EN Official Journal of the European Union L 266/32

RESOLUTION OF THE EUROPEAN PARLIAMENT

of 3 April 2014

with observations forming an integral part of the decision on discharge in respect of the implementation of the general budget of the European Union for the financial year 2012, Section III — Commission and executive agencies

THE EUROPEAN PARLIAMENT,

— having regard to the general budget of the European Union for the financial year 2012 (1),

— having regard to the consolidated annual accounts of the European Union for the financial year 2012 (COM(2013) 570 – C7-0273/2013) (2),

— having regard to the Commission’s report on the follow-up to the discharge for the 2011 financial year (COM(2013) 668), and to the Commission staff working documents accompanying that report (SWD(2013) 348 and SWD(2013) 349),

— having regard to the Commission communication of 5 June 2013 entitled ‘Synthesis of the Commission’s management achievements in 2012’ (COM(2013) 334),

— having regard to the Commission’s report on the evaluation of the Union’s finances based on the results achieved (COM(2013) 461), and to the Commission staff working documents accompanying that report (SWD(2013) 228 and SWD(2013) 229),

— having regard to the Commission communication on the protection of the European Union budget to end 2012 (COM(2013) 682),

— having regard to the Commission communication on the application of net financial corrections on Member States for Agriculture and Cohesion Policy (COM(2013) 934),

— having regard to the Commission’s annual report to the discharge authority on internal audits carried out in 2012 (COM(2013) 606), and to the Commission staff working document accompanying that report (SWD(2013) 314),

— having regard to the Court of Auditors’ Annual Report on the implementation of the budget for the financial year 2012, together with the institutions’ replies (3) (Annual Report), and to the Court of Auditors’ special reports,

— having regard to the statement of assurance (4) as to the reliability of the accounts and the legality and regularity of the underlying transactions provided by the Court of Auditors for the financial year 2012 pursuant to Article 287 of the Treaty on the Functioning of the European Union,

— having regard to the Council’s recommendation of 18 February 2014 on discharge to be granted to the Commission in respect of the implementation of the budget for the financial year 2012 (05848/2014 – C7-0048/2014),

— having regard to the Council’s recommendation of 18 February 2014 on discharge to be granted to the executive agencies in respect of the implementation of the budget for the financial year 2012 (05850/2014 – C7-0049/2014),

— having regard to Articles 317, 318 and 319 of the Treaty on the Functioning of the European Union and Article 106a of the Treaty establishing the European Atomic Energy Community,

— having regard to Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (5), and in particular Articles 55, 145, 146 and 147 thereof,

— having regard to Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (6), and in particular Articles 62, 164, 165 and 166 thereof,

— having regard to Council Regulation (EC) No 58/2003 of 19 December 2002 laying down the statute for executive agencies to be entrusted with certain tasks in the management of Community programmes (7), and in particular Article 14(2) and (3) thereof,

— having regard to its previous discharge decisions and resolutions;

— having regard to 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 (8);

— having regard to Rule 76 of, and Annex VI to, its Rules of Procedure,

— having regard to the report of the Committee on Budgetary Control and the opinions of the other committees concerned (A7-0242/2014),

A. whereas, for the 19th time in succession, the Court of Auditors was unable to grant a positive statement of assurance regarding the legality and regularity of the payments underlying the accounts,

B. whereas the continued absence of a positive statement of assurance risks eroding the legitimacy of Union spending and policies,

C. whereas, in a situation in which resources are scarce on account of the economic and financial crisis, greater importance attaches to the need to observe budgetary discipline and to use funds economically,

D. whereas the Union has entered a new Multiannual Financial Framework (MFF) 2014-2020 (9),

E. whereas, according to the Treaty on the Functioning of the European Union (TFEU), the Commission bears the ultimate responsibility for the implementation of the Union budget, while Member States are required to sincerely cooperate with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management,

F. whereas Article 287 TFEU provides: ‘The Court of Auditors shall provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions (…)’,

G. whereas performance audits measuring the extent to which spending has achieved the objectives pursued are becoming ever more important,

H. whereas the Commission’s management should be presented fairly, along with that of the Member States responsible under shared management of funds, with a view to reinforcing public trust in the Institutions,

I. whereas the evaluation report (Article 318 TFEU) on the finances of the Union, which is based on the results achieved, in particular, with reference to the requirements, provides the opportunity to propose a new performance culture within the Commission,

J. whereas the Committee on Budgetary Control should be even more closely involved in monitoring Commission spending in future; looking forward to closer cooperation with the Court of Auditors in order to produce wide-ranging proposals on improving efficiency in audit procedures,

Agricultural and Regional Policy: Deficiencies in the Commission’s and Member States’ management

Letter of 5 November 2013 from the rapporteur and the shadow rapporteurs to the President of the Commission and the latter’s reply

1. Calls on the Commission, in light of repeated error concentration in a few Member States, to assume greater and more substantial responsibility for safeguarding the Union budget against financial losses;

2. Observes that in the 2012 financial year the error rate rose for the third time in succession;

3. Calls, therefore, on the Commission to apply Article 32(5) of the Financial Regulation (EU, Euratom) No 966/2012 more strictly in case of a persistently high level of error, and consequently to identify the weaknesses in the control systems and take or propose appropriate action in terms of the possible simplification, the further strengthening of control systems and the redesign of programmes or delivery systems;

4. Is of the view that the risk of error of Union policy areas, in particular in the area of shared management, is higher if the related policies are particularly complex and Member States are reluctant to implement adequate control and reporting systems; urges all relevant actors involved in Union decision-making to simplify further, notably by drafting eligibility rules that are simple and verifiable, cutting red tape and devising appropriate and effective controls;

5. Notes that, according to the Communication from the Commission on protection of the European Union budget (10), eight Member States are responsible for 90 % of the financial corrections in the fields under shared management; urges the Commission therefore to direct its particular attention to those countries;

6. Notes that the rapporteur and shadow rapporteurs for the discharge to the Commission for the financial year 2012 called for more stringent financial corrections to be imposed on those Member States whose management and monitoring systems display persistent and systematic weaknesses;

7. Notes that, in his reply, the President of the Commission undertook to: (a) step up supervision and control in those Member States with the biggest risk profile in terms of management and control of Union programmes; (b) continue to suspend payments and halt programmes, if legally possible, in cases where serious shortcomings have occurred; (c) continue to supply necessary financial data, which facilitates a thorough analysis of Member States;

8. Welcomes the Commission communication on the protection of the Union budget, which for the first time gives an overview of the situation regarding financial adjustments in the individual Member States, while calling for a more detailed annual assessment of the situation in each of them, indicating how much money could actually be channelled back into the Union budget;

Commission communication on the application of net financial corrections on Member States for Agriculture and Cohesion Policy (11)

9. Welcomes the fact that, in response to the letter from Members of Parliament, the Commission published this communication as early as December 2013;

10. Welcomes the new rules for the 2014-2020 programming period, decided through the ordinary legislative procedure, including measures such as the designations of audit and certifying authorities, accreditations of audit authorities, audit examination and acceptance of accounts, financial corrections and net financial corrections, proportional control, ex ante conditionalities that aim to further contribute to the reduction of the level of error; supports in this respect the growing results orientation and the thematic concentration of cohesion policy that should ensure high added-value of the co-financed operations; welcomes also the definition of serious deficiency and the anticipated increased level of corrections for repeated deficiencies;

11. Welcomes the fact that, in the new programming period 2014-2020, net financial corrections can and must be imposed in the event of serious deficiencies in the implementation of cohesion policy and will remain the standard in the area of agriculture;

12. Considers swiftly and correctly applied net financial corrections an effective tool for protecting the Union budget and is of the view that recoveries and financial corrections have to be taken into account in any comprehensive assessment of the overall system of internal control; therefore asks the Court of Auditors to come to an agreement with the Commission on how to incorporate the impact of these corrective measures on the protection of the Union budget;

Assessment of the Communication

(a) Agriculture and Natural Resources

13. Notes that all financial corrections in the field of agriculture are net corrections; stresses that the application of net financial corrections in the field of agriculture does not yet constitute the anticipated progress, as (a) the Commission’s existing internal indicative benchmarks already stipulate that the duration of conformity procedures must not exceed two years; and (b) the so-called ‘new’ criteria and methodology for determining the proportionality of the financial corrections to be applied, as mentioned in Annex I to the Communication refer explicitly to guidelines that will be based on the existing ones adopted by the Commission as long ago as 23 December 1997; is surprised that for almost 20 years the Commission has not been able to bring the duration of the clearance procedures below the self-inflicted benchmarks; considers it necessary, however, for the conformity procedure to have its full effect to accelerate the procedure and to further improve the criteria and methods for the application of financial corrections beyond the new guidelines foreseen; and (c) Member States fail to provide, quickly, simply and effectively, proof that the net financial correction envisaged by the Commission is not justified, the result being frequent delays in dealing with cases involving corrections;

(b) Cohesion Policy

14. Notes that it depends on many factors whether the new instrument will lead to more net corrections and hence to a lower error rate in cohesion policy; considers it problematic, moreover, that there are ways in which Member States can avoid net financial corrections (no limit on the replacement of projects until 15 February of year ‘n+1’, no time limit on notification by Member States of their own past errors, protracted objection procedures);

15. Asks the Commission to submit without delay a proposal on limiting if not banning replacement projects all together;

16. Considers that the effectiveness of this instrument for cohesion policy cannot yet be assessed because its application depends on the detail adopted in a delegated act expected in April 2014;

17. Notes furthermore that some audit reports of several Member States, which constitute one of the elements feeding into the Commission’s declaration of assurance, are themselves often faulty, underestimate the level of risk and error and are therefore partially unreliable (12); notes furthermore that the Court of Auditors only recently confirmed that ‘(…) the European Commission cannot unquestioningly rely on the results of audits performed by the Member States in relation to Union regional funding appropriations’ (13);

Commission’s Reservations, reasons for binding commitments

18. Recalls that, when it took office in 2005, the Barroso Commission made it one of its objectives to enhance accountability ‘by striving for a positive declaration of assurance from the European Court of Auditors’ (14);

19. Recalls that good cooperation is vital, especially in the area of shared management; therefore, urges all relevant actors involved in Union decision making to increase efficiency, notably by drafting eligibility rules that are simple and verifiable, by establishing clear rules and procedures for accessing the Union funds, by cutting red tape and by devising appropriate and cost effective controls;

20. Expresses concern that in the 2012 financial year the error rate rose for the third time in succession even taking into account the new methodology of the Courts of Auditors;

21. Remains very concerned that for years the majority of the errors identified by the Court of Auditors ought to be have been identified by the Member States themselves; considers, therefore, that in some Member States the control statistics, audit results and procedures constitute an inadequate basis for assessments and financial corrections by the Commission, and expects significant improvements in this regard in the funding period 2014-2020;

22. Calls, therefore, pursuant to Article 287(3) TFEU, for cooperation between national audit institutions and the Court of Auditors as regards shared-management controls to be stepped up;

23. Acknowledges, as the Commission over and over indicates, that around 80 % of the funds are being spend under shared management; nevertheless recalls that Article 317 TFEU stipulates that the Commission bears the ultimate responsibility for the implementation of the budget; expects full cooperation from Member States, however, in ensuring that they fully apply the rules on sound financial management and controls;

24. Regards mandatory reporting and improvement as an effective and appropriate budget discharge instrument designed to have tangible effects on error rates;

25. Underlines that Parliament only issues reservation in areas for which it has not received adequate assurance from the Commission and/or the Court of Auditors to refute its concerns, deems it a priority that the Commission proves to Parliament in the case of reservations in which way convincing remedial measures have been taken to overcome the latter’s concerns;

26. Regards reservations as a new and effective budgetary control instrument, being a commitment by Parliament to monitor closely the measures taken by the Commission and Member States to eliminate these problems, so as to justify in the eyes of the public in particular the decision to grant discharge;

… in the field of agriculture

27. Observes that the error rate in the field of rural development, environment, fisheries and health is 7,9 %; regrets that due to the delay between payment claims, payments, controls and reported statistics, no significant impact on reducing the error rate can be expected before 2014 at the earliest, although an action plan was adopted in 2012;

28. Notes that the Internal Audit Service of the Commission (IAS) found that the audit strategy of DG AGRI was not sufficiently formalised, namely that there were gaps in the definition of the audit universe, the setting up of quantitative and measurable objectives (e.g. audit coverage), and the related capacity analysis; is worried about the IAS’s finding that audit plans were not sufficiently supported by risk assessments and that there was a significant audit backlog (13 % of engagements of 2007-2010 still open), despite DG AGRI’s efforts to reduce it;

29. Notes that the Commission reports the errors in the Land Parcel Identification System (LPIS) in France and Portugal since 2006; notes that before 2010 no own initiative action plan had been initiated in these countries; criticises the fact that ‘action plans’ instigated by the Commission have only started in 2010 for Portugal and as late as in 2013 for France; considers that, although the way in which the Commission addresses the deficiencies detected in the LPIS systems in order to calculate the financial corrections gives rise to lengthy conformity procedures, delays in the adoption of action plans and reservations in the annual activity reports it makes for real financial corrections, as called for by Parliament and the Court of Auditors, rather than flat-rate corrections which are open to challenge by the Member States and recipients; supports the Commission in its approach, and calls for the systems to be improved in any way possible, including the provision of training to staff, in order to enhance their effectiveness and rapidity;

30. Would like to be informed on the total amount of the Union’s subsidies, grants and other financial instruments that were spent in setting up and improving the LPIS system since the decision was taken, if possible divided by Member-State;

31. Points out in particular that, despite decisions on flat-rate corrections by the Member States, the errors detected in 2006 by the Court of Auditors in France and Portugal and confirmed by the Commission in 2008 were still not fully remedied in 2012; stresses that from 2006 to 2013 direct payments were made whose legality and regularity were not fully guaranteed; is concerned about the Union budget because of the failure to make the financial corrections in respect of mistakenly disbursed amounts in the years from 2008 to 2013 in France and from 2010 to 2013 in Portugal arising from continuing errors in the LPIS, which were discovered in 2006; notes, however, that the Commission applied net financial corrections as early as 2008 in France and 2010 in Portugal; calls on the Commission to offset the entire financial risk of such errors in the Union budget through net corrections;

32. Observes that the conformity clearance procedures take far too long to protect the Union budget effectively; regrets the administrative capacities that have been frozen for years and the loss in revenue and interest to the EU budget;

33. Notes that the Director-General of DG AGRI has maintained a reputational reservation concerning deficiencies in the supervision and control of certified organic products; expects remedial action of the Commission to ensure that the absence of sufficient controls does not lead to unfair distortion of competition between organic and conventional farmers;

34. Endorses the reservations issued by the Director-General of DG AGRI: — a reservation with regard to serious deficiencies in the direct payment systems in Bulgaria, France and Portugal; — a reservation with regard to all rural development expenditure; — a reservation with regard to deficiencies in the supervisory and control systems for organic production;

….in the field of regional policy, energy and transport

35. Notes that the error rate in regional policy is 6,8 %;

36. Observes that according to the audits of both the Court of Auditors and the Commission, some audit authorities of Member States are not carrying out their audits with the requisite thoroughness and that it is not sufficiently apparent whether and in what respect they are permanently improving their supervisory and control systems;

37. Notes that Member States’ authorities have interpreted guidance in different ways, in particularly as regards statistical sampling and coverage of the audit universe; is deeply worried since the IAS found significant variations in the extent and depth of on-the-spot tests;

38. Observes that the Commission does not conduct enough random sample audits of its own at national management authorities and final beneficiaries;

39. Endorses the reservation issued by the Director-General of DG REGIO concerning ERDF/Cohesion Fund/IPA management and control systems for the 2007-2013 programming period in 17 Member States (72 programmes) and 12 European Territorial Cooperation programmes; endorses furthermore the reservation concerning ERDF/Cohesion Fund/IPA management and control systems for the 2000-2006 programming period in 5 Member States (11 programmes) on programmes; in this context points out in particular: — audit authorities of all Member States must take their auditing task more seriously in order to bring about lasting improvements to management, supervisory and control systems; — the Commission must perform more audits of final beneficiaries and authorising authorities in year ‘n’ in Member States where shortcomings have been found in administrative and audit systems in year ‘n-1’; — the Commission must commit itself to audit all operational programmes at least once in the course of the programming period; — the Commission must report in time for the 2013 discharge procedure on the operational applicability of the term ‘serious deficiencies’ in the delegated act and on the net financial corrections it generated;

While not calling into question its decision to grant discharge, stresses its reservations as referred to in paragraphs 34 and 39 leading to the following binding commitments to be made

40. Calls on the Commission, in the area of agricultural policy, for conformity clearance procedures in standard cases to be completed in less than two years, as foreseen in the Commission’s internal benchmarking adopted more than 15 years ago.

41. Calls on the Commission, in the field of agriculture, to resolve without delay the problems occurring in Paying Agencies whose residual risk of error lies above the materiality threshold of 2 % as identified by the Commission; suggests to focus its efforts especially on the Paying Agencies in France, Bulgaria, Romania, Portugal and Latvia;

42. Calls, in order to remedy shortcomings in LPIS systems, for action plans to be implemented promptly; calls, in the event of failure to comply with the deadlines set in the action plans for proportional net financial corrections as part of the conformity clearance procedure; notes that adversarial procedures should be completed in general in two years;

43. Calls on the Commission to report on the state of play of the implementation of the action plans for France and Portugal by 30 June 2014;

44. Takes the view that recurrent land parcel identification shortcomings must be met by progressively increasing corrective penalties well beyond existing net and flat-rate corrections; calls for a Commission proposal along these lines;

45. Calls on DG AGRI to develop and formalise its control strategy, re-engineer its risk assessments according to the targets established, and ensure proper monitoring through better quantitative and qualitative key performance indicators whose disclosure in the Annual Activity Report should be improved;

46. Calls, in the field of regional policy, following the Commission’s and the Court of Auditors’ recommendations, for the Member States to drastically step up their first-level checks and render them more stringent;

47. Calls on the Commission, in the activity reports of the directorates-general, to report the extent to which Member States’ control statistics or audit reports have been examined, verified and validated and the depth in which this has been done;

48. Calls on the Commission, in its annual activity reports, to indicate how its own risk analyses have influenced the use of its own audit capacities, which countries were concerned and whether the shortcomings were remedied; calls for more direct audits of random samples taken from national granting authorities and final beneficiaries; notes that this could be made possible by redeploying staff and/or by reducing the number of audits in Member States with low error rates;

49. Stresses that the guidelines for audits by the Commission itself ought to constitute a self-imposed obligation on the Commission; calls on the Commission already to present them as part of the 2013 discharge procedure; calls for clear indications, to this end, of the extent to which Member States and programmes which have attracted attention in the past have been subjected to a special audit approach and the extent to which net financial corrections can be accelerated; stresses that this approach should already be adopted in the impending delegated acts and implementing acts;

50. expects that the Commission improves its own checks on the audit authorities’ annual control reports, to ensure that auditors are able to reach conclusions on the impact of the reliability of error rates from Member States’ audits and to strengthen its assurance process; is of the opinion that these inconsistencies need to be addressed as soon as possible to minimise the risk of non-detection of system weaknesses and/or errors and irregularities;

51. Is aware that forthcoming net financial corrections cannot entail automatic penalties, as this would be contrary to the rule of law; calls, therefore, on the Commission to do everything in its power to shorten the adversarial procedures preceding the imposition of net corrections or interruptions of payments; calls on the Commission to submit a report and a proposal on the subject; undertakes as of now that Parliament will support the Commission in this matter if Member States raise objections;

52. Calls on the Commission to insert in the annual report on the protection of the Union budget a chapter on net financial corrections per Member State;

53. Calls on the Commission to identify in the Communication on shared fund management the three Member States with the highest error rates and financial corrections, which will subsequently receive a hearing from the discharge authority as part of the discharge procedure;

54. Calls on the legislative authority at the first opportunity to limit in time and in financial terms the option of replacing projects affected by errors with new projects before 15 February of year ‘n+1’;

55. Calls on the Court of Auditors to make more use of performance audits to compare expenditure programmes in a number of countries; calls once again for special country reports from the Court of Auditors for Member States which are particularly prone to error (with federal administrative structures) and which have attracted particular attention (through high error rates);

56. Asks for the following: — the DGs concerned should build up a new and reinforced audit strategy to counter weaknesses found in in some Member States as referred to in paragraphs 47, 48 and 49; — Intensification of quality checks on Member-States audit and control reports as referred to in paragraphs 47 and 48; — increase in the random sampling based audits by the Commission in the spot and the more systematic use of net financial corrections as referred to in paragraph 13; — detailed rules in the CPR delegated act to provide for definition of serious deficiencies and assessment of key requirements for management and control systems as referred to in paragraph 216; — application of progressively increasing payment reductions and administrative sanctions where eligibility criteria have not been respected by the final beneficiary receiving direct payments or rural development support and recurrent LPIS shortcomings; — suspension mechanism to be used as an ex ante instrument for protection of the Union budget as referred to in paragraph 42; — the use of interruptions, suspensions, financial corrections, and recoveries will be detailed in the next annual report on the protection of the Union budget, and specifically for structural and cohesion funds in the reports for 2016 onwards as referred to in paragraph 52; — Annual Activity Reports (AARs) from the DGs should include information on reservations regarding risk to the Union budget and such reservations should only be lifted when the weaknesses have been addressed through Member State action and correction of irregular expenditure, and AARs also to error rate and residual risk estimates particularly when Member States have carried out corrective actions; — a new horizontal report should be prepared on how new preventive and corrective tools are implemented under the 2014-2020 MFF, and assessing any risk from the gap between the final legislation compared to the Commission proposals; — contradictory and conciliation procedures should be streamlined so that the whole conformity procedure will be shortened to two years in all standard cases as referred to in paragraph 40; — for France and Portugal, comprehensive action plans should be established in the field of agriculture in among other the updating of their LPIS systems as requested in paragraph 44; — the introduction of a template and recommendations for national management declarations; — limit the option of replacing projects affected by error with new projects before 15 February n+ 1; — making better use of RAL and limiting the period covered by pre-financing; — the Commission should reach binding bilateral agreements with Member States which have attracted particular attention, along the lines of the European Semester;

57. Calls for the above commitments to be sent, by the newly elected President of Parliament, to all candidates for the post of President of the Commission calling for binding commitments for the delivery of the above following the 2014 European parliament elections; asks furthermore the new Parliament to include the above commitments in the written procedure at the hearings of the designated members of the new Commission and to demand appropriate pledges in order to improve protection of the Union budget;

58. Calls on the Commission to establish a registry for all Union funds going to media in the Member States from the structural funds or agricultural funds including rural development;

59. calls on the Commission to concentrate on those Member States which are vulnerable or conspicuous in this respect;

60. Calls on the Member States which did not already introduce a voluntary Member State Declaration to do so on the basis of the management declaration as foreseen by Article 59 of the Financial Regulation (EU, Euratom) No 966/2012; urges the Commission to establish the template for the management declaration as soon as possible; reiterates in this respect the on-going work of the interinstitutional working group on Member State Declarations which for its result is very dependent on the new content of the management declarations;

61. Calls on the Commission to monitor the certification process of the national audit authorities in the Member States dealing with repeatedly high error rates more frequently; encourages the Commission to present a communication and legislative proposal to this end;

62. Calls on the Commission to apply Article 32(5) of the Financial Regulation (EU, Euratom) No 966/2012 if the level of error is persistently high, and consequently to identify the weaknesses in the control systems, analyse the costs and benefits of possible corrective measures and take or propose appropriate action in terms of simplification, improvement of control systems and redesign of programmes or delivery systems;

63. Calls for significant reductions in those reporting requirements and control densities for Member States that operate permanently with very low error rates; encourages the Commission to present a communication including an efficient and effective control policy to this end, allowing for more resources to be made available for control measures in and for countries with high error rates;

64. Urges the Commission to tackle the problem of ‘frontmen’ being used for the purpose of obtaining public contracts and calls for every stage of public procurement procedures to be published on internet, ensuring maximum transparency, and identifying subcontractors also;

65. Calls on the Commission to examine its internal shared management arrangements and make recommendations to the European Parliament regarding the appointment of Union officials at the head of national payment, management and audit authorities in the Member States with responsibility for the disbursement of Union funds;

66. Recommends that the newly elected Parliament ensures through the relevant committees that the respective Commissioners commit themselves formally, in the written procedure prior to the hearings, to take remedial action within the defined timeframe; these commitments, together with the reports from the Commission and the Council will allow Parliament to take an informed decision during the discharge procedure 2013;

67. Calls on the newly elected Parliament, in the spirit of the above, to probe all legal means of achieving further legislative improvements, if appropriate, in the context of the mid-term review of the Multiannual Financial Framework;

The Court of Auditors’ Statement of Assurance

Accounts – clean opinion

68. Welcomes the fact that the annual accounts of the Union for the financial year 2012 present fairly, and in all material respects, the position of the Union as at 31 December 2012 and the results of its operations, its cash flows and the changes in net assets for the then completed year;

69. Points out that in addition to delivering one opinion on the reliability of the accounts, the Court of Auditors delivers three on the legality and regularity of the underlying operations; takes the view that this plethora of opinions makes it more difficult for Members of Parliament to assess the Commission’s implementation of the budget;

70. Regards it as abnormal that the annual accounts should show net assets of -EUR 40,4 billion, and wonders whether the amounts to be called from Member States for staff pensions, which are estimated at EUR 42,5 billion, should not be entered as assets, given that this clearly constitutes a commitment; notes the Commission accounting officer’s explanations to the effect that international public-sector accounting standards have been applied; calls for the Court of Auditors to state clearly its position on this matter; calls for a figure to be put on the risk of the above amount not being made available, in the light of the Member States’ financial positions; proposes that consideration should be given to setting up a Community pension fund in order to get these financial commitments vis-à-vis staff off the balance sheet;

Legality and regularity of revenue – clean opinion

71. Notes with satisfaction that revenue underlying the accounts for the year ended 31 December 2012 is legal and regular in all material respects;

Legality and regularity of commitments – clean opinion

72. Notes with satisfaction that commitments underlying the accounts for the year ended 31 December 2012 are legal and regular in all material respects;

Legality and regularity of payments – adverse opinion

73. Deeply regrets that payments remain materially affected by error; reminds the Commission that Parliament has a zero-tolerance approach to errors;

74. Urges the Court of Auditors to assess the pertinence of an analysis based on the simple error rate and, in keeping with its independent status, to consider the materiality threshold (15);

75. Points out that, in accordance with international audit standards, the external auditor should set the materiality threshold for errors independently;

76. Respects the Court of Auditors’ method of taking the random sample with different priority countries and programmes each year for the ‘representative cross-section’; calls, however, in addition, for risk-based and programme-specific country reports starting with the annual report for 2014;

77. Understands that the basis for the adverse opinion of the Court of Auditors is the observation that the supervisory and control systems are only partially effective and that, as a result, payments are affected by a most likely error rate of 4,8 %;

78. Notes with concern that all policy groups covering operational expenditure are materially affected by error;

79. Emphasises that a distinction must be drawn between errors and fraud, and considers that, in the vast majority of cases, errors stem from administrative mistakes, many of which are linked to the complexity of Union and national rules, which can be corrected; expects that the institutions concerned pay due attention to this distinction in their communications with the wider public and the media;

80. Recalls that the most likely error rate for payments in the financial year 2011 was estimated at 3,9 %, in the financial year 2010 at 3,7 % and in the financial year 2009 at 3,3 %; deplores this increase because it reverses the positive trend observed in the years 2007, 2008 and 2009; acknowledges, however, that the increased number of payments during the closing phase of programmes could be one reason for a rise in error rates;

81. Deeply regrets that the commitment given by the Commission chaired by Mr Barroso to reach a fully positive DAS has not been honoured (16);

82. Notes with concern that all areas of operational expenditure contributed to this increase, with the rural development, environment, fisheries and health remaining the most error-prone policy group with an estimated error rate of 7,9 %, followed by regional policy, energy and transport with an estimated error rate of 6,8 %;

83. Points out that the increases in the estimated error rate were greatest for the spending areas employment and social affairs, agriculture: rural development, market measures and direct support and regional policy energy and transport;

84. Stresses that the increase in the estimated error rate is partly due to the change of the Court of Auditors’ sampling approach, the sample of transactions including now only interim payments, final payments and clearing of advances;

85. Notes that the change in the most likely error rate attributable to the modification of the Court of Auditors’ sampling approach does not exceed 0.3 percentage points and that this change is the main reason for the increase in the estimated error rate for external relations, aid and enlargement, research and other internal policies;

86. Welcomes the fact that the Court of Auditors decided in 2012 to treat serious procurement errors made by all Union institutions and bodies as quantifiable, as it already did for the Member States and international organisations; notes that the Court of Auditors has not backdated its approach to cover procurement activities by the Union institutions and bodies which took place before 2011;

87. Urges the Court of Auditors, together with the Commission, to adopt a jointly agreed method of counting errors, given that a divergent approach simply obscures the real impact of an error on the success of a project and hampers any realistic assessment thereof;

88. Notes with satisfaction that this change of approach makes it possible to compare the estimated error rate on shared management expenditure (amounting to 5,3 %) with all other forms of operational expenditures (amounting to 4,3 %);

89. Welcomes the fact that the Court of Auditors’ estimated error rate on administrative expenditure managed directly by the Union institutions is 0 %;

90. Stresses that eligibility errors account for more than two thirds of the overall estimated error rate, including serious failures to respect public procurement rules (1,4 percentage points), wholly ineligible projects/activities or beneficiaries (1,1 percentage points), ineligible costs included in cost claims (1,0 percentage point) and incorrect declarations in the field of agriculture (0,8 percentage points);

91. Refers to the Commission’s EU anti-corruption report (COM(2014) 38), which identifies public procurement as being particularly exposed to corruption; endorses, in this connection, calls for higher standards of integrity and improved control mechanisms in a number of Member States;

92. Notes that the financial corrections reported as implemented in 2012 amounted to EUR 3,7 billion, more than three times the figure for 2011 (EUR 1,1 billion) while recoveries remained essentially constant at EUR 678 million (EUR 733 million in 2011) and that most corrections in 2012 refer to the 2000-2006 programming period;

93. Welcomes the fact that the Commission succeeded in rapidly imposing a significant number of financial corrections in 2012 whilst many financial corrections are in general made many years after initial disbursement of funds; is critical of the fact that the Union budget incurs additional administrative costs and losses of revenue and interest due to excessively protracted procedures, thereby blocking budget resources; considers effective ex ante controls a better way of protecting the Union budget than ex post financial corrections;

94. Welcomes the country-specific statements in the Communication from the Commission to the European Parliament on the protection of the European Union budget to end 2012 (17); is critical, however, of the fact that it does not yet provide reliable information on withdrawals, recoveries and pending recoveries of structural funds for the individual Member States, and calls on the Commission to supply country-specific information in the appropriate depth and on the basis of meaningful time series;

95. Takes note that, in financial terms, the total amount of financial corrections and recoveries implemented in 2012 represented 3,2 % of all 2012 budget payments and that the average amount of financial corrections and recoveries implemented per year by the Commission during the period 2009-2012 was EUR 2,6 billion or 2 % of the average amount of payments from the Union budget (18);

96. Considers that these measures have still had too little impact on the Union budget and asks the Commission to provide Parliament and the Council with precise amounts and the use made thereof in this regard in the next communication on the protection of the Union budget for the financial year 2013;

97. Notes that the 2012 accounts record a EUR 1,8 billion financial correction on the 2000-2006 use of cohesion policy funds in Spain, which corresponds to 49 % of the total corrections in 2012; regrets that in accordance with current rules, authorities in Spain were entitled to further funding amounting to EUR 1 390 million;

98. Welcomes the fact that the Court of Auditors excludes from the estimation of the error rate only the financial corrections incorporating detailed corrections at project level, but recognises that flat-rate corrections decided by the Commission could be an efficient tool to protect the Union budget;

99. Notes that only approximately 1 % of the financial corrections implemented in 2012 involved a net reduction of Union funding to the programme and the Member State concerned in cohesion policy;

100. Encourages the Commission to present information reconciling as far as possible the year in which payment is made, the year in which the related error is detected and the year in which recoveries or financial corrections are disclosed in the notes to the accounts;

The Synthesis Report and the annual activity reports

101. Takes note that 12 directors-general and two directors of executive agencies made a total of 23 quantified reservations related to the expenditure and that the Director-General of DG Budget qualified his declaration on revenue;

102. Deplores the fact that the term ‘amounts at risk’ is not defined within the ‘Synthesis of the Commission’s management achievements in 2012’ (Synthesis Report) adopted by the Commission on 5 June 2013 and that such amounts are not calculated on a consistent basis by the various directorates-general; calls on the Commission to develop a joint approach among the directorates-general with regard to establishing amounts at risk;

103. Points out that, as the Commission quantifies the amount at risk at between 1,9 % (EUR 2,6 billion) and 2,6 % (EUR 3,5 billion) of total payments for the year, it acknowledges that the level of error in expenditure is likely to be material, especially since the Commission itself states that amounts at risk in a number of areas, in particular rural development, are likely to be underestimated; emphasises, however, that these amounts do not include the potential future financial corrections, which substantially reduce the final risk; urges the Commission to adequately protect the Union budget and finds the average level of past financial corrections and recoveries encouraging;

104. Considers that the comparison made by the Commission’s Synthesis Report of the total for ‘amounts at risk’ with the average level of financial corrections over the last years should be put into context (timing and impact of the financial corrections on Member States and beneficiaries, likely underestimation of the amounts at risk and re-use of the funds);

105. Regrets that the Commission continues to ignore Parliament’s long standing request to add the individual Commissioner’s signature to the annual activity reports of his/her related Directorate-General for which he/she is responsible; notes that the synthesis report is adopted by the College of Commissioners, but deems this unsatisfactory in the light of democratic accountability principles;

Pressure on the budget

106. Notes the cuts in payments brought by the Council, which have resulted in decreases in payment appropriations as compared to the adopted budgets; underlines that Council keeps following its strategy to artificially cut the level of payments, without taking into consideration real needs, and notes with concern that the substantial gap between appropriations for commitment and payment, coupled with a large amount of underspending at the start of the 2007-2013 programming period, has caused a build-up equivalent to two years and three months’ worth of unused commitments;

107. Stresses that the recurrent shortages of payment appropriations have been the main cause of the unprecedentedly high level of RALs especially in the last years of the 2007 -2013 MFF; notes with deep concern that the Commission is finding it increasingly difficult to meet all requests for payments in the year within the budget appropriations for payment and that the cumulative total of commitment appropriations available for payments over the period 2007-2013 has exceeded the cumulative total of payment appropriations available over the same period by EUR 114 billon; notes that this is EUR 64 billion more than the difference of EUR 50 billion between the total of commitment appropriations and payment appropriations envisaged in the financial framework;

108. Expresses concern over the fact that the Commission’s outstanding budgetary commitments for which payments and/or decommitments have not yet been made increased by EUR 10 billion to EUR 217 billion and that EUR 16,2 billion of claims for payment were outstanding at the end of 2012 (EUR 10,7 billion at the end of 2011 and EUR 6,4 billion at the end of 2010); is further concerned that 52 % of the payment appropriations requested in the draft budget 2014 are devoted to the completion of 2007 - 2013 MFF programmes;

109. Deplores that the Commission’s DG for Humanitarian Aid and Civil Protection was unable to honour EUR 60 million of its payment obligations in a timely way in 2012 (and EUR 160 million in 2013) with grave consequences for both vulnerable people and those NGOs trying to support them; given the urgent lifesaving nature, rapid project cycle and modest budget (EUR 2 per citizen per year) involved in the Union emergency response, calls on the Commission and the budgetary authority to recognise the exceptional nature and specificity of these actions by ensuring matching levels of commitment and payment appropriations for humanitarian aid in the annual budgetary cycle;

110. Points out that as of 30 June 2013 gross pre-financing amounted to EUR 81 billion of which 75 % (approximately EUR 61 billion) existed already more than 18 months ago and 20 % (EUR 16 billion) existed more than six years ago; notes that unnecessary extended periods of pre-financing can lead to an increased risk of error or loss, is of the opinion that pre-financing can and should not exceed EUR 50 billion; notes that under shared management pre-financing payments are not conditioned by the existence of a guarantee; suggests therefore that the Commission should provide in the reports of the accounting officer a breakdown of pre-financing payments by year of their accrual and by Member State;

111. Is worried since EUR 4,8 billion from the previous programming period 2000-2006 was paid from the Union budget as pre-financing to projects in the structural domain as of 30 June 2013, which neither have been cleared nor had the amounts been recovered by the Commission or the Member States; demands information on the state of play of those projects and information about the schedule for recovery or clearance of those funds;

112. Demands a detailed breakdown and a detailed explanation of the EUR 2,3 billion of pre-financing that: (a) had been adjusted due to technical corrections made to the opening balance when accruals-based accounts were first prepared or (b) had been transferred from the Commissions balance sheet to other Union bodies (agencies and joint undertakings) at the time of their creation;

113. Is worried that the Commission received in the development and cooperation area only guarantees for a total of EUR 700 million while an amount of EUR 10,1 billion in pre-financing has already been paid; expects the Commission to undertake the necessary steps to minimise the credit risk; is convinced that NGOs, international organisations and other beneficiaries of grants or contracting parties should be subject to guarantee requirements for pre-financed amounts;

114. Urges the Commission to prepare and publish a ‘long-range cash flow forecast’, projecting future payment requirements to ensure that necessary payments can be met from approved annual budgets;

115. Recalls the Parliament’s proposal for a full-time Commissioner for Budgetary Control;

Responsibilities of the Commission and Member States in shared management

116. Stresses that the authorities of the Member States for the majority of transactions affected by error in shared management areas (e.g. agriculture and cohesion) had sufficient information to detect and correct the errors; therefore, once again requests the Member States to urgently reinforce the primary controls to address this unacceptably high level of mismanagement; moreover, calls on the Commission to shield the Union budget from the resulting risk of irregular payment by applying financial corrections in the event that such weaknesses in Member States’ management and control systems are found; calls, therefore, on the Member States and the Commission once again to urgently reinforce first-level checks to address this unacceptably high level of mismanagement;

117. Calls on the Court of Auditors, pursuant to the second subparagraph of Article 287(4) TFEU, to deliver an opinion on the independence of the national audit authorities with regard to shared management;

118. Notes that the lack of reliability of the first-level checks performed by some Member States undermines the credibility of the annual activity reports drafted by the Commission services and the Synthesis Report adopted by the Commission, as they are partially based on the results of the checks performed by the national authorities; reiterates, consequently, its previous demand that the Commission establish reliable and objective annual activity reports;

119. Proposes that consideration be given to the possibility for national audit institutions, in their capacity as independent external auditors, and with due regard for international audit standards, to issue national audit certificates for the management of Union funds, which would be submitted to Member State governments with a view to being produced during the discharge process in accordance with an appropriate interinstitutional procedure to be introduced;

120. Emphasises the fact that, in accordance with TFEU Article 317, the Commission is ultimately responsible for the implementation of the Union’s budget; points out that, where the Commission implements the budget under shared management, implementation tasks are delegated to Member States pursuant to Article 59 of the Financial Regulation (EU, Euratom) No 966/2012;

121. Welcomes the fact that, in accordance with Article 59(3), (4) and (5) of the Financial Regulation (EU, Euratom) No 966/2012, Member States’ management authorities are to be required annually to provide the Commission with their accounts accompanied by a management declaration, an annual summary of their final audit report and of controls and an opinion from an independent audit body, and notes that, in addition, Member States may provide voluntary national management declarations signed at the appropriate level based on the sections of the Financial Regulation referred to above;

122. Requests the Commission to forward each year to Parliament the annual summaries of the final audit reports and of the controls carried out by the Member States pursuant to Article 59(5)(b) of Regulation (EU, Euratom) No 966/2012 at the latest two months after their receipt by the Commission under the necessary safeguards laid down in the Interinstitutional Agreement of 2 December 2013 between the European Parliament, the Council and the Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management (19); notes that Parliament’s competent committee received those annual summaries for the financial year 2012 only on 19 February 2014;

123. Welcomes the fact that the Commission, within the context of that Interinstitutional Agreement accompanying the multiannual financial framework for 2014-2020, set up a working group composed of representatives of Parliament, the Council and the Commission in order to establish a template for such a declaration and to make the national declarations useful for the Commission’s own assurance process;

124. Requests the Commission, after the establishment of the template, to actively and constantly encourage the Member States to use that template in order to receive useful and reliable national declarations from all Member States;

The Council discharge recommendations

125. Calls for the Council to adopt a more critical position on the discharge and the ultimate use made of Union tax revenue in the Member States, notes in this connection the critical stance taken by Sweden, the United Kingdom and the Netherlands on the discharge for 2012; hopes that during their respective Presidencies, they will provide the necessary information, as requested by Parliament, on the execution of the Council’s budget, preventing a further refusal by Parliament to grant discharge; furthermore endorses the calls for national management declarations;

126. Requests that the Council report on the implementation of the remedial measures falling under the Member States’ responsibility, at the same time it adopts its next discharge recommendation by the end of October 2014;

Revenue

127. Notes that the Court of Auditors’ audit did not find any substantial error in the Commission’s calculation of Member States’ contributions and their payment, most of which are based on forecast Gross National Income (GNI) data for 2012;

128. Notes that the Court of Auditors was unable to demonstrate the correctness of EUR 8 million of the EFTA contribution (EUR 240 million); calls on the Court of Auditors and the Commission to investigate this finding and report on the correctness of the EFTA contribution in the follow-up to the discharge for 2012;

129. Calls on the Commission to inform the Committee on Budgetary Control during the follow-up to the 2012 discharge procedure what efforts have been made to remove reservations regarding the communication of data from the GNI field;

130. Is astonished that GNI figures can only be regarded as final four years after they have been communicated; regards this period of time as disproportionate;

131. Expresses its concern about the weaknesses of the Value Added Tax (VAT) systems of the Member States; refers in this connection to the findings of a study (20) which estimated losses of VAT revenue in 2011 due to infringements or failure to collect the tax at EUR 193 billion for public finances in the Member States; notes that this is equivalent to 18 % of the theoretical VAT revenue or 1,5 % of GDP (0,5 % more than the present Union budget for 2014-2020); wishes therefore to be informed what measures the Commission has taken to remove existing reservations relating to the national VAT system of the Member States, which may date from as long ago as the 1990s;

132. Takes note that the above mentioned study shows that Italy (EUR 36 billion), France (EUR 32 billion), Germany (EUR 26,9 billion) and the United Kingdom (EUR 19 billion) contributed over half of the total VAT gap in quantitative terms, mainly because they are the largest Union economies; also notes that, in terms of ratio to their own GDP, Romania (EUR 10 billion), Greece (EUR 9,7 billion) Lithuania (EUR 4,4 billion) and Latvia (EUR 0,9 billion) were the Member States with the largest VAT gap in 2001; takes note that the study also shows a marked upward trend in the VAT gap in many Member States since 2008, as a result of the economic crisis (this was especially the case in Spain, Greece, Latvia, Ireland, Portugal and Slovakia); notes that on average across the Union, the VAT gap increased by 5 percentage points once the economic crisis hit;

133. Notes in this connection the Commission’s answer that 21 of the current 108 existing reservations were imposed by Member States themselves; observes that 27 further reservations are based on the fact that national legislation does not accord with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (21); welcomes the fact that it has proved possible to remove 12 of the 16 longstanding reservations;

134. Regrets that Belgium, Finland and Poland, which the Court of Auditors visited in 2012 in the course of its audits, are characterised by shortcomings in customs surveillance at national level in connection with retrospective audits and risk analysis; calls on the Commission to investigate these shortcomings;

135. Concludes from the above audits and from the Commission’s audits in 2010 and 2011 that similar shortcomings could also exist in other countries, and therefore calls on Member States and the Commission to step up their customs surveillance, especially in the major ports; calls on the Commission to report on the matter during the preparation of the discharge for 2013;

136. Expresses its concern that EUR 200 million in fines which have been imposed but not yet paid have no cover of any kind;

137. Notes on the basis of the letter of 12 April 2013 (22) from Commissioner Šemeta that at present it is impossible for technical reasons to introduce the modernised Customs Code;

138. Notes the Communication from the Commission ‘action plan on fighting tax fraud and tax evasion’ of 6 December 2012 (COM(2012) 722) and the Commission’s answers of 26 September 2013 (COM(2013) 349);

139. Welcomes the announcement by Commissioner Šemeta that he will forward to Parliament by 1 May 2014 an overview of the measures to combat tax evasion and avoidance;

140. Considers that VAT fraud, and in particular the so-called carousel or missing trader fraud, distorts competition, and deprives national budgets from significant resources and is detrimental to the Union budget; calls on the Commission to use all means to enforce the obligation of Member States to provide information in a timely manner to the Commission; welcomes in this regard the promise of the Commissioner to provide Parliament until 1 May 2014 with an overview of the developments of the initiatives taken to tackle tax evasion and avoidance taking place within the Union and in relation to third countries;

Agriculture

Market and direct support

141. Regrets that the European Agriculture Guarantee Fund (EAGF) payments are not free from material error in 2012, that the supervisory and control systems examined for expensed payments were partially effective and deplores the increase of the most likely error rate to 3,8 %, (2,9 % in 2011);

142. Notes that for a significant number of transactions affected by error, the Court of Auditors considers that the national authorities had enough information to detect and correct the errors concerned; asks the Court of Auditors to give precise information in this regard;

143. Is deeply concerned about the fact that the critical observations made in the annual report of the Court of Auditors for the financial year 2012 and the systematic weaknesses detected by the latter have already been reported by the Court of Auditors in its previous reports, and in particular, as regards the eligibility of permanent pasture, since 2007; notes the Commission’s explanations and calls on the Commission and the Court of Auditors, in the context of the adversarial procedure, to reach agreement on the eligibility criteria for permanent pasture;

144. Points out, in particular, that the most frequent accuracy errors relate to overstated area declarations and administrative errors, and that the bigger accuracy errors relate mostly to excessive payments for permanent grassland; regrets that overdeclarations in the cross-checks of declared parcels on the basis of the LPIS in certain Member States have not been discovered since the LPIS database is only partially reliable;

145. Points out that the audit by the Court of Auditors covered cross-compliance requirements and that cases where cross-compliance obligations were not met were treated as error where it was established that the infringement existed in the year in which the farmer applied for aid;

146. Points out that the Court of Auditors includes deficiencies in the area of the cross-compliance in their calculation of the error rate while noting that, in the view of the Commission, cross-compliance does not concern the eligibility to payments but only triggers administrative penalties (23);

147. Recalls that ‘the error rate must be used with great care and not be treated as an overall assessment of the respect of the cross-compliance obligations by farmers’ because the Court of Auditors has restricted its audit only to certain cross-compliance requirements (24);

148. Is deeply concerned about the fact that the Court of Auditors’ audits show once again that the effectiveness of the Internal Management and Control System (IACS) is adversely affected mainly by inaccurate databases used for cross-checks; in particular points out that significant deficiencies were found in the LPIS audited in England and Northern Ireland;

149. Regrets also that with regard to the accuracy of payments, but also to the quality of the on-the-spot measurements, the Court of Auditors found deficiencies in the three paying agencies audited in England, Northern Ireland and Luxembourg;

150. Shares the concern of the Court of Auditors as regards the change in the approach used by DG AGRI to calculate the residual error rate for decoupled area aid in 2012, as it takes into account the fact that the inspection statistics can be affected by deficiencies impacting their reliability and that they do not cover all components of the residual error rate;

151. Deplores the fact that the results of this new approach confirm that only limited assurance can be gained from certain Member States’ inspection statistics, from the declarations of the directors of paying agencies and from the work carried out by the certification bodies; calls for this new approach to extend to all CAP expenditure in DG AGRI’s next Annual Activity Report;

152. Regrets that out of seven recommendations issued by the Court of Auditors in its annual reports for the financial years 2009 and 2010, only two were implemented in most respects and four in some respects by the Commission;

153. Endorses the recommendation made by the Court of Auditors that the eligibility of land and in particular permanent pasture be properly recorded in LPIS (see paragraphs 3.13, 3.25 and box 3.3 of the Annual Report for 2012); urges the Commission, in cooperation with the Member States, to address the problems with regard to permanent pasture and ensure that it is correctly recorded in the LPIS; urges the Commission to inform Parliament on a six months basis on progress made;

154. Asks the Commission and the Member States to take immediate remedial action when administrative and control systems, and/or IACS databases, are found to be deficient or out of date;

155. Deplores in this regard that deficiencies were detected by the Court of Auditors and the Commission in the LPIS systems in Portugal and in France in the course of the 2006/2007 audits, whilst the Director-General of DG AGRI only entered a reservation accompanied by an action plan on these grounds as regards Portugal in his DG’s annual activity report of 2011 and as regards France in 2012;

156. Considers that the adverse effects on effective Union budget protection can result from any delay in making the reservation to be accompanied by a request for an action plan and points out that the Commission bears particular responsibility in this regard;

157. States with deep concern that the Court of Auditors found systemic deficiencies in the LPIS audited in Italy and Spain in 2008, 2009 and 2010 and that since 2007 deficiencies were found in the LPIS of 12 Member States (25); notes the reply by the Commission and the Spanish authorities to the effect that, despite the limited extent of the deficiencies, an error correction system is being applied, involving the incorporation of an eligibility coefficient into regulation of the next period;

158. Shares the concern voiced by the Court of Auditors as regards the slowness of conformity procedures resulting in financial corrections (point 4.31 of the Annual Report for 2012) and regrets that a sample of conformity procedures showed that in 2012 the actual duration (more than four years) was twice as long as the Commission’s internal benchmark, which therefore ultimately led to a considerable backlog; takes note of the fact that the contradictory procedure, the conciliation mechanism and the calculation of corrections makes it difficult to close conformity clearance procedures in time; expects the Commission to make all efforts to reduce the duration of the conformity procedure in standard cases to maximum two years (26);

159. Urges the Commission and the Member States to ensure that payments are based on inspection results and that on-the-spot inspections are of the quality necessary to determine eligible area in a reliable manner;

160. Urges the Commission to ensure that the design and quality of the work performed by the directors of paying agencies and the certification bodies provide a reliable basis for the assessment of the legality and regularity of underlying transactions;

Rural development, environment, fisheries and health

161. Regrets that the payments in rural development, environment, fisheries and health are not free from material error in 2012, that the supervisory and control systems examined for expensed payments were partially effective or — in one case — not effective, and deplores the increase in the most likely error rate to 7,9 % (7,7 % in 2011);

162. Notes that, for a significant number of transactions affected by error, the Court of Auditors considers that the national authorities had enough information to detect and correct the errors concerned; asks the Court of Auditors to give precise information in this regard;

163. Points out that, as in 2011, the major component (65 %) of the most likely error rate reported by the Court of Auditors concerns non-area-related measures, and stresses that the reason for most quantifiable errors was that the beneficiaries did not respect the eligibility requirements, in particular those concerning agri-environment commitments, special requirements for investment projects and public procurement rules;

164. Is deeply concerned about the fact that once again the Court of Auditors identifies significant problems concerning the implementation of cross-compliance requirements for the identification and registration of animals; calls on the Member States to improve the quality of checks throughout the year without imposing an additional administrative load on the beneficiaries;

165. Reiterates its regret that in 2012 the Commission applied different methodologies to quantify public procurement errors in the policy areas of agriculture and cohesion, both of which furthermore are not in line with the Court of Auditors’ methodology, and calls on the Commission and the Court of Auditors to harmonise the treatment of public procurement errors in shared management without delay and to report to the discharge authority on the changes;

166. Reiterates its concern about the fact that many errors were detected when beneficiaries were public bodies and that those errors concerned issues such as declaring ineligible VAT or not complying with public procurement rules; calls, therefore, on the Commission and the Member States to ensure that the existing rules are better enforced;

167. Regrets that the Court of Auditors identified weaknesses (27) in the supervisory and control systems of France, Sweden, Germany, Poland, Bulgaria and Romania for rural development and that the three elements audited were affected by deficiencies: i.e. the administrative and control systems to ensure correct payment, the control systems based on physical on-the-spot checks, and systems to ensure implementation and control of cross-compliance;

168. Notes with concern that the weaknesses detected in 2012 in the above-mentioned Member States were very similar to those found and reported in the six different Member States which were audited in 2011 (Denmark, Spain, Italy, Hungary, Austria and Finland);

169. Is concerned that ultimately similar errors might exist in all Member States;

170. Notes with concern that the most important weakness detected by the Court of Auditors this year concerned ineffective checks of compliance with procurement rules which were apparent in Sweden, Germany (Brandenburg and Berlin), Poland, Bulgaria and Romania, and that overall the audit detected more than EUR 9 million of ineligible expenditure resulting from the non-respect of the procurement rules;

171. Regrets that, on account of differences in approach between the Court of Auditors and the Commission on the issue of financial clearance, Parliament cannot assess with accuracy its impact on the legality and regularity of the underlying operations; notes that, according to the Court of Auditors, the results of the conformity audits were not sufficiently taken into account for the financial clearance decision; calls on the Commission and the Court of Auditors, in the context of the adversarial procedure, to reach agreement on the financial clearance procedure;

172. Shares the concerns voiced by the Court of Auditors concerning the weaknesses detected in the conformity audit work as regards quality control, audit documentation and the manner of evaluating evidence and forming conclusions;

173. Welcomes the fact that the Commission has increased the total amount of financial corrections in recent years whilst reducing the proportion of flat-rate corrections significantly in 2012; recognises at the same time that flat-rate corrections, under certain circumstances, can also be an appropriate means to protect the Union budget

174. Shares nevertheless the concern expressed by the Court of Auditors that the use of flat-rate corrections does not sufficiently take into account the nature and gravity of the infringement and that the length of the procedure is a persistent problem with conformity decisions; deems flat-rate corrections however a necessary tool for situations where a more precise calculation is not feasible; therefore requests that the Commission set out criteria for the calculation of flat rate corrections that will ensure that the nature and gravity of the deficiency is adequately taken into account;

175. Is disappointed by the fact that the Court of Auditors found serious deficiencies in the implementation of the reinforcement-of-assurance procedure in 4 of the 5 Member States which applied this new procedure: Bulgaria and Romania for European Agricultural Fund for Rural Development (EAFRD) and Luxembourg and the United Kingdom (Northern Ireland) for European Agricultural Guarantee Fund (EAGF);

176. Notes that DG AGRI’s annual activity report contains a reservation for the total EAFRD expenditure for 2012 and that this reservation is due to concerns about the quality of controls in some Member States as well as the error rate reported by the Court of Auditors;

177. Regrets however that DG AGRI’s reservation for EAFRD suffers from two deficiencies: DG AGRI was unable to provide its own quantified estimate of the residual error rate or to make an assessment for each paying agency on whether or not to apply a higher error rate on the basis on information from its own audits;

178. Calls on the Member States to carry out their existing administrative checks in an efficient way by using all relevant information available to the paying agencies, as this has the potential to detect and correct the majority of the errors;

179. Calls on the Commission to continue to provide guidance and assistance to Member States by means of best practice, through systematic interruptions of payments, financial corrections according to the severity of the error and also, in addition, by drawing up short term and ad hoc action plans;

180. Calls on the Commission to ensure in the area of rural development that uniform standards and procedures are being equally applied and observed both by its approving and auditing bodies; stresses that the application of different standards between approving and auditing bodies has consequently led to confusion at the level of national paying agencies and project applicants in the past, resulting in delays and restrictions in project applications; stresses that any changes in the application and approval procedure for an EAFRD contribution may only be binding for the future and thus shall not apply to any previously approved projects;

181. Calls on the Commission to ensure that any future guidelines on eligibility conditions and selection criteria for the new programming period 2014-2020 of EAFRD are being equally set as a common standard not only for national competent bodies and paying agencies but also for its approving and auditing bodies; stresses that those guidelines should be constructed in a way that practicable implementation on the ground is possible;

182. Notes with disappointment that the Director-General of DG AGRI himself announced in the DG’s annual activity report for 2012 that despite the fact that the Commission set up a comprehensive action plan to address the increase of the error rate in rural development ‘it is to be noted that it will not be feasible to produce a significant impact on the error rate before 2014 at the earliest’; points out that the Court of Auditors agreed with this latter assessment in its Annual Report for the financial year 2012;

183. Stresses that this assertion justifies that the discharge authority requires formal commitments with binding requirements and deadlines for the Commission and certain Member States to implement in full all remedial measures referred to under paragraphs 40 to 67 of this resolution, leading to a reduction of the error rates in the future;

184. Notes that the amounts declared irrecoverable from the EAGF due to insolvency of the beneficiary amount to EUR 351,6 million since 2007 as reported by the Commission; notes also that a further EUR 6 million have not been recovered since 2007 for the reason that the costs exceeded the benefits of the recovery; expects the Commission to provide those amounts each year in its Annual Activity report and elaborate ways how Member States can diminish the risk of funding beneficiaries at the brink to insolvency;

185. Notes that in accordance with Article 33(7) (EAFRD) of Council Regulation (EC) No 1290/2005 (28) a Member State may decide to halt the recovery procedure subject to the conditions laid down in Article 32(6) of that Regulation, only after closure of the programme; notes that all amounts in relation to EAFRD debts declared irrecoverable in the financial years 2007-2012, i.e. EUR 0,9 million of debts, do not have any valid justification; asks the Commission to explain what it is planning to do in this regard;

186. Observes that some Member States ran multiannual programs in the MFF 2007-2013 and some paying agencies were obliged to undertake recoveries from beneficiaries even when small amounts of no more than some cents were concerned (since Article 33(7) in connection with Article 32(6) of Regulation (EC) No 1290/2005 was only applicable after closure of a rural development program); is worried since for these small amounts costs for the recovery clearly exceeded the amounts to be recovered; notes that for the financial year 2013 and 2014 no changes are in sight for the Member States concerned; notes that the Commission was informed about the problem early on; is surprised that the Commission has not reacted faster to remedy the embarrassing situation for the Union; calls on the Commission to take a more pro-active approach in solving such nuisances in the coming MFF when they come to the Commission’s attention;

Recommendations as regards direct payments and rural development

187. Endorses the following recommendations of the Court of Auditors: the Commission should address all the weaknesses identified in its conformity audits and the persistent problem of long delays in the conformity procedure as a whole; the Commission should further improve its method of determining financial corrections so as to take better account of the nature and gravity of the infringements detected; the Commission should address the weaknesses identified in systems for procurement and grant agreements;

188. Supports the recommendations and good practices to reduce errors by addressing gold-plating as suggested in the Parliament’s study on ‘Gold-Plating in the EAFRD: To what extent do national rules unnecessarily add to complexity and, as a result, increase the risk of errors?’; notes that there are forms of gold-plating where benefits outweigh the costs and where regulation is justified (‘good’ gold-plating practices), whereas numerous other practices of gold-plating appear to be disproportionate and costs outweigh the benefits (‘bad’ gold-plating practices); demands that the latter gold-plating forms be addressed;

189. Requests in this respect the immediate implementation of the so-called ‘quick wins’ to assess potential costs together with expected policy benefits when introducing ambitious requirements and commitments, to tackle problematic administrative and procedural requirements, as well as to avoid ambiguous and unclear requirements;

190. Asks also for structural changes leading to long-term solutions such as a permanent knowledge-sharing platform among managing authorities and paying agencies across the Union so that EAFRD specific bodies can learn by examples and best practices when discussing areas of ambiguity as well as overly complex requirements and controls; demands in this respect the accessibility to this platform in all Member States;

Conclusions as regards the common agricultural policy

191. Considers that the way in which the Commission addresses the deficiencies detected in the LPIS system (excessively long conformity procedures leading to the flat-rate corrections with delayed inclusion of action plans and reservations in the annual activity reports) creates a financial risk to the budget of the Union; calls, in order to remedy shortcomings in LPIS systems, for action plans to be implemented promptly; calls, in the event of failure to comply with the deadlines, for proportionate reduction and suspension of monthly or intermediate payments to the Member States concerned in order to avoid creating a financial risk to the budget of the Union.

192. Points out in particular that despite decisions on flat rate corrections the errors detected by the Court of Auditors in 2006 in France and Portugal and confirmed by the Commission in 2008 were still not fully remedied by the Member States in 2012; stresses that from 2006 to 2013 direct payments were made whose legality and regularity were not fully guaranteed; is concerned about the Union budget, since financial corrections have not yet been made for wrongly paid appropriations between 2008 and 2013 in France and between 2010 and 2013 in Portugal, as a result of persistent errors in the LPIS that were detected in 2006; notes, however, that the Commission applied net financial corrections for the financial years prior to 2008 in France and prior to 2010 in Portugal; calls on the Commission to offset the entire financial risk of such errors in the Union budget through net corrections;

193. Welcomes the Communication from the Commission to the European Parliament and the Council on the application of net financial corrections on Member States for Agriculture and Cohesion policy (COM(2013) 934), because the Commission committed itself not only to ‘speed up the conformity procedure so that in standard cases the financial corrections can be decided two years after the initial audit took place’ but also to align the interruption and suspension for the common agricultural policy with cohesion policy funds; notes that both commitments have been called for by Parliament for many years, particularly in its resolution on the discharge for the financial year 2011 (29);

194. Notes that all financial corrections in the field of agriculture are net financial corrections; considers it necessary, however, for the conformity procedure to have its full effect to accelerate the procedure and to further improve the criteria and methods for the application of net financial corrections beyond the new guidelines foreseen that will be based on the existing guidelines as decided on by the Commission already on 23 December 1997 (30),

195. Stresses in particular that the shortening of the conformity procedure leading to financial corrections announced by the Commission cannot be evaluated before mid-2016, which means that Parliament will engage with the matter only as soon as in the course of the discharge procedure in the years 2017 and 2018;

196. Endorses the reservations issued by the Director-General of DG AGRI: — a reservation with regard to serious deficiencies in the direct payment systems in Bulgaria, France and Portugal; — a reservation with regard to all rural development expenditure; — a reservation with regard to deficiencies in the supervisory and control systems for organic production; calls on the newly elected Parliament to demand a firm undertaking from the new Commissioner to remedy the situation including preparing specific arrangements with the most exposed Member States in order to reinforce the protection of the Union budget;

Regional policy, energy and transport

197. Stresses that regional policy, which is implemented primarily through the European Regional Development Fund (ERDF) and the Cohesion Fund (CF), accounts for 96 % of expenditure in this field of policy, and that, in 2012, 97 % of regional policy expenditure was implemented through the ERDF (with payments of EUR 27,5 billion) and the CF (with payments of EUR 9,6 billion);

198. Observes that, of the 180 transactions audited by the Court of Auditors, 88 (49 %) were affected by errors; observes furthermore that, on the basis of the errors quantified by the Court, it estimates the most likely error rate to be 6,8 %, which means an increase of 0,8 percentage points in comparison with the previous year; notes that the Commission observes that the error rates would have remained unaltered if the Court of Auditors had taken account of flat-rate corrections;

199. Stresses that the findings of the Court of Auditors’ audit indicate weaknesses in the ‘first-level checks’ on expenditure; observes that, for 56 % of the regional policy transactions affected by error (quantifiable and/or non-quantifiable), the Court of Auditors considers that sufficient information was available for the Member State authorities to have detected and corrected one or more of the errors before certifying the expenditure to the Commission; observes furthermore that the main source of error is the financing of projects which do not accord with Union and/or national public procurement rules or do not meet the conditions for financial support, and payment of ineligible costs;

200. Draws attention to the multiannuality of the cohesion policy management system and underlines that the final evaluation of irregularities related to the policy implementation will be possible only at the closure of the programming period;

201. Considers it unacceptable that, for years, errors of the same kind continue to be identified, often in the same Member States; acknowledges that suspension and interruptions of payments by the Commission ensures that corrective actions are carried out in cases where deficiencies were identified; calls on the Commission to step up monitoring of national and regional management and control systems in the light of this finding, and to ease monitoring in countries where management and control systems have proved reliable;

202. Agrees with the Court of Auditors that Member States have a duty to prevent or detect and correct irregular expenditure and reporting on this subject to the Commission; observes that the administrative and certification authorities in the Member States therefore have a key role to play in ensuring the regularity of the expenditure reimbursed by the Commission (point 5.12 of the Annual Report for 2012);

203. Observes that the Court of Auditors audited the supervisory and control systems of four audit authorities in four countries, finding the systems in Belgium (Wallonia), Malta and the United Kingdom (England, in the case of the European Social Fund (ESF)) to be only partially effective, while it found the systems in Slovakia to be effective;

204. Welcomes that, since 2009, 62 of the 112 audit authorities have been checked by the Directorate-General for Regional and Urban Policy and the Directorate-General for Employment, Social Affairs and Inclusion; observes that these audit authorities are responsible for 257 of the 317 ERDF/CF operational programmes and 48 of the 117 ESF operational programmes; observes, furthermore, that the audit authorities examined during the four-year period were responsible for 95 % of the ERDF/CF appropriations for the 2007-2013 programming period;

205. Notes with concern that the Court of Auditors audited the reports by national audit authorities on 138 ERDF/CF and ESF operational programmes and in many cases found shortcomings in them; notes that the Commission stresses in this connection that in cases in which the Commission judged the reported error rate to be unreliable, flat-rate corrections were made where appropriate;

206. Is concerned that the Commission takes the opinions, the annual audit reports and the management declarations which it receives up to 15 February of year ‘n+1’ as a basis for its risk analysis and for its own audits, although the documents frequently contain inaccuracies; observes that they therefore do not permit a definite risk analysis;

207. Calls on the Commission, therefore, on the basis of an independent audit procedure (using risk analyses of its own, reports by the Court of Auditors and other sources) to perform audits of final beneficiaries and granting authorities in year ‘n+1’ in those Member States which have attracted attention because of shortcomings in administrative and audit systems in year ‘n-1’; calls therefore for a comprehensible automatic system;

208. Calls on the Commission, during the 2014-2020 programming period, itself to audit, by means of random samples taken by itself, all operational programmes which have attracted attention because of the level of funding, the frequency of errors or shortcomings in supervisory and control systems;

209. Would consider it right for the guidelines for audits by the Commission itself to be laid down in the form of an obligation imposed on itself by the Commission; calls on the Commission already to present them in the run-up to the 2013 budget discharge procedure; calls for clear indications, to this end, of the extent to which Member States and programmes which have attracted attention in the past are being subjected to a special audit approach and the extent to which net financial corrections can be accelerated; considers that this approach should also be reflected in forthcoming delegated acts;

210. Is aware that automatic penalties cannot be imposed, as this would be contrary to the rule of law; calls, therefore, on the Commission to do everything in its power to shorten the adversarial procedures preceding the imposition of net corrections or interruptions of payments; calls on the Commission, before the 2013 discharge procedure, to report on the progress made;

211. Welcomes further that between mid-2010 and November 2013 the Commission performed additional checks on audit authorities, intermediate bodies and beneficiaries (77 audits on more than 70 operational programmes in 16 Member States) to verify the quality of administrative audits;

212. Stresses that, according to statistics from the 2012 activity report of DG REGIO, risk-affected payments ranged between EUR 755,8 million (minimum) and 1 706,8 million (maximum); observes that, in this context, the Commission expressed 61 reservations for programmes or parts thereof and 25 reputation reservations, primarily concerning Spain, Sweden, European territorial cooperation and the Czech Republic; impresses on the Commission that it needs to continue to pursue the greatest possible simplification in order to avoid to the maximum any possibility of error;

213. Welcomes the fact that the new Common Provisions Regulation (EU) No 1303/2013 of the European Parliament and of the Council (31) introduces a series of improvements: payment of the first instalment only after adoption of the operational programme; decommitment three years after expiry of the programme (‘n+3’); reduction of advance payments; 10 % of the calculated amount of invoices is withheld from payments until the final statement has been approved; country-specific recommendations may be included in partnership agreements;

214. Welcomes the new rules for the 2014-2020 programming period, decided through the ordinary legislative procedure, including measures such as the designations of audit and certifying authorities, accreditations of audit authorities, audit examination and acceptance of accounts, financial corrections and net financial corrections, proportional control, ex ante conditionalities that aim to further contribute to the reduction of the level of error; supports in this respect the growing results orientation and the thematic concentration of cohesion policy that should assure high added-value of the co-financed operations; welcomes also the definition of serious deficiency and the anticipated increased level of corrections for repeated deficiencies;

215. Regrets, however, that under the new ERDF Regulation (EU) No 1301/2013 of the European Parliament and of the Council (32) too, Member States may replace projects affected by errors which were identified in year ‘n’ with new projects, eliminating an essential incentive for the careful use of appropriations; considers that this arrangement should be restricted at the earliest opportunity and fundamentally re-regulated by 2020 at the latest;

216. Regrets furthermore that the criteria for assessing the systems (‘serious deficiencies’) and for establishing the level of flat rate financial corrections were not conclusively defined in the Regulation (EU) No 1301/2013; expects the detailed and operational criteria that will allow the Commission to apply the notion of ‘serious deficiency’ to be laid down in a delegated act;

217. Recognises that in the course of the discharge procedure a number of bilateral meetings have taken place between the rapporteur and the Commission on horizontal issues of the delegated act specifying further how ‘serious deficiencies’ could be more clearly defined and on how financial corrections could be tightened in case of persisting serious deficiencies; regrets that the proposals of the Committee on Budgetary Control on the level of financial corrections (adding a 50 % and a 75 % rate) were not taken into consideration; deplores that in the latest draft delegated act (of 4 February 2014) the initial automatism for inflicting financial corrections at a higher level, if the same serious deficiency is identified in a subsequent accounting year, has become optional and, as a consequence, the requirement for Member States to put in place supervisory and control systems guaranteeing sound financial management has been weakened;

218. Welcomes the communication from the Commission concerning net financial corrections on Member States (COM(2013) 934); has doubts, however, as to whether the documents submitted by Member States by 15 February of year ‘n+1’ provide a sound basis for a risk analysis; observes furthermore that the adversarial procedure which may lead to the imposition of net corrections takes four months, which is too long;

219. Calls, in light of the high levels of public procurement errors in cohesion policy and with regard to the Court of Auditor’s seminar on EU public procurement in January 2014, for a stronger and immediate implementation of existing rules in this area in the Member States; calls furthermore for a better coordination of public procurement rules at the level of all stakeholders and a simplification and harmonisation of rules and financial corrections;

220. Welcomes the possible introduction of voluntary national declarations on the administration of appropriations by the Member States in shared management fields;

221. Demands the Commission to annually involve Parliament in due time into TEN-T/CEF co-financing, with information on the choice of transport infrastructure projects and amounts; asks the Commission to provide Parliament annually with lists of transport projects and amounts of co-financing through the regional and cohesion funds;

222. Calls on the Commission to define and take rapid action to address the weaknesses of the audit system in the policy areas of cohesion;

223. Endorses the reservation issued by the Director-General of DG REGIO concerning ERDF/Cohesion Fund/IPA management and control systems for the 2007-2013 programming period in 17 Member States (72 programmes) and 12 European Territorial Cooperation programmes; endorses furthermore the reservation concerning ERDF/Cohesion Fund/IPA management and control systems for the 2000-2006 programming period in 5 Member States (11 programmes) on programmes; in this context points out in particular: — audit authorities of all Member States must take their auditing task more seriously in order to bring about lasting improvements to management, supervisory and control systems; — the Commission must perform more audits of final beneficiaries and authorising authorities in year ‘n’ in Member States where shortcomings have been found in administrative and audit systems in year ‘n-1’; systems; — the Commission must commit itself to audit all operational programmes at least once in the course of the programming period; — the Commission must report in time for the 2013 discharge procedure on the operational applicability of the term ‘serious deficiencies’ in the delegated act and on the net financial corrections it generated; calls on the newly elected Parliament to demand a firm undertaking from the new Commissioner to remedy the situation including preparing specific arrangements with the most exposed Member States in order to reinforce the protection of the Union budget;

224. Stresses that, under Regulation (EC) No 1080/2006 of the European Parliament and of the Council (33), firms may not receive EU funding for investment which would lead to job losses in those firms in another region of the EU; welcomes the fact, therefore, that the Commission has launched an investigation into possible relocation of operations in connection with major projects involving more than EUR 50 million which are under direct Commission control; looks to the Commission to launch an investigation into the scale of such improper use of EU funding in connection with projects involving less than EUR 50 million and projects under shared management; looks similarly to the Commission to make sure that EU funding which is disbursed in contravention of the rules is paid back;

225. Insists that the Commission make sure that EU structural fund monies are not used in a way which directly or indirectly supports the relocation of services or production to other Member States;

226. Calls on the newly elected Parliament to establish action to remedy the weaknesses detected in the fields of agriculture and regional policy as urgent tasks in the new European Commission’s work programme;

227. Calls on the newly elected Parliament to raise the issue of the weaknesses in the fields of agricultural