RESOLUTION (EU) 2021/1543 OF THE EUROPEAN PARLIAMENT

of 29 April 2021

with observations forming an integral part of the decisions on discharge in respect of the implementation of the general budget of the European Union for the financial year 2019, Section III – Commission and executive agencies

THE EUROPEAN PARLIAMENT,

— having regard to its decision on discharge in respect of the implementation of the general budget of the European Union for the financial year 2019, Section III – Commission,

— having regard to its decisions on discharge in respect of the implementation of the budgets of the executive agencies for the financial year 2019,

— having regard to Rule 99 of and Annex V to its Rules of Procedure,

— having regard to the opinions of the Committee on Foreign Affairs, the Committee on Development, the Committee on Employment and Social Affairs, the Committee on the Environment, Public Health and Food Safety, the Committee on Transport and Tourism, the Committee on Regional Development, the Committee on Agriculture and Rural Development, the Committee on Culture and Education, the Committee on Civil Liberties, Justice and Home Affairs and the Committee on Women's Rights and Gender Equality,

— having regard to the report of the Committee on Budgetary Control (A9-0117/2021),

A. whereas the Union budget is a significant instrument for achieving common policy objectives, and on average represents 1,0 % of EU gross national income or 2,1 % of the Member States’ general government expenditure and total public spending in the Union;

B. whereas, when Parliament grants discharge to the Commission, it verifies and evaluates whether or not funds have been used correctly and policy goals have been achieved after internal and external audits, thus confirming the regularity and the performance in terms of value for money of the Commission’s spending;

C. whereas the 2019 discharge procedure covers a year marked by political and institutional transition with elections to the European Parliament and a new legislature which commenced on 2 July 2019 and the appointment of a new Commission, which took office on 1 December 2019 and which set new political priorities such as the European Green Deal, an increasing focus on digitalising the Union and the protection of its values and of the money of Union taxpayers;

D. whereas the outbreak of the novel coronavirus (COVID-19) did not require any adjustments to the figures reported in the 2019 Union annual accounts; whereas, however, in 2020 and in the years to come, the COVID-19 outbreak will have a significant global impact, as well as having important implications for the Union budget, and whereas in this regard, we have to determine with particular attention whether the Commission has used the Union budget with efficiency and transparency, because as from 2020, the implementation of the Union’s immediate response initiatives will affect the recognition, measurement or reclassification of multiple assets and liabilities in the financial statements of the Union;

E. whereas as a direct consequence of the outbreak of the novel coronavirus (COVID-19) the Committee on Budgetary Control could not organise or fully carry out all of its planned activities related to the usual controls of the Union institutions’ spending, i.e. its fact finding missions, public hearings or workshops and therefore had to rely even more heavily on the work of the Court;

Political priorities

1. Highlights, with regard to the implementation of the Union budget, the importance of complying with the principle of sound financial management as enshrined in Article 317 of the Treaty on the Functioning of the European Union (TFEU), as well as the importance of achieving programmes priorities and objectives which contribute to strengthening European integration and creating an ever-closer Union;

2. Is concerned about the state of rule of law in certain Member States and the financial loss caused by such deficiencies; expects the Commission to employ all instruments at its disposal to suspend, reduce and restrict access to Union funding in such cases including the use of the Rule of Law Regulation; emphasises that respect for the rule of law is a precondition for sound financial management including the efficient and effective allocation and management of European funds; strongly welcomes in that regard the adoption of Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget; welcomes that the Commission has started its work on guidelines; stresses that the Court of Justice of the European Union (CJEU) has already unequivocally established in its judgement that statements contained in European Council Conclusions cannot prevail over or modify the text of the regulation;

3. Recalls that annulment of the regulation or part of it is only possible by the CJEU; urges the Commission, as ‘Guardian of the Treaties’ to apply the regulation from the date it entered into force and to start the rule of law mechanisms when it is necessary to ensure the protection of the Union's financial interests in all dimensions; underlines that the regulation entered into force on 1 January 2021; recalls that Parliament can hold the Commission to account with regard to its application of the regulation, including any unjustified delays, through an action for failure to act under Article 265 TFEU; recalls that this regulation, designed to protect Union funds, will have to be applied to all commitments and payments, while providing safeguards for final beneficiaries and recipients;

4. Deplores the fact that the implementation of the CAP and the Cohesion Policy in Member States contains in total 292 reporting systems, which makes the data fragmented and non-comparable, and prevents the effective use of AI and big data to control the funds; deplores the fact that deficiencies in the validity and comparability of data and reporting technologies with varying degrees of digitalisation continue to severely hamper a comprehensive overview over the distribution of Union funds and their efficient control; regrets that the detection of misuse, fraud and embezzlement of Union funds is mostly limited to incidental discoveries by the Commission and the European Court of Auditors (the ‘Court’) during their sample-based audits or investigations by OLAF;

5. Deplores the fact that none of the CAP and Cohesion policy reporting systems contains information on the ultimate beneficiaries, that disclosing this information is not legally required, and that not all information on beneficial owners of the companies is available in the national central registers of all Member States; emphasises that an interoperable IT system would not only allow for an earlier and more efficient detection of misuse, fraud, misappropriations, conflicts of interest, double-funding and other systemic problems but would also allow for a comprehensive overview of the true distribution of Union funds and potentially unintended concentrations in the hands of few oligarchic or even criminal ultimate beneficiaries; underlines that the lack of information about the ownership structures and beneficial owners of companies and groups of companies significantly contributes to the opaqueness of the current distribution of funds; emphasises again the crucial importance of comprehensive, reliable and comparable data for the efficient, effective and timely control of European spending and the protection of European tax-payers’ money;

6. Recalls Parliament’s call on the Commission to propose a regulation for the establishment of such an interoperable IT system allowing for uniform and standardised reporting in a timely manner by Member States’ authorities in the area of shared management, particularly regarding CAP and cohesion funds, for an earlier detection of systemic errors and misuse as expressed in the discharge report for the Commission for the financial year 2018; underlines that such a system should be updated automatically with comparable and timely data to make the system capable of monitoring, controlling with the use of AI and big data; calls on the Commission to make the publication of all information on beneficial owners a legal requirement, as a prerequisite for the use of Union funds, as a matter of urgency;

7. Underlines the benefits such an interoperable and digital system would entail for the Member States’ authorities with regard to the control and overview of national Parliaments and governments of the allocation, management and distribution of national taxpayers’ money in the form of European funds; emphasises that the digitalisation of Union reporting, monitoring and audit is overdue and indispensable given the cross-border nature of misuse of funds, fraud, misappropriations, conflicts of interest, double-funding and other systemic problems; acknowledges proposals made by Parliament and the Commission during the negotiations about the Multiannual Financial Framework 2021-2027 (MFF), the Recovery and Resilience Facility (RRF), the Common Provisions Regulation (CPR) and the CAP;

8. Regrets the fact that the Council only reluctantly engaged in negotiations for viable compromises; regrets that different rules and reporting requirements were agreed in the different pieces of legislation; urges the Commission to propose a suitable provision for inclusion in the Financial Regulation without undue delay;

9. Recalls that the discharge report for 2018 called on the Commission to provide the discharge authority with a list of the total amount of payments to all companies belonging to the Agrofert Group across all Member States and a list of the 50 largest individual recipients (natural persons as beneficial owners of a company or of several companies) per Member State as well as a list of the 50 largest recipients (natural persons and legal persons as well as natural persons as owners of companies) of Union subsidies aggregated across all Member States; acknowledges repeated attempts by the Commission to compile such a list by requesting information from the Member States; strongly deplores that the Commission until the date of this resolution has not been able to provide the list as requested due to a lack of complete, reliable and comparable data provided by Member States; underlines that this illustrates and emphasises the pressing need for a digital, interoperable reporting and monitoring system for funds under shared management; urges the Commission to provide the list of the 50 largest individual ultimate beneficiaries as well as a comprehensive list of all subsidies received by all companies of the Agrofert Group under shared management in all Member States from 2014-2020 as requested without any further undue delay and urges the Member States to cooperate fully with the Commission by providing the data needed for the analysis and for compiling those lists;

10. Reiterates its call on the Commission to: — remove any technical and legal barriers to the collection of data on company structures and beneficial ownership and establish measures to ensure a digital and interoperable, standardized collection of information on the recipients of Union funding, including on those ultimately benefitting, directly or indirectly, from Union funding and their beneficial owners; — put in place the necessary digital systems and instruments for the compulsory use of all Member States, including but not limited to a single data-mining and risk-scoring tool allowing the Commission, OLAF and, where applicable, the EPPO to access and analyse such data on the recipients of Union funding (including their beneficial owners) for the purposes of control and audit, in order to enhance the protection of the Union budget and Next Generation EU against irregularities, fraud and conflicts of interest; — continue attaching the highest importance to the sound financial management of the Union budget, in particular through putting in place multiannual control strategies designed to prevent, detect and correct errors, as well as to continue carefully monitoring the implementation of the Union budget and to take immediate steps to correct the errors and to recover the funds incorrectly spent by Member States, intermediaries or final beneficiaries;

11. Recalls that Commission established the early detection and exclusion system (EDES) based on Art. 135 in the Financial Regulation to reinforce the protection of the Union's financial interests, guarantee sound financial management and to ensure that those companies and beneficial owners cannot benefit from Union funds who have been convicted in relation to fraud, corruption or other criminal activities related to the use of Union funds, or against whom at least OLAF issued judicial recommendations to the criminal authorities of the Member States as of 1 January 2016; is of the opinion that this tool could help the Union institutions and national bodies to better fight and prevent corruption and fraud in the Member States; regrets that the database only lists a few economic operators (five as per February 2021); views this as a sign that EDES is not properly implemented;

12. Asks the Commission to consider the extension of the application of EDES to funds under shared management covering shared management beneficiaries, bodies implementing financial instruments and final recipients, when proposing the revision of the financial rules applicable to the general budget of the Union (Financial Regulation) with respect for the principles of proportionality and appropriateness; notes that legislative changes with respect to the exclusion from all Union funds across different spending modes of beneficiaries who are also registered under shared management would additionally entail the need to provide that Member States can directly access the Commission-owned system and insert information about beneficiaries under their own responsibility; urges Member States and the Commission to guarantee an increased interoperability of the existing, European and national, databases and data-mining tools; acknowledges that the EDPS sees no general data protection issues on establishing such interoperability, but the necessity for a clear legal basis;

13. Calls on the Commission to: — report to the discharge authority on the reasons for why EDES only contains very limited entries; — take the necessary action to improve the working, implementation and operability of EDES to ensure that all economic operators that fulfil the criteria of Art 136(1) (c) to (h) of the Financial Regulation are listed; calls further on the Commission to review the criteria with a view to decreasing their complexity and to increasing their applicability in practice; — improve its use of this tool to connect the blacklist to OLAF and the EPPO and the national databases and create an automated system, which updates this database with reliable and timely information;

14. Considers, in line with the Commission's endeavour, that it is of the utmost importance to strike the right balance between low level of errors, fast payments, reasonable costs of controls and added value of the Union Budget;

15. Stresses the crucial role of Union policies and instruments for their realisation for reducing disparities between Member States and regions in the areas of cohesion, agriculture and rural development, research and innovations, home affairs and external relations, for promoting economic growth and employment, for combating poverty and social exclusion, and for upholding and promoting Union values, security and justice for its citizens within the Union and in the wider world;

16. Welcomes the fact that the Commission, as manager of the Union budget, appropriately tailors its common methodology to the specificities of the risk, control and management environments in the different spending areas, in order to effectively fulfil its reporting obligations and protect the Union Budget;

17. Points out that Article 61 of the Financial Regulation has provided since August 2018 for an enlarged definition of conflicts of interest; emphasises the Commission’s responsibility to ensure that these provisions are implemented with due diligence across the Union, and all forms of conflicts of interest are tackled efficiently and effectively throughout the implementation of the Union budget; stresses the importance of available public information on final beneficiaries for all Union financial transfers, in order to prevent conflicts of interest in the implementation of Union budget;

18. Reiterates its call on the Commission to ensure proper evaluation of the preventive measures taken by the Member States to avoid conflicts of interest; welcomes, in this regard, the guidelines from the Commission ‘Guidance on avoidance of conflicts of interest under the Financial Regulation’, distributed to the Member States in August 2020, aiming to promote a uniform interpretation and application of rules concerning conflicts of interest and to raise awareness on the applicability of these rules, including in relation to shared management; calls on the Commission to make these Guidelines public and also share the information about the audits carried out on these issues and examples of good practice with both Member States’ authorities and the Committee on Budgetary Control;

19. Is concerned about the possible narrow interpretation of the Article 61 of Regulation (EU, Euratom) 2018/1046 by the Czech Paying Agency (the State Agricultural Intervention Fund) who considers it non-applicable for the members of the Government; urges the Commission to provide its opinion on the interpretation of the said article regarding national Paying Agencies; calls on the Commission to ensure that Article 61 of Regulation (EU, Euratom) 2018/1046 is respected and implemented in the Czech Republic, and applied on all payments from the Union budget, including direct payments under the 1st pillar of CAP, and to monitor the independent functioning of Paying Agencies in this regard;

20. Recalls that a number of scandals surrounding the distribution and the misuse of the Union funds in countries such as Bulgaria, Czechia or Slovakia and Romania triggered massive public protests in recent months and years, with Union citizens looking to Union institutions, in particular the Commission, to ensure the end of such mismanagement of public money;

21. Welcomes the new corporate anti-fraud strategy, adopted by the Commission in April 2019, on OLAF’s initiative, with the objective of enhancing the Commission’s knowledge about fraud and its analytical capability to steer anti-fraud action, to ensure cooperation among departments and executive agencies in fighting fraud, and to strengthen the corporate oversight of the fight against fraud; calls on the Commission to prepare a follow-up report on the efficiency of its implementation and first results achieved and to report back to the discharge authority;

22. Stresses that, in view of the MFF and the Recovery and Resilience Facility, the financial resources of the Union should support the increasing priorities and responsibilities of the Union. The protection of the Union’s financial interest is of utmost importance and that the strongest efforts are necessary at all levels in order to prevent, and to fight against fraud, corruption and misuse of Union funds; calls on the Commission to propose the provision of sufficient financial and human resources for the Court, OLAF and the EPPO and to continue providing them together with a strong political support, to execute their activities of audit, investigation and prosecution in the protection of the financial interest of the Union;

23. Notes at the same time that the increasing use of financial mechanisms to deliver Union policies in third countries alongside the Union budget risks undermining the accountability and transparency of Union action and spending; insists that the Commission ensures that the delivery of external aid is subject to the rule of law and respect for human rights in recipient countries; stresses, in particular, the need to guarantee that countries and third parties and/or natural persons that are allocated or linked to Union funds adhere to core democratic values, respect international human rights standards and subscribe to principles of non-violence;

24. Recalls that development and cooperation policy are intended to eradicate poverty and reduce inequality and that funds should reach only their intended beneficiaries;

25. Underlines that the creation of the European Public Prosecutor's Office (EPPO) marks a fundamental development in the protection of the Union's financial interests; reminds the Commission of the key role of the EPPO in protecting the Union recovery plan in the years to come; calls on all Member States to join the EPPO and nominate their Prosecutors on the basis of clear and transparent criteria;

26. Underlines the underfinancing and understaffing of the EPPO during its build-up phase, but welcomes the major increase in the EPPO’s budget and staff in comparison with the initial proposal; reiterates Parliament's opposition to the reduction of staff in OLAF as a result of posts transferred to the EPPO leading to a cumulative reduction of 45 posts by 2023 for OLAF; calls on the Commission to increase capacity by reviewing the staffing situation concerning both the EPPO and OLAF as well as Eurojust; calls on the Commission and the budgetary authorities to ensure that the budgets of OLAF, the EPPO and Eurojust are increased in order for them to be able to fulfil their mission;

27. Notes with concern that in the period between January 2015 and December 2019 there was no decision taken by judicial authorities following OLAF’s recommendation in 199 cases and only in 178 cases was any decision taken ( 1 ) ; calls the Member States to properly follow-up all recommendations by OLAF;

28. Endorses the recommendations from the Court’s’ annual report on the 2019 financial year and the Court’s report on the performance of the Union budget and encourages strongly the Commission and other relevant parties to implement them as soon as possible while emphasising some of the most important and urgent recommendations below;

29. Is particularly concerned by the Court’s repeated findings that the work of some national audit authorities or certifying bodies is considered too error-prone and therefore unreliable, which compromises the reliability of data for the Commission’s Annual Management and Performance Report (AMPR); regrets that the Court cannot include an analysis for the underlying reasons for these persisting weaknesses in its work;

30. Regrets that the Commission could not contribute meaningful insights on the reasons nor on any country-specific differences between Member States’ authorities; regrets that this lack of information on the underlying reasons for these persisting, systemic weaknesses in certain national audit authorities hinders the efficient and effective addressing and solving of these problems; calls on the Commission to conduct a thorough analysis of the underlying reasons and structural problems causing the persisting systemic weaknesses identified by the Court; asks the Commission to also include observations on best practice and based on this analysis to address clear, practical and readily implementable horizontal as well as country-specific recommendations to the national authorities as described in greater detail in the specific chapters of this resolution;

31. Calls on the Commission to pay increased attention and allocate increased staff and budget of the Commission to Member States, whose management and control systems are only partially or not reliable, where there is an increased risk of fraud and corruption related to funds and especially those Member States who did not join the European Public Prosecutor’s Office;

32. Calls for the utilisation of Arachne to be made a pre-condition for the use of Union Funds by Member States;

33. Underlines that the error rate calculated by the Court is a statistical summary providing a convenient single indicator of the legality and regularity of Union spending, however it does not provide a differentiated view of the different nature and graveness of errors flowing into it; acknowledges that the Court’s methodology is based on international audit standards involving testing of a random sample of transaction and that a representative sample cannot be entirely risk-based; welcomes that the Court divides its samples into high-risk and low-risk transactions; appreciates that the Court already includes specific examples of the errors found; invites the Court to include even more detailed information with a view to providing in particular more geographical insight into country-specific problems;

34. Regrets the concentration of the majority of CAP direct payments in the hands of few recipients in some Member States, including where oligarch structures are created, undermining in particular small farmers and the rural communities;

35. Recalls the need for a fairer distribution of CAP funds ensuring that they are distributed in a such a manner that payments per hectare are on a reducing scale relative to the size of the holding/farm;

36. Is worried about the reported cases of land grabbing in some Member States and reiterates its call on the Commission to put in place an effective control system which would ensure that the only beneficiaries entitled to the CAP funds are those who farm the land and that they do not reach any beneficiaries who acquired the land by illegal or fraudulent means; in this regards reiterates its request for a specific complaint mechanism at Union level to support farmers or beneficiaries confronted, for example, with land-grabbing malpractices, misconduct of national authorities, pressure from criminal structures or organised crime, or persons who are subject to forced or slave labour, giving them the opportunity to swiftly lodge a complaint with the Commission, which the Commission should check as a matter of urgency ( 2 )

37. Reiterates its concern that outstanding commitments have continued to grow, reaching a record-level EUR 298,0 billion at the end of 2019 (compared to EUR 281,2 billion in 2018); notes that the level of payment appropriations in the annual budgets has been noticeably lower than the MFF ceiling in recent years, which might lead to higher payment needs in the future; welcomes that the Commission included the estimated future payments in relation to the reinforcements proposed in 2020 as part of the Union coronavirus response in its proposal for the MFF Regulation; requests the Commission to closely monitor the implementation by Member States in the case of under-implementation and low absorption rates; welcomes the Commission's effort to introduce the n+2 rule for all expenditure areas, stressing the need for other perspective instruments to replace the n+3 rule; invites again the Commission to increase the technical support to national, regional or local authorities, including civil society organisations and citizens, in order to get better absorption rates ( 3 )

38. Recalls the increasing gap between commitments and payments and the increase in the size of the Union budget (the Court’s rapid case review, ‘Outstanding commitments - a closer look’) which poses a serious challenge for the discharge authority too; notes that the long-term Union budget increased from EUR 1 083 to 1 800 billion for 2021-2027, including the EU Recovery plan Next GenerationEU; calls on the Commission to monitor the implementation of the national recovery and resilience plans at regular intervals to ensure that the state aid rules are fulfilled and report to the discharge authority; stresses that a failure of this request could lead to a refusal of the Discharge procedure in 2020;

39. Points out that in recent years the level of payment appropriations in the annual budgets has been noticeably below the MFF ceiling, which might lead to higher payment needs in the future and risk putting the budget under pressure;

40. Regrets that the possibility of utilising the amounts of unused commitment appropriations and decommitted appropriations under the MFF to repay the debt incurred to fund the Recovery Plan was missed;

41. Draws attention to the fact that the main financial risks to which the Union budget was exposed to in 2019 were associated with financial operations in the form of loans covered directly by the Union budget (53,7 %), and financial operations covered by an EU guarantee fund (46,3 %); observes that, when including also the possible future payments relating to the EFSI (European Fund for Strategic Investments) guarantee, the amount of the total risk borne by the EU budget reached up to EUR 90,5 billion by the end of 2019; calls on the Commission to present a complete picture of the exposure of the EU budget in the annual ‘Report on guarantees covered by the general budget’, including the risk generated by the EFSI guarantee as well as all future financial operations concerned;

42. Points out that the Union has increasingly made use of financial instruments and budgetary guarantees provided to the EIB Group; recalls that at present, EIB Group operations that are not financed by the Union budget, but which serve the same Union objectives do not fall under the Court’s audit mandate;

43. Notes that the Court wants to move towards the attestation approach; calls on the Court to continue with its own sampling checks in order to monitor individual transactions;

44. Is concerned that the current staffing situation is insufficient to cope with the increasing EU budget; stresses that an increase of the administrative capacities in the Court and the relevant secretariats in the European Parliament is indispensable; stresses if these requirements are not met it can lead to a refusal of the 2020 discharge;

45. Encourages the Court’s to continue analysing the performance of the Union budget; notes that an appropriate assessment of the legality and regularity of Union action to improve accountability is the foundation for sound financial management; highlights that the indicators should evaluate the success of particular activities in a descriptive and objective manner without expressing any policy preferences; stresses the recommendation of the Court that the indicators need to be further elaborated and better balanced between input and output, and result and impact indicators; calls on the Commission to reduce the number of objectives and indicators to a specified set of relevant and appropriate outcome and impact indicators which best measure the results achieved in terms of effectiveness and Union added value of Union spending;

46. Endorses the reservations issued by the directors general of DG BUDG, RTD, AGRI, REGIO,EMPL, MARE, CLIMA, HOME, JUST, NEAR and REFORM in their Annual Activity Reports (AARs); is of the opinion that those reservations demonstrate that the control procedures put in place in the Commission and the Member States can only give the necessary guarantees concerning the legality and regularity of the underlying transactions in the corresponding policy areas if all necessary correction procedures are implemented successfully;

The Court’s statement of assurance

47. Welcomes the fact that the Court finds the Union accounts for 2019 to be reliable, and that the Court concluded that revenue was free from material error in 2019;

48. Is concerned that, for the first time in four years, the Court has issued an adverse opinion on the legality and regularity of the expenditure underlying the accounts;

49. Observes, however, that the Court admits that the overall level of errors has remained relatively stable, at 2,7 % in 2019,compared with 2,6 % in 2018 and stresses the positive elements in Union spending, outlined by the Court, such as the development in natural resources and sustained results in administration;

50. Notes that the reasons given for the adverse opinion are as follows: on Union expenditure it is the conclusion of the Court that the level of errors mainly in reimbursement-based payments is pervasive, and that due to the way the Union budget is composed and evolves over time, high risk expenditure in 2019 represents more than half of the audited spending (53,1 %), in which the material error continues to be present at an estimated rate of 4,9 % (compared to 4,5 % in 2018 and 3,7 % in 2017);

51. Notes that the Court audited transactions worth a total of EUR 126,1 billion (out of EUR 159,1 billion of total Union spending), and that ‘Natural resources’ made up the largest share (47,2 %) of the Court’s overall audit population, followed by ‘Cohesion’ (22,5 %) and ‘Competitiveness’ (13,2 %); reiterates its suggestion to the Court to consider both the share of the total Union expenditure and error related risk when deciding the division of the next audit share of population;

52. Notes that in 2019 the Court provided specific error rates for three MFF headings: ‘Competitiveness’ (4,0 %), ‘Cohesion’ (4,4 %), ‘Natural resources’ (1,9 %), while for ‘Administration’ the Court estimates the level of error to be below the materiality threshold; points out that the Court found the highest estimated level of error in spending under ‘Economic, social and territorial cohesion’ (4,4 %); with spending on ‘Competitiveness for growth and jobs’ reaching the worrying error rate of 4 % (compared to 2 % in 2018);

53. Acknowledges that the financial management of the Union budget has improved over time and that the error levels have decreased to ranges closer to the 2 % materiality threshold in recent years, except in some specific policy areas, such as for example competitiveness, which is mostly under direct management by the Commission, where the estimated error rate has doubled from to 2 % in 2018 to 4 % in 2019;

54. Notes that the Court did not estimate levels of error for areas of expenditure under MFF headings 3 ‘Security and citizenship’ and 4 ‘Global Europe’; points out that the provision of error rates would allow comparability between financial years; in this regards regrets that the sample for chapter 7 and 8 is further reduced compared to last years (from 11 % in 2017 to 9,1 % in 2018 to 8,9 % in 2019 of the expenditures covered by the audit);

55. Calls on the Court to provide data on an error rate for payments for each expenditure area in its next annual report; requests the Court to extend its chapter on ‘Administration’ in order to have a more in-depth analysis on all institutions; invites the Court to implement as soon as possible Parliament’s request for a specific independent annual report on the Union Institutions; welcomes the reflection of the Court on this regard and hope this will be reflected in the Court’s strategy for the 2021-2025 period;

56. Regrets that the Court does not qualify the impact of the corrective measures on the overall level of error, but only on specific headings; points out that specific information on all MFF headings would be highly valuable information for the discharge authority's scrutiny; asks the Court to qualify the impact of the corrective measures on the overall level of error;

57. Draws attention to the fact that the general estimate of the level of error in the Union budget, as presented in the Court’s Statement of Assurance, is neither a measure of fraud nor of inefficiency or waste, but it is an estimate of the money that should not have been paid out because it was not used in accordance with the applicable rules and regulations; notes that in 2019 the Court reported to OLAF 9 instances of suspected fraud found during its audits (also 9 in 2018), from which OLAF has opened 5 investigations and decided not to open an investigation in 4 cases;

58. Points to the fact that, as in previous years, eligibility errors (namely ineligible costs in costs claims and ineligible projects, activities or beneficiaries) in reimbursement-based payments, where expenditure is often subject to complex rules, were again the main contributors to the 2019 estimated level of error for high-risk expenditure at 74 % (compared to 68 % in 2018);

59. Welcomes the Court decision to raise the share of high risk expenditures in its sample, which are materially affected by an ever increasing error rate (4,9 % in 2019, versus 4,5 % in 2018 3,7 % in 2017); regrets that the error rate is not clearly quantified for the entitlement payments;

60. Regrets that the information and reports the Commission receives from Member States’ authorities often lack the data on concrete results or include too optimistic assessments; takes note of the Court’s observation that the Commission’s particular role, as reflected in its methodology, and weaknesses in ex-post checks, which are a critical part of the control system, affects the Commission’s estimates of errors;

61. Is very concerned that the errors detected are indicative of shortcomings regarding the regularity of expenditure declared by the managing authorities;

Budgetary and financial management

62. Notes that in 2019 the commitment appropriations available in the final budget were almost fully used (at a rate of 99,4 %), while the rate of use for payment appropriations was slightly lower (98,5 %);

63. Notes the adoption of three amending budgets in 2019, adding EUR 0,4 billion to commitment appropriations and EUR 0,3 billion to payment appropriations, which refer to the following: (i) Amending Budget (AB) No1/2019 entered the surplus of EUR 1 802 988 329, resulting from the implementation of the budget year 2018, as revenue in the 2019 budget; this amount has reduced the annual GNI contributions for Member States; (ii) Amending Budget (AB) No 2/2019 provided an additional EUR 100 million of commitment appropriations to Horizon2020 and Erasmus+ as decided by the European Parliament and the Council in their agreement on the budget 2019; (iii) Amending Budget (AB) No 3/2019 entered the necessary commitment and payment appropriations for the mobilisation of the European Union Solidarity Fund (EUSF) amounting to EUR 293 551 794 which aimed to provide assistance to Romania, Italy and Austria following natural disasters that took place in these Member States in the course of 2018;

64. Acknowledges that, given the multi-annual nature of its expenditure and of its control strategies, the Commission may apply corrections until the closure of the funding programme; notes furthermore that while errors may be detected in a given year, they are corrected in the current or in subsequent years after the payment was made – up until the moment of closure; calls therefore on the Commission and Member States to continue exercising their corrective capacity, and the Commission to use the supervisory tools at its disposal, in line with its obligations under the different sectoral legal bases, in order to bring the real risk at closure ultimately well below 2 % and closer to 0 %;

65. Notes that in 2019 the corrective measures confirmed by the Commission amounted to EUR 1,5 billion (25 % higher than in 2018), relating mainly to errors affecting payments made in previous years.

66. Is deeply concerned at the fact that outstanding commitments have continued to grow, reaching EUR 298,0 billion at the end of 2019 (compared to EUR 281,2 billion in 2018); notes that the Court has identified the reasons for the continuing rise, such as the overall increase in the size of the Union budget over time; notes that the level of payment appropriations in the annual budgets has been noticeably lower than the MFF ceiling in recent years, which might lead to higher demands for payments in 2022 and 2023 and pose a serious risk to the liquidity of the Union budget; notes the commitment of the Commission to conduct a thorough analysis of the payment appropriations needed until the end of the year during the global transfer exercise in order to make a proposal to the budgetary authority if reinforcements are needed; calls on the Commission to reduce current and prevent further outstanding commitments, to further improve its financial forecasts and, where necessary, to assist countries to find eligible projects, especially those with clear European added-value, in order to accelerate the absorption rate;

67. Notes with concern that according to the Court, the overall absorption rate of ESIF (European Structural Investment Funds) was lower than in the corresponding year of the previous MFF, as by the end of 2019, out of the total ESIF allocations for the current MFF (EUR 465 billion), only 40 % had been paid out to Member States (compared with 46 % by the end of 2012); notes the Commission’s explanation that the slower absorption rate is partly related to the late adoption of the Common Provisions Regulation (CPR), the time needed for authorities to set up an effective delivery programme and compliance systems, and the changes introduced in the regulations in the 2014-2020 programming period, such as the high level of annual prefinancing and the new rule for automatic decommitments (n+3); notes that overall the speed of absorption in 2019 stayed almost exactly the same as in 2018; is concerned by the low level of absorption rates;

68. Recalls that the absorption rate expresses the extent to which Union funds allocated to Member States have been spent on eligible projects, which is one of the preconditions and indications of effective future absorption; stresses, in this regards, that since the end of 2018 the project selection rate remains ahead of the same reference period in 2007-2013; emphasises, furthermore, that by end June 2020, nearly all (99,2 %) the EUR 350 billion in total cost were allocated to nearly 515 000 projects;

69. Regrets that greater technical assistance is not being put in place to increase the absorption rate in many States and also make it possible to reduce the backlog of outstanding commitments (RAL);

70. Notes that by the start of 2019, after the current MFF had been in place for five years, approximately 17 % only of the total ESI funding committed through Financial Instruments under Shared Management (FISMs) had reached its final recipient; notes, however, that by mid-September 2020 the 42 % of amounts allocated to financial instruments were made available for investments and, furthermore, that 59 % of the available capital for FISMs had reached final recipients; recalls here the repeated scepticism expressed by Parliament over the strong support from the Commission for the financial instruments;

71. Regrets that the annual report for 2019 on the FISMs was published after the deadline defined in the relevant Regulation ( 4 ) ; shares the view of the Court that the relevance of the Commission’s reporting on FISMs is reduced because its annual report on FISMs is published too late;

72. Is concerned that, as in previous years, substantial amounts of unused annual ESIF pre-financing, due mainly to delays in implementation, was returned to the Union budget (EUR 7,7 billion in 2019), as assigned revenue; points out that EUR 5,0 billion of that amount was used to make payments on claims from Member States over and above the approved budget for the year under the relevant ESIF budget lines, which has prevented them from being cancelled;

73. Acknowledges that shared management is instrumental for the implementation of the ESIF which in turn relies upon an efficient administrative collaboration between the Commission and the Member States; underlines the Court’s observation that the risk of error is high for expenditure subject to complex rules; welcomes the substantial improvements in this regard over the last ten years due inter alia to the Commission’s efforts and the recommendations of both the Court and Parliament; encourages the Commission to move towards simplification and performance orientation;

74. Stresses the fact that the main financial risks to which the Union budget was exposed in 2019 were associated with financial operations in form of loans covered directly by the Union budget (53,7 %), and financial operations covered by an Union guarantee fund (46,3 %); observes with regret that the amount of total risk reported by the Commission does not include EFSI related operations, therefore it does not reflect the real financial exposition of the Union budget; highlights, that, when adding the possible future payments relating to the EFSI (European Fund for Strategic Investments) guarantee, the amount of the total risk borne by the Union budget reached EUR 90,5 billion by the end of 2019;

75. Points out that the Union has increasingly made use of financial instruments and budgetary guarantees provided to the EIB Group; recalls that at present, EIB Group operations that are not financed by the Union budget, but which serve the same Union objectives, do not come under the Court’s audit mandate; points out that this means that the Court is unable to provide a complete overview of the links between EIB Group operations and the Union budget; requests that a Memorandum of Understanding be agreed between the EIB and Parliament to improve Parliament's access to EIB documents and data related to strategic orientation and financing policies in order to strengthen the Bank’s accountability;

76. Recalls that Art. 287 (3) TFEU defines the Court’s audit powers in relation to the EIB; recalls that the Court is competent to audit the EIB's activity in managing Union expenditure and revenue; recalls that the Audit Committee is competent to audit the EIB’s share capital according to Art. 12 of Protocol 5 (Statute of the EIB); recalls that Art 308 (3) TFEU allows the Council to amend the Protocol on the Statute of the EIB by simple decision without a full Treaty revision; emphasises the increased importance under the new MFF of Union guarantees and other financial instruments managed by the EIB; calls therefore on the Council to amend Art. 12 of Protocol 5 to give the Court a role in auditing the EIB’s share capital; notes that the current tripartite agreement between the Commission, the EIB and the Court concerning audits of operations which are financed or backed by the Union budget expired in 2020; strongly calls on the Commission, the Court and the EIB to enhance the role of the Court and further strengthen its auditing powers regarding activities of the EIB in the renewal of the tripartite agreement governing the rules of engagement; supports the request made by the Court to audit the EIB’s non-Union budget related operations; and calls on the Court to draw up recommendations on the results of the EIB’s external lending activities;

77. Notes that monetary policy brought about a fall in the long-term interest rate used to value employee benefit obligations (discount rate), which became negative for the first time, leading to a significant increase of EUR 17,2 billion in the year-end liability of the Union budget; expects this trend to continue as the ECB further pursues its course of accommodative monetary policies and asks that proper precaution be taken;

78. Stresses the importance of strictly monitoring the possible risk of corruption and fraud in connection with large-scale infrastructural projects; calls for thorough and independent ex-ante and ex-post assessments of projects to be financed;

79. Urges the Commission to encourage Member States to improve both the quality and number of controls and to share best practices in combating fraud;

Recommendations

80. Calls on Commission to: — closely follow payment needs, prepare possible scenarios with concrete solutions keeping in mind that the Union is not allowed to run on budgetary deficit and take action, within its institutional remit, with a view to ensuring the availability of payment appropriations taking into account the risk of insufficient payment appropriations and the extraordinary needs arising from the COVID-19 pandemic; — continue producing an annual report on the FISMs, including at the level of individual financial instruments, in the next MFF; — present a complete picture of the exposure of the Union budget in the annual ‘Report on guarantees covered by the general budget’, including the risk generated by the EFSI guarantee as well as by all future related financial operations; — re-assess, in the context of the COVID-19 crisis, whether the existing mechanisms to mitigate the exposure of the Union budget to risk are sufficient and appropriate and review the target provisioning rates of the guarantee funds covering the guarantees granted from the Union budget; — present annual reports on how persistent low, ultra-low and negative interest rates could affect the Union budget;

81. Requests the Council together with the European Parliament to: — call on the EIB to enable the Court each year to audit the regularity as well as the performance aspects of financing activity which does not fall under a specific Union mandate. This could be ensured in parallel with the renewal of the tripartite agreement;

Performance of the Union budget

82. Welcomes the Court’s first separate and full report on the performance of the Union budget – Status at the end of 2019 and encourages the Court to continue to produce and develop this report further in the coming years; reiterates its opinion that a stronger focus on performance is needed without reducing current levels of scrutiny on compliance and conformity; emphasises that performance findings should not lead to generalisations but rather country-specific recommendations; notes that appropriate risk analyses and recommendations for action to Union policymakers are an important basis for political decision-making; considers that the indicators should evaluate the success of particular activities in a descriptive and objective manner without expressing any policy preferences; calls on the Court to focus the performance assessments on achieving European added value and an efficient use of Union tax money;

83. Stresses that the aim of performance information is to provide an indication as to whether Union policies and programmes are achieving their objectives efficiently and effectively; suggests that, if improvements are needed, performance information should be used to inform the process of designing necessary corrective measures, and their implementation be continuously monitored; underlines that the performance of Union funds and policies is very difficult to measure and requires different definitions and targeted indicators for the various spending areas and funds; is of the opinion that key performance indicators should measure comprehensively the results of programmes using an analytical method without indicating policy preferences; agrees with the findings of the Court that overall indicators need to be further improved and a better balance found between input and output, and result and impact indicators; asks the Commission to streamline performance reporting by reducing the number of objectives and indicators to a smaller set of relevant and appropriate outcome and impact indicators which best measure the results achieved in terms of efficiency, economy and effectiveness and Union added value of Union spending;

84. Underlines that the Court finds that the Commission has satisfactory procedures for the production of its annual management and performance report and programmes performance overview; agrees with the Court that the Commission should continue to report on programme performance after the end of an MFF period for at least as long as substantial amounts of payments related to a given MFF period are being made;

85. Welcomes the Court's observation that the Commission has started making systemic performance assessments and analysis leading to conclusions on the achieving of the programmes’ objectives; notes with satisfaction that the Court considers this as a significant positive step towards clearer, more transparent and comprehensive annual reporting on programme performance;

86. Strongly encourages the Commission to continue to improve the reliability and accessibility of performance information as a vital tool for assessing the success of programmes; this should include the dissemination of lessons learnt from the Regulatory Scrutiny Board, especially those concerning design and methodology;

87. Is concerned about the Court’s assessment that the monitoring data from Member States, on which the Commission AMPR and the programmes statements are based, is not fully reliable;

88. Strongly supports the recommendation that the Commission should improve explanations concerning the determination of targets and supporting data. Targets should be specific and ambitious, but realistic and at the same time measurable on the basis of reliable data. Emphasises, at the same time, that result and impact indicators are better suited for performance measurement and allow for a broader impact assessment than input and output indicators;

89. Welcomes the fact that the Commission documents the indicator data as well as the indicator baselines, milestones and targets that measure progress on programmes’ general and specific objectives in the Annual Programme Statements; calls on the Commission to ensure that these indicator baselines, milestones and targets that could not have been accomplished without EU-funding and which represent EU added value concentrate on achieving such EU added value;

90. Calls on the Commission to include in its performance reports greater analysis of the effectiveness and economy (cost-effectiveness) of programmes when information becomes available, more systematic analysis of the significant external factors affecting programme performance; clear assessments of all the performance indicators reported on as regards whether they are on track to meet their targets; clear and balanced assessments of performance, covering all programme objectives in appropriate detail; urges the Commission to take these measures for the next discharge 2020 due to all programmes adopted in the context of the COVID-19 crisis;

91. Underlines that according to the Financial Regulation, sound financial management implies effectiveness, efficiency and economy, and that the Commission and the Member States should ensure a focus on all three elements; further notes that the International Audit Guidelines on performance now also include elements such as Equality, Environment and Ethics, and calls on the Commission to broaden its assessments by also looking into these areas;

92. Notes that the Court assessed whether programmes in all main areas of the EU budget were ‘on track’ to meet their objectives:

93. Competitiveness: Welcomes the fact that, for the EU’s Horizon 2020 research programme, there are no indications that performance is at risk, and examples of successful projects are plentiful; welcomes the fact that, according to the Court, the programme provides Union added value through its uniqueness and pan-European character;

94. Cohesion: Regrets that although the Commission and Member States had already revised the initial 2014-2020 targets, just over a third of indicators for the European Regional Development Fund (ERDF) and Cohesion Fund (CF) show timely progress. Before the outbreak of the COVID-19 crisis, most employment and education targets were likely to have been met by 2020, but progress on R&D, poverty and social inclusion lagged behind; regrets that in this policy area, the Commission’s own performance data indicates that the programmes fall short of initial expectations;

95. Natural resources: Regrets that a key weakness is that the performance indicators for the 2014-2020 period are not based on a detailed intervention logic for providing CAP financial support. For example, direct payments to farmers have reduced farmers’ income volatility, but they are not targeted at helping farmers achieve a fair standard of living; regrets that CAP measures are found to have an insufficient impact in addressing climate change;

96. Security and citizenship: Notes that the Commission’s reporting does not indicate whether the Asylum, Migration and Integration Fund is progressing well towards its objective, but the information available points to its relevance and Union added value; notes that for integration and legal migration, indicators show its achievements in a positive light, also because long-term impacts (such as differences between migrants’ and Union nationals’ job prospects) cannot yet be assessed;

97. Global Europe: Notes that the Commission does not provide enough information for a robust performance assessment of two funding instruments, i.e. one for cooperation with developing countries and the other for relations with the Union’s southern and eastern neighbours; welcomes that the indicators nevertheless reveal a positive trend for poverty reduction, education, gender equality and human development, and expresses its concern about the worsening trend for consolidating democracy, rule of law and political stability;

Annual management and performance report

98. Notes that, according to the Commission, the total amount of commitment appropriations implemented in 2019 amounted to EUR 161 billion: with EUR 81 billion allocated to Heading 1, split between Heading 1a ‘Competitiveness for growth and jobs’ (14 % of the total budget) and Heading 1b ‘Economic, social and territorial cohesion’ (35 % of the total budget), EUR 59 billion to Heading 2 ‘Sustainable growth: natural resources’ (37 % of the total budget), EUR 4 billion to Heading 3 ‘Security and citizenship’, EUR 12 billion to Heading 4 ‘Global Europe’, and EUR 6 billion on the Commission’s ‘administrative expenditure’ under Heading 5;

99. Notes that Commission reported in its 2019 AMPR a risk at payment of 2,1 %, which is within the range of the Court’s estimated level of error; notes that for the three most significant spending areas (MFF Heading 1a:competiveness; 1b: economy, social and territorial cohesion and Heading 2: natural resources), the Commission’s own estimates of the level of error are within the Court’s ranges;

100. Notes that in 2019, the expenditure from the Union budget amounted to EUR 147 billion, distributed over more than 240 000 payments; points out that 71 % of the budget was implemented under shared management, and the remainder was either spent directly by the Commission (22 %) or indirectly in cooperation with entrusted entities (7 %);

101. Notes the Commission’s estimate that, in 2019, climate-related expenditure amounted to EUR 35 billion, equal to 21 % of the Union budget, and that cumulatively over the 2014-2020 period the Union budget will have contributed EUR 211 billion, equal to 19,8 % of total spending, to climate objectives, which falls slightly short of the initial target of 20 % due to lower contributions during the first years of the period; calls on the Commission to do its best to boost climate-related expenditure for the 2014-2020 period with a view to a much more ambitious targets for the 2021 –2028 period;

102. Notes that 11 of the Commission’s 50 directors-general issued a qualified declaration in their Annual Activity Reports for 2019, with a total of 18 reservations (compared to 40 reservations by 20 departments in 2018); points out that for 17 reservations, the Commission applied a new ‘de minimis’ rule, and that these reservations were no longer considered meaningful by the Commission;

103. Notes that, according to the Commission, the corrective measures confirmed amounted to EUR 1,5 billion in 2019 (25 % higher than in 2018); points to the fact that some Member States have seen much more substantive correction amounts than others; calls on the Commission to adopt its audit sample to include these countries in their regular checks on a more frequent basis;

104. Observes that, for 2019, the Commission’s estimate for the overall risk at closure was at 0,7 % (compared to 0,8 % in 2018) of the relevant expenditure; notes that due to the higher risk at payment in relation to cohesion spending, the overall risk at payment estimated by the Commission was higher than in previous years, at 2,1 % for 2019 (compared to 1,7 % in 2018), but as the estimated future corrections were also higher (1,4 %, compared to 0,9 % in 2018), the Commission arrived at a stable risk at closure, and with an estimate of risk at closure of less than 2 %, the Commission considered that its multiannual control systems ensured effective protection of the Union budget; points out furthermore that in the Commission’s own estimate, the expenditure with risk at payment above the materiality threshold was very high at EUR 67 billion;

105. Observes that the Commission considered that its multiannual control systems ensured effective protection of the Union budget; notes that the Commission subdivides its portfolio for 2019 into lower-risk and higher-risk strata, using criteria recognised also by the Court and related to the nature of the funding, notably the difference between rather complex reimbursement-based schemes (higher risk expenditure with risk at payment above 2 %) and less error-prone entitlement-based payments (lower risk expenditure with risk at payment below 2 %); points out furthermore that the Commission estimates that the higher risk expenditure stands at EUR 67 billion (46 %), thus affecting a smaller part of the budget than the lower risk expenditure, which stands at EUR 80 billion (54 %); urges the Commission to adopt an ambitious action plan with measures allowing the significantly lowering of these risks;

106. Requests the Commission make sure that the AMPR is fully reliable and not based on projections;

107. Regrets in particular that the Court had to report again concerns about the reliability of the AMPR in the Cohesion areas, because of shortcomings of the audit authorities work and the issues identified regarding the residual error rates reported in the DG EMPL and DG REGIO AARs;

108. Expresses disagreement with the Commission’s evaluation of its methodology in calculating the error rate; despite acknowledging that the risks at payments used in the AMPR by the Commission is the closest to the Court’s estimate of level of error, it is to be noted that important elements mean that the error rate by the Court and the Commission hugely differs; therefore reiterates its request to quickly align its methodology to the one used by the Court and to provide the budgetary control authority with only one error rate corresponding to the risk at payment (error rate at payment); calls on the Commission to disclose separately an estimate of the future corrections (residual error rate); urges the Commission to apply a coherent terminology across all DGs when reporting on these two estimates;

109. Calls on the Commission to take the necessary measures to obtain reliable data from the Member States concerning the error rate at payment; calls on the Commission to make appropriate adjustments in a timely manner if deficiencies are detected in Member States’ controls;

110. Observes with concern that, with regard to the Commission’s own estimate of risk at payment, the Court has highlighted certain issues presented in the text below for specific MFF headings and urges the Commission to respond to these findings with concrete actions: — ‘Competitiveness’: ex-post audits did not mainly cover payments or clearings made in the statement of assurance year under review, and were not always found to be reliable; — ‘Natural resources’: the Member State control reflected in the control statistics did not capture all errors, and adjustments by the Commission were necessary, while the Commission adjustments were generally based on flat rates, and there were limitations in the reliability of the results of the certification bodies’ work; — ‘Cohesion’: the audit authorities’ checks were not always reliable; — ‘Global Europe’: there was an insufficient number of on-the-spot checks in the countries where projects are implemented, insufficient coverage of relevant aspects of procurement procedures, a broad scope for estimating the impact of individual errors, and a lack of substantive own-testing for transactions already checked by others; calls on the Court to improve number of random checks with a risk-based approach so that its reports on error rates pay more attention to areas where problems are most likely to arise;

111. Notes the Court’s conclusion that the Commission's performance reporting is becoming more balanced and that both the AMPR and the programme statements complement their reporting on programme achievements including information on lagging behind areas and persisting challenges for programmes;

112. Encourages the Commission and the Court to accelerate the discharge process to N+1;

113. Calls on the Commission to continue promoting a better gender balance and gender budgeting approach in the allocated funds;

Revenue

114. Notes that total revenue for 2019 amounted to EUR 163,9 billion;

115. Recalls that most revenue (88 %) comes from the three categories of own resources: — Gross national income-based (GNI-based) own resource account for 64 % of Union revenue, balancing the Union budget after revenue from all other sources has been calculated (each Member State contributes proportionally, according to its GNI); — Traditional own resources (TOR) account for 13 % of Union revenue, comprising customs duties on imports collected by the Member States (the Union budget receives 80 % of the total amount, Member States retain the remaining 20 % to cover collection costs); — Value added tax-based (VAT-based) own resource accounts for 11 % of Union revenue (contributions under this own resource are calculated using a uniform rate applied to Member States’ harmonised VAT assessment bases);

116. Welcomes that the Commission’s work on the Union’s financial programming and budget initiated before and throughout 2019 led to the introduction of a legally binding timetable, of new Union-wide streams of revenue, or ‘own resources’ intended to repay common European borrowing; recalls the predominance of the Gross National Incomes (GNI) contributions in the Union budget; stresses that new own resources come at a reduction of the share of national GNI-based contributions in the financing of the Union’s annual budget and do not therefore contribute to an overall increase of the Union budget; urges the Commission to propose a diversification of its revenue sources to ensure the Union becomes truly independent vis-a-vis Member States’ contributions while significantly increasing the budget for Union programmes;

117. Notes that revenue also includes amounts received from other sources (the most significant being contributions and refunds connected with Union agreements and programmes (8 % of Union revenue), such as revenue relating to the clearance of the EAGF and EAFRD, and the participation of non-Union countries in research programmes);

118. Welcome the Court decision to assess Union action taken to reduce the custom gap, which may affect the amounts of duties established by Member States, and mitigate the risk that TOR are not complete, within the examination of internal control systems

119. Is concerned about weaknesses identified by the Court in the Member States’ collection of TOR, in particular in the management of established duties not yet collected by national authorities; notes that in the Member States visited by the Court there are particular delays in notifying customs debts, late enforcement of the recovery of such debts, and insufficient documentation to confirm the correctness of duties booked in the accounts;

120. Takes note of shortcomings in the Member States’ management of duties not yet collected, as reported in 15 of the 27 TOR inspection reports issued in 2019 by the Commission; is of the opinion that the findings in 10 of these 15 reports that were classified as systematic in nature should be made available to the members of Parliament’s appropriate committees;

121. Notes with concern that the Commission’s TOR inspections and the Court’s work highlighted two main weaknesses in Member State’s controls to reduce the custom gap; points to the considerable loss of Union revenue and urges the Commission and the Council to address these issues with great urgency: — lack of Union-wide harmonisation of the performance of customs controls for mitigating the risk of undervalued imports throughout the Customs Union, and — inability of Member States to identify the riskiest economic operators at Union level for post-release audits;

122. Notes, with concern that in its examination of internal control systems both within the Commission and in the Member States, the Court found shortcomings in individual categories of own resources; is concerned that, according to the Commission’s assessment, 24 of the 28 Member States had partially satisfactory or unsatisfactory control strategies for targeting the undervaluation risks, leading the Court to identify important weaknesses in Member States’ controls to reduce the customs gap;

123. Points with great concern to the fact that action to identify and select the riskiest importers for post-release audits is limited across the Customs Union because there is no Union-wide accessible database covering all imports effected by economic operators;

124. Acknowledges, however, that the Commission has made important steps to help identifying the riskiest economic operators at Union level for post-release audits, with the flagging of transactions considered to pose financial risk under the Financial Risk Criteria and the update of the Customs Audit Guide;

125. Welcomes that the Commission works closely with Member States to find solutions to identify importers operating in Member States other than where they are headquartered; calls on it to make further progress once a Union-wide database covering all imports is fully available.

126. Notes that of the total VAT reservations that had kept the VAT base calculation open for a period dating back 10 or more years and total TOR points that had remained open for more than five years from the time of the Commission’s inspection, only 15 % of VAT reservations and 34 % of TOR open points were long-outstanding;

127. Points out that of eight long-outstanding VAT reservations set by the Commission and examined by the Court, five of them were related to infringement procedures against Member States on the grounds of possible non-compliance with the VAT Directive;

128. Notes with satisfaction that the Commission is improving its risk assessment for the planning of the inspections and continues to strive to close long outstanding open points rapidly, depending also on Member States’ cooperation;

129. Notes with concern that 54 long-outstanding TOR open points verified by the Court out of 122 revealed that the Commission’s follow-up and closing of such points took excessive time, showing weaknesses in the follow-up of TOR shortcomings detected in Member States; urges the Commission to establish a follow-up system prioritising TOR open points according to significance (either in terms of financial impact, or of systemic significance in the case of non-financial shortcomings) and report back to the discharge authority;

130. Recalls that within the GNI multiannual verification cycle, the Commission examines whether the procedures Member States use to compile their national accounts comply with ESA 2010, and whether GNI data are comparable, reliable and exhaustive; takes note that the closure of the verification cycle gave rise to new, more specific reservations, such as a reservation allowing the GNI data of all Member States to be revised to incorporate a more accurate estimation of the research and development (R&D) assets of multinational companies, an estimation that is complicated by globalisation and the fact that such assets are easily shifted across borders (the Commission, together with Member States, will continue up until September 2022 to assess whether the R&D assets of multinational companies are properly valued in the Member States’ national accounts);

131. Is deeply concerned by the non-quantifiable reservation maintained for 2019 by DG BUDG, stating that the undervaluation fraud partly moved to other Member States, affecting the collection of TOR to an extent pending final quantification; notes that the Commission has carried out inspections on undervaluation in all Member States and checked how Member States are organised to address issues of undervaluation, particularly concerning textiles and shoes from China; notes that the Member Sates’ financial responsibility for losses of TOR has been explicitly addressed during these inspections and the corresponding reports; notes that the Commission will follow up and hold Member States financially responsible for TOR any potential losses incurred; is concerned that provisional calculations indicate that the TOR losses in 2019 would reach 1 % of the 2019 TOR justifying a reservation in the 2019 AAR; asks the Commission to promptly inform the discharge authority about the findings and consequences of its inspections and quantification calculations once finalised;

132. Notes that, for the fourth year in a row, the directorate-general for Budgets (DG BUDG) issued a reservation on the value of TOR collected by the United Kingdom, due to that country’s failure to make available to the Union budget evaded customs duties on textiles and footwear imports, while the scope of undervaluation fraud had extended further to Member States, which results in further potential TOR losses;

133. Notes that according the 2019 AAR by DG BUDG, UK has as of 12 October 2017 started implementing the measures recommended by the Commission, which led to a dramatic reduction of TOR losses in 2018 (error rate below 1 %);

134. Deplores the fact that the UK still refuses to make available to the EU budget the TOR amounts lost during the period 2011 - 2017 amounting to EUR 2,679 billion (gross); notes that the UK authorities provided the Commission with a formal reply received on 11 February 2019; notes that after analysing the UK’s reply, the Commission referred the case to the CJEU on 7 March 2019; notes that the UK lodged its defence on 24 June 2019, followed by the Commission’s reply on 29 August 2019 and a rejoinder by the UK of 20 December 2019; notes, from the written answers of the Commission for the hearing in CONT on 11 January 2021, that the oral hearing took place on 8 December 2020 and while the date of the final judgment is fully under the discretion of the Court, the Commission does not expect a ruling before summer 2021; notes with satisfaction that the UK's withdrawal from the Union has no adverse effect on the recovery of the claimed amounts as they relate to imports before the end of the transition period;

135. Notes that, according to the Commission, in 2019 there were EUR 3 billion higher Gross National Income (GNI) based revenue following adjustments made for past amounts (mostly for 2012-2017) as GNI bases were updated with real data;

Recommendations

136. Calls on the Commission to: — provide Member States with regular support in selecting the riskiest importers for post-release audits by: a. collecting and analysing relevant import data at Union level, and sharing the results of its analysis with Member States; b. once Surveillance III becomes operational, providing guidance on how to carry out data analysis within this new system; — revise its procedures by: a. establishing a system for monitoring TOR open points based on quantitative and qualitative criteria that rank shortcomings detected in Member States in order of priority; b. setting deadlines for Member States to address such shortcomings, and for follow-up actions, including the calculation of late-payment interest and the recovery of amounts to be made available to the Union budget; c. simplifying the procedure, including the documentation required for access to funding, without neglecting the principles of audit and monitoring;

Competitiveness for growth and jobs

137. Notes that payments for sub-heading 1a ‘Competitiveness for growth and jobs’ amounted to EUR 21,7 billion and were disbursed through the following programmes and policies: — ‘Research’, up to 55,2 % of the sub-heading budget or EUR 11,9 billion; — ‘Education, Training, Youth and Sport’, up to 13,2 % of the sub-heading budget or EUR 2,8 billion; — ‘Transport and energy’, up to 11,3 % of the sub-heading budget or EUR 2,5 billion; — ‘Space’, up to 7,6 % of the sub-heading budget or EUR 1,7 billion; — ‘Other actions and programmes’, up to 12,7 % of the sub-heading budget or EUR 2,8 billion;

138. Notes that the principal Commission programmes are Horizon 2020 (H2020) and the Seventh Framework Programme for Research and Technological Development (FP7) ( 5 ) for research and innovation, Erasmus+ for education, training, youth and sport, Galileo, EGNOS, ITER and CEF as large infrastructure projects, EFSI as guarantee fund;

139. Takes into account that most spending on these programmes is directly managed by the Commission, including through Executive Agencies, and takes the form of grants to public or private beneficiaries participating in projects; takes note that Erasmus+ expenditure is mostly managed by national agencies on behalf of the Commission (amounting to around 80 % of grants);

140. Points out that the performance of research and innovation policy is difficult to assess as there is a considerable time-lag between funding of projects and results and impacts which have yet to materialise; notes furthermore that reporting in this field is mainly focused on positive achievements instead of critical assessment of results and impact, which may not provide for a realistic picture of the performance as a whole; notes that research as a discipline involves risks as regard the results and a successful outcome cannot always be guaranteed;

141. Is concerned that a high percentage (in some Member States up to 25 %) of funds from the operational programmes destined for the support of SMEs in entrepreneurship and innovations are being paid to large companies instead. Asks the Commission to develop stronger control mechanisms regarding the declarations of applicants for EU funding, as the Supreme Audit Office found that in the period 2014 – 2020, the authorities relied solely on statutory self-declarations about ownership, size and indebtedness of the companies;

142. Notes that in 2019, EUR 4 973 million in commitment appropriations and EUR 2 725 million in payment appropriations was available for mobility and transport policies of which EUR 4 422 million in commitment appropriations and EUR 2 058 million in payment appropriations authorised for European Transport Policy (06 02) and Horizon 2020 - Research and innovation related to transport (06 03) were managed by the Innovation and Networks Executive Agency (INEA);

143. Reiterates its support for the addition of a pillar of military mobility to TEN-T policy increasing our capacities to react to emergency situations with the adoption of the Action Plan in March 2018; regrets that the proposal by the Commission and Parliament to include a new envelope dedicated to military mobility needs of EUR 6,5 billion under the CEF budget for 2021-2027 has been drastically reduced;

144. Welcomes the launch of the 2019 CEF Transport Multi-Annual Work Programme call with a budget of EUR 1,4 billion and a focus on the completion of the nine core network corridors by 2030;

145. Welcomes the launch in 2019 of the ‘Greening the blue’ project that aims at reducing emissions and producing more efficient propulsion systems with a foldable windsail solution; notes that it was funded by the European Maritime and Fisheries Fund;

146. Recalls that, in 2019, the total available budget in commitment appropriations for the Union programmes and actions under the policy portfolio of the directorate-general for Education, Youth, Sport and Culture (DG EAC) amounted to approximatively EUR 5,66 billion (a 20 % increase compared to 2018) and considers that the results of the assessment of DG EAC’s financial management for 2019 are satisfactory overall; notes that DG EAC’s overall risk at payment for 2019 represents EUR 24,88 million out of EUR 2 147,18 million total expenditure;

147. Acknowledges that the implementation of the Erasmus+ programme in 2019 was largely successful and that most result indicators, such as the number of mobility placements, surpassed the respective targets of the Commission for that year; notes that, due to its delayed launch, low take-up among financial institutions and a lack of awareness among students, only one single Student loan guarantee facility transaction could be completed in 2019 and welcomes the decision not to include the facility in the successor Erasmus+ programme for the period beyond 31 December 2020; welcomes the 20 % increase in pupil mobility and urges that physical mobility remain the main element of the Erasmus+ programme instead of virtual mobility; stresses the importance of continuing to support vocational education and training and work-based learning as a means to enhance social inclusion;

148. Is worried about reported instances of potential beneficiaries of Union funding under the Erasmus+ programme being obliged to follow national rules that are not in line with Union principles; stresses that the Commission should monitor the situation closely and take appropriate action if necessary;

149. Points out that in 2019, numerous young people signed up to the European Solidarity Corps and were deployed, showing their great interest in getting involved in solidarity work across Europe; is concerned about the discrepancy between the number of applications (191 000) and the number of actual placements (34 500); regrets that the take-up of traineeships and jobs under the European Solidarity Corps programme has been very low, with only 72 deployments between 2018 and 2020, representing less than 1 % of total deployments; stresses the need to introduce a more balanced rate of deployments, in order to ensure that the European Solidarity Corps can truly offer a wealth of opportunities for young people;

150. Calls on the Commission and the Education, Audiovisual and Culture Executive Agency to reduce bureaucratic burden by simplifying and adapting application processes to the target audiences in order to improve the accessibility of the programmes under their management; stresses that better synergies and cooperation with DG EAC are needed to achieve a streamlined application, evaluation and management processes, which would improve the quality and variety of applications;

Court findings

151. Finds it worrying that of the 130 transactions examined, 51 (39 %) contained errors;

152. Is deeply concerned that based on the 28 errors the Court has quantified, it estimated the level of error for 2019 at 4,0 %, a considerable increase compared to 2018 when the estimated level of error was 2 %; recalls that this figure is close to the rates the Court found in 2015, 2016 and 2017;

153. Underlines that FP7 and H2020 spending remains higher-risk and the main source of errors, meanwhile the Court found quantifiable errors relating to ineligible costs in 24 of the 80 research and innovation transactions in the sample (3 out of 10 under FP7 and 21 out of 70 under H2020, representing 78 % of the Court’s estimated level of error for this sub-heading in 2019);

154. Points with great concern to the fact that 60 % of errors was made up by ‘ineligible direct personnel costs’; underlines that despite efforts at simplification of the rules for declaring personnel costs under H2020, their calculation remains a major source of error in the cost claims; supports the opinion of the Court that the methodology for calculating personnel costs has become more complex in some aspects under H2020 and this has increased the risk of error (of the 24 transactions affected by quantifiable errors 23 involved incorrect application of the methodology for calculating personnel costs);

155. Regrets that complex application rules and lengthy procedures are major hurdles in particular for SMEs, start-ups and first-time applicant that lack significant resources and experience with these application procedures;

156. Notes with concern that ‘unlawful / discriminatory selection / award criteria’ accounted for 16 % of errors, and that ‘ineligible other direct costs (VAT, travel, equipment)’ accounted for 15 % of errors;

157. Takes into account that in the case of other programmes and activities the Court detected quantifiable errors in 4 of the 50 transactions in the sample (the errors concerned projects under the Erasmus+ and CEF programmes);

158. Notes with concern that the Court found weaknesses in the Commission’s documentation of the audit work done, sampling consistency and reporting, as well as in the quality of the audit procedures in some of the files reviewed; points out that the Court found, inter alia, ineligible amounts that the auditors had not detected because of insufficient testing in their audit (mainly in respect of personnel costs), erroneous interpretation of the double-ceiling rule, and errors in the underlying calculation of personnel costs that had not been detected; in that connection supports the recommendations from the Court to improve the situation;

159. Draws attention to the fact that 22 of the research projects the Court audited had been conducted in currencies other than the euro, meanwhile the exchange rate applied in ten of these projects was not the one stipulated in the rules (the financial effect of such errors is not in itself material, but their frequency demonstrates a lack of awareness of the rules); calls on the Commission to work together with Member States to pay a greater attention to this issue;

160. Stresses that if the Commission made proper use of all the information at its disposal, the estimated level of error for this sub-heading would have been 1,1 percentage points lower;

161. Notes with concerns that SMEs are more error-prone than other beneficiaries since more than half the quantifiable errors found (17 out of 28) involved funding for private beneficiaries, even though the transactions in question accounted for just 42 (32 %) of the 130 transactions in the sample (SMEs made up 12 % of the sample but accounted for 21 % of the quantifiable errors); underlines that this reflects their lack of resources and familiarity with the complex eligibility rules;

162. Notes that research expenditure reimbursements based on claims submitted for costs incurred by the beneficiaries; notes that these claims are often subject to complex rules and can lead to errors as may be observed in the cases referred to by the Court;

163. Considers therefore that reducing the error rate depends on a continuous simplification effort; welcomes the Court’s acknowledgement of the Commission’s efforts to simplify the administrative and financial requirements of Horizon 2020;

164. Acknowledges, to this end, that in the last stages of its implementation of Horizon 2020, the Commission is making wider use of simplified cost options such as lump sum funding strengthening its communication with beneficiaries and constantly improving its control mechanisms; welcomes the fact that the Horizon Europe Programme will take these a step further, building on the experience acquired in Horizon 2020;

165. Notes the Commission’s introduction of a sound system of ex-ante controls, which includes detailed automated checklists, written guidance and continuous training with the objective of reducing administrative burden allowing beneficiaries to focus on achieving their goals;

166. Regrets the lake of concrete data on up take of projects awarded Seals of Excellence by ERDF programmes; notes that the Commission has only partial information based on voluntary reporting from managing authorities and such schemes remains at the discretion of each county; calls on the Commission to work with the Member States under the new MFF, to improve programmes monitoring systems and to better capture this kind of information;

167. Takes note of Commission’s assessment that the Connecting Europe Facility (CEF) presents a low risk of error; requests however that the Commission, together with the Court and OLAF, closely monitor the Union's transport projects in order to prevent fraud, as public investment in infrastructure is particularly vulnerable in this regard; considers this essential also to ensure the highest safety standards for users;

168. Recalls that in its Special Report No 5/2017 (‘Youth unemployment – have EU policies made a difference?’), the Court found that, while some progress had been made in implementing the Youth Guarantee, and while some results had been achieved, the situation fell short of the initial expectations raised at the launch of the Youth Guarantee;

169. Recalls that in its Special Report No 22/2018 (‘Mobility under Erasmus+’), the Court found that the VET-strand in the Erasmus+ programme could be further improved as the inclusion of VET brings the programme closer to a greater variety of citizens;

170. Takes note of the Special Report No 14/2016 (‘EU policy initiatives and financial support for Roma integration’) according to which significant progress has been made in the last decade when it comes to Roma integration, however, obstacles still remain on the ground; regrets in this context that ‘best practices’ criteria contributing to successful Roma inclusion were not always applied and monitoring performance was difficult; recalls that the lack of robust and comprehensive data on Roma is a problem for evidence-based policy-making at Union and national level; deplores the fact that this situation might remain unchanged unless swift action is taken;

Recommendations

171. Calls on the Commission to: — to further simplify rules and procedures, provide practical and pragmatic guidance, including information and training sessions, particularly for new applicants and improve its assistance for SMEs, start-ups and other first-time applicants to level the playing field among applicants with varying level of experience and resources; — enhance its information campaign regarding H2020 funding rules on the calculation and on the declaration of personnel costs, paying specific attention to the main types of error followed by carrying out targeted checks on their compliance with the rules; — remind all H2020 beneficiaries of the rules for the calculation and declaration of personnel costs, paying specific attention to the main types of error; — further simplify the rules on personnel costs under the next Research Framework Programme (Horizon Europe); — address for H2020 the observations that arose following the Court’s review of the ex post audits with regard to documentation, sampling consistency and the quality of audit procedures; as well as for the third round of contracted out audits, take appropriate measures to ensure that the auditors are fully aware of the H2020 rules, and verify the quality of their work; — address the acute problem of geographical un-balance (concentration) of the majority of H2020 funds awarded to beneficiaries in few most-developed Member States by tackling the source of the problem in less developed countries, i.e. by supporting the research, industry - universities cooperation, universities' cooperation with governments in public policy-making, the establishment of new university programmes, academia excellence, etc.;

Performance: Horizon 2020

172. Points out that in the context of specific objective 5 ‘Europe's industrial leadership through research, technological development, demonstration and innovation in a number of enabling and industrial technologies’ the programme statement shows that the programme is not on track to achieve its target with regard to patent applications, meanwhile the programme statement also gives information on patents awarded, which is a better measure for performance, but no targets or milestones are given;

173. Underlines that in context of the indicator for specific objective 5 ‘share of participating firms introducing innovations new to the company or the market’ the programme statement mentions neither milestones nor a target for this indicator; therefore, it cannot be used to assess whether the programme is on track; calls on the Commission to update the programme statement so that it will include specific and measurable targets to allow for an assessment of efficiency and effectiveness;

174. Points out that in the context of specific objective 8 ‘improving the lifelong health and wellbeing of all’ the value for the target is mentioned under the heading for the year 2020, but it should actually be understood to be attained ‘[…] when the last actions financed under Horizon 2020 will be finished’, meanwhile the programme statement mentions that ‘[t]argets are for whole Societal challenges pillar (Specific objectives: 8-14) and not per each individual specific objective’, thereby rendering the comparison between actual value and target value meaningless;

175. Takes note of the Court Conclusions on the Performance of Horizon 2020, in particular: — The information available is too limited to be able to fully assess the performance of Horizon 2020 at the end of 2019; nevertheless there is no indication that performance is at risk and examples of successful projects are plentiful; — In contrast to effectiveness, information on the programme’s relevance, coherence and EU added value is available to a considerable degree. There is a strong case that Horizon 2020 is relevant, as it is addressing the needs it is supposed to address; — The AMPR addresses the performance of Heading 1a only in a very general manner;

176. Regrets the difference in investment in research and innovation across Member States and regrets that this means that researchers benefit to differing extents from the Horizon 2020 across Member States; recalls that this reflects the differences in national expenditure on research and development; encourages Member States to improve the governance of their national research and innovation systems, to incentivise and support the participation in international collaboration of their national research organisations; calls on the Commission to contribute to spreading excellence by encouraging collaboration between national research organisations and top European research organisations, provide technical support and create additional programmes that aim at fostering excellence;

177. Calls on the Commission to: — better communicate with applicants and beneficiaries (establish better procedures and controls with regard to the performance of the helpdesk functions, and in particular of RES, and raise awareness of the tools through which beneficiaries can report inconsistent treatment during the application process or during the implementation of their projects; resolve the remaining technical issues affecting the Participant Portal, improve its design, navigation and search function); — intensify testing of lump sums (to analyse and report on the outcome of the calls already launched under Horizon 2020 as soon as the first results are available; launch new pilot initiatives on a larger scale to identify the most suitable types of project, assess possible drawbacks and design appropriate remedies); — explore greater use of two-stage proposal evaluations (to identify a greater number of topics where the use of two-stage proposal evaluations could reduce the administrative burden for unsuccessful applicants, while ensuring the shortest possible time to award a grant if speed in reaching the market is critical); — evaluate whether the projects designed by the Commission and (co-) financed from the EU budget in relation to the 2010-2020 European Disability Strategy have fulfilled the requirements set out in the corresponding UN convention (the UNCRPD) regarding persons with disabilities with particular focus on the projects of the Horizon 2020 Program; — ensure that during the design and implementation stages of projects, the additionally incurred costs of persons with disabilities are fully covered by the grants, and to guarantee that the adequate monitoring arrangements are in place and that their fulfilment is safeguarded; — re-examine remuneration conditions for expert evaluators (to update the daily remuneration rate and reassess the time needed for experts to carry out reliable evaluations of project proposals); — stabilise rules and guidance for participants (to maintain continuity in the rules for participation between Framework Programmes wherever possible; minimise adjustments to the guidance during implementation of the Framework Programme; simplify time-sheets to avoid unnecessary reporting of effort by work package; explore the possibility of more widely accepting the usual cost accounting practices, notably for personnel costs); — improve the quality of outsourced ex-post audits (improve its mechanisms for examining the quality of outsourced ex post audits, and speed up such audits); — further simplify tools, administration and guidance for SMEs (in such a way that they impose a minimal burden on SMEs, and especially on start-ups without the resources and staff to deal with their complexity);

Performance: the European Fund for Strategic Investments (EFSI)

178. Recalls that the general objective of EFSI is ‘Supporting growth-enhancing investments in line with Union priorities’; while the specific objective is ‘Increasing the volume of EIB Group financing and investment operations in priority areas’;

179. Observes that, according to the Court, EFSI is on track to reach its targets, and in particular, the main target to mobilise EUR 500 billion of investment;

180. Is concerned that the performance information available provides details on mobilised investments of approved operations, number of approved projects, multiplier effects and Member States coverage, but none of the five indicators follow-up the risk level or penetration of the key areas outlined in the general objective;

181. Points out that the indicators do not measure the progress of the specific objective as such, which is to increase EIB volumes, in particular with regard to riskier operations;

182. Recalls that EFSI had been effective in raising finance to support substantial additional investments but had overstated in some cases the extent to which EFSI had actually led to additional investment in the real economy (the evaluation of EFSI and Court’s Special Report ( 6 ) have also highlighted that the entire volume of financing cannot be attributed only to EFSI);

183. Regrets that the Commission has not properly assessed the risk of a ‘Dead weight’ of financing in cases where the needed investment could have been financed from other sources without involvement of EFSI funds;

184. Notes that the reported estimate of investment mobilised does not take account of the fact that some EFSI operations replaced other EIB operations and Union financial instruments or the fact that a part of the EFSI support went to projects that could have been financed from other sources, albeit on different terms;

185. Stresses that according to the EIB EFSI report 2019, the bulk