EN Official Journal of the European Union C 422/1

Summary of results from the Court’s 2014 annual audit of the European Research Joint Undertakings

(2015/C 422/01)

CONTENTS

Paragraph Page Introduction 1-7 2 Information in support of the Court’s opinions 8-11 3 Audit results 12-24 3 Opinions on the reliability of the accounts 12 3 Opinions on the legality and regularity of the transactions underlying the accounts 13-15 3 Emphasis of matter on the EU contribution to the ITER project costs 16 4 Comments not calling the Court’s opinions into question 17-22 4 Budgetary and financial management 18 4 Internal controls 19-20 5 Monitoring and reporting of project research results 21 5 The Commission's Second Interim Evaluation 22 5 Conclusions 23-24 5 ANNEX I — Joint Undertakings' Income (Forecasted income budgets, entitlements established and amounts received) and Staff establishments plans 6 ANNEX II — Comments made by the Court in 2014 8

INTRODUCTION

1. Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts for the financial year ended 31 December 2014 and the legality and regularity of the transactions underlying them for eight European Research Joint Undertakings (JUs) (1): — Fusion for Energy — F4E (ITER) — Development of Fusion Energy; — Clean Sky — Clean Air Transport Technologies; — ARTEMIS — Embedded Computing Systems (2); — IMI — Innovative Medicines Initiative; — ENIAC — Nanoelectronics (3); — FCH — Fuel Cells and Hydrogen; — SESAR — Single European Sky Air Traffic Management Research; and — ECSEL — Electronic components and Systems (4).

2. Apart from the European Union (represented by the Commission), members of the Joint Undertakings may include various public and private partners who make contributions to the funding of the activities performed by the Joint Undertakings. The Joint Undertakings either follow a bipartite model with the participation of the European Commission and the Industry, or a tripartite model with the participation also of the Member States (5). Joint Undertakings play an important role in implementing research policy in specific areas.

3. As in prior years, the Court has audited the legality and regularity of the transactions. However, 2014 is the first year whereby the annual accounts of two Joint Undertakings (Fusion for Energy — F4E (ITER) and SESAR) were verified by an independent external auditor (audit firm) according to Article 208(4) of the EU Financial Regulation and Article 107(1) of the new framework financial Regulation for agencies and other bodies. The Court’s opinion on these accounts considered the audit work performed by the independent external auditor and the action taken in response to the auditor’s findings. For other Joint Undertakings, the Court carried out its own audit work on the annual accounts.

4. This summary provides an overview on the results of the Court’s annual audits of the Joint Undertakings for the financial year 2014. It aims at facilitating the analysis and comparison of the Court’s specific reports on the 2014 annual accounts of the Joint Undertakings. The Court’s opinions and comments as well as the Joint Undertakings’ replies can be found in the published specific annual reports. This summary is not an audit report or opinion.

5. The Joint Undertakings’ total 2014 forecasted budgeted income (6) amounted to 1,9 billion euro (2013: 2,2 billion euro) or 1,6 % of the 2014 EU general budget (2013: 1,7 %). Of the amounts received, 1 224 million euro (2013: 686 million euro) came from the EU general budget and 204 million euro (2013: 134 million euro) came from the industrial partners and members of the Joint Undertakings. The increase of the Commission and of the ITER Host State contributions to F4E in 2014 explain most of the increase noted in the amounts received.

6. The Joint Undertakings employ 432 (2013: 414) permanent and temporary officials, less than 1 % of total EU officials authorised under the EU general budget (see Annex I for details).

7. Whereas the financial risk related to the Joint Undertakings is limited compared to the total EU budget, the reputational risk for the Union is high: they are a key tool for the implementation of the EU Research strategy and their public-private partnership nature makes them highly visible among the industries they are cooperating with.

INFORMATION IN SUPPORT OF THE COURT’S OPINIONS

8. Regarding the two Joint Undertakings audited by an independent external auditor, the Court has reviewed the work of the audit firms in accordance with international audit standards. In forming its opinion on the reliability of the accounts expressed in the Specific Annual Reports (SARs), the Court took into account the audit firms’ work.

9. There is adequate assurance for the Court to base its own audit opinions on the reliability of the accounts using the private audit firms’ work.

10. Regarding the legality and regularity of transactions, for which the Court remains exclusively responsible, the audit approach taken by the Court comprises analytical audit procedures, testing of transactions at the level of the Joint Undertaking and an assessment of key controls of the supervisory and control systems. This is supplemented by evidence provided by the work of other auditors and an analysis of management representations and of Annual Activity Reports. In 2014, the audit continued to place special emphasis on ex-post audits.

11. For the remaining six Joint Undertakings, the Court continued to perform the audit of both the legality and regularity of the underlying transactions and the reliability of the accounts.

AUDIT RESULTS

Opinions on the reliability of the accounts

12. The final accounts of all Joint Undertakings present fairly, in all material respects, their financial position as at 31 December 2014 and the results of their operations and their cash flows for the year then ended, in accordance with the provisions of the applicable Financial Regulations and the accounting rules adopted by the Commission’s Accounting Officer.

Opinions on the legality and regularity of the transactions underlying the accounts

13. In the Court’s opinion, the transactions underlying the annual accounts for the year ended 31 December 2014 were legal and regular in all material respects for five (F4E, Clean Sky, FCH, IMI and SESAR) of the eight Joint Undertakings.

14. As regards the ARTEMIS and ENIAC Joint Undertakings, the audit of project cost claims has been delegated to the national funding authorities (NFAs), under the administrative agreements in force. ARTEMIS and ENIAC received audit reports from the NFAs but did not systematically assess the quality of these audits. The Court performed an assessment of the audit strategies, including audit reports, of three NFAs. The methodologies used did not allow the Joint Undertakings to calculate a reliable weighted error rate nor a residual error rate. As a consequence, the Court concluded that the information available on the implementation of the ARTEMIS and ENIAC Joint Undertakings’ ex post audit strategies is not sufficient to conclude whether this key control tool is functioning effectively (7) and the Court issued a qualified opinion (8).

15. The ECSEL Joint Undertaking has taken over the projects of the ARTEMIS and ENIAC Joint Undertakings. The administrative agreements concluded by the ARTEMIS and ENIAC Joint Undertakings with the NFAs of the Member State continue to apply after the merger into ECSEL Joint Undertaking (9). As a result of the situation mentioned in paragraph 14 above, the Court also issued a qualified opinion for ECSEL on projects launched by ARTEMIS and ENIAC.

Emphasis of matter on the EU contribution to the ITER project costs (10)

16. As regards F4E, the EU contribution to ITER construction phase was valued by the Council in 2010 (11) at 6,6 billion euro. This amount is subject to significant risks of increase, mainly resulting from changes in the scope of the project deliverables and due to the current schedule which is considered unrealistic. The latest estimate of the shortfall until the finalisation of the construction phase of the project is 428 million euro. The slippage for the construction phase of the project was estimated by the Joint Undertaking at the time of the audit (March 2015) to be at least 43 months. In relation to these risks, the Joint Undertaking is developing a system at contract level to regularly monitor the cost deviations but has not yet updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase. The Joint Undertaking is however currently working on the implementation of an action plan to address the main constraints that are currently affecting the development of the project.

Comments not calling the Court’s opinions into question

17. The Court made 55 comments (2013: 55) affecting all Joint Undertakings highlighting matters of importance. An overview of the comments made is provided in Annex II. The most frequent comments are summarised below.

Budgetary and financial management

18. Comments under this heading focus on three areas: — budgetary implementation rate: the budgetary implementation rate for commitment appropriations ranged between 90 % and 100 % (except for ARTEMIS and ENIAC with a range between 38 % and 43 %, which reflects the implementation over 6 months of appropriations adopted for a full year) and the budgetary implementation rate for payment appropriations ranged between 74 % and 100 %. The latter amounts to 74 % for FCH and IMI and 80 % for SESAR and is mostly explained by delays in the funding of projects. — calls for proposals and the implementation of projects: Except for ARTEMIS, where the final rate of appropriations committed for the calls for proposals represented only 48 % (49 % as at 31 December 2013) of the total budget available to cover operational expenditure during the total duration of the Joint Undertaking, the other Joint Undertakings achieved a figure between 90 % and 100 %. — The Institutions and Bodies are required to produce each year a Report on Budgetary and Financial Management (12). The information provided by the Joint Undertakings in this report lacked harmonisation and was often incomplete. Guidance is required from the Commission as to the nature and content of the report.

Internal controls

19. Ex-post audits are a key tool for Joint Undertakings to ensure the eligibility and accuracy of costs claimed by beneficiaries and/or partners. All except ECSEL (13) have adopted an ex-post audit strategy, five of which have contracted out the performance of ex-post audits to independent external audit firms. In three cases (see paragraphs 14 and 15), the Court issued a qualified opinion on the basis of the inadequacy of the implementation of the ex-post audit strategy.

20. As regards F4E, the Court notes that significant progress has been achieved, although the JU was still addressing a number of key actions at the time of the audit (March 2015). The competitiveness of procurement procedures, which are central to the implementation of the ITER project by F4E, still needs to be increased. As regards grants, the average number of proposals received was one per call, as in 2013 and 2012.

Monitoring and reporting of project research results

21. The monitoring and reporting of research results is laid down in the Seventh Framework Programme (FP7), which establishes a monitoring and reporting system covering the protection, dissemination and transfer of research results. In the grant agreements signed with members and other beneficiaries, the Joint Undertakings have included specific provisions governing intellectual property rights and the dissemination of research activities and results. The implementation of these provisions is monitored by the Joint Undertakings at different stages of the funded projects and significant progress has been achieved in 2014. However, in order to meet the requirements of Horizon 2020 and to better contribute to the dissemination of FP7 research results, cooperation between the Joint Undertakings and the Commission must be developed as much as possible with special regard to the further integration of some of the Joint Undertakings’ data into the Commission’s systems.

The Commission’s Second Interim Evaluation

22. The Commission’s Second Interim Evaluation was performed over 2013 and early 2014. It assessed all Joint Undertakings (except F4E) in terms of relevance, efficiency, effectiveness and research quality. The action plans adopted as a result from the reports were being implemented in all Joint Undertakings

CONCLUSIONS

23. All Joint Undertakings have produced reliable accounts but three have a qualified opinion on their 2014 accounts in respect of the legality and regularity of the transactions underlying them.

24. There is room to improve procedures, in particular the implementation of the ex-post audit strategy, the cooperation with the Commission as regards the integration of the research results and, in the case of F4E, cost control mechanisms.

(1) Two Joint Undertakings were created in 2014: BBI JU (Bio-Based Industries) and Shift2Rail JU. As these JUs have not obtained their financial autonomy from the Commission in 2014, the Court has not audited their annual accounts.

(2) On 27 June 2014, ARTEMIS was merged with ENIAC Joint Undertaking to create the ECSEL JU. As a consequence of the merger, the Court’s audit covers the financial period of the ARTEMIS Joint Undertaking from 1 January to 26 June 2014.

(3) On 27 June 2014, ENIAC was merged with ARTEMIS Joint Undertaking to create the ECSEL JU. As a consequence of the merger, the Court’s audit covers the financial period of the ENIAC Joint Undertaking from 1 January to 26 June 2014.

(4) The ECSEL Joint Undertaking replaces and succeeds the ENIAC and ARTEMIS Joint Undertakings, the official closure of which took effect on 26 June 2014. The Court’s audit thus covers the financial period of the ECSEL Joint Undertaking from 27 June to 31 December 2014.

(5) Bipartite Joint Undertakings are Clean Sky, IMI, FCH and SESAR. Tripartite Joint Undertakings are ARTEMIS, ENIAC and ECSEL. As regards Fusion for Energy-F4E (ITER), the members are Euratom, represented by the European Commission, the Member States of Euratom and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion and have expressed their wish to become members (as at 31 December 2014: Switzerland).

(6) Forecasted income budget represent commitments appropriations (final budget).

(7) ARTEMIS and ENIAC initiated in 2014 a common action plan to mitigate this qualified opinion, which includes visiting National Funding Authorities and examining their systems.

(8) The Court expresses a qualified opinion when the auditor has obtained sufficient appropriate audit evidence and concludes that misstatements or instances of noncompliance are material, but not pervasive, to the annual accounts or underlying transactions. The Court also expresses a qualified opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the possible effects on the annual accounts or underlying transactions of that inability are material but not pervasive (as outlined in paragraphs 14 and 15). Pervasive effects are those that, in the auditor’s judgment, are not confined to specific elements, accounts or items or, if they are so confined, they represent or could represent a substantial proportion of the financial statements.

(9) ECSEL continues to implement the common action plan initiated by ARTEMIS and ENIAC in 2014 to mitigate this qualified opinion.

(10) An Emphasis of Matter paragraph is used to draw readers’ attention to a matter which is not materially misstated in the accounts, but is of such importance that it is fundamental to users’ understanding of the accounts.

(11) Council conclusion on ITER status of 7 July 2010 (Ref. 11902/10).

(12) Article 142 of Regulation (EU, Euratom) No 966/2012 (OJ L 298, 26.10.2012, p. 1), Article 93 of Commission Delegated Regulation (EU) No 1271/2013 (OJ L 328, 7.12.2013, p. 42), and Article 39 of Commission Delegated Regulation (EU) No 110/2014 (OJ L 38, 7.2.2014, p. 2).

(13) ECSEL has not yet adopted an ex-post audit strategy for its own projects.

ANNEX I Joint Undertakings' Income (Forecasted income budgets, entitlements established and amounts received) and Staff establishment plans Joint Undertaking Parent DG Policy Area 2014 2013 Forecasted Income budget (1) Entitlements established (2) Amounts received (3) Staff establishment plan (4) (5) Forecasted Income budget (1) Entitlements established (2) Amounts received (3) Staff establishment plan (4) 1 ARTEMIS (until 26 June 2014) DG CONNECT Research 2 2 24 000 8 63 193 2 0 1 00 000 (15) 3 2 6 43 708 3 2 6 47 545 2 0 1 23 350 15 2 CLEAN SKY DG Research and Innovation Research 22 9 2 41 764 18 9 3 16 793 9 8 5 85 400 37 30 6 0 43 097 22 7 0 00 428 12 4 6 13 566 24 3 ENIAC (until 26 June 2014) DG CONNECT Research 2 7 20 633 1 0 22 580 5 4 1 44 250 (15) 17 2 6 96 508 17 2 6 08 748 3 6 5 29 216 15 4 FUSION FOR ENERGY DG Research and Innovation Research 1 16 8 8 25 456 1 16 8 8 25 456 72 0 9 17 805 262 1 29 7 0 13 166 1 29 6 9 52 709 24 5 0 02 495 262 5 FUEL CELLS AND HYDROGEN — FCH DG Research and Innovation Research 11 2 9 19 000 10 8 3 84 000 6 9 3 79 993 26 7 4 4 82 039 7 3 6 72 484 5 6 3 93 265 20 6 INNOVATIVE MEDICINES INITIATIVE — IMI DG Research and Innovation Research 22 3 2 94 603 20 7 4 33 859 16 5 6 27 993 37 25 5 7 15 919 25 4 4 35 104 12 5 8 29 159 36 7 SESAR DG MOVE Research 1 3 1 19 600 1 3 0 46 425 9 4 7 53 384 42 8 4 2 22 608 6 4 0 66 631 7 7 5 35 515 42 8 ECSEL (as from 27 June 2014) DG CONNECT Research 15 8 2 45 086 15 8 3 18 481 4 60 000 28 N/A N/A N/A N/A Total 1 91 0 5 90 142 1 84 7 2 10 787 1 22 3 9 67 872 432 2 22 2 8 17 045 2 12 1 3 82 649 68 6 0 26 566 414 (1) Forecasted income budget represent commitments appropriations (final budget). (2) Entitlements established represent commitments authorised. (3) Amounts received represent cash contribution during the year from the European Commission. (4) Final budget. (5) ARTEMIS and ENIAC were merged into ECSEL on 27 June 2014. Their total of 30 posts was converted into 28 posts at ECSEL. The total number of posts at 31 December 2014 is thus 432.