EN Official Journal of the European Union C 6/36

REPORT

on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2011, together with the replies of the Joint Undertaking

2013/C 6/05

INTRODUCTION

1. The European Joint Undertaking for ITER (1) and the Development of Fusion Energy was set up in March 2007 (2) for a period of 35 years. While the main fusion facilities are to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona.

2. The tasks of the Joint Undertaking are (3): (a) to provide the contribution of Euratom to the ITER International Fusion Energy Organisation (4); (b) to provide the contribution of Euratom to the ‧Broader Approach Activities‧ (complementary joint fusion research) with Japan for the rapid development of fusion energy; and (c) to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities including the International Fusion Materials Irradiation Facility.

3. The members of the Joint Undertaking are Euratom, represented by the European Commission, the Member States of Euratom and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion and have expressed their wish to become Members (at 31 December 2011: Switzerland).

INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE

4. The audit approach taken by the Court comprises analytical audit procedures, testing of transactions at the level of the Joint Undertaking and an assessment of key controls of the supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations.

STATEMENT OF ASSURANCE

5. Pursuant to the provisions of Article 287(1) of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (5) of the European Joint Undertaking for ITER and the Development of Fusion Energy, which comprise the ‘financial statements’ (6) and the ‘reports on the implementation of the budget’ (7) for the financial year ended 31 December 2011, and the legality and regularity of the transactions underlying those accounts.

6. This Statement of Assurance is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (8).

The Management's responsibility

7. As authorising officer, the Director implements the revenue and expenditure of the budget in accordance with the Joint Undertaking’s Financial Regulation, under his own responsibility and within the limits of the authorised appropriations (9). The Director is responsible for putting in place (10) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (11) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular.

The Auditor's responsibility

8. The Court’s responsibility is to provide, on the basis of its audit, a statement of assurance as to the reliability of the Joint Undertaking’s annual accounts and the legality and regularity of the transactions underlying them.

9. The Court conducted its audit in accordance with the IFAC and ISSAI (12) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical and professional requirements and to plan and perform the audit so as to obtain reasonable assurance as to whether the accounts are free from material misstatement and whether the underlying transactions are legal and regular.

10. The Court’s audit involves performing procedures to obtain audit evidence of the amounts and disclosures in the accounts and of the legality and regularity of the transactions underlying them. The procedures selected, including its assessment of the risks of material misstatement of the accounts or of illegal or irregular transactions, whether due to fraud or error, depend on its audit judgement. In making those risk assessments, internal controls relevant to the entity’s preparation and presentation of accounts are considered in order to design audit procedures that are appropriate in the circumstances. The Court’s audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the accounts.

11. The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below.

Opinion on the reliability of the accounts

12. In the Court’s opinion, the annual accounts of the Joint Undertaking fairly present, in all material respects, its financial position as of 31 December 2011 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation.

Opinion on the legality and the regularity of the transactions underlying the accounts

13. In the Court’s opinion, the transactions underlying the annual accounts of the Joint Undertaking for ITER and the Development of Fusion Energy for the financial year ended 31 December 2011 are, in all material respects, legal and regular.

14. The comments which follow in paragraphs 15 to 32 do not call the Court’s opinions into question.

COMMENTS ON THE BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the budget

15. The utilisation rates for the available commitment and payment appropriations were 99,7 % and 85,7 % respectively. Out of the 611 million euro of commitment appropriations available for operational activities, 42 % were implemented through direct individual commitments while the remaining 58 % was implemented through global commitments.

COMMENTS ON KEY CONTROLS OF THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS

16. The Court of Auditors has previously reported that the Joint Undertaking’s internal control systems had not been fully established and implemented as required by its Financial Regulation (13). On 31 May 2010 the Joint Undertaking’s Internal Auditor issued a report which raised concerns about the financial circuits and the separation of duties.

17. In response to this, the Governing Board adopted a management improvement plan in June 2010 together with a proposal to change the organisational structure and reinforce the financial circuits. Although significant progress has been made (14), a number of actions need to be implemented: — an integrated tool to manage budget, financial and operational information is not yet in place; — a management system to monitor project and budget implementation is expected to be operational by the third quarter of 2012; — the validation of the underlying systems by the accounting officer is not completely finished and should continue in 2012 (15); — a comprehensive ex post audit strategy for grants and operational contracts has not been adopted (see paragraphs 22 and 23); — the action plans adopted by the Joint Undertaking in response to the internal audits on the financial circuits, grant management and experts contracts have not been fully implemented (16); — a risk management exercise at corporate level has not been carried out.

Procurement and grants

18. As pointed out in its 2010 report (17), the Joint Undertaking needs to enhance its efforts to increase competition. The number of offers received for the operational procurement procedures signed in 2011 was still low (18) and amounted to two on average; for grants the average number of proposals received was only one per call.

19. In one case the decision to cancel an open procedure and to use a negociated procedure was not duly justified. In another case, the Joint Undertaking decided to negotiate with two companies which submitted offers under the open procedure (although one of them was not technically compliant). In another case both the choice of the negotiated procedure and the quantities and price contracted were not duly justified.

20. The Court’s audit has confirmed the findings of an internal audit carried out in 2011 in the area of procurement, notably: — the pre-information notice is not used as an instrument for increasing ex ante publicity of forthcoming tenders (19); — there is no system to track and manage changes in the contract requirements and thus identify and remedy cost deviations; — the duration of the procurement process is often excessive and there are inefficiencies in preparing tender documents; — cost estimates are not well documented.

21. The audit also revealed that the ex ante control procedures applied to payments made under contracts and grant agreements are not sufficiently documented (20).

Quality assurance audits and ex post controls on procurement and grants

22. The Joint Undergtaking has a system to perform audits (21) at the level of contractors with the aim of checking compliance with the quality assurance requirements (22). However, the scope of these audits does not cover the financial aspects of the implementation of the contracts.

23. During 2011 the Joint Undertaking started ex post controls to asses the legality and regularity of the implementation of grants awarded. Despite the progress made (23), the Joint Undertaking lacks an overall ex post control strategy. Such a strategy should cover the implementation of grant contracts and procurement contracts.

OTHER MATTERS

Intellectual property rights and Industrial Policy

24. On 28 March 2012 the Governing Board adopted the Joint Undertaking’s policy on intellectual property rights and dissemination of information. However, detailed rules for its implementation had not been drawn-up at the time of the audit (April 2012) as required under the Statutes (24).

25. The Governing Board has not yet adopted the industrial policy required under the Statutes (25).

Late payment of membership contributions

26. Payments of the 2011 contributions by 12 members were subject to delays.

Commission Internal Audit Service

27. The mission charter of the Commission’s Internal Audit Service was adopted by the Governing Board on 25 November 2011 together with a coordinated strategic audit plan for 2012-2014. The Joint Undertaking's Financial Regulation has been amended accordingly to introduce the provisions of the Framework Regulation (26) referring to the powers of the Commission’s internal auditor.

Financial Regulation and Implementing Rules

28. On 9 October 2008 the Court issued Opinion No 4/2008 on Fusion for Energy's Financial Regulation. This opinion contained 50 recommendations. At its meeting of 1 June 2011 the Joint Undertaking’s Governing Board decided to broadly accept the Court of Auditors’ observations (37 recommendations were fully accepted, 11 accepted with comments and only two rejected), amending its Financial Regulation accordingly (27).

29. However, the Court considers that certain provisions in the Joint Undertaking's implementing rules (28) depart from the implementing rules of the EU General Financial Regulation without sufficient justification.

EU contribution to ITER construction phase

30. In July 2010 (29). the Council agreed the revised budget estimate of the Joint Undertaking's contribution for the construction phase amounting to 6,6 billion euro (2008 value), thus doubling the initial estimate. As reported by the internal auditor (30), the Joint Undertaking does not yet have a tool to regularly monitor the validity of the estimates and report on potential deviations.

Follow up of previous observations

Status of the financing of the ITER project for 2012-13

31. On 1 December 2011 an agreement was reached by the Council, the European Parliament and the Commission on the financing of the 1 300 million euro of additional costs for the ITER project for 2012-2013 (31).

Host State agreement

32. According to the Host State Agreement signed with the Kingdom of Spain on 28 June 2007, the permanent premises should have been made available to the Joint Undertaking by June 2010. However, at the time of the audit (April 2012) this had not occurred.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 15 November 2012. For the Court of Auditors Vítor Manuel da SILVA CALDEIRA President

(1) ITER: International Thermonuclear Experimental Reactor.

(2) Council Decision 2007/198/Euratom of 27 March 2007 establishing the European Joint Undertaking for ITER and the Development of Fusion Energy and conferring advantages upon it (OJ L 90, 30.3.2007, p. 58).

(3) The Annex summarises the Joint Undertaking’s competences, activities and available resources. It is presented for information purposes.

(4) The ITER International Fusion Energy Organisation was set up in October 2007 for an initial period of 35 years to implement the ITER project, which aims to demonstrate the scientific and technological feasibility of fusion energy. The Members are Euratom, the People's Republic of China, the Republic of India, Japan, the Republic of Korea, the Russian Federation and the United States of America.

(5) The Court received the provisional annual accounts on 1 March 2012. These accounts are accompanied by a report on the budgetary and financial management during the year which gives inter alia an account of the rate of implementation of the appropriations.

(6) The financial statements include the balance sheet and the economic outturn account, the cash flow table, the statement of changes in net assets and the annex to the financial statements, which includes a description of the main accounting policies and other explanatory information.

(7) The budget implementation reports comprise the budget outturn account and its annex.

(8) OJ L 248, 16.9.2002, p. 1.

(9) Article 33 of Commission Regulation (EC, Euratom) No 2343/2002 (OJ L 357, 31.12.2002, p. 72).

(10) Article 38 of Regulation (EC, Euratom) No 2343/2002.

(11) The rules concerning the presentation of the accounts and accounting by EU bodies are laid down in Chapters 1 and 2 of Title VII of Regulation (EC, Euratom) No 2343/2002, as last amended by Regulation (EC, Euratom) No 652/2008 (OJ L 181, 10.7.2008, p. 23), and are integrated as such in the Financial Regulation of the European Joint Undertaking for ITER and the Development of Fusion Energy.

(12) International Federation of Accountants (IFAC) and International Standards of Supreme Audit Institutions (ISSAI).

(13) Paragraph 21 of the 2009 report made reference to the reorganisation of the departmental structure of the Joint Undertaking, which in the Court’s view raised issues concerning the separation of duties between financial and operational activities.

(14) During 2011 the selection and appointment of the Head of the ITER Department, the Head of Administration and the Head of the Budget and Finance Unit were concluded. The appointment of the Heads of projects teams and the implementation of the ABAC Contracts tool were almost complete by April 2012, and the financial circuits together with the administrative and financial manual, had been completed.

(15) The validation of the underlying systems by the Accounting Officer should include information on the direct testing carried out on a sample of transactions of the key controls of the Joint Undertaking.

(16) The action plans in response to the internal audits on financial circuits, grant management and experts contracts were adopted by the Joint Undertaking on 30 June 2010, 14 February 2011 and 19 November 2011 respectively.

(17) Paragraph 20 of the 2010 Court of Auditors’ report made reference to the low level of competition for procurements and grants.

(18) The Joint Undertaking also used a high percentage of negotiated procedures (around two thirds of the operational contracts signed in 2011, excluding the framework contracts).

(19) Article 107 of the Joint Undertaking’s implementing rules states that the pre-information notice is the means by which the Joint Undertaking may make known, by way of indication, the estimated total value of contracts and framework contracts, by category of service or groups of products, and the essential characteristics of works contracts which they intend to award using the restricted procedure or competitive dialogue during a budgetary year.

(20) For instance, the review by the financial verifying officer of the technical acceptance reports is not documented.

(21) Out of the 18 quality audits carried out during 2011, 15 audits were closed by May 2012. The audits only qualified one project performance as unsatisfactory and identified seven situations of non-conformity with the procedures and 139 areas for improvement.

(22) The scope of the audits covers the quality plan, non-conformities, purchase control and subcontracting management, documentation and data management, changes and deviations management, quality control plan for the civil works, detailed project schedule, contract risk management and quality control plan for technical works.

(23) In November 2011 a new member was appointed to the internal control cell with the specific task of putting in place a procedure to carry out ex post controls on procurement and grants. F4E will also adhere to a Commission framework contract for ex-post audits.

(24) Article 8(4) of the Statutes annexed to Decision 2007/198/Euratom states that ‘The Director shall draw up the rules on intellectual property rights and industrial policy, and on the dissemination of information’.

(25) Article 6(3) of the Statutes annexed to Decision 2007/198/Euratom states that ‘The Governing Board shall adopt rules on industrial policy, intellectual property rights and on the dissemination of information in agreement with the Commission’.

(26) Regulation (EC, Euratom) No 2343/2002.

(27) Second amendment to the Fusion for Energy Joint Undertaking’s Financial Regulation of 25 November 2011

(28) Thresholds referred to in Articles 80 and 100, competitive dialogue under Article 96 and composition of the opening committees under Articles 119 and 120.

(29) Council conclusion on ITER status of 7 July 2010 (Ref.11902/10).

(30) Internal auditor’s report on pre-procurement dated 13 January 2012.

(31) OJ L 4, 7.1.2012, p. 12.

ANNEX European Joint Undertaking for ITER and the Development of Fusion Energy (Barcelona) Competences and activities Areas of Community competence deriving from the Treaty (Extracts from Articles 45 and 49 of the Treaty establishing the European Atomic Energy Community) Chapter 5, on ‘Joint Undertakings’, of the Treaty establishing the European Atomic Energy Community, and in particular: Article 45: ‘Undertakings which are of fundamental importance to the development of the nuclear industry in the Community may be established as Joint Undertakings within the meaning of this Treaty, in accordance with the following Articles’ Article 49: Joint Undertakings shall be established by Council decision. Each Joint Undertaking shall have legal personality. Competences of the Joint Undertaking (Council Decision 2007/198/Euratom) Objectives — To provide the contribution of the European Atomic Energy Community (Euratom) to the ITER International Fusion Energy Organisation; — To provide the contribution of Euratom to Broader Approach Activities with Japan for the rapid realisation of fusion energy; — To prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities including the International Fusion Materials Irradiation Facility (IFMIF). Tasks — Oversee preparation of the ITER project site; — provide components, equipment, materials and other resources to the ITER Organisation; — manage procurement arrangements vis-à-vis the ITER Organisation and, in particular, associated quality assurance procedures; — prepare and coordinate Euratom's participation in the scientific and technical exploitation of the ITER Project; — coordinate scientific and technological research and development activities in support of Euratom's contribution to the ITER Organisation; — provide Euratom's financial contribution to the ITER Organisation; — arrange to make human resources available for the ITER Organisation; — interface with the ITER Organisation and carry out any other activities in furtherance of the ITER Agreement. Governance Governing Board The Governing Board shall be responsible for the supervision of the Joint Undertaking in the pursuit of its objectives and ensure close collaboration between the Joint Undertaking and its Members in the implementation of its activities. Bureau The Bureau is a subsidiary body of the Fusion for Energy Governing Board and provides Support for communication and co-ordination between the Governing Board, F4E committees and F4E management. Administration & Finance Committee The Administration and Finance Committee (AFC) assists the Governing Board in administrative and financial matters related to ITER, the Broader Approach and preparations for demonstration fusion reactors (DEMO). Audit Committee The Audit Committee (AC) is an advisory committee to the Governing Board having an overview of Financial Reporting and Accounting, Governance, Internal Control and Risk Management as well as External Audit and Internal Audit. Executive Committee The Executive Committee shall assist the Governing Board in the preparation of its decisions and shall carry out any other tasks which the Governing Board may delegate to it. Technical Advisory Panel The Technical Advisory Panel shall advise the Governing Board and the Director, as necessary, on the adoption and implementation of the project plan and work programmes. Director The Director shall be the chief executive officer responsible for the day-to-day management of the Joint Undertaking and shall be its legal representative. External Audit Court of Auditors. Internal Audit Established as of 1 July 2009. Discharge Authority Parliament, on a recommendation from the Council. Resources available to the Joint Undertaking in 2011 Budget 263,57 million euro, of which 93 % funded by Community contribution Staff at 31 December 2011 239 permanent posts provided for in the establishment plan, of which 211 posts were occupied; Other staff: — Seconded National Experts: 5 — Contract staff: 99 — Local staff: n/a Total staff employed: 315 Allocated to (approximately): — Operational activities: 160 — Administrative tasks: 115 — Mixed tasks: 40 Activities and services provided in 2011 — Operational Contracts: 38 awarded for a total value of 163,556 million euro — Administrative Contracts: 17 awarded (including 7 Joint Procurements) for a total value of 5,162 million euro — Grants: 22 awarded for a total value of 13,061 million euro — Budget Implementation: — 99,7 % in commitment appropriations (99,7 % operational & 98,7 % administrative) — 85,7 % in payment appropriations (86,6 % operational and 79,6 % administrative) — Procurement Arrangements: — 2 for the ITER project - 31,79 kIUA (equivalent to 50,135 million euro) out of a total of 1 135,9 kIUA foreseen for the European in kind contributions. — 10 for the Broader Approach - 62,67 kBAUA (equivalent to 42,490 million euro) out of a total of 236,4 kBAUA foreseen for all the European contributions. — ITER Credit Awarded: 35,551 kIUA (equivalent to 56,066 million euro) Source: Information supplied by the Joint Undertaking.