support the staff allocation process (data on workload, productivity). It should take account of the risks/impact of the transfer of new programmes (e.g. their complexity) to the agencies. Where accurate and/or reliable data cannot be obtained, a sensitivity testing of all options should be performed with a clear indication of the range of assumptions used to address the uncertainties. In addition, the selected option should be regularly confirmed throughout the life of the project.

Roles and responsibilities

As part of the delegation of programme management process, the current supervisory and support functions should be reviewed to ensure the most efficient use of staff of both parent DGs and agencies based on the maturity of the agencies' internal control systems. In addition, appropriate indicators should be developed to enable an assessment of the effectiveness of the supervision strategy. As executive agencies grow in size in terms of staff and reach a critical mass of programmes to be managed, consideration should be given to alternative scenarios to achieve further cost savings and efficiency gains by pooling together various agencies’ horizontal services such as IT, HR or communication .

Monitoring performance

Greater focus should be placed on improving their performance to meet the rising expectations of stakeholders.

Human resource management

Given the scale of the delegation of programme management exercise, appropriate steps should be taken to ensure the continuous availability of sufficient contractual agents with the required profile in the long run together with a policy on the retention of agency staff. In addition, consideration should be given to ensuring that the conditions for the secondment of Commission officials to executive agencies are attractive enough. Central services should also further develop the framework for the management and monitoring of staff allocation.

IT

Guidance to executive agencies regarding the acquisition of hardware and the development of software should be further developed to ensure compatibility with the Commission's infrastructure and architecture. In addition, executive agencies should be more integrated in the Commission's IT governance framework by, in particular, requiring them to describe their IT projects in Business Cases, Vision documents and progress reports which are submitted to the Information Systems Projects Management Board (ISPMB) for approval.

Guidelines

Executive agencies should be reminded of the need to comply with appropriate guidance such as the development of a roadmap for the handover of programmes (including a readiness assessment and update of Business Continuity Plans and control strategies).

2.2. Limited review - Performance of Coordination with EU Decentralised Agencies (DGs SANCO, HOME, JUST, ENV, MOVE, ENTR)

The IAS limited review on the Performance of Coordination with EU Decentralised Agencies was included, as a result of a risk assessment; in the 2012 IAS-IAC coordinated Audit Work Programme. The engagement was announced in July 2012 and was planned to be started in the latter part of 2012 but, due to other on-going engagements, it commenced only in 2013.

The objective of the limited review was to assess the performance of the Commission regarding its relationship / supervision / coordination with EU decentralised agencies, and any risks arising from the agencies' activities to which the Commission may be exposed. The scope included all decentralised agencies, their parent DGs and horizontal Commission services providing administrative support to them.

The European Parliament, Council and Commission adopted in July 2012 a comprehensive set of guiding principles — a "common approach[11]", in order to make the agencies more coherent, effective and accountable. Moreover, in this respect, the Secretariat-General of the Commission prepared in December 2012 a "roadmap on the follow-up to the Common Approach with concrete timetables for the planned initiatives[12]", including an action list with deadlines set for the implementation of remedial measures tackling the risks identified to which the Commission may be exposed, whether of an operational, reputational, safety, efficiency or governance nature. All actions are expected to be implemented by the end of 2014.

During the fieldwork, the IAS held interviews with both a sample of parent DGs[13] and horizontal Commission services providing administrative support to decentralised agencies[14], and sent a survey to a sample of 16 agencies[15]. The IAS also relied on previous IAS, Internal Audit Capability (IAC) and European Court of Auditors (ECA) audit reports.

The fieldwork confirmed that almost all risks in the above categories had already been satisfactorily addressed by the Secretariat-General in its "roadmap".

2.3. Performance Audit on the Effectiveness of HR management to support the financial crisis in DG ECFIN, DG COMP, DG MARKT

(Three audit reports: DG COMP, DG ECFIN, DG MARKT)

General background

Since 2008, the global economy has been facing a financial crisis involving banking systems, stock markets and the flow of credit. This has turned into a sovereign debt crisis for the EU with a subsequent crisis of confidence in the Euro-zone. The Commission has been engaged in designing, negotiating and implementing policy responses. In this context, a number of DGs are involved in identifying and managing solutions to handle and mitigate the consequences of the financial crisis.

Audit Objectives

The objective of the audit was to assess whether the Human Resources Management (hereafter referred to as HRM) of the DG has been effective in responding to HR challenges resulting from the policy responses to the financial crisis and enabled the DG to achieve its operational objectives in dealing with the financial crisis situation.

In particular, the audit focused on the following topics:

a) The adequacy of the HR planning, allocation and selection

b) The adequacy of the monitoring, reporting and follow-up of HR matters.

In addition, the IAS looked at the level of coordination and dissemination of good management practices on HR matters between DG COMP, DG ECFIN and DG MARKT.

Audit Scope

This audit engagement focused on the procedures, methods and tools in place for HRM in relation to the DG's contributions to tackle the financial crisis and related staff allocations. However, where the DG had not implemented any distinct process for activities related to financial crisis policy responses, the audit analysed the standard process existing since the beginning of the financial crisis, regardless of the type of resources/activities managed (whether or not related to the financial crisis).

In 2013 IAS performed a comprehensive audit on “Management and monitoring of staff allocation in the Commission services" which also included DG COMP. Processes and controls analysed as part of that audit have not been included in the scope of this audit.

The Task Forces for Cyprus and Greece, though administratively part of DG ECFIN, have not been included in the scope of this audit.

Audit report addressed to DG ECFIN:

Background

As one of the DGs that are involved in identifying and managing solutions to handle and mitigate the consequences of the financial crisis, DG ECFIN is responsible for:

- Program country support based on instruments (such as EFSF[16]/EFSM[17] and ESM[18]), operating in five[19] euro area Member States (MSs) and Balance-of-Payments assistance for two non-Euro countries[20].

- New economic governance instruments providing a stronger role for the Commission to vet national draft budgets (e.g. "6-pack", "2-pack" and fiscal compact treaty).[21]

- Financial market regulation that creates measures to restructure banks, reregulate the financial sector and prevent future crises.

To be able to deal with the new challenging responsibilities deriving from the financial crisis and fully assume its role in reinforcing EU economic governance, DG ECFIN has received from the central services a substantial reinforcement of human resources[22] (in the form of annual and complementary allocations) with a level of flexibility to be able to recruit many new staff in a short period of time. The DG has also adapted its structure and operations to this new environment, by implementing a major reorganisation and creating three new Directorates[23].

From a human resource management point of view, those changes have required the DG to increase its flexibility and capacity in order to adapt to its new tasks by systematically redefining priorities, redeploying staff[24] and reducing staff allocated to the administrative tasks to concentrate the resources on the DG’s core activities[25].

Overview of Major Strengths

DG ECFIN has launched a number of strategic HR initiatives aimed at addressing the important challenges it faces in terms of HRM in the recent years:

- An HR Management Board was established to define and coordinate DG ECFIN's overall HR policy. It is composed of the DG, the two DDGs, the Resource Director and the Head of Unit R1.

- Together with DG MARKT and DG COMP, and with the support of DG HR, DG ECFIN launched a Commission-wide call for expression of interest in November 2008 to reinforce on a temporary basis existing teams in the three DGs. An additional call for interest was launched in 2011 particularly for DG ECFIN.

- The DG has recently launched a 360° feedback mechanism for middle and senior managers to develop a feedback culture in DG ECFIN, and help managers improve their HRM capacities.

- DG ECFIN invested substantial resources in the specialised competition for macroeconomics and financial economics specialists launched by EPSO to build a more stable and qualified labour force for the next years. In particular, the DG developed detailed competency profiles for economists and participates in the selection board of the competition.

- ECFIN has revamped its Learning & Development strategy, in particular by improving the training offer (now open to many other DGs), developing ECFIN training passports to provide guidance to ECFIN staff and by introducing new delivery model (short courses, a summer school, course linked to the timing of the surveillance cycle).

Major Findings

The IAS has identified the following three very important issues:

HRM Strategy (Observation 1)

HR-related strategic issues are regularly discussed at senior management level, in particular in the HR Management Board meetings and formalised in different documents including the status of the reflection, the identified challenges and the actions planned/taken. These strategic documents do however not contain any qualitative and quantitative (multi-annual) analysis of staffing needs[26] and do not prioritise the actions identified to address the HR challenges. In addition, there is neither a monitoring nor a follow-up mechanism to measure their level of implementation and effectiveness (deadlines, targets and KPIs[27]).

Annual HR Planning (Observation 2)

DG ECFIN's HR unit coordinates the annual resource planning based on discussions among the different levels of management and within the HR Management board. The HR unit prepares the detailed justification for requests for additional posts or credits. However, DG ECFIN does not have at its disposal comprehensive data to support the (possible) re-allocation of resources in the context of the annual resource planning.

Monitoring and Reporting on HRM (Observation 3)

DG ECFIN provides management with a number of HRM related statistics and reports (e.g. vacancy reports, screening of local overhead, equal opportunity figures, HR budget consumption) both in the context of the HR planning exercises and in response to ad-hoc requests. However, there is no comprehensive HR report that would allow regular monitoring and measuring of HR-related performance and exhaustive and periodic reporting to management based on KPIs and targets agreed with senior management.

Audit recommendations

In order to address these issues, following very important recommendations were issued:

HRM Strategy – Very important

DG ECFIN should further develop its multi-annual HR strategy based on a qualitative and quantitative analysis of staff needs, including the identification of possible options to address the staff reduction. The implementation of the HR strategy should be supported by tools to measure, monitor and report on its effectiveness.

Annual HR Planning – Very important

DG ECFIN annual resource planning process should be based on complete, reliable and up-to-date information on the existing HR and their allocation to the DG's tasks and associated priorities (so-called “task mapping”). In addition, the DG should implement tools to assess regularly the staff workload in order to align the staff allocations with tasks, priorities and workload identified.

Monitoring and Reporting on HRM – Very important

DG ECFIN should enhance its monitoring and reporting process on the HRM related activities by developing a comprehensive HR report that covers the different aspects of HRM and measure and monitor the related KPIs. This would enable the DG to measure HR management’s performance and facilitate management decisions on HR.

DG ECFIN established an action plan which the IAS considers adequate to address the identified issues.

Audit report addressed to DG COMP:

Background

As one of the DGs that are involved in identifying and managing solutions to handle and mitigate the consequences of the financial crisis, DG COMP plays a leading role in tackling the crisis, in particular by using State aid rules as a key coordination instrument. In addition, it participates in the coordination of the financial market regulation, and is active in maintaining the stability of the financial system as a whole.

To be able to deal with the new challenging responsibilities deriving from the financial crisis, DG COMP has received a substantial reinforcement of human resources from the central services (in the form of annual and complementary allocations[28] as well as derogation to speed up the recruitment process) and has adapted its structure and operations to this new environment, including the management of human resources. In particular, the DG has created the "Task Force Financial Crisis" to deal with the additional workload, redefined its priorities refocusing its activities on files related to the financial crisis and has systematically redeployed its staff (by regrouping people from different units to work on priority files). In addition to the matrix organisation already in place in DG COMP, these changes have helped the DG to react/adapt quickly to new requests/more urgent tasks.

Overview of Major Strengths

DG COMP has launched a number of strategic HR initiatives aimed at addressing the important challenges it faces in terms of HRM in the recent years, notably:

- Together with DG ECFIN and DG MARKT, and with the support of DG HR, DG COMP launched a Commission wide call for expression of interest in November 2008 to reinforce on a temporary basis existing teams in the three DGs.

- Following the request of DG COMP, EPSO launched in 2010 a specialist lawyers and economists competition to provide a more stable and qualified labour force for the years to come. DG COMP invested a substantial amount of resources by participating in the selection panels and developing detailed competency profiles.

- In 2009 and 2012, DG COMP organised temporary agent AD5 and AD8 competitions for the Chief Economist Team, which reserve lists were shared with DG MARKT.

- DG COMP has developed a comprehensive workload assessment tool (called PETRA) which allows timely reporting on HR allocation and workload. The information provided by this tool is an integrated part of DG COMP's HR planning processes.

- DG COMP has developed a knowledge-sharing platform called Comp-Wiki to disseminate information of an operational nature. Staff involved in case handling update it on a daily basis. It is also used by newcomers to become quickly operational, as it includes case summaries and sector-related information.

- DG COMP has developed a comprehensive learning and development framework and a rolling training programme based on an extensive internal consultation launched in 2009.

Major Audit Findings

The audit in DG COMP did not identify any issues that gave rise to critical or very important recommendations.

Audit report addressed to DG MARKT:

Background

As one of the DGs that are involved in identifying and managing solutions to handle and mitigate the consequences of the financial crisis, DG MARKT is at the forefront of the activities to tackle the financial crisis. It works on structural measures to address key reforms necessary in the development and the completion of the Single Market, which is a central element of the European growth agenda. In particular, the focus is on rules for bank recovery and resolution and consumer protection in financial services.

To be able to deal with the new challenging responsibilities deriving from the financial crisis, DG MARKT has received from the central services a substantial reinforcement of human resources[29] (in the form of annual and complementary allocations) as well as derogations to speed up the recruitment process. The DG has also adapted its structure and operations to this new environment. In particular, the DG implemented a major reorganisation and created three new units and one principal advisor’s post.

From the HRM point of view, those changes have required the DG to increase its flexibility by systematically redefining priorities, redeploying staff[30] and reducing the staff allocated to the administrative tasks to concentrate the resources on the DG’s core activities[31].

Overview of Major Strengths

DG MARKT has launched a number of strategic HR initiatives aimed at addressing the important challenges it faces in terms of HRM in the recent years, notably:

- Together with DG ECFIN and DG COMP, and with the support of DG HR, DG MARKT launched a Commission wide call for expression of interest in November 2008 to reinforce on a temporary basis existing teams in the three DGs. An additional call for interest was launched in 2011 particularly for DG ECFIN.

- Following the request of DG MARKT and DG ECFIN, EPSO launched in 2013 an AD5/AD7 specialist competition in macroeconomics and financial economics to provide a more stable and qualified labour force for the years to come. DG MARKT invested substantial resources by participating in the selection board of the competition and developing detailed competency profiles for financial economics.

- As part of its learning and development framework DG MARKT has carried out an in-depth analysis of learning needs in each Directorate in order to identify key competencies and knowledge required for the future and related learning solutions to fill the gaps.

- To facilitate mobility between the DGs, DG COMP and DG MARKT agreed on an inter mobility programme for Heads of Unit.

- DG MARKT modified its structure to address the challenges deriving from the financial crisis. In particular, it strengthened the financial services coordination unit under the direct authority of the DDG for financial services, and created a dedicated economic analysis unit (G1) to reinforce the economic analysis capability in financial services, a unit for Financial stability (H4) to deal with crisis management and resolution issues and another one on Banks and Financial Conglomerates II (H2) to meet policy priorities pertaining to structural bank reform.

- The DG has recently launched a 360° feedback mechanism for managers to develop a feedback culture in DG MARKT, and help managers improve their HRM skills.

Major Audit Findings

The IAS has identified the following three very important issues:

HRM Strategy (Observation 1)

HR-related strategic decisions are described in the Personnel Action Plan and in some other additional documents and are regularly discussed at senior management level. These strategic documents do however not contain any quantitative (multi-annual) analysis aiming at, among other things, identifying possible approaches to address the 5% staff reduction over the next 5 years and do not prioritise the actions identified to address the HR challenges. In addition, there is no monitoring and follow-up mechanism to measure their level of implementation and effectiveness (deadlines, targets and KPIs).

Annual HR Planning (Observation 2)

DG MARKT implemented an annual HR resource planning cycle, which involves both the HR team and the operational units. In particular, each unit has to prepare a management plan (UMP) including, among others, the list of tasks and an estimation of current and future staff required to accomplish them. The IAS noted however that DG MARKT is not fully equipped to assess the workload of each team/unit.

Monitoring and Reporting on HRM (Observation 3)

DG MARKT provides management with a number of HRM related statistics and reports (e.g. weekly vacancy reports, screening of local overhead, equal opportunity figures) both in the context of the HR planning exercises and in response to ad-hoc requests. However, there is no comprehensive HR report that would allow regular monitoring and measuring of the HR-related performance and an exhaustive and periodic reporting to management based on KPIs and targets agreed with senior management.

Audit recommendations

In order to address these issues, following very important recommendations were issued:

HRM Strategy – Very important

DG MARKT should further develop its multi-annual HR strategy based on a qualitative and quantitative analysis of staff needs, including the identification of possible options to address the staff reduction. The implementation of the HR strategy should be supported by tools to measure, monitor and report on its effectiveness.

Annual HR Planning – Very important

DG MARKT should implement tools to regularly assess staff workload and should set the priorities of its tasks. The staff allocations should be done on the basis of tasks, priorities and the workload identified.

Monitoring and Reporting on HRM – Very important

DG MARKT should enhance its monitoring and reporting process on the HRM related activities by developing a comprehensive HR report that covers the different aspects of HRM and measure and monitor the related KPIs. This would enable the DG to measure the HR management’s performance and facilitate management decisions on HR.

DG MARKT established an action plan which the IAS considers adequate to address the identified issues.

3. Agriculture, Natural Resources and Health

3.1. Limited review of residual error rate calculations in DG AGRI (pillar 1 and 2)

Background

The IAS strategic audit plan for 2013-2015 includes, for 2013, a limited review on the RERs reported by DG AGRI for the 2012 reporting year. Similar reviews were conducted in 2013 for DG DEVCO and DG RTD.

Objectives

The objective was to review the calculation and underlying methodology of the RERs reported by DG AGRI in its (draft) AAR 2012 enabling DG AGRI to take appropriate actions, if any, before their disclosure in the final AAR and Synthesis report.

Scope

The review covered the following aspects:

- methodology for the calculation of the RERs for both EAGF and EARDF and the underlying control statistics (including reliability of the MSs control statistics);

- testing of the calculated RERs;

- presentation of the RERs in the draft AAR (including compliance with the Standing Instructions for the AAR 2012).

The IAS reviewed the draft AAR transmitted to the central services (SG/BUDG) on 1/03/2013 and the draft part 2 of the AAR transmitted on 4/03/2013 and the preliminary RER calculations which were provided by DG AGRI on 6/03/2013.

It should be noted that in its 2011 AAR and in the draft AAR 2012 DG AGRI has included a reservation on Rural Development expenditure based on the RER exceeding the materiality threshold and/or reputational grounds.

The fieldwork was finalised on 08/03/2013. All observations and recommendations relate to the situation as of that date.

Major Findings

The review made findings on the reliability of the MS control statistics used by DG AGRI to calculate its RERs (Critical), DG AGRI's calculation of the RERs (Very important), the process for making reservations in its AAR (Very important) and the presentation of the RERs in the AAR (Very important).

Recommendations

The following critical and very important recommendations were issued in order to address the issues identified:

Reliability of MS control statistics used by DG AGRI to calculate RERs – Critical

In calculating its RERs DG AGRI depends very heavily on control statistics reported by MS, which the IAS found to be unreliable, taking account the work performed by the ECA and MS Certifying Bodies (CB).

DG AGRI should broaden the basis for calculating its RERs, in particular by ensuring that it takes into account all relevant, available information and making corrections where necessary. For the 2012 AAR, it should assess and quantify the impact of the weaknesses affecting the reliability of the statistics and strengthen the reliability of its assurances by taking into account the statistics which are actually validated by the CB.

Also for the 2012 AAR, it should take account of known/proposed corrections from previous years or on-going clearance of accounts procedures when concluding on the reliability of the MS statistics as a basis for its error rate calculations. To reinforce the assurances for 2012, it should try to validate certain of the highest spending aid/measures and where necessary, correct the control statistics or apply flat rates.

Looking beyond the 2012 AAR, DG AGRI should put in place a system to improve the reliability of the MS statistics. Specifically, it should:

- ensure that there is a proper process in place for assessing reliability, together with appropriate internal guidance to staff;

- ensure that its audit work specifically addresses reliability;

- reinforce the work of the CB to include legality and regularity aspects, which should in turn strengthen the assessment of the Paying Agency's on-the-spot checks and control statistics;

- automate the transmission of control statistics by MS to the Commission;

- issue adequate instructions/guidance to the MS on the control statistics and underlying sampling requirements, in particular on the random sample component;

- ensure the CBs provide reliable opinions on the PA management declaration covering the legality and regularity of the underlying transactions, based inter alia on the re-performance of a representative sample of transactions checked by the PA on-the-spot, as foreseen in the proposal for the post 2013 CAP regulations;

- following the entry into force of the post 2013 CAP regulations DG AGRI should closely monitor the reinforced work of the CB on the legality and regularity aspects of the PA's controls. The results of that work should be assessed on a yearly basis in the context of the AAR and be subject to a comprehensive review after two years of application with a view to deciding whether the reinforced work of the CB has delivered the expected results or whether DG AGRI should consider other ways for obtaining assurance. This would be in line with the provision of Art 32(5) of the Financial Regulation, which requires improvements/re-design of systems if weaknesses in control systems are seen to persist. This could be obtained through the CB performing independently on-the-spot checks on a representative sample of transactions (out of the total population of payments approved) and reporting the resulting error rates to DG AGRI.

Calculation RER – Very important:

DG AGRI should ensure that the RERs are calculated on the basis of correct and representative data for all parts of the budget and takes into account residual errors after administrative checks. It should address the inconsistencies noted and ensure that cross-compliance errors are included in the calculation. If excluded, the impact should be explained.

DG AGRI should ensure adequate back-up and business continuity procedures, including full documentation of the calculation basis and procedure. It should automate both the calculation process and the process for compiling MS control statistics.

Reservations – Very important:

DG AGRI should not apply the currently used 25% margin to the RERs as a basis for the decision on reservations, unless there is a clear and statistically sound rationale to support it. It should consider adapting the procedure for making reservations, where supportable by reliable MS control statistics. This would be more in line with the latest materiality criteria used by other shared management DGs.

AAR presentation – Very important:

DG AGRI should clearly explain in the AAR the reasons for differences between its own error rates and those of the ECA. It should explain the basis on which it relies on the MS control statistics and make better use of available information on financial corrections/recoveries to corroborate the level of residual error in the population and assess the residual amount at risk. In addition, it should disclose RERs by MS/ABB activity where relevant.

DG AGRI established an action plan which the IAS considers adequate to address the identified issues. It was followed up in the context of the AAR for the reporting year 2013 which revealed that considerable progress had been made already for the 2012 but in particular for the 2013 AAR.

3.2. Audit on Control Strategy - Implementation in DG AGRI

Background

Common Agricultural Policy (CAP) expenditure is mainly accounted for under two shared management funds. The European Agricultural Guarantee Fund (EAGF) finances direct aid and market measures (€330 billion in total between 2007-13) and the European Agricultural Fund for Rural Development (EAFRD) co-finances rural development programmes (€96.3 billion in total between 2007-13). Expenditure under both funds is managed through some 81 national Paying Agencies (PAs) across the MS.

Under shared management, the MS have primary responsibility for implementing effective internal control systems to prevent, detect and correct irregular expenditure, while the Commission performs a supervisory role over national systems and assumes final responsibility for the implementation of the budget.

Audit Objectives

This audit was a continuation of the IAS's audit in 2012 on the design of the control strategy employed by DG AGRI's Audit Directorate (Directorate J). The objective was to assess the execution of the audit and control strategy in practice, in particular the effective implementation of audit engagements, their supervision and corrective measures to address weaknesses in MS management and control systems.

Audit Scope

The audit specifically covered the following areas:

- The audits and checks made by Units J2, J3 and J4 as part of the multi-annual Conformity Clearance process, which is designed to obtain assurance on the legality and regularity of underlying transactions.

- The audits and checks made by Unit J5 as part of the annual Financial Clearance of Accounts process, which is designed to provide assurance on the veracity, completeness and accuracy of the PAs' accounts.

- The work of the Coordination Unit J1 as support to the audit process.

There were no scope limitations.

DG AGRI included in its 2012 AAR reservations on both EAGF and EAFRD. For EAGF the reservation concerned serious deficiencies in direct payments in Portugal, Bulgaria and France, mainly due to deficiencies in the functioning of the Land Parcel Identification Systems (LPIS). For EAFRD, two reservations were made. One concerned the reliability of the MS control statistics used to derive the RER. The other reservation concerned deficiencies in the supervision and control of organic production.

The IAS fieldwork was finalised in mid-June 2013. All observations and recommendations relate to the situation as of that date.

Strengths

The auditors recognise the on-going efforts made by DG AGRI to reduce error rates and protect the budget through a range of detective and corrective measures. On the detective side, the DG is working hard to understand and assess the root causes of errors in close cooperation with the MS bodies with a view to identifying corrective measures. The DG continues to build, refine and develop its audit procedures. Furthermore, as part of this audit the IAS saw first-hand (by accompanying DG AGRI's auditors on-the-spot) the challenges they face, the extreme time pressure they work under and the professionalism and competency with which they conduct their work. In addition, the IAS notes in particular the efforts made to strengthen corrective measures through the implementation of the recent revision of Commission Regulation n° 883/2006 to interrupt payments.

Major Audit Findings

Detective measures (report finding 1)

There is scope for improving the audit process in a number of key areas. Currently, the planning and preparation stages are hampered by the need to translate and analyse important MS documentation before auditors leave on mission, which if not done well in advance puts pressure on the time available on-the-spot for actual testing. In addition, where sampling is used, this is not always clearly justified and the Clearance (of Accounts) Audit Trail System (CATS) is not always used. Documents setting out the MS key and ancillary controls are out of date. Regarding EAGF, although there are some attempts to involve the operational units in the audit planning process to exploit their knowledge and expertise on the actual implementation of policy, it is clear that this is limited in practice.

There is a general lack of trail/cross-referencing between the various audit documents, including from the planning stage through to reporting, together with a lack of documented supervision. Although there is an increasing use of standardised checklists and audit programmes in certain areas, significant scope for improvement remains in order to provide a more solid basis for the assurance process. Furthermore, despite the increasing error rates and concern over the effectiveness of the first level MS checks, very few re-performance checks of controls are made on-the-spot. The focus is very much on the overall systems rather than operations. The time taken to finalise the audit process is very lengthy and is not helped by a lack of effective audit monitoring tools (see Report Finding 3). However, the IAS acknowledges that the contradictory and conciliation procedure is itself very long and that it is in the interests of MSs to delay this in order to lessen the impact of financial corrections.

Finally, the coordination and communication arrangements both within the Audit Directorate and outside can be improved in order to strengthen the assurance process overall. The Audit Directorate has the challenge of dealing with many different responsibilities in very demanding circumstances, but currently suffers from a lack of effective sharing of key information, including potentially very valuable input from the operational side.

Corrective measures (report finding 2)

Key to an effective control strategy is an effective sanctions process, which in the first instance ensures that weaknesses and deficiencies are subject to financial corrections, but in the longer term ensures real and sustainable improvements in MS management and control systems. Again, this is even more important in the light of increasing concerns as regard the higher error rates and the effectiveness of the first level MS controls. The IAS acknowledges the effectiveness of the financial corrections process in protecting the budget, but notes that DG AGRI has not so far extensively used the interruption and suspension measures, which come earlier in the process, due to complex legal provisions in the current legislative framework. However, the rules proposed for the period 2014-2020 introduced new interruption and suspension clauses in the legislation. These measures are potentially very powerful tools in reinforcing the responsibility of MS to implement robust systems of control. In terms of ensuring that those improvements to MS system are sustained in practice, there is a real need to build capacity. However, DG AGRI has yet to put the monitoring systems in place to help deliver this. There is no central overview of the audit findings and recommendations, which would provide a solid basis to help both the audit and operational units track improvements in the MS and to feed back into the audit planning cycle, although the IAS notes that very preliminary work has been undertaken on establishing a recommendations database.

In addition, the IAS noted that, for EAGF, there is very little guidance concerning the processes for establishing, reviewing and following up specific MS Action Plans, including the respective roles and responsibilities. So far, such plans have been made for Greece and Portugal and one is currently being prepared for France.

Monitoring and reporting (report finding 3)

Adequate monitoring, measurement and reporting mechanisms are essential for ensuring the effective management of an audit function. Although very powerful, the existing COMBO database system lacks the reporting functionality the Audit Directorate needs to monitor overall progress and for the Units to monitor their own day to day work. As a consequence, certain units have developed their own manual based systems. Although progress on audits is in fact monitored in practice, this could be done on a more regular basis. This is even more important in view of the length of time it takes to close audits, as noted in Report Finding 1 and the large number of audits still open. In addition, there is significant room for improving current audit performance information. At the moment this is very limited in both quantitative and qualitative terms and lacks the consistency and depth necessary for effectively managing and monitoring the audit process.

Audit recommendations

The following recommendations were issued to address above mentioned findings:

Detective measures (report finding 1: Very important)

DG AGRI should ensure that the key preparatory documents are obtained in advance and, where necessary, translated and analysed. It should also try to better match auditors' language skills. Sampling criteria need to be properly justified and more use made of CATS. The key data on MS key and ancillary controls should be updated.

It should make more use of the operational units' knowledge and expertise at the planning stage.

DG AGRI should undertake tests of operations that are selected on a risk basis, in order to strengthen assurance on the legality and regularity of underlying transactions.

The DG should ensure that the relevant completion and reporting deadlines are met. It should ensure that the appropriate programmes and checklists are used, properly signed off and evidenced for management review.

DG AGRI should ensure that it takes advantage of key information provided by other sources within the DG, notably in the context of the proposed strengthening of the role of the CBs and the checks foreseen on legality and regularity of transactions. It should ensure that it liaises effectively with other partners.

Overall, in view of the measures needed to strengthen the audit process, DG AGRI should develop a quality assurance and improvement programme, in line with international audit standards, which could include provisions for internal and external quality review.

Corrective measures (report finding 2: Very important)

DG AGRI should apply payment reduction and suspension procedures where appropriate. It should use its existing IT system (COMBO) and finalise the initial work undertaken to establish a database to better track and follow up audit recommendations. DG AGRI should also clarify the roles, responsibilities and modalities as regards MS action plans. This should include a clear statement and guidance on the conditions under which MS are required to submit such plans, the respective roles of DG AGRI's audit and operational units, together with review, reporting and follow up arrangements.

Monitoring and reporting (report finding 3: Very important)

DG AGRI should ensure that it regularly monitors and reports on audit progress and achievement of targets and objectives. Bearing in mind the problems of data reliability in the COMBO system, checks should be made to ensure the accuracy and consistency of the data presented in the reports. It should ensure that the monitoring system implemented is supported by clear reporting requirements for the communication of performance data, including the regularity, content and level, together with a clear statement of responsibilities.

DG AGRI established an action plan which the IAS considers adequate to address the identified issues.

4. Cohesion

4.1. Implementation of ESF 2007-13 (DG EMPL)

Background

The European Social Fund (ESF) is a key vehicle at the disposal of the European Union (EU) to assist MSs in the field of employment. Over the programming period 2007–13 ESF spending will amount to over EUR 75 billion, representing around 8 % of the total EU budget. The ESF is put into action through 117 Operational Programmes (OPs) for the 2007–13 programming period (PP). In 2012, DG EMPL made payments of EUR 11,28 billion.

Although the management and control systems for the ESF, ERDF and CF are governed by common rules, in practice most ESF operational programmes have their own specific authorities and control systems. Under shared management, the MSs have primary responsibility for implementing effective internal control systems to prevent, detect and correct irregular expenditure, while the Commission performs a supervisory role over national systems and assumes final responsibility for the implementation of the budget.

Audit Objectives

Recognising the persistently high error rates in the Cohesion area, the IAS conducted this audit on the implementation of the 2007-13 PP for ESF programmes in order to assess the extent to which DG EMPL has taken sufficient and adequate measures to reduce the high error rates.

Audit Scope

The audit specifically covered the following areas:

- The checks made by DG EMPL in order to place reliance on national audit authorities (AAs), based on a sample of files and by accompanying DG EMPL auditors during audit missions to MS.

- Follow up of the actions resulting from the Commission working paper on the analysis of errors on Cohesion Policy and from other action plans.

- Preventive, detective and corrective measures to tackle the problem of high error rates.

- Through file examination, analysis of the key decision processes at the basis for making/lifting reservations, interruptions, suspensions and financial corrections.

There were no scope limitations.

The fieldwork was finalised in mid-October 2013. All observations and recommendations relate to the situation as of that date.

The following reservation was made in the 2012 AAR concerning specifically the area/process covered by the scope of this engagement:

"Reservation concerning the ESF Fund management and control systems for the period 2007-2013:

Significant issues regarding the effective functioning of management and control systems for 27 OPs in the following Member States: Belgium, Czech Republic, France, Germany, Ireland, Italy, Poland, Romania, Slovakia, Spain, United Kingdom and IPA programmes for Turkey and FYROM."

Strengths

The IAS recognises the continuing efforts made by DG EMPL to reduce error rates through a range of preventive, detective and corrective measures and in seeking to report those error rates clearly and concisely. On the preventive side and recognising the critical role the MS AAs have to play in the assurance building process, the DG has worked very hard to build capacity and understanding by developing, in cooperation with the other Structural Funds DGs, comprehensive guidance to AAs on how to assess MS control systems and on the sampling methodologies and by organising a range of seminars on specific topics. In response to the Commission Staff Working Paper[32] and previous ECA reports, DG EMPL has strongly encouraged the MS to use the simplified cost options (SCOs), and provided supporting guidance, with the result that one or more of these options have been used in nearly 60% of OPs. ECA recognizes in its 2012 Annual Report the positive impact the simplification rules have had on the level of errors in ESF[33].

From a detective side, the DG continues to build, refine and develop its audit procedures through the various Enquiry Planning Memorandums (EPMs), particularly those covering the "Re-performing the audit work conducted by a national audit authority" aimed at gaining assurance on the reliability of AAs and "Review of management verification process in place", which aims to get direct assurance on MS systems where the AA cannot be relied on. These are robust and proactive responses to the assurance building challenge. Furthermore, as part of this audit the IAS gained first-hand knowledge (by accompanying DG EMPL's auditors on-the-spot) of the challenges they face, the extreme time pressure they work under and the professionalism and competency with which they conduct their work. However, the IAS also recognises that the audit process is only one of a package of measures aimed at reducing error rates. DG EMPL has devoted a significant effort, mainly through the Audit Directorate, to discussing in detail the results of ECA findings and explaining and clarifying specific cases in the framework of the contradictory procedure.

In addition, the IAS notes in particular the strong corrective measures implemented by DG EMPL, through timely and increased levels of interruptions and suspensions which are monitored by the Interruption Suspension Financial Corrections Committee (ISFC Committee) and which is also strongly driven by the work of the Audit Directorate.

Major Audit Findings

Detective measures to reduce error rates (Report Finding 1)

As noted in previous IAS reports, DG EMPL has reinforced its audit approach in all areas. However, the IAS found that the preparation phase could be strengthened by a better consideration of the Geographical Units' (GU) knowledge and, in case of follow-up audits, the initial risks and the action plan to be tested. Similarly, for re-performance audits of Audit Authority work, the specific risks could be better reflected in the Mission Planning Memorandum (MPM). Preparation is even more important in view of the time pressures brought about by the overlapping of two programming periods from 2014 onwards and the numerous other tasks borne by the audit units, such as supporting the ISFC Committee work, contradictory procedures with ECA and continued capacity building work with MSs, all of which are aimed at reducing the error rate. The IAS’s first-hand experiences in accompanying the DG auditors on-the-spot found that there were variations between missions in the depth of testing undertaken and the extent of work at the beneficiaries’ premises. We acknowledge the need to adapt the work to fit the circumstances, but consider there is room for more consistency overall, particularly given the pressure to make the most effective use of scarce audit resources. Finally, the IAS noted that the reporting phase could be improved for follow-up audits. DG EMPL reports on an exception basis only and does not provide a clear confirmation that recommendations and corrective actions have been implemented in practice.

Audit recommendations

The following recommendations were issued to address above mentioned findings:

Detective measures to reduce error rates (Report Finding 1: Very important)

DG EMPL should incorporate in the MPM the relevant key information received from the GUs; the GUs should examine case-by-case the added value of their participation in the audit mission and decide accordingly whether to participate in the whole mission, the closing meeting, or not at all. Furthermore, DG EMPL should ensure more consistency of approach for the same audit enquiry type through further instruction/guidance and supervision on the extent of testing to be carried out on the spot. It should ensure that appropriate checklists are used on missions and that tailor-made checklists are developed for each mission that involves the follow up of an action plan or with specific risks. For follow-up audits, it should develop a specific template to record the auditor's conclusion on whether recommendations and corrective actions have been implemented.

DG EMPL established an action plan which the IAS considers adequate to address the identified issues.

4.2. Performance Audit of DG REGIO Performance Measurement Systems

Background

Knowing how well an organisation is doing is essential in developing strategy and policies to meet the organisation's aims. Performance information shows how well an organisation is performing against its stated objectives. Clear objectives, with well-selected performance measures, are the foundation of a good performance measurement system. This not only determines what needs to be done, but also sets the conditions for success.

Following the entry into force of the Lisbon Treaty, the European Commission is required to submit to the European Parliament and the Council a yearly evaluation report on the Union’s finances based on the results achieved (Article 318 report). Moreover, the European Parliament considers that performance audits measuring the extent to which spending has achieved its objectives pursued have become ever more important and the Commission should develop a new culture of performance. In June 2011, the central services of the Commission reminded operational services that the current financial and economic crisis and severe constraints in public spending has shifted the focus to achieving more with less and that post-2013 spending programmes should place a greater focus on performance measurement. Other initiatives have been taken at Commission level on this move towards a performance culture, e.g. the setting up of a working group of Directors-General of the Commission on “Move to a performance culture” in February 2013.

In order to meet stakeholders' expectations, one of the objectives of the IAS in its Strategic Audit Plan for the period 2013-2015 is to carry out performance audits focusing on the economy, efficiency and effectiveness of the use of resources. A number of audits have been planned in 2013 to assess the performance measurement system of DGs, including not only DG REGIO, but also DGs EMPL and EAC.

For DG REGIO, the issue of performance management is particularly relevant. Operating in a multi-annual shared management framework, it faces the challenge of supervising closely the MSs, but being ultimately accountable for implementing the budget. It has the dual responsibility of ensuring legality and regularity of the expenditure, but at the same time trying to promote sound financial management and effective overall implementation of policy. The focus on policy performance will be even greater in the new 2014-20 programming period with the stronger overall results orientation and the introduction of the Performance Framework and Performance Reserve.

Audit Objectives

The main objective of the audit was to assess the extent to which DG REGIO has adequate performance measurement systems in place for monitoring, reporting and evaluating the performance of activities both in terms of its day to day, operational and administrative activities (internal) and in terms of measuring the delivery of policy objectives (external). The audit addressed the following key questions:

- Is the performance measurement framework comprehensive?

- Does the DG adequately monitor and measure internal performance including the use of human resources?

- Does the DG adequately monitor and evaluate its policies?

Audit Scope

The audit focused on:

- A horizontal analysis of DG REGIO's internal processes for setting objectives and KPIs and related reporting and monitoring systems.

- A detailed review of the processes for setting objectives, indicators, monitoring, evaluation and performance reporting concerning the ERDF and Cohesion Fund.

There are no observations/reservations in the AAR that relate to the area/process audited.

The fieldwork was finalised on 11/10/2013. All observations and recommendations relate to the situation as of that date.

Strengths

The IAS recognises the on-going efforts made by DG REGIO to strengthen the results and performance aspects not just of its management of the ERDF and CF, but also of its own internal activities and resources.

This focus is very evident in the draft regulations for the 2014-20 programming period, whereby key pillars for this new results and performance based focus include a clear articulation of objectives of programmes with a strong intervention logic, the definition of a set of mandatory common output indicators, the introduction of a performance framework for each programme linked to a performance reserve and strengthened provisions for the evaluation of programmes. Although the preparations for the new programming period (e.g. development of guidance, negotiation of partnership agreements and operational programmes) are still on going, the IAS acknowledges the efforts devoted to bringing the results and performance orientation into practice.

The IAS also recognises the challenge the DG faces to monitor and evaluate the 2007-2013 programmes and to report on their performance, for example because of the lack of mandatory common indicators. In particular, the IAS notes the efforts already made by the DG to improve the quality of the data reported by the MS on core indicators and also the continued efforts to improve the quality of evaluations conducted by the MS and the DG itself.

DG REGIO considerably strengthened its internal performance measurement systems by setting out in the Management Plan (MP) a set of priorities and reporting progress towards their achievement on a bi-monthly basis to the board of directors. In addition, units' reporting on progress towards these priorities is reported to the board on a quarterly basis.

Also, a major effort has been devoted to mapping human resources to activities and tasks and assessing the workload linked to these activities and tasks. The IAS considers this workload assessment can provide a good basis for helping the DG to make important HR allocation decisions and further developing its performance measurement systems.

Major Audit Findings

The IAS identified three very important issues which should be the main priority:

Performance measurement framework

- The MP and the AAR constitute the main elements of the performance measurement framework. One sets out the performance information to be reported (objectives, priorities and indicators), whilst the other is used to report what was actually achieved in practice. In general, priorities are well defined and accompanied by indicators, but the MP should explain more clearly how priorities relate to objectives. More fundamentally, the way in which performance indicators are set and reported on needs to be improved in terms of presentation, content and coverage. Currently, they do not generally meet the widely accepted RACER[34] criteria and the number of indicators is not always proportionate to the importance or size of the activity measured. Also, there are no efficiency/economy indicators in the MP. Policy achievements are reported mainly in terms of the degree of financial implementation and according to a limited number of core indicators. Although presented as if they are results or impacts-based, they are in fact more outputs-based.

Monitoring and evaluating Regional Policy

- The quality and reliability of MS performance information is a major issue for the DG. It carries out desk checks on the indicators reported, but these are very limited in nature and there is currently no audit work undertaken to specifically check reliability. Although the draft regulations for 2014-20 set out certain quality expectations for managing the Performance Framework as a process, there is nothing foreseen aimed specifically at ensuring the quality and reliability of MS performance information. The MS Audit Authorities are not obliged to audit the reliability of performance information, but equally there is nothing to stop them doing so in practice. In addition, there are concerns about the quality and coverage of the MS evaluation work. The lack of reliable MS performance information also presents an obstacle to the effectiveness of the Commission's own evaluation work.

- The new regulations for 2014-20 foresee a much greater emphasis on performance aspects, with the introduction of requirements for programme specific result indicators with baselines and obligatory common output indicators as well as a Performance Framework and a Performance Reserve. Currently however, the monitoring of policy implementation, as exercised by the Geographical Units (GUs), mainly focuses on financial implementation rather than assessing performance against objectives. Operational progress on the ground is monitored, but without clear objectives, methodology and procedures on what criteria/information should be taken into account. The move to a new performance oriented environment brings with it new expectations, which need to be prepared for. Internal guidance on the Performance Framework has been developed, but as current monitoring arrangements are not performance-orientated, such guidance will need to be made very practical and concrete. More specifically, the introduction of the Performance Reserve poses the risk that MS will set un-ambitious milestones and targets and calls for properly targeted checks. The extent to which monitoring, evaluation and audit can play a part in responding to this overall challenge is still very much under reflection in the DG, particularly given the continued pressure on audit resources to supervising MS management and control systems.

Audit recommendations

To address the issues, DG REGIO should:

- Better integrate the DG's priorities into the MP, and explain how they contribute to the specific objectives. Ensure that its indicators are RACER and targets are well defined and accompanied by appropriate milestones. If indicators/targets are unlikely to be met this should be clearly explained. The number of indicators should be proportionate and less important ones reported only in lower level documents. Efficiency indicators should be developed for internal activities. For policy implementation in 2014-20, indicators should be developed based on an assessment of the overall performance of each OP. Policy achievements should be better explained in terms of targets and objectives met and the resources used. The AAR should report more clearly also on general/specific objectives, in addition to reporting on priorities. Looking forward and working in conjunction with the other European Structural and Investment Funds (ESIF) DGs, it should ensure that the evaluation strategy for 2014-20 draws upon the lessons learnt from the current period, in particular on how the DG plans to obtain evaluation evidence over time and how this can contribute to the AAR and art. 318 report.

- Together with DG EMPL, develop a strategy to improve the reliability of performance information reported by the MS. Given that performance measurement impacts across a wide range of different aspects of programme management (e.g. monitoring, evaluation, reporting, financial impact for 2014-20 period), DG REGIO should consider a multi-disciplinary approach, involving the Geographical Units, Evaluation Units and the Audit Directorate. Although the key challenge will be to develop a comprehensive strategy for the next programming period, DG REGIO should continue to do as much as possible to improve further the quality of data reported for the 2007-13 programming period and continue to strengthen the capacity and contribution of MS evaluation work.

- Strengthen the role of the GUs in monitoring the performance of the OPs and ensure that results are properly reflected in the AOSD management opinion. Although the focus should be on the 2014-20 period, it should also ensure that the performance of OPs is sufficiently assessed for the remainder of the 2007-2013 period, taking into account the limitations of the current legal base. This could be done, for example, by adapting the checklists used to review the Annual Implementation Report (AIR). It should develop practical guidance for the GUs to assess milestones and targets and ensure that assumptions are properly documented. It should develop a clear approach for building up assurance on the performance of Cohesion policy, particularly for the 2014-20 programming period. It should assess how this assurance can be delivered, including through monitoring, evaluation and audit.

DG REGIO established an action plan which the IAS considers adequate to address the identified issues.

4.3. Performance Audit of DG EMPL Performance Measurement Systems

Background

Knowing how well an organisation is doing is essential in developing strategy and policies to meet the organisation's aims. Performance information shows how well an organisation is performing against its stated objectives. Clear objectives, with well-selected performance measures, are the foundation of a good performance measurement system. This not only determines what needs to be done but also sets the conditions for success.

Following the entry into force of the Lisbon Treaty, the European Commission is required to submit to the European Parliament and the Council a yearly evaluation report on the Union’s finances based on the results achieved (Article 318 report). Moreover, the European Parliament considers that performance audits measuring the extent to which spending has achieved its objectives pursued have become ever more important and the Commission should develop a new culture of performance. In June 2011, the central services of the Commission reminded operational services that the current financial and economic crisis and severe constraints in public spending has shifted the focus to achieving more with less and that post-2013 spending programmes should place a greater focus on performance measurement. Other initiatives have been taken at Commission level on this move towards a performance culture, e.g. the setting up of a working group of Directors-General of the Commission on “Move to a performance culture” in February 2013.

In order to meet stakeholders' expectations, one of the objectives of the IAS in its Strategic Audit Plan for the period 2013-2015 is to carry out performance audits focusing on the economy, efficiency and effectiveness of the use of resources. A number of audits have been planned in 2013 to assess the performance measurement system of DGs, including DG EMPL, but also DGs REGIO and EAC.

For DG EMPL, the issue of performance management is particularly relevant. The DG has a major role contributing to key objectives of the EU 2020 strategy on employment, social inclusion and education. Regarding the ESF, operating in a multi-annual shared management framework, it faces the challenge of supervising closely the MSs, but being ultimately accountable for implementing the budget. It has the dual responsibility of ensuring legality and regularity of the expenditure, but at the same time trying to promote sound financial management and effective overall implementation of policy. The focus on policy performance will be even greater in the new 2014-20 programming period with the introduction of the Performance Framework and Performance Reserve.

Audit Objectives

The main objective of the audit was to assess the extent to which DG EMPL has adequate performance measurement systems in place for monitoring, reporting and evaluating the performance of activities both in terms of its day to day, operational and administrative activities (internal) and in terms of measuring the delivery of policy objectives (external). The audit addressed the following key questions:

- Is the performance measurement framework comprehensive?

- Does the DG adequately monitor and measure internal performance including the use of human resources?

- Does the DG adequately monitor and evaluate its policies?

Audit Scope

The audit focused on:

- A horizontal analysis of DG EMPL's internal processes for setting objectives and KPIs and related reporting and monitoring systems.

- A detailed review of the processes for setting objectives, indicators, monitoring, evaluation and performance reporting concerning the European Social Fund (ESF)

There are no observations/reservations in the AAR that relate to the area/process audited.

The fieldwork was finalised on 11/10/2013. All observations and recommendations relate to the situation as of that date.

Strengths

The IAS recognises the on-going efforts made by DG EMPL to strengthen the results and performance aspects not just of its management of the ESF, but also of its own internal activities.

This focus is very evident in the draft regulations for the 2014-20 programming period, whereby key pillars for this new results and performance based focus include a clear articulation of objectives of programmes with a strong intervention logic, the definition of a set of mandatory common output and result indicators, the introduction of a performance framework for each programme linked to a performance reserve and strengthened provisions for the evaluation of programmes. Although the preparations for the new programming period (e.g. development of guidance, negotiation of partnership agreements and operational programmes) are still on going, the IAS acknowledges the efforts devoted to bringing the results and performance orientation into practice.

The IAS also recognises the challenge the DG faces to monitor and evaluate the 2007-2013 programmes and to report on their performance, for example because of the lack of mandatory common indicators (other than data by participants). In particular, the IAS notes the efforts already made by the DG to improve the quality of the data reported by the MS on core indicators and the continued efforts to improve the quality of evaluations conducted by the MS and the DG itself.

DG EMPL considerably strengthened its internal performance measurement systems by developing a bi-annual report to the Policy Management Board (PMB) on progress towards objectives, based on a comprehensive set of operational objectives and indicators for ABB activities and horizontal activities.

Major Audit Findings

The IAS identified four very important issues which should be the main priority:

Performance measurement framework

- The MP and the AAR constitute the main elements of the performance measurement framework. One sets out the performance information to be reported (objectives and indicators), whilst the other is used to report what was actually achieved in practice. Objectives are not always clearly defined, for example concerning EMPL's operational activities contributing to the ESF's specific objectives, and horizontal activities are not included in the MP itself. Indicators are not always well defined or classified. Currently, they do not always meet the widely accepted RACER[35] criteria and the number of indicators is not always proportionate to the importance or size of the activity measured. There is room for improving consistency between objectives, indicators and targets. In particular, main outputs by specific objective are not presented in terms of objectives (or description of outputs), indicators and targets and hence their usefulness as performance information is limited. Also, there are no efficiency and/or economy indicators included in the MP. Policy achievements of the ESF are reported mainly in terms of the degree of financial implementation and the number of participations to ESF programmes. Information reported on the DG's own activities which contribute to the ESF specific objectives is limited. Also, known problems concerning data quality are not reflected when reporting on ESF.

Monitoring and measuring internal performance including the use of human resources

- The DG has carried out workload assessments for certain activities when these were reorganised. However, there is currently no system in place for assessing workload across the full range of the DG's activities and tasks in order to provide assurances on the efficient and effective allocation of staff resources. As human resources are currently not mapped to objectives and activities and workload assessments are not conducted, this means that, as noted under finding N°2, the DG's internal performance measurement systems currently do not cover the efficiency of the use of its resources. EMPL is in the process of identifying its HR needs in terms of experience, knowledge and main skills and competencies. However, the DG does not yet have a clear picture of current profiles of staff in terms of previous experience, knowledge and main skills and competencies in relation to future needs. It has not yet developed an HR plan identifying the resources and staff's profiles needed to carry out its current and future activities/tasks and meet its priorities, as well as the planned measures to address any gaps (e.g. training, redeployment, recruitment, staff reduction, etc.).

Monitoring and evaluating the ESF

- The quality and reliability of MS performance information is a major issue for the DG. It carries out desk checks on the indicators reported, but these are very limited in nature and there is currently no audit work undertaken to specifically check reliability. Although the draft regulations for 2014-20 set out certain quality expectations for managing the Performance Framework as a process, there is nothing foreseen aimed specifically at ensuring the quality and reliability of MS performance information. The MS Audit Authorities are not obliged to audit the reliability of performance information, but equally there is nothing to stop them doing so in practice. In addition, there are concerns about the quality and coverage of the MS evaluation work. The lack of reliable MS performance information also presents an obstacle to the effectiveness of the Commission's own evaluation work.

- The new regulations for 2014-20 foresee a much greater emphasis on performance aspects, with the introduction of a Performance Framework and a Performance Reserve. Currently however, the monitoring of policy implementation, as exercised by the Geographical Units (GUs), mainly focuses on financial implementation rather than assessing performance against objectives. Operational progress on the ground is monitored, but without clear objectives, methodology and procedures on what criteria/information should be taken into account. The move to a new performance oriented environment brings with it new expectations, which need to be prepared for. Internal guidance on the Performance Framework has been developed, but as current monitoring arrangements are not performance-orientated, this will need to be complemented by very practical and concrete guidance. More specifically, the introduction of the Performance Reserve poses the risk that MS will set un-ambitious milestones and targets and calls for properly targeted checks. The extent to which performance audit can play a key part in responding to this overall challenge is still very much under reflection in the DG, particularly given the continued pressure on audit resources to supervise MS management and control systems. Since the completion of the fieldwork DG EMPL has informed the IAS that the Policy Management Board (PMB) has adopted the audit strategy for 2014-16 which includes plans for performance audits and that the related audit methodology is under development.

Audit recommendations

To address the above mentioned issues, DG EMPL should:

- Better integrate into the MP the objectives/planned outputs for the DG's operational activities which contribute to the ESF's specific objectives and the objectives for the main horizontal and administrative activities. Further improve its indicators to be RACER and targets to be well defined. Present main outputs in support of the specific objectives in terms of objectives, indicators and targets and consider transferring a number to lower level (e.g. unit) plans. Efficiency indicators should be developed for internal activities. For ESF policy implementation in 2014-20, indicators should be developed based on EMPL's assessment of the overall performance of each OP. Improve reporting on the achievements of the ESF by including more qualitative analysis and explanations in relation to achievements, by providing more information on the context (target, inputs of resources) so that users can properly understand the extent to which objectives are being met. Also, by reporting in the AAR on the DG's operational activities which contribute to the ESF's specific objectives.

- Building on its work done so far in this area, it should further develop its approach to workload assessments and extend the exercise to cover the full range of activities across the DG in order to help ensure an optimal allocation of resources. It should use the information obtained through workload assessment, for example on human resources linked to specific activities and workload indicators, in its performance measurement system, to ensure it also covers the efficiency of the use of its resources. It should ensure that it has up-to-date information on the current experience, knowledge, skills and competencies of its staff and further develop its HR plan accordingly to include the assessment of resource needs and gaps and identify measures to address them.

- Together with DG REGIO, develop a strategy to improve the reliability of performance information reported by the MS. Given that performance measurement impacts across a wide range of different aspects of programme management (e.g. monitoring, evaluation, reporting, financial impact for 2014-20 period), DG EMPL should consider a multi-disciplinary approach, involving the Geographical Units, Evaluation Units and the Audit Directorate. Although the key challenge will be to develop a comprehensive strategy for the next programming period, DG EMPL should continue to do as much as possible to improve further the quality of data reported for the 2007-13 programming period and continue to strengthen the capacity and contribution of MS evaluation work.

- Strengthen the role of the GUs in monitoring the performance of the OPs and ensure that results are properly reflected in the AOSD management opinion. Although the focus should be on the 2014-20 period, it should also ensure that the performance of OPs is sufficiently assessed for the remainder of the 2007-2013 period, taking into account the limitations of the current legal base. This could be done, for example, by adapting the checklists used to review the Annual Implementation Report (AIR). It should develop practical guidance for the GUs to assess milestones and targets and ensure that assumptions are properly documented. It should develop a clear approach for building up assurance on the performance of the ESF, particularly for the 2014-20 programming period. It should assess how this assurance can be delivered, including the need for performance audits, and, in the light of the continued pressures on the existing audit work, it should consider how to best develop the expertise and resources needed, for example by making use of multi-disciplinary teams.

DG EMPL established an action plan which the IAS considers adequate to address the identified issues.

5. Research, energy and transport

5.1. Limited Review of the calculation and the underlying methodology of DG RTD's residual error rate for the 2012 reporting year

Background

The IAS strategic audit plan for 2013-2015 includes, for 2013, a limited review on the RERs reported by DG RTD for the 2012 reporting year.

Similar reviews were conducted in 2013 for DG AGRI and DG DEVCO.

Objectives and scope of the review

The objective was to review the calculation and underlying methodology of the RERs reported by DG RTD in its (draft) AAR 2012 enabling DG RTD to take appropriate actions, if any, before their disclosure in the final AAR and Synthesis report.

The scope of the limited review was as follows:

- review of the methodology for the calculation of the RERs that are based on the results of the audits of the Common Representative audit Sample (CRaS);

- testing of the calculated RERs;

- presentation of the RERs in the draft AAR (including compliance with the Standing Instructions for the AAR 2012).

In its 2011 AAR the DG made two reservations concerning the rate of the residual errors with regard to the accuracy of cost claims in the FP6 and FP7.

The review was finalised on 06/03/2011. All observations and recommendations relate to the situation as of that date.

Strengths

The CRaS was selected for the first time in 2012 to identify the common errors across the whole of FP7 operations for all research Commission services. This reduced the audit burden on beneficiaries by reducing the number of repeat audits whilst providing a representative view of the implementation of FP7.

The IAS notes the co-ordination in place among Commission research services to ensure a common approach for auditing the CRaS. In particular, the common approach is ensured by:

- A common audit manual;

- The Audit Steering Committee for harmonizing audit results at DG level;

- The Extrapolation Steering Committee, which decides on the need to proceed with extrapolation cases, if an audit detects a systematic error in cost statements;

- The CAR group (Coordination Group for External Audits in Research Family) meetings;

- The Audits' Internal Supervision Committee – chaired by the Director of Directorate RDT.M, which examines all cases with major errors (over 10% for the CRaS) to ensure coherence.

Major findings

The review raised the following very important finding:

Calculation of the RER (Finding No 1):

The accuracy of the RER calculated for AAR reporting purpose is affected by the partial completion of audits of the Common Representative Audit Sample (84%). Furthermore, the assumption made for the calculation of the RER that 100% of the participations subject to extrapolation are clean from systematic errors is found to be over-optimistic considering the past performance, i.e. 79% of FP6 extrapolation are implemented[36].

Recommendations

Calculation of the RER – Very important:

While some of the reasons for the delays of the audits are outside the DG's control, DG RTD should nonetheless further improve its planning of the audits of the CRaS in order to increase the completion rate of the audit sample at the reporting date.

DG RTD should also revise its assumptions and take a more conservative approach when extrapolating ex-post results to reflect the possibility that part of the extrapolated systematic errors will not be implemented. DG RTD accepted the recommendation and corrected itfor the 2013 AAR.

DG RTD established an action plan which the IAS considers adequate to address the identified issues.

5.2. Joint IAS-IAC Audit on Grant Management in TEN-T EA

Background

The IAS-IAC joint audit on Grant Management of the Trans-European Transport Network Executive Agency (TEN-T EA) was included in the IAS 2010-2012 Strategic Audit Plan and launched at the end of 2012. Following the rotation of audit portfolios in Directorate IAS.B, a new audit team in the IAS took over as from February 2013.

Audit Objectives

The objective of the audit was to assess the adequacy and effective application of the internal control system related to the grants under direct management of TEN-T EA. Taking into account the audits already performed and planned by the IAS and the IAC, this joint engagement focused on the grant proposals evaluation process managed by the Agency.

Audit Scope

The scope of the audit included the sub-processes for which the Agency is fully responsible in the evaluation process for grants awarded following the call for proposals.

There are no observations or reservations in the 2012 AAR that relate to the process audited.

The fieldwork was finalised on 17/04/2013. The conclusions in this report relate to the situation as of that date.

Strengths

The auditors recognise the on-going efforts made by the TEN-T EA, and in particular the following aspects:

- Guidance and preparation in the external evaluation - Well prepared external evaluation as well as training and guidance provided to all actors involved in the evaluation, from experts to secretaries.

- Continuous improvement of the evaluation process - Each year, TEN-T EA appoints an 'independent observer' with a view to providing the Agency with an independent assessment of the conduct and fairness of the evaluation sessions, on the way the experts apply the evaluation criteria, and on ways in which the procedures could be improved. In addition, TEN-T EA launches lessons learned exercises after each call based on a feedback survey from TEN-T EA staff and the external experts (evaluators for the call).

- Clear and timely information published on the website for applicants.

- External expertise - TEN-T EA uses external expertise from other Agencies (i.e. ERA and EMSA) to participate in external evaluation panels.

No significant issues that may adversely affect the achievement of the business objectives for the process reviewed were identified.

5.3. European Economic Recovery Plan (DG ENER)

Background

The origin of the European Energy Programme for Recovery (EEPR) lies in the European Economic Recovery Plan, adopted by the Commission on 26 November 2008 as a response to the economic and financial crisis in Europe. The Plan called for coordinated national action, complemented by direct EU action, aimed at injecting purchasing power and boosting demand in the economy. The European Council endorsed the Plan in December 2008 and invited the Commission to present a list of concrete energy projects. Regulation (EC) No 663/2009 of 13/07/2009 established the financial envelope for the implementation of the EEPR for 2009 and 2010 at 3,98 billion EUR.

The IAS audit on the EEPR in DG ENER was included in the IAS 2012 Audit Work Programme. This followed the strategic audit risk assessment carried out in 2011. Risks related to the limited time available for setting up and implementing the programme were verified, as all the funds had to be committed by the end of 2010 to help Europe recover from the economic crisis.

As 146 million EUR was not committed by the end of December 2010, the Budgetary Authority authorised the creation of a financial facility supporting initiatives for energy efficiency and renewable energy. This was done in 2011 by the creation of the European Energy Efficiency Fund (EEEF) investment vehicle.

The relative importance of the budget of the EEPR in the context of the IAS Overall Opinion, justified its inclusion in the IAS' Strategic Audit Plan for 2010-2012.

Audit Objectives

The objective of the audit was to assess the adequacy and effective application of the internal control system (ICS), risk management and governance processes related to the European Energy Programme for Recovery, managed by DG ENER.

In particular, the audit aimed to assess whether the ICS is adequate and effective in providing reasonable assurance regarding compliance with the relevant legislation[37], the reliability of financial and management information and the effectiveness and efficiency of the audited processes.

Audit Scope

The audit specifically covered the following areas:

- Implementation, financial follow-up and closure of the EEPR programme relating to electricity and gas infrastructure;

- Governance and monitoring of the EEEF under joint management with the European Investment Bank (EIB).

This scope takes into account the work already performed by the IAS on the Control Strategy in DG ENER, the IAC on the Offshore Wind Energy and Carbon Capture and Storage part of the EEPR and the Court of Auditors on the DAS 2010 and 2011.

There were no reservations in the 2011 AAR that relate to the audited processes.

The 2012 AAR includes a reservation on reputational grounds related to beneficiaries of EEPR contracts not respecting public procurement rules when subcontracting.

The fieldwork was finalised on 15/02/2013. All observations and recommendations relate to the situation as of that date.

Strengths

The auditors recognise DG ENER's following on-going efforts to manage the EEPR in an effective and efficient way.

EEPR Electricity and Gas Infrastructure

- A model Commission Decision for the granting of financial aid for actions in the field of EEPR has been developed, which the operational units have to complete according to the financed project. The model includes detailed annexes explaining the financing rules and reporting requirements.

- Project Officers make on the spot visits to verify progress made on the projects with the assistance of an external technical expert. Further, Project Officers make a formal appraisal of the reporting information submitted by the beneficiaries at the time of the interim and the final payments.

- Consolidated monitoring files exist for managing the projects' budget, reporting requirements and delays. These are regularly crosschecked with the financial management unit.

- Segregation of duties between the operational and financial side is clearly defined. A dedicated person in the fina