THE COURT’S OBSERVATIONS

INTRODUCTION

10.1. This chapter focuses on performance. Performance in the European Union (EU) is assessed on the basis of the sound financial management principles (economy, efficiency and effectiveness) (1), and covers: (a) inputs — financial, human, material, organisational or regulatory means needed for the implementation of the programme; (b) outputs — the deliverables of the programme; (c) results — the immediate effects of the programme on direct addressees or recipients; (d) impacts — long-term changes in society that are, at least partly, attributable to the EU’s action.

10.2. The chapter is divided into three parts. The first part considers the EU’s budgetary rules and their intended focus on performance. The second part presents the Court’s observations on some aspects of the Commission’s reporting on performance, including its reporting to the European Parliament and the Council, the fourth evaluation report (2), and the annual activity reports (AARs) prepared by the Commission’s directors-general. The third part highlights some of the main themes arising from the Court’s 2013 special reports (3) on performance, and the Court’s follow-up of how its recommendations are implemented.

PART 1 — FOCUS ON PERFORMANCE

10.3. This part of the chapter analyses the extent to which there was a focus on performance — in addition to spending the money in compliance with the rules — in the 2007-2013 programming period; and it considers the changes made for the 2014-2020 programming period.

THE COURT’S OBSERVATIONS THE COMMISSION’S REPLIES

2007-2013 programming period

10.4. For large parts of the EU budget — particularly those where shared management operates — the maximum level of expenditure under the multiannual financial framework (MFF) headings is broken into yearly allocations per Member State. The Commission considers such allocations necessary for programming and for ex ante quantification of targets. However, the Court has noted that it is a challenge to obtain good qualitative results from schemes where absorption of funds by Member States is an implicit objective and, in practice, often the main objective (4). 10.4. The Budgetary Authority considered that the yearly allocations per Member State were an important instrument to reach an agreement on the MFF. As a consequence, the allocations were adopted in the legal bases. However, the absorption of the funds is not an implicit objective, but a precondition to achieve results.

10.5. This challenge was also noted in the Court’s special report on the effectiveness of the environment component of the LIFE (5) programme — ‘the environmental backbone of the EU’. The Court concluded that the indicative national allocations hampered the selection of best projects because projects were selected not only on their merit but also based on their Member State of origin. The national allocations meant that the competition for the best projects to attract funding took place at the national level, within Member States, rather than across Europe. As a consequence, some of the projects receiving funding were rated lower during the selection process than other projects which did not receive funding (6). 10.5. In the framework of direct management, the Commission has proposed in the new LIFE Regulation, the elimination of indicative national allocations. They will be progressively phased out in the next programming period.

10.6. The general focus on spending, at the expense of achieving results, was exemplified in a number of special reports published in 2013 in the field of rural development. The audit of the Commission’s Common Monitoring and Evaluation Framework found that the Member States and Commission focused on financial implementation — spending the budget — rather than on achieving results (7). The audits of support to the food-processing industry and measures for diversifying the rural economy both provided examples where Member States had spent money on projects which, according to their own selection systems, were likely to make only poor contributions to the EU’s aims (8). 10.6. In its supervisory role, the Commission has insisted throughout the programming period 2007-2013 on the need for greater selectivity and targeting in the implementation of the Rural Development Programmes. As regards the Common Monitoring and Evaluation Framework in the area of Rural Development, all available data and information, e.g. financial, monitoring data, evaluation findings, are taken into account in annual meetings with the Member States, to assess the progress in the implementation of the programmes and any need for adjustments in their strategy and financial allocations.

10.7. Another way in which the 2007-2013 legislative framework tended to focus primarily on spending in line with the rules was the use of financial corrections and recoveries. The 2012 annual report reported on the actions available to the Commission when the spending of EU funds under shared management does not comply with the rules. Depending on the circumstances, the use of financial corrections and recoveries may result in a loss of funding for either the Member State or the final beneficiary (9).

10.8. In cohesion, when Member States agree that expenditure does not comply with the rules, they are generally able to replace ineligible projects. The extent of replacement expenditure is notified to the Commission by Member States each year. However, the Commission does not analyse this replaced expenditure, nor has it assessed the potential effect on overall policy performance. 10.8-10.9. Under the 2007-2013 legal framework applicable in the context of shared management, Member States only have to provide information on the amount of irregular expenditure replaced (Article 20(2) of Regulation (EC) No 1828/2006). They do not provide information that would allow linking the replaced amounts to specific projects producing outputs and results, as there is no legal requirement for that.

10.9. These aspects of the legislative framework — financial corrections and recoveries, and replacement projects — are triggered by problems of compliance. There is no equivalent process in place if projects or programmes have not delivered the impacts and results expected of them.

10.10. Based on its audit work, the Court has found that the selection of projects under shared management — a Member State matter — has focused first on the need to spend the EU money available, secondly on the need to comply with the rules and only thirdly — and to a limited extent — on their expected performance (10). As replacement projects are selected in the same way as the projects being replaced, the same pattern of priority applies. In the Court’s view, compliance and performance should be given equal weight throughout the project cycle. 10.10. The Commission notes that the performance criteria are built into the process of selecting each project to be funded. Through the application of weighted selection criteria Member States should be able to identify the projects that could best contribute to the achievement of results.

2014-2020 programming period

10.11. In its response to the Court’s 2012 annual report, the Commission stated that the new programming period, for 2014-2020, would have more focus on performance, highlighting five specific aspects (11):

(a) a renewed approach to evaluation, as set out in the Common Provision Regulation (12). It is too early to assess the operation of the new arrangements;

(b) macroeconomic conditionalities, linking disbursement of EU funds to Member State compliance with economic governance requirements as established through the European Semester (13). Where Member States do not comply, the Commission may suspend payments pending the revision of Partnership Agreements (see Box 10.1) or relevant programmes (14);

Box 10.1 — Partnership Agreements At the heart of the revised framework governing disbursement from the European Structural and Investment (ESI) funds are Partnership Agreements between each Member State and the Commission. These Agreements set out how the Member State intends to use the available EU funding to achieve its objectives, with more detail — on targets and milestones, for example — in the lower level operational programmes (15).

(c) a reinforced intervention logic, linking EU and Member State objectives. When planning operational programmes, Member States are required to focus on the desired result before considering how to achieve it;

(d) ex ante conditionalities, intended to ensure that the right frameworks are in place for the effective use of ESI funds, such as the existence of relevant strategies/plans (16). Member States are required to demonstrate in Partnership Agreements and operational programmes compliance with relevant ex ante conditionalities, or have plans to do so by the end of 2016. Where they fail to do this, the Commission may suspend payments;

(e) a performance reserve, discussed below.

10.12. The performance reserve is the main incentive for Member States to continue to focus on performance once the programmes have started (17). The planned operation of the performance reserve is explained in Box 10.2. 10.12. The performance reserve is one of the main incentives for Member States to focus on performance. Having clear indicators in programmes and transparent reporting against them is also an important part of accountability and will incentivise a focus on performance.

Box 10.2 — The performance reserve

Regulation (EU) No 1303/2013, Articles 20 to 22, set out how the performance reserve will operate. The main features are:

— At the start of the programming period, in the Partnership Agreements and operational programmes, the Commission and each Member State agree on which specific priorities within programmes will form the basis for the allocation of a performance reserve of 6 %.

THE COURT’S OBSERVATIONS

— In 2019, the Commission, together with the Member States, will review the achievement of programme milestones for the chosen priorities, based on the annual implementation reports submitted by Member States in that year.

— Where performance is deemed satisfactory, the Commission will release the performance reserve of 6 %. Where it is not, the Member States will propose the reallocation of the reserve to other priorities.

— Where there is evidence that there has been a ‘serious failure’ to meet milestones, in certain circumstances the Commission may suspend payment of the performance reserve.

10.13. For the 2007-2013 period (18) (and not for the EAFRD), the option of using a performance reserve was delegated to Member States (19). However, only two Member States, Poland and Italy, chose to make use of this possibility, in both cases with little or no genuine focus on performance.

10.14. Making the performance reserve work more effectively than previously will depend on the success of the Commission in, for example:

(a) Negotiating suitable targets and milestones at the start of the programming period. These targets need to be pitched at the right level — sufficiently demanding that their achievement is not a formality, while remaining realistically within the reach of the Member State. (b) Obtaining accurate, reliable and timely data from Member States to determine whether the targets have been met.

THE COURT’S OBSERVATIONS THE COMMISSION’S REPLIES

10.15. However, milestones applied in the performance reserve will include financial indicators, output indicators and, only where appropriate, result indicators (20). The Court’s special reports have generally not revealed significant problems with outputs; difficulties tend to occur at the level of results/impacts. In practice, the performance reserve will make only limited use of result indicators as the Commission does not plan to use result indicators for any areas other than the ESF, on the grounds that EU-funded programmes by themselves do not have sufficient influence over the achievement of results, and that there can be a considerable lead time between the spending of money and the achievement of results. The Regulation also specifies that result indicators cannot be taken into account when deciding on whether to suspend performance reserve payments or to issue financial corrections. The inclusion of financial indicators as a basis for performance reserve payments risks a reversion to the focus on absorption rather than performance.

10.16. The new arrangements are welcome and the establishment of a performance reserve may encourage an increased focus on results. However, the impact is likely to be marginal as there are still no real financial incentives or sanctions in the 2014-2020 framework relating to the results achieved with EU funding. 10.16. Publication of performance data from the Annual Implementation Reports as well as the evaluation requirements (obligation for at least one impact evaluation for every priority) are intended to prompt policy debate and real accountability. In addition, as foreseen in the 2014-2020 regulatory framework (Article 22(6) and (7) of Regulation (EU) No 1303/2013), the Commission will be able to sanction Member States in case of serious underachievement, as a result of the performance review (Article 22(6) of Regulation (EU) No 1303/2013) and at closure (Article 22(7)).

PART 2 — THE COMMISSION’S REPORTING ON PERFORMANCE

10.17. This part of the chapter covers three elements: the framework for reporting on the Commission’s performance; the fourth evaluation report; and performance reporting at the level of Commission directorates-general.

Reporting by the Commission to the European Parliament and Council

10.18. The Commission produces a wide range of publications, on different topics and for different audiences. Legally, it is required to report annually on the performance of its obligation to implement the budget (21) in three separate documents (22): 10.18. Under the current practice, the three reports serve different purposes and are complementary to each other. The Synthesis report has a focus on the Commission's management achievements, the Article 318 evaluation report focuses on the results achieved by the spending programmes and the report on Budgetary and Financial Management reports on the budgetary aspects and budgetary management.

(a) the ‘report on budgetary and financial management’, including a description of the objectives achieved for the year, in accordance with the principles of sound financial management (23);

(b) the ‘synthesis report’, representing a summary of the annual activity reports which, amongst other things, report on policy achievements (24); and

(c) the ‘evaluation report’ on the Union’s finances based on results achieved (25).

10.19. In practice, the report on budgetary and financial management and the synthesis report contain no or little performance information. While the synthesis report for 2013 sets out some general information on the Commission framework for performance management, it did not attempt to provide any details on what the EU budget had achieved in that year. 10.19. As regards the report on budgetary and financial management (RBFM), there is indeed a reference in the RAP that the report should describe the objectives achieved. However, whilst the Court assumes that this relates to policy objectives, the Commission believes that this relates to objectives in the field of budget management. Article 227 of the RAP states that ‘the report should describe the objectives achieved for the year, in accordance with the principle of sound financial management’. The RBFM, in accordance with Article 142(2) of the FR, sets out in detail, in both tables and text, the rates of implementation achieved, and explains how the tools of budgetary management, such as transfers and amending budgets, have been used to achieve maximum implementation, and ensure sufficient appropriations for priorities. In this way, it addresses the elements set out in the FR (Article 142(2)) and RAP (Article 227), also taking into account that Article 227 of the Rules of Application states that the report on budgetary and financial management shall be separate from the reports on implementation of the budget. As regards the Synthesis report, the Commission points out that, in addition to the reference to the Commission framework for performance management, different aspects of performance, as indicated in the reply to paragraph 10.58, are covered.

10.20. All three reports are, according to the legislation, addressed to the European Parliament and the Council (26). From the point of view of timing, the Commission aims to publish the evaluation report and the synthesis report in June of year n+1, while the Financial Regulation specifies that the report on budgetary and financial management should be prepared earlier, by 31 March of year n+1. The evaluation report is specifically intended to be used in the discharge process, but otherwise the legislation does not make clear the particular purpose of each report. Taking these three reports together there are, as a consequence, overlaps arising from the legislation as well as gaps and inconsistencies. 10.20. The Commission is of the opinion that this reporting practice, in which all of these reports have a distinct role and purpose, is in conformity with the legal and operational provisions at various levels (the TFEU, the Financial Regulation and internal Commission standing instructions). The Commission has taken account of earlier guidance provided by the different discharge reports from the EP and the Council and the Court's annual reports. This guidance, for example, indicated in which direction to develop the Article 318 report. The Commission therefore is of the opinion that, in compliance with the guidance already received, no further overhaul of reporting practice is desirable.

10.21. The Commission has repeatedly stressed that EU added value is a key test to justify spending financed by the EU budget (27). The importance of this concept has been confirmed by the European Parliament and the Council. However, none of the three main reports published in 2013 provided a comprehensive overview of results in terms of EU added value. This is a significant gap in the reporting. 10.21. When proposing the new spending programmes, the Commission made a major effort to predict the EU added value of each programme. Where the co-legislators shared this view, they adopted the proposed spending programmes. The Commission will manage these programmes and will report on EU added value, which is one of the aspects that ex post evaluations will assess. These evaluations are publicly available and the Article 318 report includes information on EU added value.

10.22. The presentation of information in the three reports is inconsistent, which does not facilitate comparison between them. The report on budgetary and financial management and the evaluation report present information according to the headings of the multiannual financial framework (MFF), whereas the relevant part of the synthesis report is structured around categories used in the EU budget (‘budget titles’). It is not readily possible to reconcile these two different structures and how one corresponds to the other. It is therefore virtually impossible for readers to use these reports as complementary sources of information. 10.22. As regards the different structure of the reports, the Commission points out that the discharge authority has asked the Commission to structure the Article 318 evaluation report around MFF headings. The report on budgetary and financial management is structured that way. The Synthesis report of the Commission's management achievements is structured according the budget titles, which reflects how the Commission is organised and managed. Given their different purposes, it is inevitable that the information covers different aspects.

Review of the evaluation report published in June 2014

10.23. The Commission published its fourth evaluation report in June 2014 (28). The Treaty requires that the Commission produce such a report, and that the report is part of the evidence on which the Parliament gives discharge each year to the Commission in respect of the budget (29).

10.24. Compared to the previous evaluation reports, the fourth report represents an improvement in so far as it tries to establish a link between the main financial programmes presented by MFF heading and the available performance information relevant to the Europe 2020 strategy. However as stated in the evaluation report itself ‘it is not possible to single out what has been the exact contribution of each of the financial programmes in achieving Europe 2020 targets’. The Court shares this assessment and considers that the evaluation report should bring together all the information available on the progress towards Europe 2020 targets in order to provide the reader with a clearer overview of the achievements made (30). 10.24. The Commission welcomes that the Court of Auditors considers that the fourth report represents an improvement compared with previous evaluation reports regarding the link between the main financial programmes and the available performance information relevant to the Europe 2020 strategy. As the Commission has already stated, the Europe 2020 Strategy had not been adopted when the 2007-2013 MFF was adopted and the monitoring, evaluation and reporting arrangements put in place. This largely explains why it has not been possible to single out the contribution of each financial programme to the targets set in that strategy. Under the new 2014-2020 MFF the Europe 2020 targets for smart, sustainable and inclusive growth have become an integral part of the intervention logic of the major spending programmes and funds. This should facilitate the identification of the contribution of spending programmes to the Union's main objectives and feed into future editions of the Article 318 Evaluation Report. The Commission will consider whether any adjustment to the structure of the Article 318 Report would be appropriate in the light of the way this reporting develops over coming years, while also taking due account of the existence of other more comprehensive reporting on Europe 2020, such as through the European Semester.

10.25. In many important areas, the information and data provided in the evaluation report concern the actions taken and outputs delivered rather than the results achieved. Indeed, as the Court has already pointed out, it will be some years before the Commission is able to report in a meaningful way on the real achievements of the spending programmes for 2007-2013. For the 2014-2020 programming period, a new performance management and reporting framework is in place (31). Based on this framework, the Commission expects that, as of the financial years 2017-2018, the evaluation report will be able to include initial conclusions on programme performance and information as to whether programmes are on track or require adjustment. 10.25. The Commission considers that the necessary monitoring, evaluation and reporting arrangements, according to the legal frameworks of the different programmes, need to have been operating for some time before information on results can be expected to support reporting on the achievements of the spending programmes. In addition, sufficient time has to have elapsed in the implementation of the financial programmes before the actions financed produce their effects and the evaluation of results and impacts can start. For the 2007-2013 programmes, the final and ex post evaluations will still be based on the monitoring, evaluation and reporting arrangements fixed for those programmes. The Commission will seek to bring out as much performance information as possible. For the 2014-2020 programmes, there is a far stronger focus on performance reporting and it is expected that the interim evaluations, scheduled for 2017-2018, will as the Court states include initial conclusions on programme performance and information as to whether the programmes are on track or require adjustment.

THE COURT’S OBSERVATIONS

10.26. The evaluation report is accompanied by a stocktaking of the action plan for the development of the Article 318 evaluation report (32). The Court will continue to monitor progress in this area.

Performance planning and reporting at directorate-general level

10.27. This section of the chapter makes first some general observations on performance planning and reporting at DG level. It then presents the findings of the Court’s detailed examination of the performance elements in the plans and reports of three specific DGs, as it has done for the last three years’ annual reports (33).

General

10.28. An important source of information for the three main reports discussed in paragraphs 10.18 to 10.22 is the annual activity reports prepared by each DG (34) and published by 31 March of year n+1. AARs represent the end of a process which begins with DGs’ activity statements and management plans; this process is set out in more detail in Box 10.3.

Box 10.3 — Activity statements and management plans Activity statements (from 2014 onwards, to be known as programme statements with different structure and content) are drafted for external use, as part of the budget process, to justify the amounts requested by the Commission. The statements provide detailed information not only on resources, objectives and indicators, but also on the anticipated results and the value added at EU level. A significant part of the statements is duplicated six months later, when the DGs prepare their management plans (MPs). The MP is a key component of the Commission's strategic planning and programming cycle. It is intended to provide a coherent tool by which all services can plan their activities. Based on the MPs, directors-general report to the Commission in their AARs on the performance of their duties, giving account of the activities of the DG and the achievement of key policy objectives. AARs are the main instrument of management accountability within the Commission and constitute the basis on which the Commission takes responsibility for the management of resources and the achievement of objectives. They are published on the Commission’s website and contain four parts, of which the first, ‘policy achievements’, relates to performance. The other three parts cover management of resources, assessment of the effectiveness of the internal control systems and management assurance.

10.29. The AAR includes a declaration of assurance, in which the director-general provides assurance that, among other things, ‘the information contained in the report presents a true and fair view’ and that ‘the resources assigned to the activities described in the report have been used for their intended purpose and in accordance with the principles of sound financial management’ (35). If deemed necessary, the declaration may be qualified with a reservation. Despite the specific reference to sound financial management in the financial regulation, in practice, the Commission restricts this declaration of assurance to parts 2 to 4 of the report, which deal mainly with issues of regularity and internal control (see also Box 10.4).

THE COURT’S OBSERVATIONS THE COMMISSION’S REPLIES

Box 10.4 — The Commission’s responsibilities with respect to sound financial management Under the Treaty, the Commission is required to implement the budget with regard to the principles of sound financial management (36). The Financial Regulation defines sound financial management as comprising ‘the principles of economy, efficiency and effectiveness’ (Article 30); effectiveness is further defined as ‘the attainment of specific objectives set and the attainment of the intended results’. The Court’s interpretation — which it applies consistently — is that this definition covers whether the EU’s policy objectives are being achieved. In excluding policy achievements from the AAR declarations, the Commission is therefore applying a narrower definition of ‘sound financial management’. The consequence is that the Commission does not assume responsibility for policy achievements. Box 10.4 — The Commission’s responsibilities with respect to sound financial management The Commission reiterates what it stated in its latest Synthesis report. Each annual activity report includes a signed declaration of assurance in which the Director-General or head of service provides assurance concerning the true and fair view given by the report and concerning the legality and regularity and the sound financial management of all financial transactions under his/her responsibility, as well as for the non-omission of significant information. If deemed necessary, the declaration contains reservations related to defined areas of revenue and expenditure. To ensure that declarations of assurance in the AARs remain fully in line with its financial responsibility for implementing the EU budget, the Commission confirms that they should focus on management and financial matters in accordance with the audit requirements of the Commission concerning the efficiency, effectiveness and transparency of its administration of EU finances. By adopting the Synthesis report, the Commission takes overall responsibility for the management of the EU budget. This is a distinct issue from the Commission's actions taken and clear commitment, as described in the recent Synthesis report, to further strengthen its reporting on policy achievements in the same Annual Activity reports as well as in the Evaluation report as required by the Treaty. These policy achievements are the result of a collective action and responsibility with the co-legislators which contribute to the design of the programmes and adopt them, as well as Member States which often play a major role in the implementation of the programmes. Furthermore, many other factors in the economy and society, far beyond the control of the Directors-General, influence the overall performance of the programmes. The Commission intends to continue its current practice for reporting through the Synthesis Report and the Article 318 Evaluation Report, which is fully in line with the legal provisions.

10.30. Following this practice, the director-general is not required to provide any assurance about the reporting of policy achievements in part 1 of the AAR. As a result, the assurance declaration covers only those limited aspects of performance which occur in the other parts of the report. None of the 17 quantified reservations made in all the 2013 AARs were for performance reasons (37). In the Court’s review of part 1 of a sample of AARs in its annual reports for 2010 to 2013, only two reservations included some limited elements relating to performance (38). 10.30. Please refer to the reply to Box 10.4.

10.31. The Court notes that EU added value is given due prominence in the activity statements — when resources are being sought — but much less so in the AARs when what has been achieved with these resources is described. Of the 12 AARs covered by the Court’s review for 2010 to 2013, only three (the 2010 and 2011 AAR of DG REGIO and, to a limited extent, the 2013 AAR of Directorate-General for Health and Consumers (DG SANCO)) reported specifically on EU added value. In this respect the activity statements provide a more complete picture than the AARs.

Performance planning and reporting in three selected DGs

10.32. The Court reviewed the 2013 activity statements, MPs and AARs (part 1) (39) of the Directorate-General for Employment, Social Affairs and Inclusion (DG EMPL), the Directorate-General for Health and Consumers (DG SANCO) and the Office for Infrastructure and Logistics in Luxembourg (OIL). In particular, the Court assessed whether the AARs provide useful information on the DGs’ annual contribution to policy achievements. The review was based on requirements set out in the Financial Regulation, the Commission's internal control standards and the MP and AAR instructions issued by the Commission’s Secretariat-General (SG) and the Directorate-General for Budget (DG BUDG).

DGs’ objectives not fit for management purposes

10.33. According to the Commission’s 2013 MP instructions, DGs should establish general objectives with impact indicators (long-term) and specific objectives with result indicators (short-/medium-term). The directors-general were required to report in part 1 of their AARs on the results achieved and on the extent to which the results had the impact intended.

10.34. In line with its observations made in previous years in relation to other DGs, the Court’s audit found that for DG EMPL and DG SANCO many of the objectives (general and specific) used in the MPs and AARs were taken directly from policy or legislative documents and were thus at too high a level to be useful as management instruments (see Box 10.5). 10.34. Objectives, as defined for the new period, allow for an integrated presentation of the DGs' raison d'être, key priorities and operational means (financial, legislative and policy responsibilities). The standing instructions for management plans require that the general objectives be aligned with the Commission's political objectives by further elaborating them in the management plans. The rationale for this approach is given by the need to ensure that the Commission services follow up on the delivery of the political objectives and of the main policy priorities of the Commission. Where possible, specific objectives with result and output indicators are also defined and those contribute to the delivery of the political objectives and of the main policy priorities of the Commission.

Box 10.5 — Examples of ‘specific objectives’ not fit for management purposes DG SANCO: For the specific objective ‘To foster good health in an ageing Europe’, DG SANCO’s influence is not measurable. DG EMPL: This DG has as a specific objective to ‘promote geographic and professional mobility (including the coordination of social security systems) of workers in Europe in order to overcome obstacles to free movement and to contribute to the establishment of a real labour market at European level’. It is difficult to determine the specific contribution of DG EMPL to the achievement of this objective. Box 10.5 — Examples of ‘specific objectives’ not fit for management purposes The causality between DG SANCO’s activities and ‘to foster good health in an ageing Europe’ is indeed complex, at times indirect and not quantifiable. The Commission is developing a monitoring framework to assess progress with indicators such as quality of life, sustainability of health systems and innovation and ultimately on the healthy life year target by 2020. DG ‘Employment, Social Affairs and Inclusion’ will consider improving the presentation of its overall logic of intervention for the next MPs so as to better emphasise the wealth of activities contributing towards such an objective.

10.35. According to the Financial Regulation, DGs’ objectives should be SMART — specific, measurable, achievable, relevant and timed (40). However, 11 of the 15 objectives examined (41) do not fulfil all the SMART criteria. While the objectives examined were relevant to the policy area in which the DGs operate, they are set at such a high level that it is not clear how they could be achieved. In many cases the indicators accompanying the objective do not exhaustively measure all aspects at the appropriate level. A similar conclusion was reached in December 2013 by the Internal Audit Service for DG EMPL which reported that objectives were not always clearly defined. 10.35. The Commission always considers SMART criteria when formulating objectives. When assessing the compliance with the SMART criteria, the information in the management plan should be analysed in its entirety. The Commission underlines that performance reporting should focus on the real needs of stakeholders and should be sufficiently flexible to reflect the different nature of activities of the Commission's services.

10.36. As a horizontal service of the Commission, OIL is not a policy or spending DG. It provides internal support for other DGs; its main objectives are administrative. As a consequence, in planning its activities in the MP and reporting on them in AARs, OIL understandably does not present general objectives and impact indicators, but only includes specific objectives with result indicators.

Difficulties remain with indicators for monitoring performance

10.37. The choice of indicators should be based on considerations such as relevance, measurability, and the availability of timely and reliable performance data. As far as is possible, indicators should meet the ‘RACER’ criteria (42). Indicators which measure outcomes over which DGs have limited influence should be complemented by other indicators measuring directly the DGs’ activities.

10.38. The two DGs and OIL have at least one performance indicator per objective to help management monitor, evaluate and report on achievements. An examination of 15 indicators (five for each organisation) showed that only two of the indicators adequately fulfilled all the RACER criteria (43). In addition, the Court identified a number of shortcomings (see Box 10.6). 10.38. The Commission significantly reviewed its indicators for the period 2014-2020 and considers that the indicators presented generally provide useful information on progress towards attaining the Commission's overall policy objectives as well as for monitoring performance.

Box 10.6 — Examples of problems with indicators Box 10.6 — Examples of problems with indicators

(a) Indicators which were outside the DG’s ability to influence DG SANCO: ‘Rate of influenza vaccination among EU citizens aged 65+’: While this indicator was set by the Council, implementation is entirely the responsibility of the Member States. Consequently, achieving the target falls outside SANCO’s scope of influence. (a) Vaccination against seasonal influenza is a specific public health measure that lies solely within the remit of Member States. DG SANCO is aware that it has no direct influence on the progress of this indicator. However, the Council set an objective for vaccination coverage at EU level which can only be monitored by the Commission. Therefore, DG SANCO continues to monitor national measures to reach targets and, as such, contributes to achieving the set targets.

(b) Indicators which lacked relevant information DG EMPL: The specific objective ‘Increase access to employment and participation in the labour market’ is measured by two result indicators: ‘Number of citizens benefiting from ESF support in the form of training, employment or guidance’ and ‘ESF as a % of Active Labour Market Policies in the EU’. The indicators track ESF participation and ESF budget allocation but neither provides information about the purpose of the objective: to increase (access to) employment. (b) The Commission considers that the indicators concerned are useful, but acknowledges that these could be more specific and this was addressed for the period 2014-2020.

(c) Indicators for which reliability was questionable DG SANCO: ‘Share of population worried to suffer an adverse event while receiving healthcare’: To collect data, the indicator relies on citizen surveys (Eurobarometers). The first such survey was carried out in 2009, which became the baseline. The next survey is scheduled for 2014. The indicator measures citizen perception. This can be very useful circumstantial evidence, but it needs to be complemented with a more direct form of feedback (e.g. the actual number of adverse events). Because of its subjective nature, this indicator might not reliably indicate whether patient safety has improved or not. (c) The Eurobarometer survey is not designed to serve as a stand-alone indicator. It is analysed together with a number of other indicators such as the structured indicator on the implementation of the relevant Council Recommendation in the Member States, accompanied by a proxy outcome indicator exploring the impact of the measures taken on the citizens’ perception of how probable patient safety incidents are.

(d) Indicators presented as result indicators but were instead output-oriented OIL: Some indicators though defined as result indicators represent in fact output indicators. The MP 2013 includes as result indicators: ‘daily average meals sold’, ‘number of fitness centre users’ or ‘number of environmental communications made’. These are not result indicators. They represent the number of products/services delivered (outputs) and not the immediate effects of the actions/activities on the target population (d) OIL reports on the achievement of every specific objective assigned to the Office, mainly through qualitative elements presented in a text format. In order to reflect accurately the actual achievements whilst connecting the latter with underlying processes and earmarked resources, output indicators turn out in most cases to be meaningful and as such, have been agreed by the Management Board of OIL. For the sake of clarity, comparability over time and data availability, indicators selected for the Annual Activity Report cannot be limited solely to impact or result indicators. In this respect, the indicators highlighted by the Court of Auditors, though perfectible, are generally complemented by result-targeted indicators (balanced books for catering services, awareness on environmental issues evidenced through the extended EMAS scope).

(e) Indicators where key information for the target is missing DG EMPL: For the result indicator ‘Number of Managing Authorities (MA) and Intermediate Bodies (IB) participating in learning networks’, the target is that an MA or IB from each Member State participates in at least one relevant transnational learning network. The AAR does not provide participation rates for each Member State. (e) The Commission considers that the indicator presented is very useful and relevant, but it nevertheless agrees that information on the attainment of the target for this particular indicator was very difficult to obtain taking into account the collaboration of 28 Member States and hundreds of MA and IB. DG ‘Employment, Social Affairs and Inclusion’ will strive to do better in the future.

Insufficient cooperation between DGs

10.39. According to the AAR instructions, DGs in related policy areas or managing similar programmes are expected to cooperate during the preparation of the draft AAR. Lack of cooperation might lead to inconsistencies in reporting between the DGs (see Box 10.7). 10.39. The Commission recalls that during the preparation of AARs, there has always been close coordination and collaboration between DGs in related policy areas.

Box 10.7 — Examples of insufficient coordination between DGs DG EMPL and DG SANCO: DG SANCO uses the indicator on the ‘Number of healthy life years (HLY) at birth’ as an impact indicator under the general objective ‘To protect and improve human health’. Although it tracks the same data as DG EMPL’s impact indicator ‘Disability-free life expectancy’, the two indicators have different targets and milestones without any apparent reason for this discrepancy. Box 10.7 — Examples of insufficient coordination between DGs The indicator HLY is a European Core Health Indicator (ECHI) and is as such used in different contexts. To avoid discrepancies, the underlying methodology is coordinated closely between DGs SANCO, ‘Employment, Social Affairs and Inclusion’ , and ESTAT. There is and always has been a good cooperation between DGs ‘Employment, Social Affairs and Inclusion’ and SANCO on health indicators, e.g. through the European Health Interview Survey where the two DGs have held coordination meetings on the data that should be collected. However, DG-specific targets may be required to capture some specific aspects of a given DG's work.

THE COURT’S OBSERVATIONS

PART 3 — RESULTS OF THE COURT’S AUDIT ON PERFORMANCE

10.40. This part of the chapter comprises two sections: the first draws out some of the main lessons from the Court’s 2013 special reports; and the second follows up the extent to which the Court’s special report recommendations — from eight special reports from 2007-2010 — are implemented.

The Court’s 2013 special reports

10.41. The Court’s special reports examine whether the principles of sound financial management (paragraph 10.1) are applied to European Union spending. The Court chooses its topics for special reports — specific budgetary areas or management themes — to have maximum impact, based on a range of criteria, such as the level of income or spending involved (materiality), the risks to sound financial management and the degree of stakeholder interest. In 2013, the Court adopted (44) 19 special reports, as listed in Annex 10.1 .

10.42. Each special report in itself constitutes an important contribution towards holding auditees accountable for their management of EU money, and towards helping them to make improvements in the future. These special reports in total cover the full range of the management lifecycle, from conception to evaluation. In previous years’ annual reports, the Court has drawn out a limited number of themes, judged to be of particular relevance, from across the range of that year’s special reports. In the 2011 annual report, these themes were needs analysis, design, and EU added value; in the 2012 annual report they were objectives and indicators, data on performance, and the sustainability of EU-funded projects.

10.43. In this annual report, the Court chooses to highlight two issues identified in its 2013 special reports which are of particular significance to the Commission and the legislator in terms of obtaining maximum impact from the next generation of spending programmes: EU added value, and the closely-associated concept of deadweight.

EU added value

10.44. EU added value is of increasing importance in terms of securing the best possible performance from limited EU funds (see also paragraph 10.21). Of the 19 special reports adopted in 2013, seven addressed the issues of EU added value and/or deadweight.

THE COURT’S OBSERVATIONS THE COMMISSION’S REPLIES

10.45. EU added value is ‘the value resulting from an EU intervention which is additional to the value that would have been otherwise created by Member State action alone (45). Securing EU added value is fundamental to the achievement of sound financial management (46). 10.45. The Commission underlines that the concept of EU added value may be used in many different contexts, such as in academic reflections on the EU budget, for defining goals and/or criteria for project selection in specific EU programmes, in provisions of the Financial Regulation and in evaluation of existing programmes but it also considers that the added value of a political project goes beyond simply referring to quantitative data. The Commission also points out that the principle of sound financial management is set out in Article 30 of the Financial Regulation and that the achievement of sound financial management should be measured against these principles.

10.46. The Court’s audits found that genuine EU added value was often difficult to identify, particularly in the context of shared management where most of the budget is spent. The risk is that EU funding is used as a substitute for national funds, thereby releasing national resources for use elsewhere. This option may be attractive for Member States whose national budgets are under pressure. 10.46. The Commission refers to its replies to paragraphs 10.48 and 10.52, where it considers that the measures taken did provide for EU added value. The Commission assessed EU added value when presenting proposals relating to the new spending programmes. Where the co-legislators shared this view, they adopted the proposed spending programmes. The Commission will manage these programmes and will report on EU added value, which is one of the aspects that ex post evaluations will assess. These evaluations are publicly available and the Article 318 report also includes information on EU added value.

10.47. An example is provided by the Court’s special report on the LIFE programme, referred to earlier in paragraph 10.5. The Court found that the use of national allocations and the national, rather than EU-wide, competition for project funding had the effect of reducing the EU added value of the programme (47). 10.47. Please see reply to paragraph 10.5.

10.48. Another example is the Court’s special report on the European Globalisation Adjustment Fund, in which the Court concluded that one third of the funding from this source compensated workers affected by mass redundancies with no EU added value. This was the proportion of funding related to income support measures which would have been paid by Member States anyway. However, the report did note that when the Fund was used to co-finance services not ordinarily existing in the Member States, such as training for redundant workers, it did deliver EU added value (48). 10.48. The Commission draws attention to the conclusions of the mid-term evaluation report related to EU added value. This report concludes that the EGF has delivered ‘significant added value’ and ‘independent experts concluded that hardly any results would have been achieved without EGF support’. The Commission observes that support provided by the EGF should be considered as financing a ‘package’ of interrelated measures, which as a whole contributes to the success of the funded operations. Indeed, the EGF provides support to workers through various forms of assistance, including allowances to ensure that workers have sufficient income for the duration of the activation measures, and are hence in a position to benefit from the various supported actions such as training.

Deadweight

10.49. A linked concept, negatively affecting EU added value, is that of deadweight: when applied to EU grants, this refers to the extent to which a beneficiary would have undertaken the project even in the absence of the EU support. The presence of deadweight would thus reduce or even rule out EU added value.

10.50. Deadweight, by its nature, is not easy to identify. However, the absence of sound needs analysis often indicates that there is a risk of deadweight. On some occasions the Court’s audits noted projects which were authorised — or even completed — before the EU funding had been approved; this indicates the presence of deadweight.

10.51. For example, in its audit of EU support to the food-processing industry, the Court concluded that the likelihood of deadweight was high as a consequence of Member States’ systematic failure to direct funding to projects for which there was a demonstrable need for public support (49). Also in the field of agriculture, the Court found that the risk of deadweight was high in the measures used by Member States to diversify the rural economy, with only one Member State requiring beneficiaries to demonstrate the need for the grant; in one case, EU support was provided after a project had already been completed (50). 10.51. The Commission agrees with the Court that improvements in better targeting the support are needed at the level of Member States. When the investment support is well targeted (using among others eligibility and selection criteria, differentiation in aid rates) and based on clearly identified gaps/needs, the risk of deadweight and displacement is minimised. The targeting of investment support (Article 43 of Regulation (EC) No 1974/2006) was introduced in the programming period 2007-2013 exactly to limit deadweight and displacement effects coming out of earlier evaluations. The legal framework for the new programming period requires that specific needs linked with specific conditions at regional or sub-regional level are taken into account and concretely addressed through adequately designed combinations of measures or thematic sub-programmes. Furthermore, the new legal framework requires that appropriate targets are set for each of the focus areas of the Union priorities, on the basis of common result indicators, and that the selected measures in relation to the Union priorities are based on sound intervention logic supported by an ex ante evaluation.

10.52. Further examples of deadweight were found in the Court’s examination of the Marco Polo programme, designed to shift freight traffic off the road. Although there was evidence that the EU support benefited projects in terms of when they were able to start, the scale of the service provided or a quicker return on investment, the audit also found serious indications of deadweight: for example, 13 of the 16 beneficiaries audited confirmed that they would have started and run the project without the EU subsidy (51). Similarly the Court concluded that the Commission had not sufficiently demonstrated that the EU support under the Risk Sharing Finance Facility (a financial instrument designed to improve access to debt financing for research) leads to investments above the level that beneficiaries would undertake in its absence (52). 10.52. For the reasons stated by the Court (i.e. earlier start of projects, increase of the scale of services and earlier return on investment), the Commission considers that the Marco Polo programme has clearly an EU added value for the audited projects. What is more, the deadweight phenomenon is difficult to quantify since there may be a number of other factors which should be taken into consideration e.g. sustainability issue (a question whether projects would have been sustainable without the subsidy), multiplication factor (bigger projects generating much more modal shift), increased credibility and visibility of the beneficiaries (EU project brand), benefits resulting from collaboration between partners (transfer of know-how, best practices). Regarding the RSFF, the Commission considers that this instrument has proven its worth, particularly in challenging economic times. The RSFF interim evaluation has also demonstrated the added value of the instrument, stating: ‘The RSFF helped many European research-intensive firms to maintain RDI activities in a period of major financial stress, it has helped some of the most innovative firms in Europe to restructure their financial positions at a time banks and other financial institutions were reducing access to finance for high risk investments …’ (RSFF Interim Evaluation Report of August 2010, page 18). Furthermore, the second interim evaluation (June 2013) refers that ‘the key economic value of RSFF is the anti-cyclical nature that provides promoters with a long-term financial stability to perform RDI even in times of crisis’.

Follow-up of special report recommendations

10.53. According to international auditing standards, the follow-up of audit reports is the final stage in the performance audit cycle of planning, execution and follow-up (53). Following up the Court's performance audit reports is a necessary element in the cycle of accountability and helps encourage the effective implementation of report recommendations by the Commission.

10.54. The Court reviewed the Commission’s follow-up of a sample of 59 audit recommendations from eight special reports adopted in the period 2007-2010. Of the 56 that could be verified (54), the Court concluded that the Commission implemented 79 % of the recommendations, either fully or in most respects. A further 12 % of recommendations had been implemented in some respects while 9 % had been initially rejected and consequently not implemented (55).

10.55. In last year’s follow-up exercise, the Court recommended that the Commission refine its IT tool for monitoring the status of audit recommendations and discharge requests. The IT tool should allow a more accurate recording of the status of recommendations which have only been partially implemented. Following the Court’s recommendation, the Commission has proposed improvements which should make it possible to record partially implemented recommendations in the IT tool later in 2014. 10.55. The Commission assessed the possibility to further develop the RAD application in order to improve the information provided to management. The development of the additional recommendation status ‘Partially implemented’ has been asked to the system provider within the Commission.

CONCLUSION AND RECOMMENDATIONS

Conclusion

10.56. When spending EU funds in the 2007-2013 programming period, the focus was on absorption (the need to spend money) and compliance rather than good performance. New arrangements are in place for the 2014-2020 period and the Court will follow the impact of these in future performance audits. While the new arrangements are welcome, and the establishment of a performance reserve may encourage an increased focus on results, the impact is, however, likely to be marginal as there are still no real financial incentives or sanctions in the 2014-2020 framework relating to the results achieved with EU funding (paragraphs 10.3 to 10.16). 10.56. Publication of performance data from the Annual Implementation Reports as well as the evaluations requirements (obligation for at least one impact evaluation for every priority) will prompt policy debate and real accountability. In addition, as foreseen in the 2014-2020 regulatory framework (Article 22(6 and 7) of Regulation (EU) No 1303/2013), the Commission will be able to sanction Member States in case of serious underachievement, as a result of the performance review (Article 22(6) of Regulation (EU) No 1303/2013) and at closure (Article 22(7)).

10.57. In the Court’s view, the lack of focus on performance points to a more fundamental problem. The principle of shared management relies on trust: that Member States — who part-fund projects — manage EU funds as carefully as they do their own resources. Based on its audit work, the Court has found that the selection of projects has focused first on the need to spend the EU money available (‘use it or lose it’), secondly on the need to comply with the rules, and only thirdly — and to a limited extent — on their expected performance. Compliance and performance should be given equal weight throughout the project cycle. This tension between the desire for a focus on results and the political imperatives faced by Member States is a fundamental flaw in the design of much of the EU budget. 10.57. The Commission notes that the performance criteria are built into the process of selecting each project to be funded. Through the application of weighted selection criteria Member States should be able to identify the projects that could better contribute to the achievement of results. The Commission would like to underline that, in addition to the Union funding, there always needs to be national co-financing (either public or private). Therefore the ‘trust: that Member States — who part-fund projects — manage EU funds as carefully as they do their own resources’, is justified as any ‘bad’ spending of the Union contribution, will automatically affect and spill over to the spending of the national contribution. Maximum co-financing rates are established by the CPR (Article 120), but these rates may be modulated (Article 121). Whilst in less developed regions the national co-financing can be limited to 15 %, for more developed regions it will be at least 50 %. In these cases there is thus a high risk for the national contribution in case the programme is ‘not carefully managed’ and focuses on spending rather than on delivering results. In addition, ex ante conditionalities should ensure that the right framework conditions for spending are in place. Therefore, even if there would be a focus on spending (which also affects the national contribution), the ex ante conditionality requires that Member States have a strategic policy framework in place which is in line with the commitments taken at EU level so as to ensure the effective and efficient achievement of the objectives of the programme and thus results.

10.58. Reporting to the European Parliament and Council on performance takes place in a framework that has evolved over many years and is not adapted to the performance culture that the Commission is seeking to create. The Commission is legally required to report annually on its performance in three main reports to the European Parliament and Council. However, only the evaluation report focuses on performance. The report on budgetary and financial management and the synthesis report contain no or little performance information. In the Court’s view, the Commission’s practice of focusing its reporting of performance in the evaluation report is sensible, as the other two reports have different purposes (paragraphs 10.18 to 10.20). 10.58. Reporting to the European Parliament and Council is developing along with the performance culture that the Commission is implementing, which takes account of the views of the European Parliament and Court of Auditors. As already stated, with the adoption of the 2014-2020 MFF, the framework of reporting to the European Parliament and Council has been adapted, with an increased focus on programme performance. As indicated in the Synthesis report, the Commission has taken already the necessary actions to improve the reporting on performance by strengthening the performance framework of the programmes under the 2014-2020 Multiannual Financial Framework (MFF) and by incorporating this performance framework into the Commission's Strategic planning, programming and reporting on achievements. It will take time for these changes to feed through into results. As regards the reports mentioned by the Court, different aspects of performance, complementary to each other, are covered by the three reports, which concern the implementation details of financial and budgetary management, the synthesis of the Commission's management achievements and the overall performance of the EU financial programmes. A clear distinction needs to be maintained between these different, but related, aspects. The Commission welcomes the Court of Auditors' indication that the current practice of reporting is sensible, that the three reports have different purposes and that reporting on the performance of financial programmes is best done in the evaluation report.

10.59. In addition, the Court found examples of gaps in coverage: the reports do not address EU added value. The Court concludes that sound financial management is not reported in a useful way in any of these three reports (paragraphs 10.18 to 10.22). 10.59. The Commission considers that there are no gaps in coverage. As indicated in its replies to paragraph 10.46, the Commission assessed EU added value when presenting proposals relating to the new spending programmes. The Commission includes information on EU added value as part of the reporting on evaluations done in the context of the Article 318 report. Moreover, the Commission does not agree with the Court's interpretation that the principle of sound financial management implies reporting on EU added value. Furthermore, none of the three reports are required or designed individually to cover all three elements thereby providing a full account for all purposes of sound financial management. They have their specific purposes (see reply to paragraph 10.58).

10.60. Compared to the previous evaluation reports, the fourth report represents an improvement in so far as it tries to establish a link between the main financial programmes presented by MFF heading and the available performance information relevant to the Europe 2020 strategy. However, in many important areas, the information and data provided in the evaluation report is not yet fit for the intended purpose in the discharge procedure. The Court notes the Commission's expectation that it will be some years before the new performance framework will be able to provide meaningful performance information on annual policy achievements. The Court will continue to monitor progress in this area (paragraphs 10.23 to 10.26). 10.60. The Commission considers that, within the monitoring and evaluation arrangements applicable to the 2007-2013 programmes, the latest evaluation report provides a valuable contribution to the work of the discharge authority for the year in question. In many aspects the structure and content of this year's report reflect the guidance given by the discharge authority. For example, the report separates the information on progress in achieving programme objectives from information on operational aspects of performance, such as Commission action to implement and manage the financial programmes. A distinction is made between the EU's internal policies and its external policies. The report also goes as far as has been found possible in providing available performance information on how the financial programmes have contributed to the Europe 2020 Strategy. However, it has to be recalled that, despite the fact that 2013 was the last year of the 2007-2013 programming period, it is still too early to fully measure the programmes' results and impacts as the final and ex post evaluations of the financial programmes are scheduled for the next four years (2014-2017). Nor were the monitoring, evaluation and reporting arrangements applied for the 2007-2013 programmes focused on reporting on the performance of the programmes. The performance information for the 2014-2020 programmes will gradually start to become available according to the reporting and evaluation arrangements set out in the legal acts adopted by the co-legislators and will feed into the Article 318 Report.

10.61. Directors-general report to the Commission in their AARs on the performance of their duties, on the activities of the DG and on policy achievements. The AARs include a declaration of assurance by the directors-general that, amongst other things, the resources assigned to the activities described in the report have been used in accordance with their intended purpose and the principles of sound financial management. However, in practice, the assurance provided in the AARs specifically excludes performance issues. Assurance, and any associated reservations, is limited to issues of regularity and internal control (see paragraphs 10.28 to 10.30 and Box 10.4). 10.61. As stated in the reply to Box 10.4, the Commission will continue to apply the same practice for reporting which is in line with the legal provisions. As indicated in the Synthesis report, the declaration of assurance focuses on management and financial matters, fully in line with the financial responsibility of the Commission for implementing the EU budget. By adopting the Synthesis report, the Commission takes overall responsibility for management of the EU budget. This is a distinct issue from the Commission's clear commitment to further strengthen its reporting on policy achievements in the same Annual Activity reports as well as in the Evaluation report as required by the Treaty. These policy achievements are the result of a collective action and responsibility with the co-legislators and Member States which play a major role in the implementation of the programmes. Furthermore, many other factors in the economy and society, far beyond the control of the Directors-General, influence the overall performance of the programmes.

10.62. The review of this year’s AARs showed that, as with previous years, DGs’ objectives are not fit for management purposes; that a number of weaknesses persist with the selection of indicators, meaning that their suitability for monitoring performance is limited; and that DGs do not cooperate sufficiently in formulating their objectives and indicators (see paragraphs 10.32 to 10.39). 10.62. As indicated in the 2013 Synthesis report, the structure of the 2013 annual activity reports was revised significantly. A lot of effort was put into improving the performance indicators and the reporting on performance as well as the reporting on economy and efficiency in the AARs. Moreover, much effort has been devoted in the revised instructions to ensure that the reports include only what is relevant and to improve clarity and consistency across DGs. In addition, there will be a closer alignment of management plans with annual activity reports as regards reporting on objectives and indicators.

10.63. The Court’s audits of performance continue to fulfil their twin aims in terms of accountability and improvement. Its 2013 reports, amongst many other topics, reported on cases where EU added value — fundamental to the achievement of sound financial management — had not been secured, or was reduced. A particular example of this, found in a number of cases, was the presence of deadweight — where beneficiaries would have continued with the activity even without the EU funding (paragraphs 10.40 to 10.53). 10.63. The Commission refers to its replies to paragraphs 10.48 and 10.52, where it considers that the measures taken did provide for EU added value. Moreover, as indicated in its reply to paragraph 10.45, the Commission does not share the Court's suggested principles underlying the concept of EU added value as indicated in its 2011 Annual report.

Recommendations

10.64. Annex 10.2 shows the result of the Court’s review of progress in addressing recommendations made in previous annual reports. In the 2010 and 2011 annual reports, the Court presented nine recommendations. Out of these recommendations, two were not applicable because it was too early for the Court to assess progress. The Commission implemented seven recommendations in some respects.

10.65. Following this review and the findings and conclusions for 2013, the Court recommends that:

— Recommendation 1: the Commission should, on the next occasion that the Financial Regulation is reviewed, rationalise its reporting framework for performance; The Commission accepts the recommendation. The Commission is ready to adapt the Financial Regulation in order to align it with its current practice in reporting on performance. Under the current practice, the three reports referred to by the Court in paragraph 10.18, serve different purposes and are complementary to each other. The Synthesis report has a focus on the Commission's management achievements, the Article 318 evaluation report focuses on the results achieved by the spending programmes and the report on Budgetary and Financial Management reports on the budgetary aspects and budgetary management. The Commission is of the opinion that this reporting practice, in which all of these reports have a distinct role and purpose, is in conformity with the legal and operational provisions at various levels (the TFEU, the Financial Regulation and internal Commission standing instructions).

— Recommendation 2: the Commission should ensure that the evaluation report presents a summary account that brings together all the information available on the progress towards Europe 2020 targets in order to provide the reader with a clear overview of the achievements made; The Commission accepts this recommendation. The Commission will focus on ensuring that the Article 318 report presents a summary account bringing together information on progress towards Europe 2020 targets with a view to providing a clear overview of achievements made. The Commission will consider whether any adjustment to the structure of the Article 318 report would be appropriate in the light of the way this reporting develops over coming years, while taking due account of the existence of other more comprehensive reporting on Europe 2020, such as through the European Semester.