EUROPEAN COMMISSION Brussels, 6.4.2016 SWD(2016) 111 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND

THE COUNCIL 8th FINANCIAL REPORT FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT AND THE COUNCIL

on the EUROPEAN AGRICULTURAL FUND FOR RURAL DEVELOPMENT

(EAFRD)

2014 FINANCIAL YEAR {COM(2016) 181 final}



Table of contents 1.Budget procedure 1.1.Financial framework 1.2.Draft Budget (DB) 2014 1.3.The adoption of the 2014 Budget 1.4.The adoption of the Amending Budgets 2.Management of appropriations 2.1.Management of Commitment appropriations 2.1.1.EAFRD rural development programmes 2.1.2.Technical assistance 2.2.Management of payment appropriations 2.2.1.EAFRD rural development programmes 2.2.2.Technical assistance 3.Implementation of the 2014 EAFRD budget 3.1.Introduction 3.2.Implementation of commitment appropriations 3.2.1.EAFRD rural development programmes 3.2.2.Technical assistance

3.3.Implementation of payment appropriations 3.3.1.EAFRD rural development programmes 3.3.2.Technical assistance 3.4.Analysis of expenditure declared by axis and by measure – Programming period 2007-2013 3.5.Implementation of EAFRD programmes - Programming period 2007-2013 4.Control Measures 4.1.Introduction 4.2.Integrated Administration and Control System (IACS) 5.Clearance of accounts 5.1.Financial clearance 5.1.1.Introduction 5.1.2Financial clearance for financial year 2014 5.1.3Financial clearance for financial year 2013 5.1.4.Financial clearance for financial year 2012 5.1.5.Financial clearance for financial year 2011 5.1.6.Financial clearance for financial year 2010 5.1.7.Financial clearance for financial year 2009 and before 5.2.Conformity clearance – audits and decisions adopted in 2014 5.2.1.Introduction 5.2.2.Conformity clearance – audits and decisions adopted in 2014

5.3.Recoveries 5.4.Appeals brought before the Court of Justice against clearance decisions 6.Basic rules governing the EAFRD and amendments made in 2014 6.1.General 6.2.Recent modifications 6.3.Delegated and implementing rules 6.3.1.Common rules for European Strategic and Investment Funds (Regulation (EU) No 1303/2013) 6.3.2.EAFRD fund specific rules (Regulation (EU) No 1305/2013) 6.3.3.Rules on financing, management and monitoring of the CAP 1. Budget procedure 1.1. Financial framework CAP expenditure in 2014 is funded within two financial frameworks (MFFs): 2007-2013 and 2014-2020. The financial framework 2007-2013 was agreed in the Inter-institutional Agreement between the European Parliament and the Council in May 2006, amended to take into account the Galileo-programme in 2007, the reprogramming of rural development in 2008 and the European Economic Recovery Package (EERP) in 2009. The financil framework 2014-2020 is provided by the Council Regulation (EU) No 1311/2013. CAP expenditure is part of Heading 2 "Preservation and management of natural resources" in MFF 2007-2013 and "Sustainable growth: natural resources" in MFF 2014-2020. A specific sub-ceiling has been decided for market related expenditure and direct aids within this heading. The CAP amounts included in heading 2 are: Table 1a – Financial framework 2007-2013 HEADING 2. In million EUR; current prices Preservation and Management of Natural resources 2007 2008 2009 2010 2011 2012 2013 TOTAL a), b) 55 143 59 193 56 333 59 955 59 888 60 810 61 289 of which : - Rural development a), c), d) 10 902 13 303 14 002 14 364 14 436 14 617 14 817 - Market related expenditure and direct aids, c) 44 753 44 592 44 887 44 276 44 467 44 710 44 939 a) After reprogramming of rural development (EUR 1 469 Mio). b) After transfer of EUR 1 600 million to Galileo in 2007 and of EUR 2 000 million to the European Economic Recovery Package in 2009 and financial needs for ITER 2011. c) After transfer into Rural Development of the lower expected expenditure resulting from the reforms of the tobacco, cotton and wine CMOs and from the compulsory and voluntary modulation (UK), art 136 of regulation 73/2009 and reduction due to financing of the EERP (D 237/2010 EU). Table 1b – Financial framework 2014-2020 HEADING 2. In million EUR; current prices Sustainable growth: natural resources 2014 2015 2016 2017 2018 2019 2020 TOTAL 49 857 64 692 64 262 60 191 60 267 60 344 60 421 of which : - Rural development a), b), c), d), e) 5 299 18 184 18 685 14 372 14 382 14 331 14 334 - Market related expenditure and direct aids, a), b), c), d) 43 779 44 190 43 949 44 145 44 161 44 240 44 263 a) After net transfer of EUR 351.9 million between EAGF and EAFRD for the financial year 2014 (see note f) for details) b) After net transfer of EUR 51.6 million between EAGF and EAFRD for the financial year 2015 (see note f) for details) c) After net transfer of EUR 4 million between EAGF and EAFRD for the financial years 2016-2020 (see note f) for details) d) After net transfer of EUR 3581.9 million between EAGF and EAFRD for financial years 2015-2020 (see note f) for details) e) After the reprogramming of the EAFRD allocation of year 2014 following the application of Article 19 of MFF Regulation (EU) No 1311/2013 a total amount of EUR 8 705 million deducted from 2014 commitments was equally distributed to 2015 and 2016 commitments. f) The transfers into Rural Development (EAFRD) mentioned in notes a) to d) above involve: EUR 4 million transferred annually for the whole period 2014-2020 from the cotton sector (EL) on the basis of Article 66(1) of Regulation (EU) No 1307/2013, EUR 296.3 million set for the voluntary adjustment transferred for the financial year 2014 (UK) on the basis of Article 10b and 10c(2) of Regulation (EC) No 73/2009, EUR 51.6 million for unspent amounts transferred each year for financial years 2014 and 2015 (SE and DE) on the basis of Articles 136 and 136b of Regulation (EC) No 73/2009 and EUR 3581.9 million for the reduction of payments and the flexibility between pillars on the basis of Articles 7(2) and 14(1) of Regulation (EU) No 1307/2

1.2. Draft Budget (DB) 2014 The 2014 Draft Budget (DB) was adopted by the Commission and proposed to the Budgetary Authority on 28 June 2013. The Draft Budget for the European Agricultural Fund for Rural Development (EAFRD) under heading 2 of the Financial Framework 2007-2013 totalled

EUR 10 340 million in payment appropriations. No commitment appropriations were requested for year 2014 as the old programming period ended in 2013. For the new programming period 2014-2020, the DB 2014 included EUR 13 987 million in commitment appropriations and EUR 1 312 million in payment appropriations. Table 2 Budget Item Commitment appropriations

(in EUR) Payment appropriations

(in EUR) 2007-2013 05.040501 (Rural dev. Programmes) - 10 333 305 000 05.040502 (Operational technical assistance) - 6 433 956 2014-2020 05.046001 (Rural dev. Programmes) 13 970 049 059 1 303 887 960 05.046002 (Operational technical assistance) 17 222 000 7 748 500 The Council adopted its position on the 2014 Draft Budget on 2 September 2013. Payment appropriations for EAFRD programmes were reduced by EUR 4.6 million for the old programming period and EUR 50 million for the new programming period as compared to the Commission's DB while commitments remained unchanged. The European Parliament adopted its position on 23 October 2013 whereby it restored the Commission's proposal. The Conciliation procedure resulted in an agreement between the two institutions. The Council and the European Parliament agreed to a compromise package on 12 November 2013. 1.3. The adoption of the 2014 Budget The Draft Budget was approved by the Parliament in a vote on 20 November 2013. The voted budget for the EAFRD in chapter 05 04 amounted to EUR 10 336 million in payment appropriations for the programming period 2007-2013 and EUR 13 987 million in commitment appropriations and EUR 1 275 million in payment appropriations for the period 2014-2020. Table 3 Budget Item Commitment appropriations

(in EUR) Payment appropriations

(in EUR) 05.040501 (Rural dev. Programmes 2007-2013) - 10 329 896 149 05.040502 (Technical assistance 2007-2013) - 6 433 956 05.046001 (Rural dev. Programmes 2014-2020) 13 970 049 059 1 267 275 423 05.046002 (Technical assistance 2014-2020) 17 222 000 7 748 500 1.4. The adoption of the Amending Budgets Amending Budget No 2 was adopted on 17 December 2014. It reduced the payment appropriations for the Rural Development Programmes 2014-2020 by EUR 20 million. 2. Management of appropriations 2.1. Management of Commitment appropriations 2.1.1. EAFRD rural development programmes Budget 2014 did not include any commitment appropriations for EAFRD 2007-2013 programmes whilst commitment appropriation for EAFRD 2014-2020 amounted in total to EUR 13 970 million.

Table 4 Management of commitment appropriations in 2014 – EAFRD Budget Item 05.040501 (amounts in euro) Budget Item 05.046001 (amounts in euro) Appropriations at the beginning of 2014 - 13 970 049 059 Carryover from 2013 - 0 Appropriations available in 2014 - 13 970 049 059 Appropriations used in 2014 - 3 294 627 697 2.1.2. Technical assistance Article 51(1) of Regulation (EU) No 1305/2013 provides that the EAFRD may use up to 0.25% of its annual allocation to finance, at the initiative of the Commission, the technical assistance actions necessary to implement the rural development policy and, in particular, the costs for setting up and operating the European network for rural development and the European Innovation Partnership (EIP) network. In the 2014 budget, the initial amount available for this purpose was EUR 17.2 million. Of this, EUR 0.7 million was redeployed to other items of the budget. At the end of 2014, the total amount committed was EUR 11.9 million. 2.2. Management of payment appropriations 2.2.1. EAFRD rural development programmes For programmes 2007-2013, payment appropriations of the voted budget 2014 amounted to EUR 10 330 million. In addition, the available assigned revenue, either carried over from 2013 or collected during the year, amounted to EUR 149.9 million. During the year, the monitoring of the implementation of the budget and the analysis of the forecasts submitted by Member States revealed an additional need of EUR 536.4 million in payment appropriations. This additional need was covered with transfers from 2014-2020 programmes and technical assistance lines The total amount paid to Member States for EAFRD programmes 2007-2013 in 2014 reached EUR 10 947 million. EUR 69 million of assigned revenue were automatically carried over to 2015. For programmes 2014-2020, payment appropriations of the voted budget amounted to EUR 1 267 million. Of this amount, only EUR 225 million were implemented in 2014 due to the late adoption of new rural development programmes. As regards the surplus, part was made available to old programmes (EUR 532 million) and the rest was included in the End of Year transfer (EUR 490 million) or in the Amending Budget No 2/2014 (EUR 20 million). Table 5 Management of payment appropriations in 2014 (in euro) EAFRD (2007-2013) Budget Item - 05.040501 Appropriations at the beginning of 2014 10 329 896 149 Assigned revenue carried over from 2013 80 494 135 Assigned revenue collected in 2014 69 413 811 Transfers from 2014-2020 RDPs and TA lines 536 390 000 Appropriations available in 2014 11 016 194 095 Appropriations used in 2014 10 947 350 314 EAFRD (2014-2020) Budget Item - 05.046001 Appropriations at the beginning of 2014 1 267 275 423 Transfer to 2007-2013 programmes - 532 190 000 Amending Budget No 2/2014 - 20 000 000 End-of-the year transfer - 490 090 023 Appropriations available in 2014 224 995 400 Appropriations used in 2014 224 989 886 2.2.2. Technical assistance Total payment appropriations in 2014 budget amounted to EUR 14.2 million. Of this amount, EUR 6.4 million related to 2007-2013 outstanding needs (open RAL of budget item 05.040502) whereas EUR 7.7 million corresponded to new period's technical assistance (item 05.046002). At the end of the year, total payments reached EUR 8.4 million while EUR 4.2 million were redeployed to reinforce 2007-2013 programmes. 3. Implementation of the 2014 EAFRD budget 3.1. Introduction The last commitments of the programming period 2007-2013 were made in financial year 2013. As regards payments, the pace of the implementation of rural development programmes recorded in 2014 continued at high level even though, for some programmes, declarations of expenditure were not completely reimbursed due to the application of the 95% capping. Execution in 2014 represents 83.5% of 2012 execution. which is the highest execution recorded during this programming period. 3.2. Implementation of commitment appropriations 3.2.1. EAFRD rural development programmes

In 2014, commitment appropriations were available only for EAFRD programmes 2014-2020. The 2014 voted budget amounted to EUR 13 970 million but the late adoption of programmes did not permit to commit the entire amount. As a result, for the programmes not adopted, it was necessary either to reprogramme the allocations or, in case the requirements set by Regulation (EU) 966/2012 were met, to carryover the corresponding appropriations to year 2015. Table 6 shows the allocation established by Regulation (EU) No 1305/2013 of 17/12/2013 as amended by Commission Delegated Regulation (EU) 2015/791 of 27/04/2015 (i.e. including the reprogramming) for new EAFRD programmes and the amounts committed per Member State in 2014. Table 6 Regulation (EU) No 1305/2013 vs. the amounts committed end of 2014 Budget item: 05.046001 (in euro) MS Regulation (EU) No 1305/2013 – EU funds 2014 Amounts carried over for commitment in 2014 Amounts committed in the budget year 2014 (a) (b) (c=a+b) AT 557 806 503 - 557 806 503 BE 40 855 562 - - BG - - - CY - - - CZ - - - DE 664 601 903 - 234 970 693 DK 90 287 658 - 90 287 658 EE 103 626 144 - - ES - - - FI 335 440 884 - 332 522 548 FR 4 353 019 - - GR - - - HR - - - HU - - - IE - - - IT - - - LT 230 392 975 - - LU - - - LV 138 327 376 - - MT - - - NL 87 118 078 - - PL 1 569 517 638 - 1 569 517 638 PT 577 031 070 - 509 522 657 RO - - - SE - - - SI 118 678 072 - - SK 271 154 575 - - UK 475 531 544 - - Total 5 264 723 001 - 3 294 627 697 3.2.2. Technical assistance Table 7 shows the commitment appropriations for technical assistance consumed in 2014. The most important part relates to European Network for Rural Development. Table 7 Technical assistance – Implementation of commitment appropriations Budget Item: 05.046002 (in euro) Description Amount committed Contact point of the European Network for Rural Development 4 000 000 Experts groups / Coordination committee / Seminars (ENRD) 1 087 693 EIP (Website and Network Facility) 2 569 923 Information technology 1 927 013 Protection of symbols 290 443 Events 1 000 000 European Evaluation Network (evaluation helpdesk and expert committees) 993 950 Total 11 869 022 3.3. Implementation of payment appropriations 3.3.1. EAFRD rural development programmes For the programming period 2007-2013 all payment appropriations available in the voted budget 2014 were implemented (EUR 10 330 million). Additional payments of EUR 81 million and EUR 536.4 million were made respectively with apropriations from assigned revenue and transfers from technical assistance lines (05.040502 and 05.046002) and the line for new programmes(05.046001). At the end of 2014, the total amount paid for EAFRD programmes 2007-2013 was EUR 10 947 million. EUR 68.8 million of assigned revenue were carried over to 2015 For the programming period 2014-2020 only the pre-financing in the amount of EUR 225 million was paid. Table 8 below shows the breakdown of payments made in 2014 by declaration period:

Table 8 Payments 2014 for EAFRD rural development programmes (in million euro) 2007-2013 2014-2020 Item 05.040501 Item 05.046001 Reimbursement of payment claims Q3 2013 2.61 - Reimbursement of payment claims Q4 2013 4 927.28 - Reimbursement of payment claims Q1 2014 2 101.38 - Reimbursement of payment claims Q2 2014 1 711.84 - Reimbursement of payment claims Q3 2014 2 204.24 - Pre-financing 2014-2020 - 224.99 Total 2014 10 947.35 224.99 For programmes 2007-2013, the monthly consumption of payment appropriations during the year (January to December 2014) is represented in the graph below. The rhythm of consumption is linked to the calendar for sending the four payment declarations (31 January, 30 April, 31 July and 10 November for the payment claims corresponding respectively to Q4 2013, Q1 2014, Q2 2014 and Q3 2014) in accordance article 22 (2) of the Commission Implementing Regulation (EU) No 908/2014. As regards, programmes 2014-2020, all advances (EUR 225 million) were paid in December 2014. The graph shows the monthly consumption of payment appropriations. The rhythm of payments was influenced by treasury constraints that delayed some reimbursements in the first part of 2014 (January to June) and at the end of the year. Graph 1 The breakdown per Member State and per declaration period of the amounts paid by the Commission for programmes 2007-2013 in budget year 2014 is shown in table 9a. The total amount paid, EUR 10 947 million, relates to interim payments only. Table 9a Payments effectively made between 01/01/2014 and 31/12/2014 Budget item 05.040501 (in euro) MS Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Grand Total AT 0 244 873 999 0 0 0 244 873 999 BE 0 2 689 192 3 244 454 9 266 757 1 427 705 16 628 109 BG 0 284 557 645 24 550 102 27 675 831 56 967 049 393 750 627 CY 0 13 267 957 1 055 853 4 586 052 3 988 489 22 898 351 CZ 0 41 674 370 187 320 552 54 253 139 0 283 248 060 DE 0 477 758 847 119 748 265 96 522 148 223 278 056 917 307 316 DK 0 22 147 611 19 064 163 20 158 227 21 937 263 83 307 265 EE 0 19 809 432 42 326 220 0 0 62 135 652 EL 0 297 262 410 28 283 661 54 263 779 169 354 762 549 164 613 ES 0 495 902 738 147 877 593 103 782 522 216 625 787 964 188 641 FI 0 56 934 909 0 0 0 56 934 909 FR 0 351 132 742 165 867 656 139 255 349 141 896 984 798 152 731 HU 0 171 302 480 121 740 056 110 912 819 146 395 713 550 351 068 IE 0 0 0 0 0 0 IT 51 734 634 840 721 128 549 026 211 279 181 229 312 537 1 204 033 199 LT 0 22 936 917 119 899 042 49 775 609 39 769 642 232 381 211 LU 0 1 287 916 0 0 0 1 287 916 LV 0 51 845 146 6 941 296 0 0 58 786 443 MT 0 4 949 774 527 688 2 451 135 3 482 391 11 410 988 NL 0 24 827 909 19 292 515 44 919 341 21 976 313 111 016 078 PL 0 626 415 545 392 425 430 335 987 350 345 944 778 1 700 773 103 PT 913 213 210 553 953 154 826 061 139 415 532 177 413 253 683 122 011 RO 0 345 989 125 172 531 090 107 792 851 196 529 406 822 842 472 SE 0 178 628 972 34 930 716 7 714 548 0 221 274 236 SI 0 54 749 783 17 568 160 33 916 658 11 856 850 118 091 451 SK 0 79 574 145 25 024 890 25 142 009 18 604 336 148 345 380 UK 1 646 288 211 369 622 167 784 553 132 767 523 177 476 500 691 044 486 Total 2 611 235 4 927 283 862 2 101 379 040 1 711 838 362 2 204 237 814 10 947 350 314 For the programmes 2014-2020 adopted in 2014, the advances paid amounted to EUR 224.99 million. Table 9b shows the breakdown per Member State. Table 9b

Prefinancing 2014-2020 paid between 01/01/2014 and 31/12/2014 (in euro) Budget item: 05.046001 MS Amount AT 39 375 519.97 BE - BG - CY - CZ - DE 15 994 705.09 DK 6 294 006.90 EE - ES - FI 23 596 993.38 FR - GR - HR - HU - IE - IT - LT - LU - LV - MT - NL - PL 85 982 808.14 PT 53 745 852.35 RO - SE - SI - SK - UK - Total 224 989 885.83 Table 10 compares, for each Member State, the EAFRD 2007-2013 payments made in 2014 with the payments in 2013. The total payments decreased by 15.5% (EUR 10.95 billion vs. 12.95 billion). Table 10 Payments made to Member States - Comparison 2014 vs 2013 (in euro) MS 2013 2014 Difference 2014 vs. 2013 Interim payments Prefinancing Total Interim payments Prefinancing Total (in euro) (in %) AT 526 926 131 - 526 926 131 244 873 999 - 244 873 999 -282 052 131 -53.53% BE 52 721 009 - 52 721 009 16 628 109 - 16 628 109 -36 092 900 -68.46% BG 396 641 691 - 396 641 691 393 750 627 - 393 750 627 -2 891 064 -0.73% CY 23 033 218 - 23 033 218 22 898 351 - 22 898 351 -134 866 -0.59% CZ 373 075 923 - 373 075 923 283 248 060 - 283 248 060 -89 827 863 -24.08% DE 1 267 359 343 - 1 267 359 343 917 307 316 - 917 307 316 -350 052 027 -27.62% DK 62 519 910 - 62 519 910 83 307 265 - 83 307 265 20 787 355 33.25% EE 127 044 772 - 127 044 772 62 135 652 - 62 135 652 -64 909 120 -51.09% EL 225 793 111 - 225 793 111 549 164 613 - 549 164 613 323 371 502 143.22% ES 1 038 317 781 - 1 038 317 781 964 188 641 - 964 188 641 -74 129 140 -7.14% FI 340 230 873 - 340 230 873 56 934 909 - 56 934 909 -283 295 964 -83.27% FR 998 803 101 - 998 803 101 798 152 731 - 798 152 731 -200 650 370 -20.09% HU 491 234 841 - 491 234 841 550 351 068 - 550 351 068 59 116 226 12.03% IE 256 972 589 - 256 972 589 0 - 0 -256 972 589 -100.00% IT 1 275 133 647 - 1 275 133 647 1 204 033 199 - 1 204 033 199 -71 100 448 -5.58% LT 252 927 822 - 252 927 822 232 381 211 - 232 381 211 -20 546 611 -8.12% LU 10 094 904 - 10 094 904 1 287 916 - 1 287 916 -8 806 989 -87.24% LV 184 032 828 - 184 032 828 58 786 443 - 58 786 443 -125 246 385 -68.06% MT 9 682 192 - 9 682 192 11 410 988 - 11 410 988 1 728 796 17.86% NL 99 485 140 - 99 485 140 111 016 078 - 111 016 078 11 530 938 11.59% PL 1 820 972 541 - 1 820 972 541 1 700 773 103 - 1 700 773 103 -120 199 438 -6.60% PT 656 450 463 - 656 450 463 683 122 011 - 683 122 011 26 671 547 4.06% RO 1 191 637 130 - 1 191 637 130 822 842 472 - 822 842 472 -368 794 658 -30.95% SE 182 871 555 - 182 871 555 221 274 236 - 221 274 236 38 402 681 21.00% SI 126 635 115 - 126 635 115 118 091 451 - 118 091 451 -8 543 663 -6.75% SK 197 308 952 - 197 308 952 148 345 380 - 148 345 380 -48 963 572 -24.82% UK 763 498 948 - 763 498 948 691 044 486 - 691 044 486 -72 454 462 -9.49% Total 12 951 405 528 0 12 951 405 528 10 947 350 314 0 10 947 350 314 -2 004 055 214 -15.47% 3.3.2. Technical assistance In the 2014 budget the amount for payment appropriations was EUR 6.4 million for the programmes 2007-2013 and EUR 7.7 million for the programmes 2014-2020. Part of these appropriations were transferred to cover payment needs in relation to rural development programmes under EAFRD 2007-2013: EUR 0.8 million from the old programming period and EUR 3.4 million from the new programming period.. Table 11 hereafter presents the payments grouped by main activities. The most important part relates to the European Network for Rural Development. Table 11 Technical assistance – Implementation of payment appropriations Description Amount paid Budget Item: 05.040502 (in euro) European Network for Rural Development (Contact point, expert groups, coordination committee, seminars..) 2 333 316 European Evaluation Network (expert committees, meetings…)) 21 426 European Innovation Partnership (EIP) 988 626 Information technology 1 424 401 Protection of EU symbols 308 241 Total 05.040502 5 076 010 Budget Item: 05.046002 (in euro) European Network for Rural Development (expert groups, coordination committee, seminars...) 1 076 857 European Evaluation Network (expert committees, meetings…) 64 594 European Innovation Partnership (EIP) 1 099 903 Information technology 694 133 Events 400 000 Total 05.046002 3 335 487 Total technical assistance 8 411 497 3.4. Analysis of expenditure declared by axis and by measure – Programming period 2007-2013 Table 12 shows the payment claims declared by Member state and by axis/measure for rural development in 2014 (Q4 2013 to Q3 2014) for the programmes 2007-2013, the cumulative declared expenditure from 2007 to 2013 (Q4 2006 to Q3 2014) and also the financial plans of EAFRD programmes (2007-2013; EU27). In 2014, the expenditure for EAFRD 2007-2013 continues to be concentrated in axis 2 (43.7%), followed by axis 1 with 32.1%, axis 3 with 13.5% and axis 4 with 8.9%. Even though differences decrease for 3 axes, this repartition of expenditure still diverges from the repartition in the financial plans for the 2007-2013 programming period (32.6%, 46.0%, 13.2% and 6.2% for axis 1 to 4 respectively).

Axis 2 measures mainly involve annual payments (e.g. agro-environmental measures) whilst Axis 1, 3 and, to a lesser extent, Axis 4 mainly relate to multi-annual measures that require longer proceedings for their approval and implementation (e.g. investment projects).



Table 12 EAFRD declared expenditure 2014 (Q4 2013-Q3 2014) & Total cumulative expenditure (Q4 2006 to Q3 2014) compared with Financial Plans Declared expenditure 2014 (Q4 2013 to Q3 2014) Cumulative declared expenditure (Q4 2006 to Q3 2014) Financial Plans 2007-2013 EAFRD Axis / Measure (million €) (%) (million €) (%) (million €) (%) 111 Vocational training and information actions 136.4 1.1% 655.0 0.8% 928.5 1.0% 112 Setting up of young farmers 286.2 2.4% 2 382.4 3.1% 2 949.3 3.1% 113 Early retirement 335.0 2.8% 2 386.9 3.1% 2 459.1 2.6% 114 Use of advisory services 21.9 0.2% 111.2 0.1% 167.2 0.2% 115 Setting up of management. relief and .... 4.0 0.0% 28.8 0.0% 46.9 0.0% 121 Modernisation of agricultural holdings 1 386.2 11.5% 9 589.6 12.3% 11 888.4 12.4% 122 Improvement of the economic value of forest 44.2 0.4% 255.4 0.3% 356.4 0.4% 123 Adding value to agricultural and forestry... 519.8 4.3% 3 510.8 4.5% 5 307.3 5.5% 124 Cooperation for development of new products 45.3 0.4% 158.6 0.2% 284.5 0.3% 125 Infrastructure related to the development … 779.5 6.4% 3 117.9 4.0% 4 677.4 4.9% 126 Restoring agricultural production potential 128.5 1.1% 477.1 0.6% 686.8 0.7% 131 Meeting standards based on Community... 2.2 0.0% 61.8 0.1% 67.0 0.1% 132 Participation of farmers in food quality… 14.3 0.1% 79.6 0.1% 113.6 0.1% 133 Information and promotion activities 23.2 0.2% 89.9 0.1% 144.9 0.2% 141 Semi-subsistence farming 84.1 0.7% 693.8 0.9% 802.1 0.8% 142 Producer groups 34.5 0.3% 187.5 0.2% 246.5 0.3% 143 Direct Payment (BG + RO) 1.8 0.0% 8.9 0.0% 15.8 0.0% 144 Holdings undergoing restructuring 32.7 0.3% 179.6 0.2% 191.0 0.2% Axis 1 3 879.8 32.1% 23 974.8 30.8% 31 332.7 32.6% 211 Natural handicap payments to farmers in ... 613.2 5.1% 6 878.8 8.8% 6 810.9 7.1% 212 Payments to farmers in areas with handicaps... 774.1 6.4% 7 131.2 9.1% 7 718.4 8.0% 213 Natura 2000 payments and payments linked .. 44.4 0.4% 210.3 0.3% 274.9 0.3% 214 Agri-environment payments 2 937.2 24.3% 21 536.3 27.6% 23 522.9 24.5% 215 Animal welfare payments 242.9 2.0% 641.8 0.8% 891.5 0.9% 216 Non-productive investments 131.2 1.1% 459.9 0.6% 584.2 0.6% 221 First afforestation of agricultural land 184.8 1.5% 1 410.4 1.8% 1 630.2 1.7% 222 First establishment of agroforestry systems... 0.3 0.0% 0.9 0.0% 8.9 0.0% 223 First afforestation of non-agricultural land 22.4 0.2% 138.4 0.2% 204.1 0.2% 224 Natura 2000 payments 16.7 0.1% 49.8 0.1% 72.1 0.1% 225 Forest-environment payments 13.1 0.1% 54.0 0.1% 106.7 0.1% 226 Restoring forestry potential and … 183.1 1.5% 1 145.3 1.5% 1 637.2 1.7% 227 Non-productive investments 124.0 1.0% 504.4 0.6% 733.7 0.8% Axis 2 5 287.31 43.7% 40 161.61 51.5% 44 195.65 46.0% 311 Diversification into non-agricultural activities 152.9 1.3% 866.9 1.1% 1 220.5 1.3% 312 Business creation and development 212.6 1.8% 1 094.0 1.4% 1 729.0 1.8% 313 Encouragement of tourism activities 140.6 1.2% 623.4 0.8% 1 191.8 1.2% 321 Basic services for the economy and rural … 523.9 4.3% 2 487.1 3.2% 3 757.9 3.9% 322 Village renewal and development 403.2 3.3% 2 702.3 3.5% 3 337.4 3.5% 323 Conservation and upgrading of the rural.... 180.6 1.5% 862.8 1.1% 1 218.8 1.3% 331 Training and information 13.3 0.1% 71.9 0.1% 102.1 0.1% 341 Skills acquisition. animation and implement... 10.0 0.1% 83.6 0.1% 105.2 0.1% Axis 3 1 637.21 13.5% 8 792.0 11.3% 12 662.7 13.2% 411 Implementing local development strategies... 105.9 0.9% 251.3 0.3% 520.5 0.5% 412 Implementing local development strategies... 13.6 0.1% 34.9 0.0% 80.0 0.1% 413 Implementing local development strategies.... 778.7 6.4% 2 486.4 3.2% 4 139.3 4.3% 421 Implementing cooperation projects 26.8 0.2% 73.8 0.1% 214.6 0.2% 431 Running the local action group. acquiring ... 154.4 1.3% 700.2 0.9% 964.7 1.0% Axis 4 1 079.4 8.9% 3 546.5 4.5% 5 919.1 6.2% 511 Technical Assistance 220.2 1.8% 1 053.7 1.4% 1 525.1 1.6% 611 BG RO Direct Payments -0.4 0.0% 436.6 0.6% 437.8 0.5% Grand total 12 103.5 100.0% 77 965.3 100.0% 96 073.2 100.0% *Member States declare their expenditure quarterly. However for year n. Q4 declarations are submitted in January of year n+1. Consequently. the corresponding reimbursements by the Commission to the Member States in year n go from Q4 of year n-1 until Q3 of year n. 3.5. Implementation of EAFRD programmes - Programming period 2007-2013 Graph 2 presents the financial implementation rate of rural development programmes 2007-2013 per Member State: payments from the beginning of the programming period to 2014. including Q4 2014 that is reimbursed in financial year 2015. compared with the 2007-2013 commitments according to the financial plan. As 2013 was the last year when commitments were made. the implementation rate equals to the absorption rate (payments made from the beginning of the programming period compared to the total 2007-2013 allocation). The average EAFRD financial implementation rate for all EAFRD programmes is 91%. Graph 2 shows that most Member States have absorbed more than 90% of the

2007-2013 commitments. Until the end of 2014 the application of the N+2 rule has resulted in relatively small decommitments for the rural development programmes. Those decommmitments amount in total to EUR 171.7 million and relate to years 2008. 2009. 2010 and 2011. Decommitments in relation to year 2012 are made in 2015. 4. Control Measures 4.1. Introduction The EU legislation provides for a comprehensive system of management and controls which relies on four levels: (a) compulsory administrative structure at the level of Member States. centred around the establishment of paying agencies and an accreditation authority at high level which is competent for issuing and withdrawing the agency’s accreditation. The decision for issuing the accreditation is based on a detailed review by an external audit body; (b) detailed systems for controls and dissuasive sanctions to be applied by those paying agencies. with common basic features and special rules tailored to the specificities of each aid regime; (c) ex-post controls by independent audit bodies on the paying agencies' annual accounts and the functioning of their internal control procedures (under Commission Delegated Regulation (EU) No 907/2014 and Commission Implementing Regulation (EU) No 908/2014 ) and by special departments on aid measures other than direct payments covered by the IACS (checks based on Chapter III of Title V of Regulation (EU) No 1306/2013 ); (d) clearance of accounts through the Commission (both annual financial clearance and multi-annual conformity clearance). These four levels establish a comprehensive system for the management and control of agricultural expenditure. It includes. on the one hand. all the necessary building blocks to guarantee a sound administration of the expenditure at Member States’ level and. on the other hand. allows the Commission to counter the risk of financial losses as a result of any deficiencies in the set-up and operation of those building blocks through the clearance of accounts procedure.

Article 58 of Regulation (EU) No 1306/2013 provides for the general obligation of Member States to ensure that transactions financed by the EAGF and the EAFRD are carried out and executed correctly. to prevent and deal with irregularities and to recover amounts unduly paid. In complement to this general obligation. there is a system of controls and dissuasive sanctions of final beneficiaries which reflects the specific features of the regime and the risk involved in its administration. The controls are carried out by the paying agencies or by delegated bodies operating under their supervision and effective. dissuasive and proportionate sanctions are imposed if the controls reveal non-compliance with EU rules. The system generally provides for exhaustive administrative controls of 100% of the aid applications. cross-checks with other databases where this is considered appropriate as well as pre-payment on-the-spot controls of a sample of transactions ranging between 1% and 100%. depending on the risk associated with the regime in question. For example. the control rate in the framework of the Integrated Administration and Control System (IACS) is normally 5%. If the on-the-spot controls reveal a high number of irregularities. additional controls must be carried out. The sample of transactions is determined on a risk and/or random basis. In addition. for most regimes which are not subject to the IACS. on top of the primary and secondary control levels. ex-post controls must be carried out in accordance with the provisions of Chapter III of Title V in Regulation (EU) No 1306/2013. 4.2. Integrated Administration and Control System (IACS) Regulation (EU) No 1306/2013. Regulation (EU) No 1307/2013 . Commission Delegated Regulation (EU) No 639/2014 and Commission Delegated Regulation (EU) No 640/2014 contain the rules on the IACS. which are also applicable to rural development supportas far as area- and animal-related measures are concerned. A fully operational IACS consists of: a computerised database. an identification system for agricultural parcels and farmers claiming aid. a system for identification and registration payment entitlements. aid applications and integrated controls system (claim processing. on-the-spot checks and sanctioning mechanisms) and a system for identifying and registering animals where applicable. The IACS is fully automated and provides highly efficient controls by maximising the use of computerised and remote controls. This system foresees a 100% administrative control covering the eligibility of the claim. complemented by administrative cross-controls with standing databases ensuring that only areas or animals that fulfil all eligible requirements are paid the aid and by a minimum 5% of on-the-spot checks to check the existence and eligibility of the area or the animals claimed. The use of standing databases. which are appropriately updated. is well adapted to the schemes whereby aids are directly paid to the farmers and based on the areas or on the number of animals. in that the risk can be reduced to the lowest levels. For the financial year 2014. the IACS axis 2 measures (programming period 2007-2013) cover around 40% of payments made under the EAFRD for measures including inter alia. agri-environment and animal welfare measures. less-favoured areas and areas with environmental restrictions and afforestation of agricultural land. DG AGRI verifies the effectiveness of Member States' IACS by means of both on-the-spot auditing and general supervision based on annually supplied financial and statistical data. The Commission continues to consider that the IACS is generally an effective control system for limiting the risk of error or irregular expenditure. provided that it is properly applied. 5. Clearance of accounts 5.1. Financial clearance 5.1.1. Introduction The financial clearance covers the annual accounts and the internal control systems set up by the Paying Agencies. Within this framework. DG AGRI pays particular attention to the Certification Bodies’ conclusions and recommendations formulated based on the reviews of the management and control systems of the Paying Agencies. The financial clearance exercise also allows DG AGRI to obtain assurance that the Paying Agencies comply with the accreditation criteria and the financial interests of the EU are protected as regards payments. advances. securities and public storage. The Commission adopts an annual financial clearance decision based on the certification documents (including the annual accounts and the Management Declarations submitted by the Paying Agencies as well as Audit Opinions and reports of the Certification Bodies). The financial clearance decision is without prejudice to subsequent conformity clearance decisions aimed at recovering expenditure which proves not to have been paid in accordance with the EU rules. As of 2015. the deadline for the Commission to adopt its annual financial clearance decision was moved from 30 April to 31 May of the year following the financial year in question. 5.1.2Financial clearance for financial year 2014 On 28 May 2015. the Commission adopted decision 2015/842 on the clearance of accounts of the Paying Agencies of Member States concerning expenditure financed by the EAFRD for financial year 2014. This decision excluded the accounts of seven Paying Agencies as insufficient assurance was obtained on the completeness. accuracy and veracity of their annual accounts. The Paying Agencies concerned are: Région Wallonne (Belgium). Baden-Württemberg and Mecklenburg-Vorpommern (Germany). Comunidad Valenciana (Spain). OPEKEPE (Greece). MRRA (Malta) and RIFA (Romania). The total expenditure cleared amounts to EUR 10.425 million while EUR 1.619 million was disjoined. For the accounts not included in the May 2015 financial clearance decision. conformity enquiries were launched to address the serious weaknesses detected.

5.1.3 Financial clearance for financial year 2013 On 29 April 2014. the Commission adopted the financial year 2013 EAFRD clearance of accounts decision (2014/251/EU). which excluded the accounts of 6 Paying Agencies. as no confirmation could be gained on the completeness. accuracy and veracity of the annual accounts submitted. The Paying Agencies for which the accounts were disjoined are: SFA (Bulgaria). DAFA (Denmark). OPEKEPE (Greece). PARDF (Romania). Andalucía and Asturias (Spain). The conformity enquiries for the disjoined Paying Agencies are still ongoing. 5.1.4. Financial clearance for financial year 2012 On 26 April 2013. the Commission adopted the financial year 2012 EAFRD clearance of accounts decision (2013/209/EU). which excluded the accounts of 7 Paying Agencies. as no confirmation could be gained on the completeness. accuracy and veracity of the annual accounts submitted. The Paying Agencies for which the accounts were disjoined are: DAFA (Denmark). ASP (France). Baden-Württemberg. Thüringen and Hessen (Germany). PARDF (Romania) and Andalucía (Spain). In August 2014. a subsequent financial clearance decision was adopted for three German Paying Agencies: Baden-Württemberg. Thüringen and Hessen. By means of this decision. a total amount of EUR 244 million was cleared for the EAFRD. The conformity enquiries for the other four disjointed Paying Agencies are still ongoing. 5.1.5. Financial clearance for financial year 2011 On 27 April 2012. the Commission adopted the financial year 2011 EAFRD clearance of accounts decision (2013/234/EU). which excluded the accounts of 9 Paying Agencies. The Paying Agencies for which the accounts were disjoined were: ODARC and ASP (France). Baden-Württemberg. Bayern. Rheinland-Pfalz and Thüringen (Germany). PARDF (Romania). Andalucía (Spain) and SGRPID (United Kingdom). The Paying Agencies Baden-Württemberg. Bayern. Rheinland-Pfalz and Thüringen (Germany) as well as SGRPID (United Kingdom) were cleared in a later decision in July 2013. In February 2015. a subsequent financial clearance decision was adopted for the Paying Agencies ODARC and ASP (France) as well as PARDF (Romania). By means of this decision. a total amount of EUR 1.726 million was cleared for the EAFRD. With that. there is only one Paying Agency for which the 2011 EAFRD accounts are still outstanding: Andalucía (Spain). for which the conformity enquiry is still ongoing. 5.1.6. Financial clearance for financial year 2010 In April 2011. the Commission adopted the decision 2011/271/EU clearing the 2010 annual accounts for EAFRD. 8 Paying Agencies have not been included and are subject to a further review. The Paying Agencies Baden-Württemberg. Bayern. Hessen and Rheinland-Pfalz (Germany) were cleared in a later decision in February 2012. The accounts of the Paying Agency APA (Slovakia) were cleared in July 2013. In January 2015. the Commission adopted a decision clearing the 2010 annual accounts of the Paying Agencies ARBEA (Italy) and Ministry of Agriculture (Luxembourg). By means of this decision. a total amount of EUR 31 million was cleared for the EAFRD. With that. the only Paying Agency for which the 2010 EAFRD accounts are still outstanding is Région Wallonne (Belgium). for which the conformity enquiry is still pursued. 5.1.7. Financial clearance for financial year 2009 and before All EAFRD accounts for the financial years 2009 and before have been cleared.. 5.2. Conformity clearance – audits and decisions adopted in 2014 5.2.1. Introduction It is primarily the Member States' responsibility to satisfy themselves that transactions are carried out and executed correctly via a system of control and dissuasive sanctions. Where Member States fail to meet this requirement. the Commission applies financial corrections to protect the financial interests of the EU. The conformity clearance relates to the legality and regularity of transactions. It is designed to exclude expenditure from EU financing which has not been effected in compliance with EU rules. thus shielding the EU budget from expenditure that should not be charged to it (financial corrections). In contrast. it is not a mechanism by which irregular payments to beneficiaries are recovered. which according to the principle of shared management is the sole responsibility of Member States. Financial corrections are determined on the basis of the nature and gravity of the infringement and the financial damage caused to the EU. Where possible. the amount is calculated on the basis of the loss actually caused or on the basis of an extrapolation. Where this is not possible. flat-rates are used which take account of the severity of the deficiencies in the national control systems in order to reflect the financial risk for the EU. Where undue payments are or can be identified as a result of the conformity clearance procedures. Member States are required to follow them up by recovery actions against the final beneficiaries. However. even where this is not possible because the financial corrections only relate to deficiencies in the Member States' management and control systems. financial corrections are an important means to improve these systems and thus to prevent or detect and recover irregular payments to final beneficiaries. The conformity clearance thereby contributes to the legality and regularity of the transactions at the level of the final beneficiaries.

5.2.2. Conformity clearance – audits and decisions adopted in 2014 Audits In 2014. Directorate J carried out 44 audit missions and 10 desk checks in respect of EAFRD. plus 2 missions concerning SAPARD and 1 on IPARD. Out of these 44 missions. 15 audit targeted Axis 2 measures. of which 9 audits covered area related measures controlled by IACS. Conformity decisions In 2014. three conformity decisions were adopted which had a financial impact by excluding from EU financing of EAFRD a total of EUR 39.8 million: Decision 2014/191/EU of 04/04/2014 – 44th Decision. financial impact of EUR 21.7 million. Decision 2014/458/EU of 09/07/2014 – 45th Decision. financial impact of EUR 10.2 million. Decision 2014/950/EU of 19/12/2014 – 46th Decision. financial impact of EUR 7.9 million. 5.3. Recoveries The Member States submitted the information about irregularity cases by 15 February 2015 regarding financial year 2014. According to this data. the Member States have recovered EUR 121.9 million during financial year 2014. whereas the outstanding amount to be recovered from beneficiaries at the end of that financial year is EUR 340.2 million. Regulation (EU) No 1306/2013 provides an automatic clearing mechanism for unduly paid amounts not recovered after 4 or 8 years (in case the recovery is challenged in national courts) after the establishment of an irregularity. The financial consequences of non-recovery are shared by the Member State concerned and the EU on a 50-50% basis. As of financial year 2014. according to Regulation (EU) No 1306/2013. the so-called '50-50 rule' is applied on an annual basis for both the old (2007-2013) and new (2014-2020) EAFRD programmes. For financial year 2014. this financial consequence of non-recovery amounted to EUR 18.5 million for the EU. With regard to the reporting of the irrecoverable cases (100% of the cost assumed by the Commission). under the new regime. EAFRD irregularity cases are declared irrecoverable on an annual basis. rather than after the closure of the rural programme as in the previous regime. In view of this change. the Member States were invited to declare all those cases found irrecoverable in financial year 2014 and before. However. due to the technical unavailability of the Commission's software WinCheckCSV to receive data for cases declared irrecoverable prior to financial year 2014. the Member States were given two options from which to choose on how to treat their old irrecoverable cases. The first option involved the resubmission of their data and amended Annex II tables together with new declarations certifying the modified data. The second option was to exceptionally postpone this declaration to the financial year 2015 clearance procedure. Out of 70 Paying Agencies managing the EAFRD. 20 submitted new data as per the first option. The rest of the Paying Agencies opted for the submission of old irrecoverable cases together with the annual accounts in financial year 2015. In this context. the amount to be assumed at 100% of the cost by the Commission for financial year 2014 amounted to EUR 17.6 million. 5.4. Appeals brought before the Court of Justice against clearance decisions Judgments handed down In 2014. two judgements have been handed down by the Court in appeals brought by the Member States against clearance decisions with regard to EAFRD. The Court rejected appeals brought in the following case: • Judgment of 15 July 2014 in case C-71/13 P brought by Greece; • Judgment of 10 July 2014 in case C-391/13 P brought by Greece. New appeals In 2014 five new appeals were brought by the Member States against clearance decisions: • Case T-675/14 brought by Spain on 22/09/2014 • Case T-107/14 brought by Greece on 14/02/2014

• Case T-124/14 brought by Finalnd on 19/02/2014 • Case T-384/14 brought by Italy 03/06/2014 • Case T-661/14 brought by Latvia on 11/09/2014 Appeals pending The situation as at 31 December 2014 with regard to appeals pending is shown. together with the amounts concerned. in Table 13. Table 13 Appeals against clearance of accounts decisions pending on 31 December 2014 (for EAFRD) Case number Member State Challenged amount (EUR) T-255/13 IT -5 599 441.61 T-257/13 PL -28 763 238.60 T-259/13 FR -28 955 683.35 T-3/11 PT -213 224.74 T-346/13 GR -6 175 094.49 T-365/13 LT -3 448 510.00 T-367/13 PL -71 610 559.39 T-561/13 ES -757 968.97 T-107/14 GR -388 788.57 T-124/14 FI -927 827.58 T-384/14 IT -2 424 822.00 T-661/14 LV -303 187.46 T-675/14 ES -100 933.04 TOTAL -149 669 279.80 6. Basic rules governing the EAFRD and amendments made in 2014 6.1. General Basic legislation -Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund. the European Social Fund. the Cohesion Fund. the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund. the European Social Fund. the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347. 20.12.2013. p. 320–469); -Regulation (EU) No 1305/2013 of the European Parliament and of the Council of 17 December 2013 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) and repealing Council Regulation (EC) No 1698/2005 (OJ L 347. 20.12.2013. p. 487–548); -Regulation (EU) No 1306/2013 of the European Parliament and of the Council of 17 December 2013 on the financing. management and monitoring of the common agricultural policy and repealing Council Regulations (EEC) No 352/78. (EC) No 165/94. (EC) No 2799/98. (EC) No 814/2000. (EC) No 1290/2005 and (EC) No 485/2008 (OJ L 347. 20.12.2013. p. 549–607) -Regulation (EU) No 1310/2013 of the European Parliament and of the Council of 17 December 2013 laying down certain transitional provisions on support for rural development by the European Agricultural Fund for Rural Development (EAFRD). amending Regulation (EU) No 1305/2013 of the European Parliament and of the Council as regards resources and their distribution in respect of the year 2014 and amending Council Regulation (EC) No 73/2009 and Regulations (EU) No 1307/2013. (EU) No 1306/2013 and (EU) No 1308/2013of the European Parliament and of the Council as regards their application in the year 2014 (OJ L 347. 20.12.2013. p. 865–883). 6.2. Recent modifications Regulation (EU) No 1305/2013 was modified twice in 2014. The annual breakdown of Union support to EAFRD in Annex I was modified by Commission Delegated Regulations (EU) No 994/2014 and No 1378/2014 to take into account the amount transferred by Member States between the 1st and 2nd pillars of the CAP. 6.3. Delegated and implementing rules As foreseen in the basic legislation. in 2014. the Commission adopted a set of Delegated and Implementing acts to supplement certain non-essential elements of the legal framework and to ensure uniform conditions for the implementation.