[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 19.9.2007

SEC(2007) 1185

COMMISSION STAFF WORKING DOCUMENT

Annex to the report from the Commission to the European Parliament on the follow-up to 2005 Discharge procedure [COM(2007) 538 final]

TABLE OF CONTENTS

INTRODUCTION 1

Annex to the report from the Commission to the European Parliament on the follow-up to 2005 Discharge procedure 2

Statement of Assurance 3

National management declarations 7

Point 44 of the IIA 8

Suspension of payments and financial corrections 9

The Commission's internal control system 14

Political responsibility and administrative responsibility at the Commission 16

Revenue 22

The Common Agricultural Policy 23

Structural measures, employment and social affairs 26

Internal policies 28

External actions 39

Pre-accession strategy 45

Administrative expenditure and issues concerning the agencies 47

Special Report N° 6/2005 on the Trans-European Network for Transport 52

Special Report N° 1/2006 on the contribution of the ESF in combating early school leaving 54

Special Report N° 2/2006 concerning the performance of projects financed under TACIS in the Russian Federation 56

Special Report N° 3/2006 concerning the European Commission Humanitarian Aid Response to the Tsunami 58

Special Report N° 4/2006 concerning Phare investment projects in Bulgaria and Romania 62

Special Report N° 6/2006 concerning the environmental aspects of the Commission's development cooperation 64

Special Report N° 7/2006 concerning Rural Development Investments: Do they effectively address the problems of rural areas? 67

Special Report N° 8/2006 on: Growing Success? The effectiveness of the European Union support for fruit and vegetables producers 69

Special Report N° 9/2006 concerning translation expenditure incurred by the Commission, the Parliament and the Council 73

Special Report N° 10/2006 on ex post evaluations of Objectives 1 and 3 programmes 1994-1999 (Structural Funds) 75

European Development Funds 78

Recommendations in the resolutions concerning individual agencies 86

INTRODUCTION

This Working Document completes the Report from the Commission to the Parliament on the Follow-up to 2005 Discharge Decisions {COM(2007)538 final}. It presents in detail the answers to the 163 specific recommendations made by the European Parliament in the comments accompanying its Resolutions on the 2005 Discharges.[1]

Annex to the report from the Commission to the European Parliament on the follow-up to 2005 Discharge procedure

Statement of Assurance

1. The Commission is called on to take urgent steps to remedy the shortcomings noted by the Court of Auditors, such as errors in amounts registered in the accounting system (overstatement of the accounts payable and of the total amount of long-term and short-term pre-financings) and errors in the local accounting systems of some directorates-general, with a view to preventing them from affecting the reliability of the financial statements for 2006. The Commission should also provide the budgetary authority with six-monthly reports on the management of pre-financing operations. (§ § 3 ,4 and 8)

Commission's response:

The Commission is taking the recommended action. It has corrected, where possible, for the errors that were highlighted by the Court of Auditors during its 2005 audit. The Commission has also considered these errors and their causes while planning and performing its closure of the 2006 accounts, so as to try to avoid their recurrence.

Regarding the pre-financing reports the Accounting Officer of the Commission will furnish the budgetary authority with six-monthly reports on the pre-financing operations. It should however be pointed out that these will only be gross figures since the cut-off exercise, due to its complex and time-consuming nature, is performed only during the year-end closure process.

The Commission has continued the validation exercise for the local accounting systems of the Directorates-General during 2006 and 2007. Concerning the non-validation in 2005 of the systems of DG AIDCO, EAC and RELEX, considerable progress has since been made. For RELEX, the ABAC Delegations project has been completed by the end 2006 with the delivery of new IT tools fully ABAC compliant. For EAC, although it couldn't be validated for 2006, the deficiencies of the APPFIN local system were corrected by October 2006 so allowing the Director General to present its Annual Report for 2006 without a reservation to this respect. DG EAC continues its efforts to eliminate existing errors and to reduce the risk of creating new ones in the future. A permanent accounting sector has been created that regularly reviews the general ledger accounts and informs operational units (via a Task Force) about critical issues in the treatment of financial transactions. In addition management is regularly informed and Directors are meeting in a Task Force to monitor progress. For AIDCO the CRIS local system has also been rectified by the end of 2006 and put into production beginning January 2007. More in-depth testing took play in May 2007 to confirm this. At the same time, the validation was extended to 9 additional services. Concerning 3 out of these 9 services, namely DG TREN, JRC and DG INFSO, the validation was subject to a positive assessment of their cut off for the 2006 financial statements. In 2007, the Accounting Officer, after checking the cut-off procedures and finalising the validation reports for the three DGs INFSO, TREN and JRD, was able to issue clean validations, with one reserve for the JRC for the use of the common contracts data base.

2. The Commission is invited to inform the Committee on Budgetary Control which organisational changes it has taken or plans to take in order to allow the accounting officer to fulfil his duties under the new Article 61 of the Financial Regulation with regard to the check of the information received and the carrying out of any further checks necessary before signing off the accounts. (§ 5)

Commission's response:

The Commission will not be taking the recommended action as it is of the opinion that the structure, reporting lines and controls already in place within the Directorates-General, as well as the powers already attributed to the Accounting Officer will allow him to fulfil his duties under the said article.

3. The Commission should make the transactions via "unknown accounts" transparent and the funds credited to these accounts should be transferred back to the budget as other revenue. The Commission should also explain why the ‘Economat’ supermarket operating accounts operated outside the budget have still not been incorporated into the budget. (§ 6)

Commission's response:

The Commission is regularising such accounts by either closing the bank accounts or by integrating them in the Commission system.

In view of their origin, the Commission proposes allocating the funds coming from the operations of the Economat to specific actions of a social character. A series of projects were envisaged, on which the staff representatives within the Joint Committee on Social Actions ("COPAS") were consulted. The opinion of the COPAS reached the administration of the Commission at the beginning of May 2007, and the administration is currently preparing its final decision. The budgetary authority will be informed on the result through a Commission communication.

4. Where there is a shared management arrangement, responsibility for preventing, identifying and correcting errors at final beneficiary level lies with the Member States whilst at the same time the Commission is responsible for giving clear, efficient and effective guidelines to Member States on how to prevent, identify and correct these errors. (§ 14)

Commission's response:

The recommended action has been taken.

In shared management the Commission has asked Member States to ensure beneficiaries of Structural Funds are made aware of controls and the risk of cancellation of funding. Further guidance on information that Member States will have to send to the Commission on recoveries and withdrawals of funding following irregularities has been issued and an amendment has been made to the regulatory reporting provisions. Closure guidelines for 2000-06 programmes were issued by the Commission in August 2006. Guidance has also been issued illustrating good practices in first-level management checks and checks by paying authorities.

5. The Commission should further improve its effective supervision of controls delegated to the Member States and when these control systems are still insufficient it should impose clear deadlines and apply sanctions where those deadlines are not met. (§ 15)

Commission's response:

The recommended action has been taken.

In agriculture, Article 2 of Commission Regulation (EC) No 885/2006 provides that any problem in the accreditation of the paying agencies shall be remedied within a period which, in general, shall not exceed 12 months.

Furthermore, in case of deficient national control systems, the Commission applies on an ex-post basis financial corrections. These encourage the Member States to ameliorate their controls.

Moreover, the Commission has recently presented a proposal to the Council to amend Council Regulation (EC) No 1290/2005 on the financing of the Common Agricultural Policy (CAP). The proposal further simplifies the existing possibility for suspensions by including a provision for a new transparent and effective mechanism which will allow it to reduce or suspend payments to a Member State in case of serious and persistent deficiencies in the national control systems.

In the structural actions area, too, where the Commission finds deficiencies in systems it sets deadlines for carrying through the required improvements and failing prompt action can suspend payments or apply financial corrections.

6. The European Parliament is concerned at the renewed increase in outstanding commitments and calls for a higher rate of utilisation over the next three years. (§ 9)

Commission's response:

The Commission is taking the recommended action. The increase in outstanding commitments in 2005, in particular in the Structural Funds, was not unexpected. This was mostly due to the large increase in commitments for the EU-10 countries (in line with the Copenhagen profile), while payments made to these programmes and projects were still relatively slow in their start-up phase. This will change over the years as the new Member States move to cruising speed. Payments for EU-15 programmes and projects already reflect a high rate of utilisation.

With regard to the decommitments made from the European Social Fund contribution, the Commission points out that while they stand out in absolute terms, they are still relatively small (less than 2%) compared to the commitment tranches they refer to.

7. Calls on the Commission and the Court of Auditors to keep due account of beneficiaries applying for relatively small amounts for projects or organisations, which are, due to their size, not able to hire the necessary audit and evaluation expertise, in order to achieve the right balance between the costs of the project and the costs and manpower of auditing and reporting. (§ 11)

Commission's response:

The Commission is taking the recommended action.

Under the Action Plan towards an Integrated Internal Control Framework a new sampling approach for the Sixth Research Framework Programme seeks to prioritise the detection and correction of systematic errors among major beneficiaries while covering an appropriate representative sample of the audited population. This approach based on international standards, combines stratification with monetary unit sampling (MUS), and incorporates the correction of systematic errors with the detection of the global error rate via a statistical sample.

The Commission considers, however, that in principle no beneficiaries should from the start be excluded from the audited population, as the possibility of being audited may have a deterrent effect on the controls implemented by the beneficiaries.

National management declarations

8. The Commission should submit before the end of 2007 to the Council a proposal for a national (management) declaration covering all Community funds under shared management, based on sub-declarations by the various national bodies responsible for the management of expenditure. (§ 28)

Commission's response:

The Commission will not be taking the recommended action.

Given the different governmental structure and management structures for EU funds under shared management of the 27 Member States, the development of a single standard declaration would not yield significant benefits. The Commission will however continue to support such initiatives taken by national administrations.

Moreover, the revised Financial Regulation (Art 53, § 3) provides that "Member States shall produce an annual summary at the appropriate national level of the available audits and declarations" for shared management. Model declarations are also included in relevant sectoral legislation. These are major steps forward and are separate from the different initiatives to develop national declarations which are being taken by certain Member States. The Commission will review carefully the additional assurance which can be taken from the national summaries.

Point 44 of the IIA

9. The Commission should ask the Member States for the information referred to in point 44 of the Interinstitutional Agreement and draw up, on the basis of that information, a document analysing the strengths and weaknesses of each Member State's national system for the administration and control of Community funds and the results of the audits conducted, and forward that document to Parliament and Council. (§ §34 and 35)

Commission's response:

The Annual Activity Reports of Directorates-General contain an assessment of the functioning of management and control systems. In the reports of the Directorates General implementing funds in shared management, this assessment also covers the systems in Member States.

Suspension of payments and financial corrections

10. The Commission should simplify the rules and apply the existing legislation on suspension of payments in the cases where it is necessary, and inform the Council, Parliament and the Court of Auditors in good time concerning the suspensions of payments and their results. (§ 39 - **2005/PAR/1670)

Commission's response:

The Commission is taking the recommended action. Under the rules for the Structural Funds for the 2007-13 period a Director-General may interrupt payments to a programme for up to six months where there is evidence of a serious deficiency in the functioning of its management and control system or of a serious irregularity in a certified statement of expenditure. This will allow a more flexible and rapid response to such problems than the formal suspension of payments procedure, which requires the Commission first to give the Member State an opportunity to present its comments and the adoption of a formal Commission decision.

Under the rules for the agricultural funds EAGF and EAFRD, the Commission may decide to reduce or suspend payments to Member States. The Commission proposed in March 2007 to the Council an amendment to Regulation (EC) no 1290/2005. The proposal further simplifies the existing possibility for suspensions by entailing a specific provision on reductions and suspensions in case that one or more of the key components of the national control system do not exist or are not effective due to the gravity or persistence of the deficiencies found.

The Commission will continue to inform the Council, Parliament and the European Court of Auditors of suspensions and their results.

11. Payments should be fully or partly suspended in the case where Member States are not complying with basic requirements, as in the case of the IACS system in Greece, and where the Greek authorities do not remedy the existing problems within the time limits set, as scheduled by the jointly adopted action plan which the Commission has requested from the Greek authorities for a fully functioning IACS system. (§ 40)

Commission's response:

The recommended action has been taken.

In the framework of the clearance of accounts procedure, the Directorate-General for Agriculture and Rural Development will continue with an intensive audit programme and will as long as necessary impose financial corrections on Greece in order to protect the financial interests of the Community.

The Commission will closely monitor and supervise the implementation of the Greek Action Plan set up in 2006 at the explicit request of and in close cooperation with the Commission.

The Commission has recently presented a proposal to the Council to amend Council Regulation (EC) No 1290/2005 on the financing of the Common Agricultural Policy (CAP). The proposal further simplifies the existing possibility for suspensions by including a provision for a new transparent and effective mechanism which will allow it to reduce or suspend payments to a Member State in case of serious and persistent deficiencies in the national control systems.

12. Individual Member States should apply similar control standards. (§ 41)

Commission's response:

The Commission is taking the recommended action. The Commission has been making efforts to harmonise control standards in the Structural Funds for some years. It has issued audit manuals and discusses audit methodology at annual bilateral meetings with Member States and at general meetings with national audit bodies. In the legislation for the 2007-13 period the Commission secured a harmonisation of the sampling methodology to be used in audit work and improvements in the reporting of audit results. It is revising the audit manual to incorporate the new requirements and provide guidance on the application of international audit standards. It is also publishing a sampling guide. Coordination of audit standards is an action (16c) under the Commission Action Plan towards an Integrated Internal Control Framework.

In 2006 the Commission issued notes of good practice on the day-to-day verifications by managing authorities and the checks to be performed paying (for the 2007-13 period "certifying") authorities. Standards for the work of winding up bodies, which provide an opinion on the reliability of final expenditure declarations for programmes, have been set out in the closure guidelines for the 2000-06 period (C(2006) 3424).

13. In the case of shared or decentralised management, the Commission should fully apply Article 53(5) of the Financial Regulation, thus assuming final responsibility for the execution of the budget, in line with article 274 of the EC Treaty, by means of 'clearance-of-accounts or financial correction mechanisms'. (§ 42)

Commission's response:

The recommended action has been taken.

This is normal practice for the Commission under the shared management mode.

14. Given the multiannual character of expenditure in Community programmes, it is only at the end of a multiannual cycle that the Commission can proceed to the application of 'clearance-of-accounts procedures or financial correction mechanisms', whose aim is the a posteriori rectification of errors detected, if comprehensive and clearly comprehensible documentation on programme implementation is available. The Commission should undertake financial corrections as soon as uncorrected irregularities are detected by the Member States, without waiting for the end of the multiannual cycle. (§ 43)

Commission's response:

The Commission is taking the recommended action. The requirements for documentation on programme implementation at closure are set out in the guidelines for the closure of 2000-06 Structural Fund programmes (C(2006) 3424). The closure documentation must include details of uncleared irregularity cases so that they can be monitored until the corrections are made. The Commission covers the mechanisms for reporting and correcting irregularities in its systems audits. It recommends Member States to take action on irregularities immediately, in order to maximise the chances of recovering the funds.

15. Final decisions and corrective measures (liquidation of accounts for the EAGGF (Guarantee), closure of the operational programmes under the Structural Funds, and completed audits for the decentralised management of external actions) should constitute a major instrument in the control and monitoring systems. (§ 45)

Commission's response:

The Commission is taking the recommended action. It carries out these processes with the necessary rigour to make them as effective as possible in eliminating undue payments.

16. As a result of the principle of efficient and effective use of appropriations, there must be effective recovery. Improved recovery would provide proof of the effectiveness of EU penalties and further boost the European institutions’ credibility. (§ 48)

Commission's response:

The Commission is taking the recommended action. To make up for deficiencies in information on recoveries, the Commission in 2006 clarified the obligations of Member States in this area through a guidance note on recoveries and an amendment of Regulation 448/2001 (Regulation (EC) 1978/2006) and in 2007 it requested the Member States to send it the information in a structured manner. The Commission is also improving the availability and quality of the information on recoveries it makes itself.

17. Effective recovery can only take place via the Member States’ enforcement agencies and therefore, in connection with recovery, Member States’ costs for their enforcement agencies should be taken into account. (§ 49)

Commission's response:

The recommended action has been taken.

Under the Commission Regulation (EC) 438/2001 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/999 as regards the management and control systems for assistance granted under the Structural Funds, the managing or the paying authority shall keep an account of amounts recoverable from payments already made and ensure that the amounts are recovered without unjustified delay. However, the establishment of a separate enforcement agency designated to have as its distinct responsibility the enforcement of recoveries per se is not required in the 2000-2006 sectoral legislations for the Structural Funds.

Under Article 32(2) of Regulation 1290/2005, 20% of any undue EAGF expenditure recovered from the beneficiaries may be kept by Member States "as flat-rate recovery costs", and under art 32(6) of that regulation Member States can decide not to pursue a recovery if the costs to be incurred total more than the amount to be recovered.

The ongoing action 10 of the action plan towards an integrated internal control framework, which aims at assessing the costs of controls in shared management, takes the costs incurred in connection with the work of the management and paying authorities associated with the detection and the correction of amounts paid out into account. The results will be reported via the final progress report in early 2008.

18. In order to improve the recovery rate, the identities of debtors who have been found liable by the courts and can no longer appeal but are unwilling to make payment should be revealed. (§ 50)

Commission's response:

The recommended action has been fully taken into account by the Commission, in accordance with the amendment No 20 proposed by the European Parliament in the resolution of 13 February 2007 on the revision of the Implementing Rules of the Financial Regulation. In this regard Article 81(4) of the Implementing Rules of the Financial Regulation states that "The Commission shall establish a list of Community entitlements stating the names of the debtors and the amount of the debt, where the debtor has been ordered to pay by a Court decision that has the force of res judicata and where no or no significant payment has been made for one year following its pronouncement. The list shall be published, taking account of the relevant legislation on data protection."

19. The Commission, for its part and in the light of the Court's severe criticisms, needs to take all appropriate action in order to prevent errors and irregularities in occurring in the first place and should not put more emphasis on final financial correction mechanisms which, as the Court notes, have serious weaknesses and "cannot be regarded as mechanisms to ensure the prevention and timely identification and correction of errors" (paragraph 1.64 of the annual report of the European Court of Auditors). (§§ 44 and 51)

Commission's response:

The Commission is taking the recommended action. It considers checks on underlying transactions at source by management before expenditure is declared for reimbursement and preventive measures such as guidance and information activities as of paramount importance. The Commission's system of conformity clearance in the CAP provides an incentive for the Member States to carry out their control tasks as well as possible by refusing to pay for expenditure not meeting the required conditions.

Within the CAP the ongoing process of reforming the policy with a further shift to direct payments is in itself a considerable improvement in preventing errors and irregularities. Direct payments are controlled under the integrated administration and control system, IACS, which, as recognised by the Court of Auditors, is the most efficient control system within shared management. In addition, the Commission has reinforced the CAP control systems and imposed more strict control reporting by the Member States, which is analysed by the Commission and discussed with Member States in view of further improving controls.

In the Structural Funds area the Commission is seeking to prevent irregularities by getting managing bodies to give beneficiaries better guidance and to make them aware of the risk of controls and the penalties for declaring irregular expenditure. In January 2007 it wrote to Member States urging them to step up such information activities and in 2006 it disseminated good practice notes for day-to-day checks by managing bodies and for checks of payment claims by the paying authority. These actions were part of the Action Plan towards an Integrated Control Framework.

20. The Commission should supply both Parliament and the Court of Auditors with an explicit definition of the different concepts grouped under the term 'financial correction mechanisms', as well as with the amounts actually involved in the corrections of 2005. (§ 53)

Commission's response:

The Commission is taking the recommended action. For the structural actions area it intends to present the information in the 2006 Annual Report on the Implementation of the Structural Funds to be published in October 2007.

21. The Commission should submit in future a detailed annual report including the amounts actually involved in the financial corrections. (§ 54)

Commission's response:

The Commission is taking the recommended action. The 2006 annual accounts of the European Communities already include information about the financial corrections requested by the Commission. For 2007, it is foreseen to add further information concerning the financial corrections made by the Member States.

The Commission's internal control system

22. The second half-yearly scoreboard on the implementation of the Action Plan towards an integrated internal control framework should be communicated to Parliament before 1.1.2008. (§ 56)

Commission's response:

The Commission will provide a mid-term scoreboard in July 2007 and a final report on the implementation of the action plan in early 2008. The final report will take a first look at the impact of the different actions on assurance and will draw conclusions for the future consolidation of the Integrated Internal Control Framework. As the time limit for certain actions is end-December 2007, the Commission will require a limited time to assess and bring together the results of the different actions and it will therefore not be possible to deliver the final report before early 2008.

23. Some of the actions in the Action Plan towards an integrated internal control framework have not even been started and there is thus already a degree of delay with regard to the planned calendar, particularly concerning Actions 7, 9 and 10. (§§ 57 and 61)

Commission's response:

As with any such ambitious plan, the initial plans need to be revised in line with experience. The Commission's intention is to complete all actions by the original deadline of 31 December 2007, thus recuperating any delay incurred in some actions. The Commission will provide a mid-term scoreboard in July 2007 and a final report on the implementation of the action plan in early 2008. The final report will take a first look at the impact of the different actions on assurance and will draw conclusions for the future consolidation of the Integrated Internal Control Framework.

24. Parliament stresses the importance of Opinion No 2/2004 of the Court of Auditors regarding the Single Audit Model, namely as regards the need to ensure the coincidence between the level of authority that legislates, finances and benefits from controls (point 24), as regards proportionality between costs and benefits of controls (point 25) and as regards transparency of controls (point 26). (§ 62)

Commission's response:

The recommended action has been taken.

The Commission's recent progress report on the action plan makes it clear that further work on the cost-benefits of control is necessary and specified further sub-actions in this area.

25. The Commission, in line with the principles of proportionnality and cost efficiency (value for money)of the control systems, should evaluate the relationship between the resources available for each particular policy and the part of those resources dedicated to the control systems broken down by area of expenditure, and any resources lost thanks to errors thus detected. The Commission should send this comparative analysis to Parliament, Council and the Court of Auditors. (Garriga - §§ 63, 64 and 67)

Commission's response:

Actions 10 and 11 of the action plan towards an integrated internal control framework aim at assessing the costs and the benefits of controls. For shared management a methodology for estimating the costs of control has been agreed and a survey launched for agriculture and structural funds. A new sub-action was launched with the objective to determine whether recovery and offsetting systems are working effectively, by identifying amounts recovered in 2005 and 2006 and their coherence with errors identified during controls. Furthermore, the Commission will, in direct management, develop a typology of error and the relationship with recoveries, financial corrections and adjustments to payments, while for shared management it will examine the reliability of national monitoring and reporting systems. The results will be reported via the final report in early 2008.

However, there is no commitment for a specific comparative analysis under the action plan.

26. The Commission should fully disclose to the public the methods it uses for the determination of the rates of error, and pursue an interinstitutional dialogue on audit methodology. (§ 65)

Commission's response:

The recommended action has been taken.

Error rates and materiality criteria are already disclosed by the Directorates-General to some extent in their annual activity reports. Furthermore, the Commission considers the discussion of methodology to determine error rates as a matter of priority in the ongoing inter-institutional discussion and in its working relations with the ECA. Specific issues include the definition of formal errors and errors with significant financial impact, and the extrapolation of errors. In particular, a common understanding of the latter would considerably advance agreement on the multi-annuality of the control systems. The Commission will pursue the ongoing dialogue with the Court of Auditors in this area.

Political responsibility and administrative responsibility at the Commission

27. The differing information content of services’ annual activity reports is a hindrance to this procedure and the Court of Auditor's stated that some of those reports still do not include sufficient evidence for its statement of assurance (paragraphs 2.15, 2.18 and 2.19 of the annual report for 2005). (§ 69)

Commission's response:

The Commission will pursue its internal efforts to harmonise the presentation of management and internal control systems and better explain the consequences of the reservations expressed in the annual activity reports. It will also continue developing indicators by "families" of services on legality, regularity and sound financial management by "families" of services.

Already for the 2006 exercise, Directorates-General were asked to follow a revised presentation of the factors leading to assurance (internal control template), which provided a clearer link between the results of control and assurance. The Commission is also determined to clearly set out and communicate to the budgetary authority reservations on the global assurance, including where relevant by sector or Member State, together with the corresponding financial corrections or suspensions of payments.

The Commission understands the concern of the European Parliament and notes that differences of views between the Commission and the European Court of Auditors have already appeared in the past. The fact that a Director General has a reservation does not make it impossible for him to express a reasonable assurance on the management, provided that the reservations are duly motivated and that indications are given on the impact of the reservations relating to the use of resources and the legality and regularity of the underlying operations. Indeed, reservations are to be seen as a sign of both transparency and accountability.

28. The Commission should ensure that its annual activity reports and statements go into much greater detail - where possible on the level of the individual Member States - in the evaluation of the existing systems, the shortcomings detected by them and their financial impact. (§ 70)

Commission's response:

The Commission considers that the current annual activity reports provide important and comprehensive information on existing systems, weaknesses detected and their financial impact. The Commission is gradually implementing a better structured and more homogeneous presentation of the internal control systems of the Directorates-General.

The presentation of Director-Generals' assurance at the level of the individual Member States is already Commission practice in cases were reservations refer to control weaknesses in particular Member States.

29. The Commission should ensure that its Secretary-General, when preparing the synthesis report, draws up a statement of assurance which includes reference to the statements of each of the directors-general, with the aim of making express mention of their assistance to the Commissioners in the adoption of that report. (§ 71)

Commission's response:

As already expressed in the past, the Commission cannot accept this recommendation. A declaration of assurance delivered by the Secretary General of the Commission would not increase the accountability of the Commission as it would create confusion and possible overlapping in the different tasks and responsibilities. The Commission's 2000 reform centred on ensuring Authorising Officers by Delegation were solely responsible for the execution of their activities. The division of management responsibilities between Authorising Officers by Delegation and the collegiate structure is incompatible with the possibility of one Director General judging the reliability of another's work.

The decentralisation ensured clear lines of responsibility by ensuring that the Director General has the final word on his or her Directorate-General's control systems and is responsible for the financial management in the Directorate-General. Such a declaration of the Secretary General would pose a serious risk of interference by the Secretary General in the normal relationship between individual Commissioners and their Director General.

A synthesis report signed by the Secretary General would actually downgrade a document that is now formally adopted by the College. By adopting this synthesis in its current form, the Commission assumes its political responsibility for management by its Directors General and Heads of Service, on the basis of the assurances and reservations issued by them in their annual activity reports.

30. The Commission should determine what actions are needed to ensure the full involvement of the Commissioners to evaluate political risks, as called for by the internal auditor in its annual report for 2005, while at the same time clarifying the relationship between the directors-general and the Commissioners, and to supply full information on the matter to Parliament. (§§ 72 and 73)

Commission's response:

The Commission agrees that Commissioners' involvement in the analysis of the political risks is a key component in the Commission's accountability architecture. It considers that this is already being implemented satisfactorily as Commissioners play an active role in the risk analysis embedded in the Annual Management Plan of their departments.

This analysis is an integral part of the discussions taking place at least twice yearly between the Commissioner and the Director General, in line with the Code of Conduct. The Commissioner is therefore duly involved at political level. He could not be further involved in the management of the risks without going against the separation of tasks and responsibilities between Commissioners and Directors-General.

Moreover, in the framework of the Commission's Synthesis Report an initiative has been launched aiming at establishing effective and comprehensive risk management making it possible to identify all major risks at service and Commission level and to lay down appropriate action to manage them, including disclosing resources needed to bring major risks to an acceptable level. Based on a pilot exercise on cross-cutting risks carried out in 2006, the Commission established a peer-review process for managing such risks.

31. All Commissioners should give the same importance to sound financial management and with some exceptions, they should be better prepared for hearings concerning the 2006 discharge procedure in the Budgetary Control Committee of Parliament. (§ 74)

Commission's response:

The Commission accepts the recommendation. Nevertheless, it considers that sound financial management is already a key element of its management and that equivalent importance is given to it by all its Members. The Commission is making considerable efforts to communicate its views to the European Parliament and to improve its participation in the Budgetary Control Committee.

32. The debate on the European transparency Initiative should be launched quickly so that any necessary measures become effective at the start of Parliament’s new term in June 2009 and the Commission’s new term in November 2009. (§ 75)

Commission's response:

The debate with the other Institutions on the rules and standards on professional ethics of public office holders in the European Institutions will be based on the results of the study commissioned by the Commission services. Nevertheless, at this stage, the Commission can not prejudge the future measures to be adopted following the results of this debate.

33. The Commission should fill the gap that now exists as regards transparency and ensure that the Commissioners' binding code of conduct incorporates the necessary ethical rules and the principal guidelines to be observed by Commissioners in the conduct of their office, in particular when appointing colleagues, especially to their 'cabinets'. (§ 76)

Commission's response:

La Commission ne peut pas, à ce stade, accepter la recommandation et considère qu'il est prématuré d'envisager des modifications ponctuelles spécifiques.

La Commission considère que le Code de conduite en vigueur inclut déjà les principes éthiques et des règles à respecter adéquates. Comme la Commission l'a déjà indiqué, une éventuelle modification du Code de conduite des Commissaires devrait prendre en compte les résultats de l'étude commandée par la Commission, ainsi que les résultats du débat Interinstitutionnel qui sera ensuite lancé.

34. The Commission should pay due attention to and propose solutions for, in the framework of the Transparency initiative, the fact that a substantial number of former and actual high ranking members of staff in sensitive positions have left the Commission, sometimes on unpaid leave, to join lobbyists and law firms for example representing clients who are either under investigation by the Directorate-General for Competition or appeal against fines imposed on them. (§ 77)

Commission's response:

The Commission does not feel that there is a gap to fill in the existing ethical rules and guidelines.

Ensuring the highest standard of professionalism and excellence among its staff is of the outmost importance for the Commission. In this respect, it considers that the Staff regulations and correspondent monitoring and control mechanisms provide the appropriate legal framework to rule conflicts of interest. Under these rules, the Commission can, before authorising a period of unpaid leave, take all necessary measures to avoid any possible conflict of interest.

Concerning the specific case mentioned, the Commission has already provided the necessary answers (see WQ 4503/06).

35. The Commission's transparency initiative should lead to practical action and legislative initiatives which in turn result in transparency in the use and management of EU funds. (§ 78)

Commission's response:

The Commission accepts the recommendation. It has already launched a certain number of initiatives in this area, such as the publication of information on beneficiaries of EU grants.

36. Parliament's Administration, in collaboration with the Committee on Budgetary Control, should be involved in further deliberations for drawing up the specific legislative initiatives aiming at transparency. (§ 80)

Commission's response:

The Commission can not accept the recommendation.

The European Parliament is already called upon to formulate its opinions within the decision making process for EU legislation.

37. The Commission should do its utmost to encourage the Member States to allow public access to information concerning projects and recipients of all EU funds which are subject to 'shared' management. (§ 81)

Commission's response:

At the level of Member States, where disclosure of payments under shared management is feasible, publication practices concerning individual beneficiaries of public funding vary.

The Commission proposes to amend Council Regulation (EC) N° 1290/2005 setting out rules for the financing of the Common Agricultural Policy with respect to direct payments, market measures and rural development to oblige Member States to publish this data, including in rural development expenditure.

Meanwhile, the Commission’s Agricultural and Rural Development web site provides since 8 November 2006 a page with links to Member States’ web sites to the extent they publish data on beneficiaries. This page is linked to the website on EU funds under direct management launched by the Commission in 2006. This ensures equality of treatment as between direct and shared management programmes.

In accordance with the new provisions of the Financial Regulation and the applicable sector specific legislation, those Member states who have not yet done so will be obliged to grant public access to data, through national websites and other means they see fit, for all shared management programmes.

For the Structural Funds, under the legislation for the 2007-13 Financial Perspective period, inclusion in a published list of beneficiaries with details of funding received is now required in all cases as a condition of funding. The Commission intends to disseminate this information through links to national programme websites.

38. A simple and transparent system should be set up to access all the information on recipients of EU funds, via a central and easily accessible website. (§ 81)

Commission's response:

Substantial advances have been made in the provision of information on beneficiaries of centrally managed funds.

Since 2006, the Commission has published information on the beneficiaries of Community funds in two mini-portals, one related to grants (http://ec.europa.eu/grants/index_en.htm) and another one related to contracts (http://ec.europa.eu/public_contracts/index_en.htm).

In addition, a new sub-section has been created in the EUROPA "Agencies" portal (http://europa.eu/agencies/public_contracts/index_en.html) providing similar information related to the Agencies.

Concerning the area of shared management funds the Commission is taking the necessary measures at the legislative level in order to assure equality of treatment with the centralised management funds' domains. Reference is made to the answer to the previous recommendation.

39. The Commission should as swiftly as possible instruct the Member States to standardise the information concerning agricultural funding placed on the internet, so that it can be compared across the board between Member States. (§ 83)

Commission's response:

The Commission is taking the recommended action.

For Common Agricultural Policy, Council Regulation (EC) N° 1290/2005, which sets out rules for the financing of the Common Agricultural Policy with respect to direct payments, market measures and rural development, is in the process of being amended in order to oblige Member States to publish this data including rural development expenditure, in line with the revised Financial Regulation.

Meanwhile, the Commission's Agricultural and Rural Development web site provides since 8 November 2006 a page with links to Member States' websites to the extent they publish data on beneficiaries. This pageis linked to the website on EU funds under direct management launched by the Commission in October 2006. This ensures equality of treatment as between direct and shared management programmes.

Common standards for the publication of data will be defined in the implementing rules.

40. The Commission should complete the process of achieving greater transparency by allowing for easy access to information on who is represented in expert groups and what their tasks are. It should also publish the names of those people who take part in these groups, and the names of the special advisers which the individual Commissioners and/or Directorates-General and/or 'cabinets' have engaged. (§§ 85 and 86)

Commission's response:

The Commission is making efforts to improve access to information related to the composition of expert groups that it uses in its work. Information is not provided centrally through a common central database but by the Directorates-General responsible for managing the groups of experts concerned. Information concerning certain groups of experts is also published in the Official Journal.

The list of special advisers engaged by the Commission is available on the President's web page.

Revenue

41. Calls on the Commission to deal with the greater number of pending reservations in the VAT statements for 2005 with the Member States in the context of the regular meetings of the Advisory Committee on Own Resources, and inform the competent committee of Parliament of the measures it has taken or intends to take with the ultimate objective of eliminating those reserves. (§§ 88-89)

Commission's response:

The reservations are not in the VAT statements for any year but are placed by the Commission, in control reports, on items in Member States' annual VAT statements. The Commission continues to examine with the Member States both individually and in the Advisory Committee on Own Resources, how they may be helped to provide more rapidly the information that the Commission needs in order to lift reservations.

42. As regards the GNI own resource, calls on the Commission to take action, as a matter of urgency, to remedy the shortcomings identified by the Court as regards the monitoring of the underlying national accounts and the automatic inclusion of Financial Intermediation Services Indirectly Measured (FISIM) in the own resource decision, for GNI own resource purposes. (§§ 90-94)

Commission's response:

The Commission will take the action recommended by the Court with respect to the monitoring of national accounts. In addition to its current verification procedures, the Commission will perform more direct verification of selected national aggregates in the sense indicated by the Court during the 2007-2009 round of GNI verification missions that has started in 2007.

Concerning Financial Intermediation Services Indirectly Measured (FISIM), the Commission will present a proposal for including allocated FISIM in GNI for own resource purposes when it considers that all Member States are able to implement this adjustment in a uniform manner, which is expected to occur in 2008.

The Common Agricultural Policy

43. Urges the Commission to step up post-payment checks and to ensure that irregular payments are recovered. (§97)

Commission's response:

The recommended action has been taken.

The ex-post checks are carried out based on Regulation (EEC) No. 4045/89 which provides for an ex-post control system which is a complement to the sectoral pre-payment systems for a range of CAP measures. The system constitutes an extra layer of control that provides an assurance that transactions have been carried out in conformity with the rules or otherwise allows recovering any unduly paid amounts detected.

In the last years' inspections, potential irregularities have been detected corresponding to 0,2 % of the value of expenditure subject to controls. This very low rate of irregular payments indicates that the pre-payment controls have been implemented correctly. Such an indication clearly contributes to the assurance that the transactions financed by the CAP have been properly controlled.

DG AGRI being responsible for the overall monitoring of the Regulation receives each year various communications from the Member States (e.g. risk analysis proposals, annual programmes, annual reports, overview of payments to undertakings in other Member States etc.). This information is then analysed and acted upon. In addition, DG AGRI carries out many missions each year in the Member States to assess the application of the Regulation on-the-spot. DG AGRI is generally satisfied with both the administrative framework in which controls are performed and the quality of controls carried out.

Nevertheless, significant improvements were made recently in order to step up the post payment checks: the number of on-the-spot missions carried out annually was increased, statistics were improved (Regulation 40/2006 was adopted in order to provide for more reliable and comparable statistics on the application of ex-post checks) and the ex-post scrutiny package (a guideline on how to carry out ex-post checks) is in the process of being updated.

Moreover, action was taken to improve information on the recovery of irregular payments under Regulation 4045/89.

44. Notes the current problems with the implementation of IACS in the new Member States audited by the Court. Calls upon the Commission and those Member States to do all they can to remedy the weaknesses detected. (§99)

Commission's response:

The Commission is taking the recommended action

The GIS (geographic information system) is the key element of the IACS and was functioning in all 10 new Member States in 2005. However, in some cases the level of detail of the GIS has not fully met the required standard. The Commission has outlined ways for improving the system in the new Member States concerned. The Commission is carrying out audits on the remedial action by Member States on improvements of the GIS as well as in other technical areas. The ex-post clearance of accounts procedure is an appropriate and proportionate measure to cover the potential risks that such deficiencies can cause to the Fund.

In 2007, three audit missions concerning three new Member States have been scheduled. Moreover, two desk audits are foreseen.

45. Notes the serious shortcomings in the checks relating to rural development, in export refunds and especially in the olive-oil sector in Spain, Greece and Italy. Calls upon the Commission to carry out before the end of 2007 more stringent checks in those areas and to inform Parliament before the 2006 discharge procedure on the outcome of these checks. (§100)

Commission's response:

The Commission is taking the recommended action. However, the Commission does not agree that there are "serious shortcomings" in checks relating to the rural development and the export refund sectors. Moreover, information on the below described actions will, in line with normal practice, be available in the Annual Activity Report (which is also available to the Parliament).

As regards rural development and the deficiencies found by the Court, the Commission services have examined the replies of the Member States and have identified the areas where there are potential problems. These have been included in the audit plan for present or future enquiries. Furthermore, for each of the years 2005 and 2006 37 audits covering expenditure for rural development measure were carried out by DG AGRI.

The Commission takes the view that the system of physical and substitution checks (for goods receiving export refunds) is contributing sufficiently well to provide reasonable assurance for the underlying transactions. In the period 2005-2007 the Commission services have carried out 36 audit missions touching on export refunds in 19 Member States. The latest available data in respect of the regulatory physical controls performed in 2005 (financial years 2005 and 2006) show an error rate by value of less than 0.23%. This seen in conjunction with Commission's own findings and the absence of substantive findings in the Court's DAS, would indicate that the risks are far less serious than alleged.

Nevertheless, the Commission services are not all complacent and continue through the clearance of accounts procedure to ensure that Member States perform physical and accounting checks to the required quality and quantity, and pay particular attention to prevent physical controls becoming predictable. In order to further improve the system, the Commission intends to amend the legislation on physical checks to make them less predictable and to reduce the risk of substitution.

The GIS (geographic information system) is the key element of the IACS and was functioning in all 10 New Member States in 2005. However, in some cases the level of detail of the GIS has not met the required standard. The Commission has already outlined ways for improving the system in the new Member States concerned. The Commission is carrying out audits on the remedial action by Member States on improvements of the GIS as well as in other technical areas. The ex-post clearance of accounts procedure is an appropriate and proportionate measure to cover the potential risks that such deficiencies can cause to the Fund.

Regarding the olive oil sector, audits of the Commission conducted in the context of the clearance of accounts procedure since 2003 have established similar shortcomings to those identified by the Court of Auditors (weaknesses in the olive Geographic Information System and in the control of the yields). Member States have been informed about the deficiencies and clearance of accounts procedures will continue. At this stage, 280 millions of euros have been corrected in all 3 Member States and even more significant amounts are in the pipeline.

As from 2006, the major part of the olive oil production aid has been integrated in the single payment scheme (only some 6% of the aid remain coupled in Spain). Aid is thereby no longer paid on the basis of the quantity produced but is based on area. Consequently, the olive oil parcel is to be considered as a "classical" agricultural parcel which is controlled within the framework of the IACS. This should significantly reduce any risk of error.

It is recalled that the pre-payment controls of market measures are complemented by additional post-payment checks pursuant to Regulation (EEC) No 4045/89. The very low rate of irregular payments found in these post-payment checks indicates that the pre-payment controls have been executed correctly.

Structural measures, employment and social affairs

46. The Commission should publish all the information concerning the beneficiaries of EU funding and information on beneficiaries from all other Union's policies in such a way that it is easily accessible, including for the wider public, and to ensure that information from different Member-States can be compared. (§ 102)

Commission's response:

The Commission partially accepts the recommendation. Since November 2006, the Commission’s web site has provided links to Member States’ web sites that publish data on beneficiaries. This site will, in turn, be linked to the website on EU funds under direct management launched by the Commission in 2006.

The Commission is envisaging a single portal allowing access to the available information and not a central database that would require disproportionate resources for the same level of effectiveness.

47. The Commission should effectively perform its supervisory role on the checks delegated to the Member States and remedy this shortcoming as a matter of urgency (see also paragraphs 6.26 and 6.29 of the 2005 Court of auditors' annual report). (§ 104)

Commission's response:

The Commission is taking the recommended action. It carries out its supervisory role on an ongoing basis through audit work, coordination activities, and the dissemination of guidance and good practice. Where it finds weaknesses in Member States’ systems, it makes recommendations for improving them and in serious cases agrees remedial action plans which it closely monitors. If the weaknesses persist, it will suspend payments to the programme or Member State concerned. To correct past expenditure that has been affected by the system deficiencies the Commission asks the Member State to check this expenditure and to make corrections.

48. For the purposes of sound financial management and the DAS, the main issue is not so much the errors detected as the existence of adequate supervision systems which will enable the Commission to carry out proper monitoring of the risks to the Community budget and to make the appropriate financial corrections. (§ 105)

Commission's response:

The Commission is taking the recommended action. In keeping with its supervisory role, the Commission is focusing on bringing about improvements in the systems and on making the control system as a whole more effective. The Action Plan towards an Integrated Internal Control Framework has given further momentum to this process. The annual activity reports of the Directorates General provide their assessment of the effectiveness of the control systems in different Member States based on the Commission’s extensive audit work and indicate the cases where the Community budget is seriously at risk.

49. The Commission should supervise closely the action taken by the authorities of the small group of Member States still knowing problems giving rise to recurrent reservations, and ensure that such action is appropriate, and keep Parliament's competent committee reliably informed regarding progress made. (§ 106)

Commission's response:

The Commission is taking the recommended action. For Member States and programmes on which reservations are entered in the Director General’s annual declarations and other systems showing serious deficiencies the Commission monitors closely the implementation of agreed action plans. It informs Parliament both through the annual activity reports and in the discharge procedure.

50. The Commission should do all in its power to ensure that the Member States comply correctly with the requirement to supply on a systematic basis the information which they are required to submit periodically to the Commission concerning cancellations and amounts recoverable (§ 6.36. of the 2005 Court of Auditors' annual report), and not make any payment unless the Member States' authorities have supplied the requisite information. (§§ 107 and 108)

Commission's response:

The Commission is taking the recommended action. In 2006, to clarify the requirements it issued a guidance note on recoveries and amended Regulation 448/2001 on financial corrections with Regulation 1978/2006. In January 2007, it wrote to all the Member States requesting information on recoveries, pending recoveries and withdrawals according to a standard template. The Commission may consider suspending payments if Member States fail to supply the required information.

51. The Commission - in line with paragraphs 38 et seq of Parliament's Resolution and in view of the absence of guarantees from one Member State - should apply the Community rules on the suspension of payments in its capacity as the body ultimately responsible for the sound financial management of Community funds. (§ 110)

Commission's response:

The Commission is taking the recommended action. In April 2007, the Commission suspended payments of ERDF to certain programmes in England. It will consider suspensions in other cases where appropriate.

Internal policies

52. Regrets the fact that, according to the Court, there are still within the field of direct management by the Commission the same problems as in earlier years (errors inexpenditure reimbursed, complexity of applicable rules and lack of an effective penalty system), and calls upon the Commission to continue its efforts to simplify and further clarify the rules for shared-cost programmes, in particular as regards time recording commensurate with documentation effort (Court of Auditors’ annual report for 2005, paragraph 7.29), to do its utmost, in a suitable dialogue with recipients of financial assistance, to clarify the rules, manuals and forms applicable and to ensure that the existing penalty system is effectively and appropriately applied whenever necessary (where appropriate by proposing the changes necessary in order to make the system more effective), and, in addition, to improve the scope and quality of and follow-up to the audits of national agencies’ systems though improved information and mutual exchanges (Court of Auditors’ annual report for 2005, paragraph 7.29, and Parliament amendment to Article 35a (new) of the reformed Financial Regulation implementing rules1); calls on the Commission to explain to the budgetary authority, in a catalogue of specific measures, how it intends in its current term of office to obtain an unconditional statement of assurance in the area of direct management. (§ 111)

Commission's response:

The Commission fully shares the concerns expressed by Parliament on the persistence of problems detected in earlier years, accepts its recommendations and recalls that these problems largely stem from the complexity of the applicable regulatory framework, which remained for the most part unchanged from previous years.

The Commission has taken further steps on the issues identified.

Namely, in the Research area:

On the simplification of the rules for the reimbursement of costs, the FP7 rules for participation and the model grant agreement adopted by the Commission on 10 April 2007 under the Seventh Framework Programme are already an important simplification compared with previous Framework Programmes. Further steps have been taken. In particular, on 4 June 2007, the Commission decided on the use of lump sums for International Cooperation Partner Countries within grant agreements for indirect actions, concluded under the Seventh Framework Programme of the European Community (Document reference C/2007/2287).

On the requirements for time recording of researchers, they were made more flexible since the Sixth Framework Programme. Beneficiaries could support their claim for staff costs with either time sheets or any other adequate evidence. Furthermore, for the Seventh Framework Programme, the requirements for time recording of researchers are clearly specified in the terms of reference for the certificates of financial statements and on methodology annexed to the Grant Agreement and have to be certified by the auditors.

As regards the effort to clarify the rules for the Seventh Framework Programme, since April 2007 the Commission published four of the six chapters of the Guide for beneficiaries, including in particular the Guide on financial issues, and plans to finalise all and make available the remaining chapters in September 2007. The mechanism of sanctions in case of breach of the contractual obligations has been reinforced in line with the recommendation of the Court. In particular, under the Sixth Framework Programme, the Commission was entitled to claim liquidated damages from a contractor who is found to have overstated expenditure, but this was not an obligation. Under the provisions of the Seventh Framework Programme, a beneficiary that is found to have overstated its cost claims is liable to pay damages, except in exceptional cases.

In relation to National Agencies the decisions establishing the new generation of programmes in education, training, and youth, provide for a comprehensive set of checks and controls regarding respect of procedures and internal control mechanisms in order to assure and verify the regularity and legality of transactions as well as the reality and eligibility of activities.

The decision of whether to make a positive statement of assurance on direct management is for the European Court of Auditors to make based on the results of its own work. The Commission is working to progressively improve its internal control framework in order to reduce the incidence of errors with the intention that this will improve the Court's judgement on the effectiveness of the framework. Where significant weaknesses are identified in control systems, these are reported via reservations in the Annual Activity Reports which must also define actions to address these weaknesses. Specific efforts which are being made to address identified gaps in the centralised direct management field are set out in the Commission's Action Plan towards an Integrated Internal Control Framework (progress is set out in the First Progress Report - COM(2007)86).

More audits are being carried out in 2007 in the Research policy area and a multi-annual strategy of ex post audits has been established, based on international sampling standards and aimed at ensuring systematic improvements in major beneficiaries' cost claims while covering an appropriate representative sample of the audited population. Furthermore, "agreed upon procedures" have been developed to provide a compulsory set of procedures for all audits for the Seventh Research Framework Programme. These actions are expected to lead to a reduction in the error rate through improved prevention, detection and correction.

53. As regards transport, the European Parliament regrets slow project implementation for TEN-T; calls for the auditing 20 % of all TEN-T projects; expresses concern at the error rate found for research contracts in the field of transport, which is above the average error rate, and calls for remedial action in this area; notes with concern that the payment utilisation rate for transport safety (74 %) and for Marco Polo (53 %); invites the Commission to forward to the Parliament and the Council each year a more detailed description of expenditure against each budget line compared with the comments made in respect of each line. (§§ 112-118)

Commission's response:

The slow implementation is a fact that can be more understandable if put in the specific TEN-T context, i.e. major infrastructure investments with considerable budgets, focused often on particularly complicated assignments, where delays are indeed frequently part of the implementation.

In 2004, when DG TREN started auditing Trans-European network projects (TEN), the sample initially selected covered more than 35% of the total costs of the projects finalised in 2003. The aim of maintaining this target was fixed at this time together with the intention of covering 20% of the projects finalised. After issuing the drafts of the first batch of 20 audits, DG TREN realised that for cost-efficiency reasons the target of auditing 20% of the projects was not pertinent since audits on TEN-T projects are rarely followed by financial adjustments because audit adjustments are compensated by eligible costs in excess of the amount foreseen in the decision. DG TREN decided to stick to its audit policy of auditing a large part of the budget and to cover as many beneficiaries as possible but with a risk based approach and with reasonable audit costs.

The Commission has reduced the requested payment appropriations for Marco Polo to adapt them to a slower payment rate and organised information sessions for potential beneficiairies in order to increase the commitment rate. The impact of these measures is being monitored closely.

DG TREN annual activity report provides exhaustive data concerning financial execution and comments regarding potential under execution.

54. As regards environment, public health and food safety, the European Parliament calls on the Commission to take steps to promote further assistance to applicants in the context of multiannual programmes; welcomes the efforts to better focus calls for tenders and to provide more assistance to applicants in order to avoid the submission of project applications which are clearly not eligible for funding or of poor quality; notes that further work is needed in order to attain a satisfactory situation; invites the Commission to examine the different stages of implementation with a view to bringing the implementation cycle forward in the year; calls on the Commission to continue its efforts to improve its own procedures which have an impact on the implementation of payment appropriations. (§§ 119-122)

Commission's response:

The Commission is taking the recommended action. As from 2007, most of the administrative management in the public health area, significantly the call for proposal, has been delegated to the Public Health Executive Agency. This agency has established National Focal Points for disseminating information on the calls for proposals and tenders, organising information days related to calls for proposals and tenders and providing assistance to potential beneficiaries.

As for the execution of payment credits, reports on budget implementation are presented and discussed in a budget committee. The level of implementation is closely monitored and is improving with a higher level of payments already in 2006 compared to 2005 and forecasts of continuous increase of payments in 2007 compared to 2006.

The delayed adoption of the new integrated LIFE+ Regulation(Regulation (EC) No 614/2007 of the European Parliament and of the Council of 23 May 2007 concerning the Financial Instrument for the Environment (LIFE+)) will have consequences for the budget implementation in 2007, in particular as regards payment appropriations for grants .

The call for proposals for 2007 will be published in September 2007. The comprehensive guide 'how to apply for funding' comprising detailed guidelines and application templates in different languages existing for the previous LIFE III programme is being updated to facilitate the application process under the new LIFE+ Regulation. The Commission participates in information meetings on LIFE+ organised by Member States or groups of stakeholders and has organised its own information meeting in the framework of the Green Week event in June 2007. Member States will be invited to assist the applicants as well. It is envisaged that gradually novelties will be introduced in relation to the major call for proposals. Electronic submission of applications will be encouraged. When obligatory signatures or annexes are missing applicants will be given the opportunity to resubmit and complete within short notice. The Commission is also launching a call for tender to organise, for the coming years, specific training on project preparation and management in all Member States.

55. In the area of culture and education, further explore possibilities of simplification of requirements to be fulfilled by an applicant under the new multiannual programmes such as Youth in Action, Europe for Citizens and Culture 2007; consider whether to standardise contract award procedures under flat-rate arrangements; make further efforts to monitor the work of each of the 99 national agencies involved in programme management and which in a number of cases have revealed considerable short-comings in the auditing procedures applied; expects the work of the Education, Audiovisual & Culture Executive Agency to bring about improved operational procedures; believes that the cost of the checks carried out must be made commensurate with their effectiveness in order to establish the optimum relationship between the resources invested in the implementation of Community policies and those earmarked for the purpose of conducting checks. (§§ 123-127)

Commission's response:

The Commission is taking the recommended actions. With a view to simplifying application and award procedures as well as other operational procedures, the Commission will, in close cooperation with the Education, Audiovisual & Culture Executive Agency (EACEA), further explore and apply the possibilities given by the Financial regulation, notably the use of flat rate amounts and Commission decisions to finance programmes, taking due account of the relevant stakeholders and their specific operational conditions.

Significant improvements are being implemented as regards the supervision of National Agencies. The decisions establishing the new LifeLong Learning and Youth in Action programmes foresee ex-ante declarations of assurance issued by the National Authorities. The declarations enable the Commission to get assurance from the national authority that minimum requirements set out in legal bases and developed in the Guide for the National Agencies have been fulfilled, and allow an early detection of possible problems as well as swift implementation of remedial actions. Particular attention is given to the follow up of recommendations resulting from previous system audits. In addition, the National Authorities will issue declarations of assurance on an annual basis covering the actual functioning of systems and procedures, the sound use of resources as well as the correctness of the financial statements and the legality and regularity of the underlying transactions.

The control of actions implemented through the National Agencies will be organised according to the single audit approach. The Guide for the National Agencies containing description of primary checks and control objectives for 2007 has been issued. It will be completed with methodological instructions by 31/07/2007. The guidelines to the national authorities on the yearly declarations will be issued by 30/09/2007.

An increased use of flat rates grants and scale of unit costs will reduce the risks of errors and the costs of controls. Both EACEA and DG EAC will still carry out a limited number of audits on their projects. To this end, the audit strategy will be revised by 31/10/2007.

56. Wishes to ensure that communication support for information campaigns which are established in cooperation between Member States and the Commission follows the principle of additionality and asks the Commission to request certification from Member States demonstrating that financial support does not serve to simply replace Member States' financial support for national measures concerning EU information policy. (§ 128)

Commission's response:

The Commission will continue its current policy aimed at ensuring the additionality of its funding for communication actions to be channelled via management partnerships with the Member States.

Therefore, while negotiating a management partnership with national authorities, the Commission will secure a political commitment from the national authorities involved in the negotiation that the activities carried out via the management partnership will not simply replace activities previously carried out directly by the Member State . This requirement will be part included in internal procedures for all future negotiations by 01/07/2007.

57. As regards culture and education, calls on the Commission to ensure that, when allocating aid, national agencies do not depart from the general criteria, as occurred in Poland in the case of a project involving young homosexuals, that due regard is taken of Article 13 of the EC Treaty and that, if programme criteria have been infringed, recovery of EU funds will be an option to take into consideration. (§ 129)

Commission's response:

The recommended action has been taken. The Commission has in various decisions outlined the rules applicable to the programmes in general and to the implementation through National Agencies in particular. In the specific case appropriate action including increased controls for the immediate future has been taken following the results of a detailed examination carried out by the Commission.

58. As regards women's rights and gender equality, reiterates demand for gender mainstreaming to be taken into due consideration as a priority objective in budgetary planning, in accordance with the principle of gender budgeting, and calls on the Commission to provide data for evaluation; repeats its demand for the information on gender mainstreaming policies and gender specific data to be included in the budget discharge reports; regrets that the Commission has not supplied this information; draws attention to the absence of data relating to activities promoting gender equality that have received Structural Fund support and calls on the Commission to remedy this situation; considers that greater attention should be paid to promoting women’s participation in the knowledge society and, consequently, to the high-quality training and employment of women in the field of information and communication technologies. (§§ 130-131, 133-134)

Commission's response:

The Commission is currently carrying out a study to examine existing experiences with gender budgeting and explore the feasibility of gender budgeting at the EU level. Certain evaluation reports in relevant policy areas also specifically address gender issues.

Concernant la période 2000-2006 la Base de données commune des Fonds Structurels (SFC) comprenait une catégorie (25) pour le suivi des dépenses programmées relevant des activités en faveur de l'égalité des genres. Pour la nouvelle période de programmation 2007-2013, la catégorie 69 "mesures visant à améliorer l'accès à l'emploi et à accroitre la participation durable et la progression des femmes dans l'emploi pour réduire la ségrégation fondée sur le sexe sur le marché du travail, et mesures visant à concilier vie professionnelle et vie privée, notamment en facilitant l'accès aux services de garde des enfants et aide aux personnes dépendants" permet également d'avoir des données concrètes.

DG INFSO has launched a "shadowing activity" to attract young girls to follow careers in ICT. The shadowing days were compiled into a video which was presented by Commissioner Reding to the press and main stakeholders on 8 March 2007, International Women's Day. Shadowing is going to continue in 2007. A study was also commissioned to identify Best Practices in ICT companies in order to attract and retain women in their work force.

59. Welcomes the noteworthy progress achieved by the Commission as regards annual targets for the recruitment and appointment of women to management and other A*/AD level posts in the Commission administration; urges the Commission to maintain efforts in this domain. (§ 135)

Commission's response:

La Commission a maintenu ses efforts en 2006 vis-à-vis de la nomination et du recrutement des femmes aux postes d'encadrement supérieur, intermédiaire et dans les autres postes de catégorie AD en adoptant des recommandations concrètes vis-à-vis de certaines DG où les femmes étaient particulièrement sous-représentées, en adoptant des mesures contraignantes (rapporteur spécial "égalité" dans chaque panel de sélection de l'encadrement intermédiaire et monitoring étroit de ceux-ci, obligation de formation à l'égalité des chances F-H pour les managers, etc.) et en assurant un suivi de la mise en oeuvre du 4ème Programme d'action pour l'égalité des chances entre femmes et hommes. Elle poursuit cette action en 2007 en adoptant des objectifs de nomination et de recrutement des femmes tout en renforçant les instructions strictes aux DG et à la DG ADMIN dans le cadre de cette politique."

60. In the area of freedom, security and justice, improve low levels of implementation of payments in the future. (§ 136)

Commission's response:

En 2006, sur les lignes opérationnelles, le taux d'exécution de la DG JLS a atteint 96,3 % en crédits d'engagement (532,8 M€ pour un budget de 553,2 M€) et à 88,4% en crédits de paiement (508 M€ pour un budget de 574,7 M€). Selon les prévisions pour 2007 le taux d'exécution atteindra 96% pour les crédits d'engagement (le niveau lié surtout au VIS) et 65% en crédits de paiement, ce qui est dû notamment à l'adoption tardive de nouveaux instruments juridiques dans ce domaine.

61. Regrets the fact that, according to the Court, the Commission has still not managed to introduce a reliable system for the recording of personnel costs in the research sphere; considers that 'it is essential that there is a clear requirement in the grant agreements to substantiate the working time of personnel involved in the action' (paragraph 7.7 of the annual report). (§ 137)

Commission's response:

The Commission acknowledges that the modalities for the substantiation of the personnel costs to be charged to research projects are a frequent source of discrepancies and errors. It has taken significant steps aimed to adequately address this issue.

The contractual provisions foresee that all costs claimed are adequately substantiated by the contractor. In particular, for personnel costs under the Fifth Framework Programme, beneficiaries were contractually required to produce time sheets. This proved to be overly rigid and resulted in numerous practical difficulties for a significant number of contractors, namely for universities and public research centres.

The Commission took these difficulties into account, considered there was a need for flexibility and accepted the use of equivalent alternative solutions. Under the Sixth Framework Programme all eligible costs must be determined in accordance with the contractor’s usual accounting principles. Working time to be charged had to be recorded throughout the duration of the project through any effective tool, including time sheets, in accordance with the contractor’s normal accounting rules.

For the Seventh Framework Programme, the requirements for time recording of researchers are clearly specified in the terms of reference for the certificate of financial statements and for the certificate on the methodology annexed to the Grant Agreement and have to be certified by the auditors. Employees will have to record their time on a daily/weekly/monthly basis. If no time records are available this should be listed as an exception in the main report of the auditor.

Furthermore the Commission has entered in a technical dialogue with the Court of Auditors aimed to identify and discuss issues which may result in divergences of views regarding the nature and the financial impact of errors found on Research-related transactions. This exercise is expected to clarify as far as possible the respective views so as to reduce, or possibly eliminate, the resulting divergences.

The Commission is confident that this initiative will contribute to further clarify and reinforce the methodology applicable to the recording of personnel costs, hence reducing both the number and importance of errors.

62. Notes with concern that, despite its high cost, the audit-certificate system has in 2005 not yet provided the hoped-for guarantees, since the Court has detected erroneous statements relating to staff costs and general expenditure, in respect of which 'clean' audit certificates have been issued; notes however that the quality of the audit certificate has improved after the requirements for these certificates were published; invites the Commission to further develop suitable criteria for audit certificates in order to improve their usefulness. (§ 138)

Commission's response:

The Commission agrees that the audit certificate system needs further development in order to fully provide the expected level of assurance and, therefore, accepts the recommendation.

Accordingly, the Commission has implemented measures to reinforce the effectiveness of the system.

Firstly, the Commission is improving support to certifying entities, beneficiaries and operational services within the Commission. Secondly, for the Seventh Framework Programme, it has introduced two further measures: (1) "agreed upon procedures" which consist of a compulsory set of procedures to be used by certifying auditors; and (2) optional certification of the cost calculation methodology, i.e. the methodology used by the beneficiary to calculate direct personnel costs and indirect costs. These measures are expected to ensure, before payments are authorised, that beneficiaries' costing methodologies comply with the contractual provisions.

The certification on the methodology will be implemented via two routes: the full methodology certification (covering personnel and indirect costs) and the methodology certification of average personnel rates. While the first is optional according to Commission eligibility thresholds, the second one is compulsory for any beneficiary who will charge personnel costs through average rates rather than actual rates

63. In the area of research, encourages the Commission to speed up the implementation of the measures provided for in the above mentioned Action Plan towards an Integrated Internal Control Framework, in particular Action 7 (Promote best practices for increasing the cost-benefits of audits at project level). (§ 139)

Commission's response:

The Commission accepts the recommendation. Please refer to the report from the Commission to the Council, the European Parliament and the European Court of Auditors on the progress of the Commission Action Plan towards an Integrated Internal Control Framework, dated 7 March 2007 [COM(2007)86] for a summary of the progress made.

In particular, as far as action 7a is concerned, on the use of "agreed upon procedures" in the research area the Commission adopted on 10 April 2007 the general model grant agreement to be used in research projects funded under the Seventh Framework Programme. Its Annex VII includes two compulsory forms requiring that the certifying auditors undertake its work in accordance with the International Standard on Related Services (‘ISRS’) 4400, Engagements to perform Agreed-upon Procedures regarding Financial Information as issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). The Commission services have drafted these Forms after having consulted the Fédération Européenne des Experts Comptables (FEE), the professional body responsible for the audit and accounting function in Europe.

This decision is the culmination of the Commission extensive efforts to improve the quality and reliability of the audit certification system, optimising the level of assurance provided by the certifying auditors.

64. Calls upon the Commission to fulfil the requirement of the FP7 rules for participation to introduce a flat-rate payment procedure, inter alia, and to inform its competent committee in the framework of the midterm review. (§ 140)

Commission's response:

The Commission accepts this recommendation.

The complexity of simplifying detailed legislation in terms of eligibility requirements, and the advanced stage of negotiations, meant that limited simplification was possible for the 2007-2013 programming period.

The Commission is working towards a simplification of the reimbursement system, exploring the use of flat-rates and lump sums where appropriate. Nevertheless, the determination of flat rates and lump sums which are representative of the real costs incurred by scientists from different specialisations across the EU is a very complex task.

A first tangible step has already been taken in this direction. On 4 June 2007, the Commission decided on the use of lump sums for International Cooperation Partner Countries within grant agreements for indirect actions, concluded under the Seventh Framework Programme of the European Community (Document reference C/2007/2287).

The Commission intends to report progress, at the latest at the time of the mid term review, on the effectiveness of the new actions initiated under the Seventh Framework Programme and of the efforts made with regard to simplification.

65. In the area of research, regrets the fact that, according to the Court, there continues to be uncertainty owing to excessively general contractual provisions and a lack of clarity, particularly in the case of the criteria for the granting of subsidies and the independence of auditors responsible for certification, and notes that the Commission has undertaken to simplify the Community framework and to rejig the use of audit certificates; (§ 141)

Commission's response:

The Commission remains committed to use the leeway for simplification afforded by the applicable regulatory framework and to take measures to improve the effectiveness and reliability of the audit certification system. Please refer to the responses to the recommendation in paragraphs 138 to 140 above for details on the actions taken.

Furthermore, in order to address the problems inherent to the complexity of the contractual provisions and lack of clarity, the Commission has implemented an alternative approach to obtaining reasonable assurance.

The errors resulting from these problems can only be detected by means of detailed, on the spot audits. The Commission has devised a common ex-post audits strategy for the Sixth Framework Programme (FP6) to increase assurance on the legality and regularity of the financial operations on a multi-annual basis. This strategy is aimed at ensuring the accuracy of a sizeable proportion of the expenditure by substantially increasing the number of ex-post audits so as to audit contracts with the most significant beneficiaries, i.e. those receiving the highest financial contributions. The results of these audits will be thoroughly followed-up and implemented; recovering from the beneficiary any amount unduly paid and extrapolating any systemic error detected to all other, non-audited contracts with the same beneficiary. Furthermore, the Commission would apply liquidated damages if the auditee fails to implement audit results on systematic errors. This strategy is expected to ensure that the level of "residual" (non-detected) error is significantly reduced. The audited contracts will include: (1) the approximately 200 contractors representing the largest share of the budget (collectively the contracts concerned represent over 40% of the budget); (2) a representative, value-based random sample from the remaining population; and (3) a risk-based sample focusing on potentially riskier contractors.)

Concerning the auditor professional qualifications and independence, these are a mandatory requirement under the model Grant Agreement. Public bodies, education establishments and research organisations may have recourse to a competent public officer rather than a professional external auditor. In this case specific precautions are taken to ensure their independence, in accordance with the applicable practices in the Member State concerned.

66. In the area of research, notes that the Commission's Internal Audit Service considers there to be a risk that undue amounts will not be identified on account of the fact that there is no effective checking system in operation during the process of releasing budget commitments, for which reason it calls upon the Commission to adopt suitable monitoring measures. (§ 142)

Commission's response:

In response to the observations and recommendations issued by the Internal Audit Service, the services have implemented adequate monitoring measures. In particular, the applicable check-lists have been revised, guidelines have been issued and a helpdesk function has been introduced to provide further support to operational units (help desk). In addition, reports on "sleeping" commitments and analysing recovery orders issued are regularly produced in order to help operational directorates in their own monitoring and to facilitate the follow-up of recovery orders.

67. Calls for an investigation to explain in greater detail to what the low payment implementation rate for the Daphne programme may be attributable (58%). (§ 132)

Commission's response:

L'écart entre les dotations et l'exécution réelle des crédits de paiement provient de la difficulté d'estimer les besoins réels pour les dossiers RAL, ce qui entraine des paiements inférieurs en fonction des dépenses acceptées. Cependant il est important de noter que le taux d'exécution des crédits de paiement en 2006 a été augmenté, et s'élevait à 77%

External actions

68. Priority must be attached to ensuring that Community policies which have an impact on developing countries are consistent, for which purpose the division of labour within the Directorates-General responsible for running external actions must be clarified. (§ 144)

Commission's response:

The Commission will not take the recommended action. The reason for this is that the Commission considers that the division of responsibilities in the RELEX Family is optimal: the existing situation is efficient and cooperation is excellent.

The division of responsibilities in relation to third countries and regions is logical and based on both geographic and thematic parameters:

Commissioner Michel: ACP countries and humanitarian aid;

Commissioner Ferrero-Waldner: all countries other than the ACPs (including the Neighbourhood Policy);

Commissioner Mandelson: Trade;

Commissioner Rehn: Enlargement.

The implementation tasks for the countries under Commissioner’s Ferrero-Waldner and Michel are carried out by EuropeAid under Commissioner Ferrero-Waldner's responsibility and in close cooperation with Commissioner Michel.

69. Notes with concern that, according to the Court, the risk analyses carried out by EuropeAid did not take into account the risks represented by the various types of implementing body (NGO, international organisation, government institution, etc.) and the financing methods used (subsidy, budget support, trust fund, etc.); calls on the Commission to establish greater clarity, through more discriminating reporting, as to the effectiveness of individual assistance instruments; proposes with regard to the issue of aid for developing countries that the introduction of a system of stages be looked into, the aim being that at the first stage, by assisting individual projects, the basic preconditions for granting budget aid, i.e. a form of democratic budgetary control plus independent auditing structures, are also established. (§ 145)

Commission's response:

The criteria mentioned by the Court are already taken into account by EuropeAid in its approach to risk management, at various levels. This includes the feed-back of lessons learnt during implementation in the design and operation of the control systems. Concretely this is reflected for instance in EuropeAid audit strategy and Annual Audit Plans or in the improvements introduced in the terms of reference for expenditure verifications. The Commission will endeavour to further reinforce the current mechanism and better communicate the basis of its analyses.

70. Calls upon EuropeAid to implement a programme of checks applicable to the implementing bodies and to devote all its efforts to ex-post audits on the various NGOs with which it cooperates. (§§ 146-147)

Commission's response:

Paragraph 8.12 of the annual report refers only to the ex post transactional controls and hence, the Commission has clarified that it does not concern ex post audits. Ex-post transactional controls are second level, optional controls which are intended to provide additional assurance in relation to and within the "limits" of the elements which are controlled. Their purpose is, on a sample basis, to assess whether the authorising officers carried out the required checks, for instance in relation to a payment to an "implementing body". They are not intended to duplicate the checks already carried out or to be a substitute for other components of the control system. It is also worth noting that the Court has made no recommendations concerning the ex post transactional controls in Chapter 8 (External Action) of its Annual Report relative to the actions financed from the General Budget resources.

71. Welcomes the Commission's statements on the incomplete implementation of certain budget headings, in particular 21 02 03, 21 02 05, 21 02 07 02, 21 02 07 03 and 21 02 13. Calls, however, for a further increase in efforts to implement the budget in full. (§155)

Commission's response:

The Commission acknowledges some delays in these programmes, which are rather difficult to implement. Further attention has been given to the full procedure, including a tighter monitoring process, in order to improve implementation.

72. Is concerned at the fact that, as regards the effectiveness of TACIS programme expenditure, the Court maintains that at the end of 2005 the Commission was unable to determine how the programme had contributed to improving the safety of nuclear power stations (paragraph 8.36 of the annual report); regards such a criticism as extremely serious, since it reveals a lack of guarantees as regards the fundamental, priority aspect of Community action - i.e. value for money; awaits with interest the evaluation of the contribution made to improving safety in the various nuclear power stations under the TACIS programme, which the Commission began in 2006. (§ 148 & § 167)

Commission's response:

In the implementation of the new Instrument for Nuclear Safety Cooperation (2007-2013) each funded project will be evaluated through a number of adequate management and impact assessment indicators (Key Performance Indicators). These indicators will be applied for