EUROPEAN COMMISSION Brussels, 7.8.2019 SWD(2019) 317 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 12th FINANCIAL REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the

EUROPEAN AGRICULTURAL GUARANTEE FUND

2018 FINANCIAL YEAR {COM(2019) 366 final}



TABLE OF CONTENTS 1.BUDGET PROCEDURE 1.1.Financial Framework 2014-2020 1.2.Draft Budget 2018 and Amending Letter 1/2018 1.3.Adoption of the 2018 budget 1.4.Revenue assigned to the EAGF 2.CASH POSITION AND MANAGEMENT OF APPROPRIATIONS 2.1.Management of appropriations 2.1.1.Appropriations available for the 2018 financial year 2.1.2.Expenditure section of the EU budget in relation to EAGF 2.1.3.Assigned revenue section of the EU budget in relation to EAGF 2.1.4.Budget execution of appropriations available for the 2018 financial year 2.1.5.Assigned revenue received under shared management 2.1.6.Budget execution 2.1.7.Budget execution of voted appropriations - Expenditure under direct management made by the Commission 2.1.8.Budget execution - Expenditure under direct management made by the Commission - Automatic carry-overcarry-over from 2017 2.2.Monthly payments 2.2.1.Monthly payments to Member States under shared management 2.2.1.1.Monthly payments on the provision for expenditure

2.2.1.2.Decisions on monthly payments 2.2.1.3.Reductions and suspensions of monthly payments 2.2.2.Direct management expenditure by the Commission 3.THE IMPLEMENTATION OF THE 2018 EAGF BUDGET 3.1.The uptake of the EAGF budget appropriations 3.2.Comments on the budget implementation 3.2.1.Chapter 05 02: Interventions in agricultural markets 3.2.1.1.Introduction 3.2.1.2.Article 05 02 08: Fruits and vegetables 3.2.1.3.Article 05 02 09: Products of the wine-growing sector 3.2.1.4.Article 05 02 10: Promotion 3.2.1.5.Article 05 02 12: Milk and milk products 3.2.1.6.Article 05 02 13: Beef and veal 3.2.1.7.Article 05 02 15: Pigmeat, eggs and poultry, bee-keeping and other animal products 3.2.1.8.Article 05 02 18: School schemes 3.2.2.Chapter 05 03: Direct payments 3.2.2.1.Article 05 03 01: Decoupled direct payments 3.2.2.2.Article 05 03 02: Other direct payments 3.2.2.3.Article 05 03 03: Additional amounts of aid 3.2.2.4.Article 05 03 09: Reimbursement of direct payments in relation to financial discipline

3.2.2.5.Article 05 03 10: Reserve for crises in the agricultural sector 3.2.3.Chapter 05 04: Rural Development 3.2.4.Chapter 05 07: Audit of agricultural expenditure 3.2.4.1.Article 05 07 01: Control of agricultural expenditure 3.2.4.2.Article 05 07 02: Settlement of disputes 3.2.5.Chapter 05 08: Policy strategy and coordination 3.2.5.1.Article 05 08 01: Farm accountancy data network (FADN) 3.2.5.2.Article 05 08 03: Restructuring of systems for agricultural surveys 3.2.5.3.Article 05 08 06: Enhancing public awareness of the common agricultural policy 3.2.5.4.Article 05 08 09: EAGF – Operational technical assistance 4.IMPLEMENTATION OF REVENUE ASSIGNED TO EAGF 5.CONTROL MEASURES 5.1.Introduction 5.2.Integrated Administration and Control System (IACS) 5.3.Market measures 5.4.Application of Chapter III of Title V Regulation (EU) No 1306/2013 (ex-post scrutiny) 6.CLEARANCE OF ACCOUNTS 6.1.Conformity clearance 6.1.1.Introduction 6.1.2.Audits and decisions adopted in 2018

6.1.2.1.Audits 6.1.2.2.Conformity decisions 6.2.Financial clearance 6.2.1.Introduction 6.2.2.Decisions 6.2.2.1.Financial clearance decision for the financial year 2015 6.2.2.2.Financial clearance decision for the financial year 2016 6.2.2.5.Financial clearance decision for the financial year 2017 6.3.Appeals brought before the Court of Justice against clearance decisions 6.3.1.Judgments handed down 6.3.2.New appeals 6.3.3.Appeals pending 7.RELATIONS WITH PARLIAMENT AND WITH THE EUROPEAN COURT OF AUDITORS 7.1.Relations with Parliament 7.2.Relations with the European Court of Auditors 7.2.1.Mission of the European Court of Auditors 7.2.2.Annual Report for financial year 2017 7.2.3.Special Reports by the Court of Auditors 8.ANNEXES

1.BUDGET PROCEDURE 1.1.Financial Framework 2014-2020 CAP expenditure is funded within the financial framework for 2014-2020 as provided for in Council Regulation (EU) No 1311/2013 . Specifically, CAP expenditure is part of the ceiling fixed for Heading 2 - Sustainable growth: natural resources. Within that overall ceiling, a specific sub-ceiling has been fixed for market related expenditure and direct payments financed by the European Agricultural Guarantee Fund (EAGF). The ceiling for market related expenditure and direct payments had to be adjusted following the transfer of certain amounts of direct payments to rural development (financed by the European Agricultural Fund for Rural Development - EAFRD) for the years 2015-2020 (flexibility between CAP pillars and reduction of direct payments), the transfer of the aids for cotton in Greece, the unspent amounts by Germany and Sweden and the voluntary adjustment of the United Kingdom as well as the transfer from rural development (EAFRD) for the years 2015-2020 to direct payments (flexibility). Therefore, on the basis of Commission Implementing Regulation (EU) No 367/2014 setting the net balance available for expenditure of the EAGF, the CAP amounts included in heading 2 of the financial framework (2014-2020) are: (in EUR million; current prices) Heading 2* 2014 2015 2016 2017 2018 2019 2020 Total of which: - Market related expenditure and direct payments, a), b), c), d), f), g) 49 857 43 778.1 64 692 44 189.8 64 262 43 950.2 60 191 44 145.7 60 267 44 162.4 60 344 43 880.3 60 421 43 887.1 - Rural development a), b), c), d), e), f), g) 5 298.9 18 183.7 18 683.7 14 371.2 14 381.0 14 690.6 14 709.4 *) Sustainable growth: natural resources a) After transfer of EUR 622 million between EAGF and EAFRD for the financial year 2015 on the basis of Articles 136a(1) of Regulation (EC) No 73/2009 and article 14(1) of Regulation (EU) No 1307/2013; b) After transfer of EUR 51.6 million between EAGF and EAFRD for the financial year 2015 for unspent amounts transferred each year for financial years 2014 and 2015 (SE and DE) on the basis of Articles 136 and 136b of Regulation (EC) No 73/2009; c) After transfer of EUR 4 million between EAGF and EAFRD for the financial years 2014-2020 from the cotton sector (EL) on the basis of Article 66(1) of Regulation (EU) No 1307/2013; d) After transfer of EUR 499.4 million between EAFRD and EAGF for the financial year 2015 on the basis of Articles 136a(2) of Regulation (EC) No 73/2009 and article 14(2) of Regulation (EU) No 1307/2013; e) The EAFRD amounts reflect the re-programming carried out in 2015, transferring unused allocations for the year 2014 to 2015 and 2016 in accordance with article 19 of Regulation (EU) No 1311/2013; f) After transfer of additional EUR 735.9 million from EAGF to EAFRD for the financial years 2019 and 2020 on the basis of Article 14(2) of Regulation (EU) No 1307/2013. g) After transfer of additional EUR 0.4 million from EAGF to EAFRD for the financial year 2020 on the basis of Article 14(2) of Regulation (EU) No 1307/2013. 1.2.Draft Budget 2018 and Amending Letter 1/2018 The Draft Budget 2018 was published by the Commission and proposed to the Budgetary Authority on 29 June 2017. The commitment appropriations proposed for the EAGF totalled EUR 43 518.3 million. The Council published its position on the Draft Budget 2018 on 4 September 2017, reducing the commitment appropriations for the EAGF by EUR 269.4 million. The European Parliament adopted its position on 25 October 2017, increasing the commitment appropriations for the EAGF by EUR 56.9 million compared to the Draft Budget. On 16 October 2017 the Commission published Amending Letter (AL) No 1 to the Draft Budget 2018 increasing the needs in commitments by EUR 188.1 million compared to the Draft Budget. However, these additional needs were more than compensated by the EUR 242 million increase in the assigned revenue expected to be available in 2018. As a result, the requested commitment appropriations for the EAGF in the AL decreased by EUR 53.9 million compared to the Draft Budget. 1.3.Adoption of the 2018 budget The Conciliation Committee, composed of members of the European Parliament and of the Council, agreed on a Joint Text on 27 November 2017. Finally, the 2018 budget was declared as adopted by the European Parliament and by the Council on 30 November 2017. The budget's total commitment appropriations for the EAGF amounted to EUR 43 234.5 million and its payment appropriations amounted to EUR 43 188.7 million. The difference between commitment and payment appropriations is due to the fact, that for certain measures, which are directly implemented by the Commission, differentiated appropriations are used. These measures relate mainly to the promotion of agricultural products, to policy strategy and coordination measures for agriculture. Specifically, of the voted EAGF commitment appropriations for policy area 05 (Agriculture and Rural Development) amounting to EUR 43 234.5 million: EUR 2 358.1 million were foreseen for interventions in agricultural markets under chapter 05 02; EUR 40 668.7 million were foreseen for direct payments under chapter 05 03; EUR 160.2 million were foreseen for audit of agricultural expenditure under chapter 05 07; and EUR 36.4 million for policy strategy and coordination under chapter 05 08. Further details are provided in annex 1. Subsequently, during the financial year 2018, EAGF appropriations for articles 05 01 04 (support expenditure) and 05 08 09 (operational technical assistance) were reduced by respectively EUR 0.4 million and EUR 1.0 million through Amending Budget No 6. 1.4.Revenue assigned to the EAGF In accordance with Article 43 of Regulation (EC) No 1306/2013 on the financing of the Common Agricultural Policy , revenue originating from financial corrections under accounting or conformity clearance decisions, from irregularities and from the milk levy are designated as revenue assigned to the financing of EAGF expenditure. According to these rules, assigned revenue can be used to cover the financing of any EAGF expenditure. If a part of this revenue is not used, then this part will be automatically carried forward to the following budget year. At the time of establishing the 2018 budget, an estimate of the revenue was made both for the amount expected to be collected in the course of the 2018 budget year as well as of the amount which was expected to be carried over from the budget year 2017 into 2018. This estimate amounted to EUR 1 475.9 million and it was taken into consideration when the Budgetary Authority adopted the 2018 budget. In particular: – revenue from clearance corrections and from irregularities was estimated at EUR 733.9 million and EUR 132 million respectively while no revenue from the milk levy was anticipated. Thus, the total amount of assigned revenue expected to be collected in the course of the 2018 budget year was estimated at EUR 865.9 million;

– The amount of assigned revenue expected to be carried over from the budget year 2017 into 2018 was estimated at EUR 610 million. In the 2018 budget, this initially estimated revenue of EUR 1 475.9 million was assigned to two schemes, i.e.: –EUR 400 million for the operational funds for producer organisations in the fruits and vegetables sector; –EUR 1 075.9 million for the basic payment scheme (direct payments). For these schemes, the sum of the voted appropriations by the Budgetary Authority and the assigned revenue corresponds to a total estimate of available appropriations of: –EUR 872 million for the operational funds for producer organisations in the fruits and vegetables sector; –EUR 17 402 million for the basic payment scheme (direct payments). 2.CASH POSITION AND MANAGEMENT OF APPROPRIATIONS 2.1.Management of appropriations 2.1.1.Appropriations available for the 2018 financial year In EUR Expenditure section of budget (1) Commitment appropriations Payment appropriations Revenue section of budget (AR) (2) Forecasts 1. Initial appropriations for EAGF of which 43 234 516 899.00 43 188 677 466.00 1. Clearance decisions 733 900 000.00 1a. Appropriations under shared management 43 089 300 000.00 43 089 300 000.00 2. Irregularities 132 000 000.00 1b. Appropriations under direct management 145 216 899.00 99 377 466.00 3. Super levy from milk producers - 2. Amending Budget -1 400 000.00 -1 400 000.00 Total forecast of AR 865 900 000.00 3. Transfer to / out of EAGF in the year -7 525 000.00 4. Final appropriations for EAGF of which 43 233 116 899.00 43 179 752 466.00 4a. Appropriations under shared management 43 089 150 000.00 43 089 150 000.00 4b. Appropriations under direct management 143 966 899.00 90 602 466.00 (1) Appropriations entered in the 2018 budget after deducting the expected assigned revenue to be collected in 2018 and the one carried over from 2018 to 2019 in accordance with Article 14 of Regulation (EU, EURATOM) No 966/2012. (2) AR: Assigned revenue to be collected. There are no amounts of revenue entered on the revenue line (p.m.), but the forecast amount is indicated in the budget remarks. 2.1.2.Expenditure section of the EU budget in relation to EAGF The initial commitment appropriations for 2018 totalled EUR 43 234 516 899. This was a net amount after deducting the expected assigned revenue to be collected in 2018 and the one carried over from 2017 to 2018. The initial payment appropriations amounted to EUR 43 188 677 466. In financial year 2018, there was an Amending Budget for commitment and payment appropriations and transfers of payment appropriations out of EAGF. The commitment and payment appropriations finally available to the EAGF, after the Amending Budget and the transfers, amounted to EUR 43 233 116 899 and EUR 43 179 752 466 respectively. Part of the appropriations coming from assigned revenue received in 2017 was not used in that financial year and it was automatically carried over to 2018. The amount of these appropriations totalled EUR 603 292 064.36. Also appropriations for an amount of EUR 450 500 000 were made available for the reimbursement of direct payments in relation to financial discipline following Commission Decision C(2018)776 relating to the non-automatic carry-over of appropriations from the 2017 budget to the 2018 budget. 2.1.3.Assigned revenue section of the EU budget in relation to EAGF For more details, please see point 1.4. 2.1.4.Budget execution of appropriations available for the 2018 financial year In EUR Execution of commitment appropriations Execution of payment appropriations Shared management (1) 44 223 038 392.88 44 223 038 392.88 Expenditure under direct management 141 443 524.13 71 180 250.83 Total 44 364 481 917.01 44 294 218 643.71

(1) Committed amounts. Commitments and payments less assigned revenue of EUR 997 361 033.56 (see point 4 and annex 6) received for shared management: EUR 43 225 677 359.32. For the financial year 2018, the actual amount of commitment appropriations used amounted to EUR 44 364 481 917.01 while that for payment appropriations amounted to EUR 44 294 218 643.71. The amount paid out (EUR 43 225 151 242.49) under shared management was less than EUR 43 225 677 359.32 due to suspended amounts for Poland (see 2.2.1.3.b). 2.1.5.Assigned revenue received under shared management In EUR Assigned revenue Forecasted revenue 865 900 000.00 Revenue received 997 361 033.56 Difference 131 461 033.56 For details, please see points 1.4 and 4.



2.1.6.Budget execution In EUR



Expenditure under shared management (1) Final appropriations (C1) Non automatic carry-over of 2017 C1 appropriations (C2) Assigned revenue appropriations (C4) Carry-over of assigned revenue appropriations (C5) from 2017 Appropriations 43 089 150 000.00 450 500 000.00 997 361 033.56 603 292 064.36 Execution (2) 42 629 536 522.13 441 680 298.76 548 529 507.63 603 292 064.36 Appropriations cancelled 113 477.87 8 819 701.24 - 0.00 Carry-over to 2019 459 500 000.00 0.00 448 831 525.93 - (1)Commitment appropriations = Payment appropriations

(2) Including suspended amounts (see 2.2.1.3) Appropriations available for the financing of the measures under shared management with Member States (excluding expenditure under direct management by the Commission) amounted to EUR 43 089 million compared to actual expenditure of EUR 42 630 million. In order to make it available for the reimbursement of direct payments in relation with financial discipline, an amount of EUR 459.5 million was carried over to budget year 2019 with Commission Decision C(2019)1102 of 12 February 2019 on non-automatic carry-over of appropriations from the 2018 budget to the 2019 budget. The 2018 appropriations coming from assigned revenue amounted to EUR 997.4 million of which an amount of EUR 102.2 million was used in chapter 05 02 and an amount of EUR 446.3 million was used in chapter 05 03. The remaining amount of EUR 448.8 million was automatically carried over to budget year 2019. Part of the appropriations coming from assigned revenue received in 2017 was not used in financial year 2017 and was automatically carried forward to 2018. These appropriations amounted to EUR 603.3 million and had to be used in accordance with Article 12 of Regulation (EU, Euratom) 2018/1046 (former Article 14 of Regulation (EU, Euratom) 966/2012) within that year. All these appropriations carried over from the previous financial year were fully used in 2018 in accordance with the Financial Regulation. 2.1.7.Budget execution of voted appropriations - Expenditure under direct management made by the Commission In EUR Expenditure under direct management Commitment appropriations Payment appropriations Carry-over to 2019 (2) Appropriations (C1) (1) 143 966 899.00 90 602 466.00 - Execution (C1) 141 443 524.13 71 180 250.83 17 517 431.10 Appropriations cancelled 2 523 374.87 1 904 784.07 - (1) C1 denotes the budget's voted appropriations. This amount includes transfers from ''shared management'' for an amount of EUR 150 000.00 for commitment and payment appropriations, transfers ''out'' of EAGF for a total amount of EUR -7 525 000.00 for payment appropriations and an Amending Budget of EUR -1 400 000.00 for commitment and payment appropriations. (2) Carry-over to 2019 only for non-differentiated appropriations. The available commitment appropriations for expenditure under direct management in the 2018 budget were EUR 144.0 million. An amount of EUR 141.4 million was committed in 2018. The balance of these appropriations, EUR 2.5 million, was cancelled. The majority of EAGF appropriations for expenditure under direct management made by the Commission are differentiated appropriations. The automatic carry-over to 2019, which relates only to non-differentiated appropriations, amounts to EUR 17.5 million. For details, please see annexes 3 and 4.

2.1.8.Budget execution - Expenditure under direct management made by the Commission - Automatic carry-overcarry-over from 2017 In EUR Carry-over from 2017 to 2018 Commitments De-commitments Payments Cancelled appropriations Carried over appropriations 17 671 686.06 899 616.48 16 745 648.84 26 420.74 The automatic carry-over from 2017 to 2018 only concerned expenditure under direct management for non-differentiated appropriations. As indicated in the table above, an amount of EUR 17.7 million was carried over from 2017 to 2018. In 2018 an amount of EUR 0.9 million from this carry-over was de-committed. The payments made amounted to EUR 16.7 million. For details, please see annex 4. 2.2.Monthly payments 2.2.1.Monthly payments to Member States under shared management 2.2.1.1.Monthly payments on the provision for expenditure Article 18(1) of Regulation (EU) No 1306/2013 states that "monthly payments shall be made by the Commission for expenditure effected by Member States' accredited paying agencies during the reference month". Monthly payments shall be made to each Member State at the latest on the third working day of the second month following that in which the expenditure is incurred. The monthly payments are a reimbursement of net expenditure (after deduction of revenue) which has been already carried out and are made available on the basis of the monthly declarations forwarded by the Member States . The monthly booking of expenditure and revenue is subject to checks and corrections on the basis of these declarations. Moreover, these payments will become final following the Commission's verifications under the accounting clearance of accounts procedure. Payments made by the Member States from 16 October 2017 to 15 October 2018 are covered by the system for monthly payments. For the whole financial year, the total net amount of monthly payments decided, after deduction of clearance and other corrections, was EUR 43 225 677 359.32. Taking into account the suspended amounts (see below 2.2.1.3.b), EUR 43 225 151 242.49 have effectively been paid to Member States. 2.2.1.2.Decisions on monthly payments The Commission adopted a payment decision for each of the twelve periods of the financial year. Furthermore, an additional decision was adopted in December, adjusting the total expenditure chargeable to the year. For details, please see annex 2. 2.2.1.3.Reductions and suspensions of monthly payments a.Reductions of the monthly payments In 2018, reductions for a net amount of EUR 58.4 million were made to the monthly payments effected to the Member States. The categories of corrections are detailed in the following points: –reductions of the monthly payments as a result of the non-compliance with the payment deadlines Pursuant to Article 40 of Regulation (EU) No 1306/2013, certain Member States did not always respect the payment deadlines fixed by the Union legislation for the payment of aids to beneficiaries.

The payment deadlines ensure an equal treatment between the beneficiaries in all Member States and avoid the situation in which delays of payments would result in aids no longer having the intended economic effect. In addition, the deadlines help budgetary discipline by ensuring that the expenditure which falls in each budget year is more easily forecast. As a result of non-respecting the set payment deadlines, the Commission decided reductions for a total amount of EUR 50.9 million. –reductions of the monthly payments as a result of overspending the financial ceilings For some aid measures financed by the EAGF, financial ceilings are determined in the sectoral regulations. Expenditure exceeding these ceilings is considered as "non eligible expenditure" and has to be corrected. These corrections lead to reductions of the monthly payments. As a result of overspending these financial ceilings, the Commission made financial corrections for a total amount of EUR 7.5 million. –reductions of the monthly payments as a result of non-eligibility For some measures, expenditure paid after the deadline is not eligible. In previous years, the Commission executed financial corrections for non-respect of these deadlines. In 2018, no such corrections were made as Member States were not any longer able to declare positive amounts for the concerned measures once the deadline had been passed. b. Suspensions of the monthly payments Following Commission Decision C(2017)2104 of 4 April 2017, the Commission has suspended for Poland the monthly payments for expenditure effected in financial year 2018 for a total amount of EUR 526 116.83. 2.2.2.Direct management expenditure by the Commission In certain cases, the Commission makes payments directly for certain measures. These concern payments for actions for instance related to controls, to promotion actions and to information actions on the agricultural policy. For details, please see annexes 3 and 4. 3.THE IMPLEMENTATION OF THE 2018 EAGF BUDGET 3.1.The uptake of the EAGF budget appropriations The implementation of the budget amounted to EUR 44 364.5 million . This expenditure was funded by the budget's initial appropriations and by using the revenue assigned to policy area 05, composed of the entire amount of EUR 603.3 million carried over from 2017 and of a part of the assigned revenue collected in 2018 amounting to EUR 548.50 million out of a total EUR 997.4 million. Within policy area 05, the expenditure for market measures amounted to EUR 2.709.4 million and for direct payments to EUR 41 496.5 million. For details of the budget's implementation by policy area, please see annex 5. Annex 9 presents a breakdown of the expenditure on market measures, direct payments and audit of agricultural expenditure by item, by fund source and by Member State. 3.2.Comments on the budget implementation A brief commentary on the implementation of the appropriations as well as on the use of the assigned revenue is presented hereafter based on details given in the attached tables:

–Annex 5: Analysis of the execution of the 2018 EAGF budget. The expenditure incurred for each budget item appears in column 6. Columns 1, 2, 3 and 4 indicate, respectively, the source and amount of funding which originates either from voted appropriations or from transfers of assigned revenue and of voted appropriations from other items of the budget; –Annex 6: Assigned revenue (C4) collected and used in 2018; –Annex 7: Assigned revenue (C5) carried over from 2017 and used in 2018; –Annex 9: Expenditure by Member State, by fund source and by item. This presentation is made at the level of chapter, article and item of the agricultural budget. 3.2.1.Chapter 05 02: Interventions in agricultural markets 3.2.1.1.Introduction Total payments for this chapter amounted to EUR 2 709.4 million and they were funded by the voted appropriations amounting to EUR 2 358.1 million and by assigned revenue amounting to EUR 400 million. The latter was used to cover the expenditure incurred in the fruit and vegetables sector (for details, see point 3.2.1.2). In items where the needs exceeded the budgetary appropriations, the additional expenditure was covered through transfers from other items of the budget. For the market measures where the budget's appropriations were under-spent, the resulting available appropriations were transferred to other budget lines within the EAGF to cover additional expenditure as needed. Annex 5 presents these details at the level of each budget item. In case the execution was close to the foreseen level in the 2018 budget, no further remarks are made. 3.2.1.2.Article 05 02 08: Fruits and vegetables The budget foresaw total available appropriations of EUR 931.8 million to cover the needs of all the measures for this sector. The Budgetary Authority voted appropriations of EUR 531.8 million as it took into account the estimated revenue assigned to this sector (EUR 400.0 million). Moreover, EUR 27.3 million was transferred from other budget lines within the same chapter. The expenditure incurred by Member States in 2018 amounted to EUR 865.1 million. The balance of the unused assigned revenue of EUR 93.9 million was carried over to the budget year 2019 to cover the needs of that year. In particular, the total needs in the budget for the operational funds for producer organisations were estimated at EUR 872 million. The expenditure incurred by Member States amounted to EUR 830.9 million and it was funded by voted appropriations amounting to EUR 472.0 million, by assigned revenue of EUR 306.1 million and by transfers of appropriations of EUR 52.8 million. Lower than forecasted expenditure in the budget was incurred for the operational funds, for the temporary exceptional measures, the National Financial Assistance as well as the aid to producer groups for preliminary recognition . Expenditure for the former school fruit scheme was very close to the amount of the budget appropriations. Finally, the forecasted needs in the budget for the temporary exceptional measures for producers who are not members of producer organisations in view of the prolongation of the Russian ban on imports amounted to EUR 39.8 million. However, Member States declared expenditure of EUR 19.5 million only. 3.2.1.3.Article 05 02 09: Products of the wine-growing sector The budget foresaw total available appropriations at EUR 1 058 million to cover the needs of all the measures for this sector. The under-execution of EUR 89.9 million, compared to the forecasted budget needs, was due to the lower expenditure incurred by some Member States, particularly for the promotion and restructuring components of their national wine programmes. 3.2.1.4.Article 05 02 10: Promotion As regards promotion measures – payments by Member States, the under-execution of EUR 10.4 million compared to the forecasted budget needs was due to the lower expenditure incurred by some Member States for their promotion programmes approved by the Commission compared to the expenditure foreseen in the budget. As regards direct payments made by the European Union, the Commission committed appropriations for the total amount foreseen (EUR 88.6 million) in the budget for these actions. 3.2.1.5.Article 05 02 12: Milk and milk products

The budget foresaw total available appropriations amounting to EUR 34.1 million to cover the needs of all the measures for this sector. Expenditure incurred by Member States amounted to EUR 201.1 million. Budget transfers from other articles have been made to cover the extra needs. In particular, the needs for storage measures for skimmed milk powder had been estimated at EUR 12.0 million in the budget, while expenditure incurred amounted to EUR 182.3 million. The difference is merely due to an end-of-year depreciation of the public stocks of skimmed milk powder amounting to EUR 126.5 million following Commission Decision C(2018)6591 of 12 December 2018. Furthermore, EUR 42.9 million was spent on sales of quantities of skimmed milk powder in public storage (difference between a sales price that is lower than the buying-in price), EUR 11.7 million on technical costs for public storage and EUR 1.2 million for private storage of skimmed milk powder (which was estimated in the budget at EUR 0.9 million). For the former school milk scheme, Member States incurred expenditure amounting to EUR 19.1 million compared to the forecasted needs of EUR 22 million. Finally, the needs for other measures were estimated at EUR 0.1 million. It concerns temporary and exceptional measures taken in previous years, for which Member States only declared corrections of previous expenditure. The available amount of EUR 0.4 million has been transferred to other budget articles. 3.2.1.6.Article 05 02 13: Beef and veal The budget foresaw no appropriations while minor expenditure was incurred by Member States (EUR 0.1 million) for residual payments related to export refunds linked to certificates issued before 2014. This residual expenditure was covered via a transfer of appropriations available in the same chapter. 3.2.1.7.Article 05 02 15: Pigmeat, eggs and poultry, bee-keeping and other animal products The budget foresaw total available appropriations amounting to EUR 95.0 million to cover the needs of all the measures for this sector. However, the expenditure incurred by Member States amounted only to EUR 64.0 million. The difference of EUR 31 million has been transferred to other budget articles. The expenditure for specific aid for beekeeping amounted to EUR 33.9 million compared to forecasted needs of EUR 35.0 million included in the budget. Under the “other” measures, EUR 9.3 million was foreseen for an exceptional measure related to swine fever in Poland, of which only EUR 1 million has been effectively used. Expenditure for an exceptional support measure on avian influenza in France amounted to EUR 29.1 million, while EUR 51 million had been budgeted. 3.2.1.8.Article 05 02 18: School schemes The expenditure incurred for school schemes amounted to EUR 155.8 million compared to forecasted needs of EUR 188.0 million included in the budget. The lower uptake reflects the fact that 2017/2018 was the first school year of the integration of the previously separate fruit and milk schemes into one school scheme, with Member States declaring less expenditure than anticipated when drawing up the budget. 3.2.2.Chapter 05 03: Direct payments Financial year 2018 was the third year of implementation of the reformed direct payments as decided in the 2013 reform of the Common Agricultural Policy. Total payments for this budget chapter amounted to EUR 41 496.5 million. This includes an amount of EUR 441.7 million paid for the reimbursement of direct payments to farmers in relation to financial discipline, financed from EUR 450.5 million carried over from 2017 (for details, see point 3.2.2.4). The rest of the payments made, EUR 41 054.8 million, was funded by voted appropriations (EUR 40 668.7 million) and by assigned revenue (EUR 1 200.7 million). The latter was used to cover part of the expenditure incurred for the basic payment scheme (for details, see point 3.2.2.1). The total unused appropriations amounted to EUR 823.3 million, of which EUR 814.4 million have been carried over to financial year 2019. Moreover, the unused amount of the crisis reserve (EUR 459.5 million), which was established from the proposed financial discipline in 2018, was transferred to budget article 05 03 09 so that the amount of the effectively applied financial discipline (EUR 459.5 million) could be carried over to 2019 for the reimbursement to the Member States concerned (see point 3.2.2.5). The remaining balance of assigned revenue collected in 2018 (EUR 354.9 million) was carried over to 2019. In items where the needs exceeded the budget’s voted appropriations, the additional expenditure was covered through transfers of voted appropriations from other items of the budget or of assigned revenue. Equally, for direct payments where the budget's appropriations were under-spent, the resulting available appropriations were transferred to other budget lines within the EAGF in order to cover additional expenditure as needed. Annex 5 presents these details at the level of each budget item. 3.2.2.1.Article 05 03 01: Decoupled direct payments The main schemes funded by this article's appropriations are the single area payment scheme (SAPS), the basic payment scheme (BPS), the payment for agricultural practices beneficial for the climate and the environment, the redistributive payment and the payment for young farmers. All aid schemes in this article are paid independently of production but on certain conditions, e.g. the respect of cross-compliance. The 2018 budgetary needs for decoupled direct payments amounted to EUR 35 960.3 million for which the Budgetary Authority voted appropriations amounting to EUR 34 309.1 million after taking into consideration assigned revenue amounting to EUR 1 651.2 million. The expenditure incurred by Member States for all schemes in this article amounted to EUR 35 304.8 million, which corresponds to 98.2% of the needs foreseen in the budget for these schemes. As regards the BPS, the budgetary needs were estimated at EUR 17 402 million. To cover these needs, the Budgetary Authority voted appropriations amounting to EUR 16 326.1 million after taking into account the revenue of EUR 1 075.9 million assigned to this scheme. The expenditure declared by Member States for this scheme amounted to EUR 17 300.8 million and covered 99.4% of the estimated needs. As regards SAPS, the appropriations in the budget amounted to EUR 4 162.0 million and Member States incurred payments amounting to EUR 4 177.3 million. The extra EUR 15.3 million needed have been transferred from budget items within the same article.

As regards the payment for agricultural practices beneficial for the climate and the environment, the so-called greening, the expenditure incurred by Member States amounted to EUR 11 774.6 million whereas appropriations in the budget were at EUR 11 739.0 million giving an execution rate of 100.3%. The needs for the redistributive payment amounted to EUR 1 666.0 million and the expenditure declared by Member States was EUR 1 650.8 million or 99.1% of the budgeted needs. For the payment for young farmers, needs were estimated at EUR 391.0 million in the budget. Expenditure amounted to EUR 381.6 or 97.6% of the budgeted needs. The remaining lines covered mostly smaller amounts, including also the residual payments for the schemes which expired further to the 2013 reform. 3.2.2.2.Article 05 03 02: Other direct payments The appropriations of this article covered expenditure for "other direct payments". This includes schemes for which there may still be a link between the payment and the production, under well defined conditions and within clear limits. As a consequence of the 2013 reform, schemes financed under this Article were the voluntary coupled support and the small farmers scheme and a number of lines only covered relatively minor residual payments for expired schemes. The 2018 budget included appropriations amounting to EUR 5 900.0 million for this budget article. Member States incurred expenditure amounting to EUR 5 750.0 million hence lower than the appropriations entered in the budget. For the crop-specific payment for cotton, needs were estimated at EUR 242.0 million in the budget. Expenditure was EUR 243.8 million, i.e. 100.7% of the budgeted amount. The execution for the POSEI-EU support programmes ran up to 100.5% of the needs (EUR 420.0 million) foreseen in the budget. For the voluntary coupled support scheme, needs were estimated at EUR 3 993.0 million in the budget. Expenditure was EUR 4 033.2 million, i.e. 101.0% of the needs. For the small farmers scheme, needs were estimated at EUR 1 224.0 million in the budget. Expenditure was EUR 1 035.6 million, i.e. only 84.6% of the needs. As regards item 05 03 02 99 – Other (direct payments), the budget included appropriations of EUR 2.0 million intended to cover expenditure and corrections for older schemes which were not covered under other budget items of the coupled direct payments sector. There was a negative expenditure of around EUR – 2.1 million and in order to cover the funding needs of other items of the budget, appropriations amounting to EUR 4.1 million were transferred out of this budget item. 3.2.2.3.Article 05 03 03: Additional amounts of aid While appropriations foreseen in the budget for this article amounted to EUR 0.1 million, Member States incurred insignificant expenditure and thus under-executed the budget’s appropriations by almost a similar amount. 3.2.2.4.Article 05 03 09: Reimbursement of direct payments in relation to financial discipline No appropriations are allocated to this article by the Budgetary Authority. This article serves the purpose of collecting the non-committed voted appropriations including in particular the appropriations of the unused crisis reserve in order to be carried over into budget year N+1 and finance the reimbursement of the financial discipline applied to direct payments in respect of calendar year N . Each year, if applicable, a Commission Implementing Regulation sets the amounts that each Member State has to reimburse to farmers and, in accordance with the introductory phrase of Article 12(2) of Regulation (EU, Euratom) 2018/1046, determines that the expenditure in relation to this reimbursement shall only be eligible for Union financing if the amounts have been paid to the beneficiaries before 16 October of the financial year to which the appropriations are carried over. From the amount of EUR 450.5 million, corresponding to the financial discipline applied during financial year 2017 and which was carried over to budget 2018 for reimbursement, Member States reimbursed EUR 441.7 million. The difference of EUR 8.8 million reverted to the 2018 budget for its return to Member States via an Amending Budget in the following budget year. For financial year 2019, Commission Implementing Regulation (EU) 2018/1848 sets the amount of reimbursement at EUR 459.5 million. This amount corresponds to the amount of financial discipline effectively applied for claim year 2018 and this amount was carried over into the 2019 budget. 3.2.2.5.Article 05 03 10: Reserve for crises in the agricultural sector The appropriations of this article are intended to cover expenditure for measures which have to be taken in order to cope with major crises affecting agricultural production or distribution. The crisis reserve is established by applying, at the beginning of each year, a reduction to the direct payments through the financial discipline mechanism in accordance with Articles 25 and 26 of Regulation (EU) No 1306/2013 as well as Article 8 of Regulation (EU) No 1307/2013 . This reserve shall be set up with an annual amount of EUR 400 million (in 2011 prices). For the budget year 2018, the equivalent amount of the crisis reserve in current prices was EUR 459.5 million. The reserve was not used in financial year 2018.

For the 2017 claim year, the financial discipline was calculated exclusively for the constitution of the crisis reserve of EUR 459.5 million. However, by the end of the financial year, non-committed voted appropriations corresponding to the amount of financial discipline effectively applied for claim year 2017 (taking into account the unused amount of the crisis reserve) was transferred to budget article 05 03 09 in order to be carried over to the next financial year and, in this way, fund the reimbursement of financial discipline imposed on farmers in the calendar year 2018 (please see point 3.2.2.4). 3.2.3.Chapter 05 04: Rural Development For Article 05 04 01 – Completion of Rural Development financed by the EAGGF-Guarantee section – Programming period 2000 to 2006, the final net amount recovered was EUR 0.5 million. 3.2.4.Chapter 05 07: Audit of agricultural expenditure 3.2.4.1.Article 05 07 01: Control of agricultural expenditure This article involves the measures taken to reinforce the means of on-the-spot controls and to improve the systems of verification so as to limit the risk of fraud and irregularities to the detriment of the Union budget. It also includes the expenditure to finance possible accounting and conformity corrections in favour of Member States. The European Union directly funded the purchase of satellite images within the framework of the Integrated Administration and Control System (IACS) for an amount of EUR 9.3 million. The corrections in favour of the Member States following conformity clearance of accounts turned out to be lower than expected (EUR 12.2 million instead of EUR 21.4 million foreseen in the budget), while the corrections in favour of Member States following accounting clearance of accounts were in line with the budgeted amount (EUR 5.2 million). 3.2.4.2.Article 05 07 02: Settlement of disputes The appropriations in this article are intended to cover expenditure for which the Commission could be held liable by decision of a court of justice, including the cost of settling claims for damages and interest. The 2018 budget foresaw appropriations amounting to EUR 124.5 million, of which EUR 88.8 million were executed. The remainder of appropriations has been transferred to other items of the budget. 3.2.5.Chapter 05 08: Policy strategy and coordination 3.2.5.1.Article 05 08 01: Farm accountancy data network (FADN) Appropriations committed for data collection on farm holdings under this network amounted to EUR 14.7 million, while the budget foresaw appropriations amounting to EUR 14.9 million. 3.2.5.2.Article 05 08 03: Restructuring of systems for agricultural surveys Appropriations committed for the restructuring of systems of agricultural surveys amounted to EUR 1.9 million, while the budget foresaw appropriations amounting to EUR 2.8 million. 3.2.5.3.Article 05 08 06: Enhancing public awareness of the common agricultural policy This article entails actions, fairs and publications aimed at enhancing public awareness of the CAP, including actions under Corporate Communication. Almost all appropriations (EUR 14.6 million) were committed. 3.2.5.4.Article 05 08 09: EAGF – Operational technical assistance Appropriations committed for operational technical assistance for the EAGF amounted to approximately EUR 2.5 million, while the budget foresaw appropriations amounting to EUR 4.1 million. EUR 1.0 million of the voted appropriations was reallocated outside EAGF through Amending Budget No 6. 4.IMPLEMENTATION OF REVENUE ASSIGNED TO EAGF

The assigned revenue actually carried over from 2017 into 2018, amounted to EUR 603.3 million and was entirely used in financing expenditure of the 2018 budget year in accordance with article 14 of the Financial Regulation. As presented in annex 7, this amount covered expenditure of EUR 203.8 million for the operational funds for producer organisations in the fruits and vegetables sector and of EUR 399.4 million for the basic payment scheme. As regards the assigned revenue collected in 2018, annex 6 shows that this revenue amounted to EUR 997.4 million and it originated from: –the clearance corrections procedure, EUR 861.9 million; –the receipts from irregularities, EUR 131.6 million; –the milk levy collections, EUR 3.9 million. The assigned revenue collected in 2018 was used to cover expenditure incurred for the following measures: –EUR 102.2 million for the operational funds for producer organisations in the fruits and vegetables sector; –EUR 446.3 million for the basic payment scheme (BPS) (direct payments). The balance of the assigned revenue collected in 2018 (EUR 448.8 million) was automatically carried over into the 2019 budget to fund budgetary needs of that year. 5.CONTROL MEASURES 5.1.Introduction In accordance with the EU legislation and as in previous years, 2018 agricultural expenditure was submitted to a comprehensive system of control measures. This system includes, on the one hand, all the necessary building blocks to guarantee a sound administration of the expenditure at Member States’ level and, on the other hand, allows the Commission to counter the risk of financial losses as a result of any deficiencies in the set-up and operation of those building blocks through the clearance of accounts procedure. Member States have to ensure that the transactions are carried out and executed correctly, to prevent and deal with irregularities and to recover amounts unduly paid. In complement to this general obligation, there is a system of controls and dissuasive sanctions of final beneficiaries which reflects the specific features of the regime and the risk involved in its administration. The controls are carried out by the paying agencies or by delegated bodies operating under their supervision and effective, dissuasive and proportionate sanctions are imposed if the controls reveal non-compliance with EU rules. The system generally provides for exhaustive administrative controls of 100% of the aid applications, cross-checks with other databases where this is considered appropriate as well as pre-payment on-the-spot controls of a sample of transactions ranging between 1% and 100%, depending on the risk associated with the regime in question. In addition, for most regimes which are not subject to the Integrated Administration and Control System (IACS), on top of the primary and secondary control levels, ex-post controls must be carried out. 5.2.Integrated Administration and Control System (IACS) Regulation (EU) No 1306/2013, Regulation (EU) No 1307/2013, Commission Delegated Regulation (EU) No 639/2014 and Commission Delegated Regulation (EU) No 640/2014 contain the rules on the IACS.

A fully operational IACS consists of: a computerised database, an identification system for agricultural parcels and farmers claiming aid, a system for identification and registration of payment entitlements, aid applications and integrated controls system (claim processing, on-the-spot checks and sanctioning mechanisms) and a system for identifying and registering animals where applicable. The IACS is fully automated. This system foresees a 100% administrative control covering the eligibility of the claim, complemented by administrative cross-controls with standing databases ensuring that only areas or animals that fulfil all eligible requirements are paid the premium and by a minimum 5% of on-the-spot checks to check the existence and eligibility of the area or the animals claimed. For the financial year 2018, the IACS covered 94% of the EAGF expenditure. Furthermore, the relevant components of the IACS are applicable to the rural development measures, which are based on area or number of animals. Such measures include, inter alia, agri-environment and animal welfare measures, less-favoured areas and areas with environmental restrictions and afforestation of agricultural land. For financial year 2018, 54% of payments made under the EAFRD were also covered. The Commission services verify the effectiveness of Member States' IACS and homogenous implementation by means of both on-the-spot auditing and general supervision based on annually supplied financial and statistical data. It has been established already for some years now that the IACS provides an excellent and cost effective means of ensuring the proper use of EU funds. 5.3.Market measures Market interventions, for example storage aid or aid to producer organisations, are not covered by IACS but they are governed by specific rules as regards controls and sanctions which are set out in horizontal and sector-based regulations. Aids are paid on the basis of claims, often involving the lodging of administrative and/or end-use securities, which are systematically (100%) checked administratively for completeness and correctness. The more financially important aid schemes are also subject to regular accounting controls performed in situ on commercial and financial documents. 5.4.Application of Chapter III of Title V Regulation (EU) No 1306/2013 (ex-post scrutiny) An ex-post control system is provided for under Regulation (EU) No 1306/2013 in Title V, Chapter III. It provides for an ex-post control system which is a complement to the sectoral control systems described above. The system constitutes an extra layer of control which contributes to the assurance that transactions have been carried out in conformity with the rules or otherwise allows recovering the unduly paid amounts. The ex-post scrutiny is to be carried out by a body in the Member State, which is independent of the departments within the paying agency responsible for the pre-payment controls and the payments. It covers a wide range of CAP subsidies including sector schemes for fruit and vegetables, wine and POSEI aids. In fact, the ex-post scrutiny covers all aids paid to beneficiaries from EAGF (except payments covered by IACS and those excluded by Article 14 of Regulation (EU) No 907/2014). In 2018, Member States scrutiny services completed ex-post controls in respect of undertakings to which payments were made in financial year 2016. The annual reports in respect of the respective scrutiny period (July 2016-June 2017) shows that Member States completed more than 90% of the planned scrutinies. The regulation also foresees Member States providing mutual assistance in the performance of scrutinies. In the 2017/2018 scrutiny period, around 30 such requests were fulfilled. 6.CLEARANCE OF ACCOUNTS 6.1.Conformity clearance 6.1.1.Introduction It is primarily the Member States' responsibility to check that transactions are carried out and executed correctly via a system of control and dissuasive sanctions. Where Member States fail to meet this requirement, the Commission applies financial corrections to protect the financial interests of the EU. The conformity clearance relates to the legality and regularity of transactions. It is designed to exclude expenditure from EU financing which has not been effected in compliance with EU rules, thus shielding the EU budget from expenditure that should not be charged to it (financial corrections). In contrast, it is not a mechanism by which irregular payments to beneficiaries are recovered, which according to the principle of shared management is the sole responsibility of Member States. Financial corrections are determined on the basis of the nature and gravity of the infringement and the financial damage caused to the EU. Where possible, the amount is calculated on the basis of the loss actually caused or on the basis of an extrapolation. Where this is not possible, flat-rates are used which take account of the severity of the deficiencies in the national control systems in order to reflect the financial risk for the EU. Where undue payments are or can be identified as a result of the conformity clearance procedures, Member States are required to follow them up by recovery actions against the final beneficiaries. However, even where this is not possible because the financial corrections only relate to deficiencies in the Member States' management and control systems, financial corrections are an important means to improve these systems and thus to prevent or detect and recover irregular payments to final beneficiaries. The conformity clearance, thereby, contributes to the legality and regularity of the transactions at the level of the final beneficiaries. 6.1.2.Audits and decisions adopted in 2018 6.1.2.1.Audits

The following table presents an overview of the conformity audits with missions and their coverage in respect of financial year 2018, broken down per Activity Based Budgeting (ABB): Financial Year 2018 ABB 02 ABB 03 ABB 04(1) Total(2) Number of conformity audits with missions carried out(3) 23 36 40 122 (1) concerns only EAFRD. (2) The total figure includes 101 conformity audits, of which 87 audits targeted the 3 ABBs areas (audits targeting more than one ABBs are counted only once) and 14 other conformity audits (8 audits on cross compliance and 6 IT audits). In addition, 21 other audit missions not subject to conformity clearance procedure have been carried out (1 audit on IPARD, 1 audit on direct expenditure, 1 financial audit, 16 audits on the Certification Bodies as regards legality and regularity and 2 pre-accession audits). (3) if an audit covers more than one ABB, it is allocated to all ABBs covered by that audit. However, these audits are counted only once in the total. 6.1.2.2.Conformity decisions Three conformity clearance decisions having an impact on the financial year 2018 were adopted involving financial corrections in a number of sectors. These decisions had an overall financial impact for EAGF by excluding from EU financing a total of EUR 400 million: ·Decision 2017/2014/EU of 8 November 2017 – 55th Decision, financial impact of EUR 282.65 million; ·Decision 2018/304/EU of 27 February 2018 – 56th Decision, financial impact of EUR 28.13 million; ·Decision 2018/873/EU of 13 June 2018 – 57th Decision, financial impact of EUR 89.70 million. For the decisions 55 (2017/2014/EU) and 57 (2018/873/EU) due to the relative magnitude of corrections compared to certain Member State’s GDP, the Commission decided that corrections amounting to EUR 17.12 million could be paid in 3 equal annual instalments. In addition, financial corrections for Greece in decisions 56 and 57 are included in the deferral decisions (C(2015)4122 of 22 June 2015 and C(2017)3780 of 08/06/2017) amounting to EUR 4.9 million for EAGF. The breakdown of financial impact according to sectors is as follows (in EUR): Sector Decision 55 Decision 56 Decision 57 Area aids / Arable crops -183 621 437.99 -10 754 184.94 -32 776 245.27 Financial Audit -7 853 190.29 -947 249.83 -23 477 666.16 Fruit and vegetables -79 775 824.55 -13 220 640.72 -17 090 624.75 Intervention storage -178 013.36 -1 178 488.62 Irregularities -1 898 801.98 Livestock premiums -109 171.15 Milk Products -279 321.42 -256 772.80 POSEI -6 393 217.16 Specific support (Art.68 of Reg.73/2009) -9 327 823.15 -738 537.05 -6 392 751.82 Voluntary Coupled Support -8 878.53 Wine -2 067 324.72 -2 127 261.99 Grand Total -282 645 600.70 -28 125 920.45 -89 701 907.10 Under Regulation (EU) No 1306/2013, an automatic clearing mechanism is applied to irregular payments not recovered 4 years after the establishment of the irregularity, or 8 years after the establishment of the irregularity when the recovery is challenged in national courts. The financial consequences of non recovery are shared by the Member State concerned and the EU on a 50% - 50% basis. Even after the application of this mechanism, Member States are, however, obliged to pursue their recovery procedures and, if they fail to do so with the necessary diligence, the Commission may decide to charge the entire outstanding amounts to the Member States concerned. Regarding financial year 2018, Member States reported the information about recovery cases by 15 February 2019. The Member States recovered during financial year 2018 around EUR 136 million for EAGF. Recovered amounts were EUR 128.2 million for EAFRD and EUR 0.4 million for Transitional Rural Development Instrument (TRDI). The outstanding amount still to be recovered from beneficiaries at the end of the financial year 2018 was EUR 1 039 million for EAGF, EUR 645.3 million for EAFRD and EUR 11.3 million for TRDI. The financial consequences to the Member States for non recovery of EAGF, EAFRD and TRDI cases dating from 2012 or 2008 account to EUR 16.3 million. During financial year 2018, around EUR 17.7 million was borne at 100% by the EU budget for EAGF, EAFRD and TRDI. 6.2.Financial clearance 6.2.1.Introduction The financial clearance covers the completeness, accuracy and veracity of paying agencies' accounts, the internal control systems set up by these paying agencies and the legality and regularity of the expenditure for which reimbursement has been requested from the Commission. Within this framework, Directorate-General for Agriculture and Rural Development (DG AGRI) pays particular attention to the certifying bodies’ conclusions and recommendations (where weaknesses are found), following their reviews of the paying agencies’ compliance with the accreditation criteria. As part of this review, DG AGRI also covers aspects relating to conformity issues and protecting the financial interests of the EU as regards advances paid, securities obtained and intervention stocks. The Commission adopts an annual clearance of accounts decision clearing the paying agencies' annual accounts on the basis of the certificates and reports from the certifying bodies, but without prejudice to any subsequent decisions to recover expenditure which proves not to have been in accordance with the EU rules. As from financial year 2014, these accounts are received by the Commission by 15 February of the year following the financial year in question. The Commission decides whether the accounts of each paying agency are cleared and adopts its clearance decision by 31 May of the year following the financial year in question. The accounts not cleared by 31 May are cleared later in a future decision, once assurance on the completeness, accuracy and veracity of the accounts is obtained. 6.2.2.Decisions

6.2.2.1.Financial clearance decision for the financial year 2015 On 30 May 2016, the Commission adopted a Decision (2016/941) clearing the annual accounts of all paying agencies, except for the paying agencies State Fund Agriculture (Bulgaria), France Agrimer (France) and AGEA (Italy). This decision cleared EUR 40 111 million. The accounts of the disjoined paying agencies will be cleared in a later decision (amount involved EUR 3 307 million). On 2 August 2018, the Commission adopted Decision C(2018)5001 where the accounts of AGEA (Italy) were cleared for an amount of EUR 2 263 million. 6.2.2.2.Financial clearance decision for the financial year 2016 On 29 May 2017, the Commission adopted a Decision (2017/927) clearing the annual accounts of all paying agencies, except for the paying agencies Zollamt Salzburg (Austria), State Fund Agriculture (Bulgaria), Cyprus Agricultural Payments Organization (Cyprus), Danish AgriFish Agency(Denmark), FranceAgriMer (France), Agenzia per le Erogazioni in Agricoltura (Italy) and Agriculture and Rural Payments Agency (Malta). This decision cleared EUR 37 384 million. The accounts of the disjoined paying agencies will be cleared in a later decision (relevant amount EUR 4 326 million). On 15 February 2018, the Commission adopted Decision C(2018)801 where the accounts of State Fund Agriculture (Bulgaria), Danish AgriFish Agency (Denmark) and Agriculture and Rural Payments Agency (Malta) were cleared for a total amount of EUR 1 583 million. 6.2.2.5.Financial clearance decision for the financial year 2017 On 28 May 2018, the Commission adopted a Decision (2018/794) clearing the annual accounts of all paying agencies, except for the paying agencies FranceAgriMer (France), EU-Zahlstelle der Freien und Hansestadt Hamburg (Germany), Agriculture and Rural Payments Agency (Malta) and Fondo Español de Garantía Agraria (Spain). This decision cleared EUR 43 121 million. The accounts of the disjoined paying agencies will be cleared in a later decision (relevant amount EUR 321 million). 6.3.Appeals brought before the Court of Justice against clearance decisions 6.3.1.Judgments handed down In the financial year 2018, the Court handed down 12 judgments in appeals brought by the Member States against conformity clearance decisions. In financial year 2018, the Court partially annulled: Case Number MS Date of Judgment Challenged Decision Lodging Date T-505/15 HU 14-12-2017 48 02-09-2015 T-627/16 CZ 13-09-2018 51 31-08-2016 In financial year 2018, the Court annulled: Case Number MS Date of Judgment Challenged Decision Lodging Date C-4/17P CZ 06-09-2018 47 04-01-2017 T-260/16 SE 25-09-2018 50 24-05-2016 In financial year 2018, the Court rejected appeals brought in the following cases: Case Number MS Date of Judgment Challenged Decision Lodging Date T-502/15 ES 19-10-2017 48 01-09-2017 T-26/16 EL 25-10-2017 49 22-01-2016 T-506/15 EL 01-02-2018 48 29-08-2015 T-462/16 PT 09-03-2018 51 22-08-2016 T-507/15 PL 15-03-2018 48 02-09-2015 T-233/17 PT 25-09-2018 53 20-04-2017 T-463/16 PT 26-09-2018 51 22-08-2016 T-272/16 EL 04-10-2018 50 25-05-2016

6.3.2.New appeals In the financial year 2018, 11 new appeals were brought by the Member States against clearance decisions: Case Number MS Lodging Date Challenged Decision T-14/18 EL 16-01-2018 55 T-19/18 LT 19-01-2018 55 T-21/18 PL 19-01-2018 55 T-26/18 FR 19-01-2018 55 C-6/18P EL 02-02-2018 49 T-292/18 PT 07-05-2018 56 C-252/18P EL 18-05-2018 48 T-295/18 EL 07-06-2018 56 C-358/18P PL 20-07-2018 48 T-506/18 PL 24-08-2018 57 T-507/18 FR 12-09-2018 57 6.3.3.Appeals pending The situation as at 15 October 2018 with regard to appeals pending together with the amounts concerned is shown in annex 15. 7.RELATIONS WITH PARLIAMENT AND WITH THE EUROPEAN COURT OF AUDITORS 7.1.Relations with Parliament The European Parliament is, together with the Council, part of the EU’s Budgetary Authority. It is, thus, one of the most important discussion partners of the Commission on budgetary matters and, therefore, on the EAGF. Three EP committees are involved in the discussions and the preparation for the plenary on agricultural budgetary matters. These are the Committee on Agriculture and Rural Development, the Committee on Budgets and the Committee on Budgetary Control. Since 2014 the Committee on Agriculture and Rural Development provides an opinion on the discharge procedure to the Committee on Budgetary Control. The Committee on Budgetary Control monitors the correct implementation of the budget and drafts the opinion proposing to the Parliament to grant the discharge and making recommendations to the Commission or Member States. The European Parliament granted discharge to the Commission, in respect to the implementation of the general budget of the European Union for the 2016 financial year, by a vote in plenary on a Parliamentary Decision which took place on 18 April 2018. The same procedure applied in relation with financial year 2017 and the discharge was granted to the Commission by a vote in plenary on a Parliamentary Decision which took place on 27 March 2019. 7.2.Relations with the European Court of Auditors 7.2.1.Mission of the European Court of Auditors The European Court of Auditors is the external auditor of the European Union. Articles 285 to 287 of the Treaty on the Functioning of the European Union provide that the Court shall audit the Union finances with a view to improving financial management and reporting on the use of public funds. The Court of Auditors should provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. This statement, which can be complemented by specific assessments for various policy areas, is of prime importance to the European Parliament in its deliberations on granting discharge to the Commission for the implementation of the budget.

As part of its work, the Court carries out numerous audits within the Commission services. Court officials frequently visit the Directorate-General for Agriculture and Rural Development to gather facts and figures needed for the Court's opinions, as well as for its annual and special reports. In the light of these investigations the Court frequently makes suggestions and recommendations to the Commission on how to improve its financial management and make supervisory and control systems more effective. 7.2.2.Annual Report for financial year 2017 Every year the Court of Auditors publishes its Annual report on the implementation of the EU budget in which it gives a statement of assurance on the reliability of the consolidated accounts of the EU as well as on the legality and regularity of transactions. This is supplemented with specific assessments of each major area of EU activity. The report is published along with the Institutions' replies and is presented to the European Parliament after the summer break of year N+1. In line with International Audit Standards, adversarial meetings take place between the auditor (the Court of Auditors) and the auditee (the Commission and the other Institutions and bodies) before the report is published. In these meetings, the Court's findings and conclusions are discussed to ensure agreement on the underlying facts or existing interpretation of legislation. The wording of the auditee's replies is also discussed. In the Annual report for financial year 2017, the activities relevant for the Directorate-General for Agriculture and Rural development are considered together with other policy areas relevant to “natural resources” under one single chapter, Chapter 7 – Natural Resources. Within this chapter, direct payment transactions financed under the EAGF are assessed separately from market measures transactions financed under the EAGF, transactions financed under the EAFRD and transactions financed under other policy areas (environment, climate action and fisheries). Whilst a breakdown of the level of error per type of transaction is not provided, the Court states that its estimate of the level of error for EAGF direct payments is below the materiality threshold of 2%. The Court tested 121 direct payment transactions, of which 103 were unaffected by error. For EAGF market measures, the Court tested 19 transactions, of which 12 were unaffected by errors and only 2 presented an error with financial impact. Market measures are considered together with rural development and other policy areas (environment, climate and fisheries) as higher risk spending areas. The level of error estimated by the Court for ‘Natural resources’ as a whole was 2.4%, which confirm the descending trend over time. The audit conclusion of the Court is consistent with the error rates reported in DG AGRI’s AAR2017. The Court considered, as was already the case for 2016, that the Land Parcel Identification System (LPIS) contributes significantly to preventing and reducing the error level. For 2017, the Court adds that the preliminary cross-checks which the paying agencies have started to conduct on direct aid applications alert farmers of certain errors in their application and give them the chance to correct. The Court also surveyed farmers and paying agencies about the use of the Geo-Spatial Aid Application (GSAA), with an overall conclusion that both (farmers and paying agencies) considered that the GSAA helped to prevent errors at applicant level and enabled them to correct mistakes in their claims. Furthermore, the GSAA generated time savings both at applicant and paying agency level, and most beneficiaries considered the GSAA more user-friendy than previous systems. The recommendations addressed to the Commission are (para 7.43): The Court made two recommendations in relation to EAGF: –Assess the effectiveness of the Member States’ actions to address the causes of errors for payments for market measures and rural development, and issue further guidance where necessary. –Monitor progress made by the paying agencies in supporting farmers not yet using the GSAA and promote best practices, in order to maximise the benefits and achieve full implementation of the new system within the regulatory deadlines. The Commission has accepted the recommendations. It will continue to request the Member State to establish remedial action plans when serious deficienies and weaknesses are identified and to monitor the effectiveness of their implementation. The Commission is monitoring the progress made in the Member States. The GSAA has been implemented promptly in most Member States, in accordance with the regulatory timeline. 7.2.3.Special Reports by the Court of Auditors In calendar year 2018, the Court published eight special reports covering DG AGRI's activities: ·Special report No 33/2018: Combating desertification in the EU: a growing threat in need of more action (published 18 December 2018)

·Special report No 25/2018: Floods Directive: progress in assessing risks, while planning and implementation need to improve (published 20 November 2018) ·Special report No 31/2018: Animal welfare in the EU: closing the gap between ambitious goals and practical implementation ·Special report No 17/2018: Commission’s and Member States’ actions in the last years of the 2007-2013 programmes tackled low absorption but had insufficient focus on results (published 13 September 2018) ·Special report No 23/2018: Air pollution: Our health still insufficiently protected (published 11 September 2018) ·Special report No 11/2018: New options for financing rural development projects: Simpler but not focused on results (published 26 April 2018) ·Special report No 10/2018: Basic Payment Scheme for farmers – operationally on track, but limited impact on simplification, targeting and the convergence of aid levels (published 15 March 2018) ·Special report No 05/2018: Renewable energy for sustainable rural development: significant potential synergies, but mostly unrealised (published 1 March 2018). 8.ANNEXES General 1. EAGF budgetary procedure for 2018 Cash position and management of appropriations 2. Monthly reimbursements to Member States decided for the 2018 financial year 3. Payments under direct management by the European Commission in the 2018 financial year (Differentiated Appropriations) 4. Payments under direct management by the European Commission in the 2018 financial year (Non-Differentiated Appropriations) Budget outturn 5. EAGF 2018 Analysis of budget execution 6. EAGF 2018 Analysis of execution of assigned revenue C4 7. EAGF 2018 Analysis of execution of assigned revenue C5 8. EAGF 2018 Expenditure for intervention in storage

9. EAGF 2018 Expenditure by Member State, by item and by fund source 10. Evolution of EAGF Expenditure by article of the budget. Financial years 2012 to 2018 11. Evolution of EAGF Expenditure by Member State & in % terms. Financial years 2012 to 2018 12. Evolution of EAGF Direct payments expenditure by measure. Financial years 2012 to 2018 13. Evolution of EAGF Storage expenditure. Financial years 2011 to 2018 14. Evolution of the breakdown of EAGF expenditure. Financial years 2012 to 2018 Clearance of accounts 15. Appeals against Clearance Decisions pending on 15 October 2018 16. Financial corrections (Decisions 1 - 57) by decision and financial year