Opinion on the surcharges levied in the context of financial control and the clearance of accounts: the case of the EAGGF (95/C 210/18)

On 27 September 1994, the Committee of the Regions, acting under Rule 10(1) of its Rules of Procedure and the fourth paragraph of Article 198c of the EU Treaty, decided to draw up an Opinion on the surcharges levied in the context of financial control and the clearance of accounts: the case of the EAGGF.

Commission 2 - Spatial Planning, Agriculture, Hunting, Fisheries, Forestry, Marine Environment and Upland Areas - which was responsible for preparing the Committee's work on the subject, unanimously adopted its Opinion on 18 January 1995 (Rapporteur: Mr Bocklet).

At its 6th plenary session of 1 and 2 February 1995 (meeting of 2 February) the Committee of the Regions unanimously adopted the following Opinion.

1.1. EU surcharges date back to the early 1980s. Since this period the regions have to an ever increasing extent been entrusted with the planning and/or implementation of programmes which are financed in part or in full by the EU.

1.2. The reform of the CAP led to a sharp increase in direct transfer payments in respect of land and livestock premiums. Although responsibility for settling these payments, including eligibility and other checks lies with the national governments of the Member States, in some Member States this responsibility has been devolved, in whole or in part, to regional authorities or administrations.

1.3. With the beginning of the third stage of CAP reform in the coming marketing year, direct EU transfer payments to eligible farmers in the larger regions will total up to 700 million ECU. The possible level of surcharges resulting from the integrated administration and control system and the clearance of accounts will therefore far exceed the scope of any regional budget. The Member States, or in some cases the regions, are in effect required to act as guarantors to the beneficiaries for any shortfall arising from a surcharge based on extrapolation from the results of checks.

1.4. All bodies involved as state co-financing partners in disbursing EU expenditure on the Structural Funds and the Community initiatives can thus expect to be subject to surcharges in the event of complaints by the Commission following checks carried out in connection with the clearance of the accounts of the relevant Fund. The surcharge procedure, which at present is applied exclusively in connection with the clearance of accounts of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), could then affect all these public-sector co-financing partners.

2. Decisions of the European Court of Justice as a basis for checks

2.1. The rulings of the European Court of Justice have always prohibited EU financing of expenditure which is clearly in breach of Community rules. This principle applies independently of any subjective judgement as to the legal contestability of incorrect application of the law by the authorities.

2.2. The Court places a very restrictive interpretation on compliance with the existing rules. Even though an item of expenditure may comply with EU law and thus normally qualify for EU funding, infringements indirectly connected with the expenditure constitute grounds for disallowance.

2.3. Hitherto EU law has in principle left it to the Member States to determine which authorities are responsible for its implementation. Rules on the allocation of competence thus frequently vary from one Member State to another, in line with the provisions of the Member State's constitution.

2.4. However, in its Judgement of 12. 6. 1990 the European Court of Justice felt it necessary to address the following communication to all the authorities of the Member States: 'It is for all the authorities of the Member States, whether it be the central authorities of the State or the authorities of a federated State, or other territorial authorities, to ensure observance of the rules of Community law within the sphere of their competence. However, it is not for the Commission to rule on the division of competences by the institutional rules proper to each Member State, or on the obligations which, in a State having a federal structure, may be imposed on the federal authorities and on the authorities of the federated States respectively. It may only verify whether the supervisory and inspection procedures established according to the arrangements within the national legal system are in their entirety sufficiently effective to enable the Community requirements to be correctly applied.'

2.5. The Committee of the Regions fully subscribes to the principles established in this judgement.

3. Financial responsibility

3.1. The Member States and their regional and local authorities have to bear the full financial risk involved in the application of the law and the implementation of the procedures.

3.2. Where they are not themselves responsible for implementation, national governments generally take the view that any shortfall is a matter for the regional or local authority responsible for implementing the measure and spending the funds.

3.3. The regional and local authorities on the other hand argue that legal relations between the EU and the Member States are conducted through national bodies. The EU has no direct institutionalized relations with the regions and local authorities. The participation of the regions and local authorities, as it were at one remove, does not change this fundamental relationship which is enshrined in international law.

4. Scrutiny

4.1. When accounts are cleared the European Commission scrutinizes the implementation of measures financed wholly or in part by Brussels. Its reports have repeatedly stressed the application of specific control methods or other aspects of implementation, rather than restricting themselves to an overall assessment of the measures applied in the Member State.

4.2. Any sums which the auditors consider to have been spent in the Member States in infringement of the relevant provisions of EU law are disallowed and have to be met from the national budget. Such disallowed expenditure is deducted from the advances paid to the Member States.

4.3. In the course of this process, extrapolations are made on the basis of implementation errors and malpractices brought to light by spot checks. As it is, however, possible to secure recovery of the sums paid out solely in cases where abuse has been firmly established, the surcharges based on extrapolation currently have to be met by the entities responsible for implementing the measures.

4.4. The decision to levy a surcharge depends to a large extent on a subjective interpretation of the EU Regulations by the auditors. The vagueness of the rules in respect of financial controls, and in particular the older Regulations, has in the past meant the implementing territorial authorities repeatedly being faced with unpredictable interpretations. These interpretations have then been treated as implementation rules in the Commission's reports and their application enforced by means of surcharges, in some cases without any concrete legal basis.

4.5. In most cases the implementing authorities did their best to carry out the measures properly. It would, however, have required powers of clairvoyance correctly to have carried out detailed administrative and control procedures which were not prescribed at the time.

5. The future approach to surcharges

5.1. The Commission intends in future to withhold 5 % of funds in cases of significant failure of the control system, rising as much as 10 % for more serious infringements. The entire sum may even be withheld. Decisions are entirely at the Commission's discretion. Insufficient account is taken of the principle of proportionality. The Commission's view is that the principle of proportionality applies only to the relationship between government and citizen, and not to that between the Community and the Member States and their territorial authorities.

The Commission intends to be just as rigorous over missed payment deadlines.

5.2. After a transitional period, the Commission will withhold funds as follows in the event of the payment deadline being exceeded.

- Once a 4 % reserve (for disputes or additional checks) has been used up, expenditure effected during the first month after the deadline will be accepted at the rate of 90 %.

- Expenditure effected during the second month after the deadline will be accepted at the rate of 75 %.

- Expenditure effected during the third month after the deadline will be accepted at the rate of 55 %.

- Expenditure effected during the fourth month after the deadline will be accepted at the rate of 30 %.

- Expenditure effected during the fifth month or later after the deadline will be refused.

5.3. As part of the reform of accounts-clearance procedure initiated by the Commission, the Commission is to be empowered by a Council Decision to levy surcharges and determine their amount. The arbitration body set up at the same time must maintain strict neutrality. It must be able to work and carry out its assessments in complete independence from the administrative authorities of the EAGGF and other Community institutions or the Member States and Regions. In its follow-up decisions the Commission should be required to take full account of the arbitration body's rulings.

Detailed rules placing restrictions on main and branch national payments offices, requiring that they be authorized and stipulating internal audits and the issue of inspection certificates, are an unwarranted interference in the administrative autonomy of the territorial authorities, which are perfectly able to establish their own efficient inspection and payments systems.

Application of the subsidiarity principle, as defined in Article 3b of the EU Treaty, would give the Commission no more than a guiding role, leaving the regional and local authorities sufficient organizational scope to establish the administrative procedures best suited to their region, whilst maintaining the traditional structures and taking constitutional considerations into account.

6. To sum up

6.1. It is to be hoped that surcharges will be used more and more to ensure that aid measures are implemented in a uniform way and, indirectly, to bring the administrative organizations into line with each other. In the case of the large sums transferred to the regions and the local districts as a result of the new EU agricultural policy and in the course of the second finance period of the Structural Funds, the financial pressure exerted by the possibility of surcharges obliges the regional and local entities concerned to conform. As the European Court of Justice generally supports the Commission in the event of disputes, the national and regional administrations will be largely bound by the instructions of the Commission. As the Commission intends to set up an integrated administration and control system for the Structural Funds too, it must be assumed that surcharges patterned on the EAGGF Guarantee Section model will in future be levied in all areas in which the European Union co-finances programmes, Community initiatives, projects or aid.

6.2. It is in the long run unacceptable to the local districts and regions that the European Commission should be able to interfere in the smallest details of administrative practice and impose surcharges as it alone sees fit. The resulting administrative burden is paralysing the activities of the Member States, and particularly those of the regional and local districts. This type of administrative policy is diametrically opposed to the considerable efforts being made by many local and regional authorities to deregulate, to introduce lean management methods and to make significant staff reductions. The administrative workload arising from systems such as INVEKOS is unreasonably great. Regional estimates suggest that the administrative costs of certain forms of transfer are up to 20 % of the funds disbursed. This is more than five times the usual rate for comparable administrative tasks.

7. The Committee of the Regions

7.1. urges the Commission to:

- observe strictly the principle of subsidiarity enshrined in Article 3b of the EU Treaty, when effecting compensation payments and other aid measures;

- pay appropriate attention to the principle of proportionality when levying surcharges, including proportionality in the Community's relationship with the territorial authorities;

- limit surcharges to cases involving infringements of rules which have been clearly established prior to the infringement and which are based on Council Regulations;

- put surcharges into effect only after they have been confirmed by the arbitration body set up by the Commission, which will be wholly independent, as regards both staff and administration, from the Commission's auditing, payment and allocation bodies;

7.2. welcomes the integrated administration and control system which complements the regional policies of the Member States in compliance with institutional rules and the practice pursued in the Member States;

7.3. asks the Commission to take the opportunity presented by implementation of the reform of the accounts-clearing procedure in the Guarantee Section of the EAGGF, to look carefully at measures which infringe the administration and implementation independence of the territorial entities concerned and, if necessary, to dispense with them;

7.4. asks the Commission to consult it in future with regard to all EU legislative instruments affecting regional and local implementing authorities;

7.5. asks the Council, the European Parliament and the Commission to guarantee the independence of the arbitration body by providing it with appropriate resources and its own budget appropriation;

7.6. acknowledges that in the negotiations between the Council and the Commission significant progress was made on securing the administrative autonomy of the Member States and the regions in accordance with their respective constitutional positions;

7.7. in particular acknowledges the Commission's willingness to help put the intentions of Article 3b of the European Community Treaty into effect in administrative legislation;

7.8. asks that administrative regulations not be used as a lever to curtail the autonomous rights of the various regional and local authorities;

7.9. asks the Commission, in the light of the results of the Council negotiations, to keep the rules contained in the forthcoming new version of the implementing provisions to a minimum and to make them as simple as possible. There should in particular be no ceiling per Member State for the payments offices.

Done at Brussels, 2 February 1995.

The Chairman

of the Committee of the Regions

Jacques BLANC