EN Official Journal of the European Union C 452/1

Summary of results from the Court’s 2013 annual audit of the European Research Joint Undertakings

(2014/C 452/01)

CONTENTS

Paragraph Page Introduction 1-6 2 Information in support of the Court’s opinions 7 2 Audit results 8-21 3 Opinions on the reliability of the accounts 8 3 Opinions on the legality and regularity of the transactions underlying the accounts 9-12 3 Emphasis of matter on the EU contribution to the ITER project costs 13 4 Comments not calling the Court’s opinions into question 14 4 Presentation of the accounts 15 4 Budgetary and financial management 16 4 Internal controls 17-21 4 Conclusions 22-23 5

INTRODUCTION

1. Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts for the financial year ended 31 December 2013 and the legality and regularity of the transactions underlying them for seven European Research Joint Undertakings (JUs): — Fusion for Energy — F4E (ITER) — Development of Fusion Energy, — Clean Sky — Clean Air Transport Technologies, — Artemis — Embedded Computing Systems, — IMI — Innovative Medicines Initiative, — ENIAC — Nanoelectronics, — FCH — Fuel Cells and Hydrogen, and — SESAR — Single European Sky Air Traffic Management Research.

2. Apart from the European Union (represented by the Commission), members of the Joint Undertakings may include various public and private partners who make contributions to the funding of the activities performed by the Joint Undertakings. The Joint Undertakings either follow a bipartite model with the participation of the European Commission and the industry, or a tripartite model with the participation also of the Member States (1). Joint Undertakings play an important role in implementing research policy in specific areas.

3. This summary provides an overview on the results of the Court’s annual audits of the Joint Undertakings for the financial year 2013. It aims at facilitating the analysis and comparison of the Court’s specific reports on the 2013 annual accounts of the Joint Undertakings. The Court’s opinions and comments as well as the Joint Undertakings’ replies can be found in the published specific annual reports. This summary is not an audit report or opinion.

4. The Joint Undertakings’ total 2013 forecasted budgeted income (2) amounted to some 2,2 billion euro (2012: 2,5 billion euro) or about 1,7 % of the 2013 EU general budget (2012: 1,8 %) (3). Of the actual amounts received, approximately 686 million euro (2012: 618 million euro) came from the EU general budget (cash contribution from the European Commission) and approximately 134 million euro (2012: 134 million euro) came from the industrial partners and members of the Joint Undertakings.

5. The Joint Undertakings employ 414 (2012: 409) permanent and temporary officials or less than 1 % of total EU officials authorised under the EU general budget (staff establishment plan). Details on the audited Joint Undertakings, their budgets and staff are provided in Annex I.

6. Whereas the financial risk related to the Joint Undertakings is limited compared to the total EU budget, the reputational risk for the Union is high: they are a key tool for the implementation of the EU Research strategy and their public-private partnership nature makes them highly visible among the industries they are cooperating with.

INFORMATION IN SUPPORT OF THE COURT’S OPINIONS

7. 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 and an analysis of management representations and of annual activity reports. The 2013 audit placed special emphasis on ex post audits.

AUDIT RESULTS

Opinions on the reliability of the accounts

8. The final accounts of all Joint Undertakings present fairly, in all material respects, their financial position as at 31 December 2013 and the results of their operations and their cash flows for the year then ended, in accordance with the provisions of the applicable Financial Regulations and the accounting rules adopted by the Commission’s Accounting Officer.

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

9. In the Court’s opinion, the transactions underlying the annual accounts for the year ended 31 December 2013 were legal and regular in all material respects for four (F4E, Clean Sky, FCH and SESAR) of the seven Joint Undertakings.

10. As regards the Artemis Joint Undertaking, the audit of project cost claims has been delegated to the national funding authorities (NFAs), under the administrative agreements in force. Artemis received audit reports from the NFAs but did not systematically assess the quality of these audits. Moreover, it had not received information on the audit strategies of all NFAs. It was therefore not in a position to assess whether ex post audits provide sufficient assurance as to the legality and regularity of the underlying transactions. As a consequence, the Court concluded that the information available on the implementation of the Joint Undertaking’s ex post audit strategy is not sufficient to conclude whether this key control tool is functioning effectively (4). A qualified opinion (5) was issued for Artemis since there was insufficient appropriate audit evidence on which to base the opinion and the possible effects are considered material but not pervasive (6).

11. As regards the ENIAC Joint Undertaking, the administrative agreements established between ENIAC and the NFAs of the Member States provide in principle that the NFAs will perform audits on behalf of the Joint Undertaking. The Joint Undertaking’s ex post audit strategy relies heavily on the NFAs to audit project cost claims. In 2013, the Joint Undertaking carried out a limited review of cost claims but this exercise did not include any audits and did not provide assurance as to the regularity of the cost claims reviewed. As a consequence, the Court concluded that the information available on the implementation of the Joint Undertaking’s ex post audit strategy was not sufficient to conclude whether this key control tool is functioning effectively (7). The Court issued a qualified opinion for ENIAC because there was insufficient appropriate audit evidence on which to base the opinion and the possible effects are considered material but not pervasive.

12. The IMI joint Undertaking launched, in accordance with its ex post audit strategy, a second batch of 40 ex post audits, of which 14 had been completed as of June 2014. The detected error rate resulting from these audits was 2,3 % (8). A qualified opinion was issued for IMI since there was sufficient appropriate audit evidence on which to base the opinion and the possible effects are considered material but not pervasive (9).

Emphasis of matter on the EU contribution to the ITER project costs (10)

13. As regards F4E, the EU contribution to ITER construction phase was valued by the Council in 2010 (11) at 6,6 billion euro. This amount is subject to significant risks of increase, mainly resulting from changes in the scope of the project deliverables and due to the current schedule which is considered unrealistic. In November 2013, the Joint Undertaking estimated the shortfall until the finalisation of the construction phase of the project to be 290 million euro. The slippage for the construction phase of the project was estimated by the Joint Undertaking at the time of the audit (April 2014) to be at least 30 months. In relation to these risks, the Joint Undertaking has not yet implemented a system at contract level to regularly monitor the cost deviations and has not updated the valuation of the Joint Undertaking contribution to the ITER project beyond the finalisation of the construction phase.

Comments not calling the Court’s opinions into question

14. The Court made 55 comments (2012: 45) affecting all Joint Undertakings highlighting matters of importance. An overview of the comments made is provided in Annex II. The most frequent comments are summarised below.

Presentation of the accounts

15. As regards F4E, notes to the accounts on ‘ITER Procurement Arrangements with the ITER International Organization’ (ITER IO) do not disclose the degree of advancement of the works in progress, whereas this information is essential to reflect the status of the activities carried out as regards the procurement arrangements signed with the ITER IO.

Budgetary and financial management

16. Comments under this heading focus on two areas: — budgetary implementation rate: the budgetary implementation rate for commitment appropriations ranged between 90 % and 100 % and the budgetary implementation rate for payment appropriations ranged between 57 % and 100 %. For Artemis, the latter amounts to 69 % and is mostly explained by delays originating in the administrative arrangements entered into with Member States for the implementation of projects and for FCH (57 %) it results from the postponement of the funding of three projects, — calls for proposals and the implementation of projects: the average time for the launch of the 2013 call for proposal and the signing of grant agreements was 9 months for Clean Sky (versus 12 months for 2012). As regards Artemis, the current rate of appropriations committed for the calls for proposals represented only 49 % (50,2 % as at 31 December 2012) of the total budget available to cover operational expenditure during the total duration of the Joint Undertaking (10 years from 2007).

Internal controls

17. Ex post audits are a key tool for Joint Undertakings to ensure the eligibility and accuracy of costs claimed by beneficiaries and/or partners. All have adopted an ex post audit strategy, five of which have contracted out the performance of ex post audits to independent external audit firms. In three cases (see paragraphs 10 to 12), the Court issued a qualified opinion on the basis of the inadequacy of the implementation of the ex post audit strategy or of the error rate resulting from the performance of the ex post audits.

18. As regards F4E, internal control systems are still being developed. In particular, procurement procedures are central to the implementation of the ITER project by F4E. The competitiveness of these procurement procedures needs to be increased. As regards grants, the average number of proposals received was only one per call, as in 2012.

19. The monitoring and reporting of research results is laid down in the seventh framework programme (FP7), which establishes a monitoring and reporting system covering the protection, dissemination and transfer of research results. In the grant agreements signed with members and other beneficiaries, the Joint Undertakings have included specific provisions governing intellectual property rights and the dissemination of research activities and results. Although implementation of these provisions is monitored by the Joint Undertaking at different stages of the funded projects, several Joint Undertakings need to develop further the way the results of this monitoring are reported.

20. The prevention of conflicts of interest is addressed by most Joint Undertakings by the adoption of specific rules and by the development of tools to document all related information. However, Artemis still needs to develop a comprehensive written procedure to deal with conflicts of interest.

21. The Commission’s Second Interim Evaluation was performed over 2013 and early 2014. It assessed all Joint Undertakings (except F4E) in terms of relevance, efficiency, effectiveness and research quality. The reports, while positive, also highlighted areas for further improvement.

CONCLUSIONS

22. All Joint Undertakings have produced reliable accounts but three have a qualified opinion on their 2013 accounts in respect of the legality and regularity of the transactions underlying them.

23. There is room to improve procedures, in particular the implementation of the ex post audit strategy and, in the case of F4E, cost control mechanisms.

(1) Bipartite Joint Undertakings are Clean Sky, IMI, FCH and SESAR. Tripartite Joint Undertakings are Artemis and ENIAC. As regards Fusion for Energy-F4E (ITER), the members 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 (as at 31 December 2013: Switzerland).

(2) Forecasted income budget represent commitments appropriations (final budget).

(3) The significant decrease noted with respect to 2012 originates mostly from F4E, where the forecasted income budget decreased from 1 524 million euro in 2012 to 1 297 million euro in 2013. This decrease is due to the launching of a major phase of the ITER project in 2012.

(4) In response to this observation, Artemis initiated in 2014 together with the ENIAC Joint Undertaking a common action plan to mitigate this qualified opinion. Three National Funding Authorities had been visited by Artemis by September 2014.

(5) The Court expresses a qualified opinion when the auditor has obtained sufficient appropriate audit evidence and concludes that misstatements or instances of noncompliance are material, but not pervasive, to the annual accounts or underlying transactions. The Court also expresses a qualified opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the possible effects on the annual accounts or underlying transactions of that inability are material but not pervasive (as outlined in paragraphs 11 and 12).

(6) Pervasive effects are those that, in the auditor’s judgment, are not confined to specific elements, accounts or items or, if they are so confined, they represent or could represent a substantial proportion of the financial statements.

(7) In response to this observation, ENIAC initiated in 2014 together with Artemis a common action plan to mitigate this qualified opinion. Three National Funding Authorities had been visited by ENIAC by September 2014.

(8) The detected error rate resulting from the previous batch of ex post audits was 5,8 %.

(9) In response to this observation, IMI continued to communicate the errors to the audited beneficiaries and to launch the required follow-up actions. In parallel, IMI has continued to take concrete preventive measures to mitigate the risk of future errors in beneficiaries’ cost claims (e.g. the organisation of frequent financial workshops for participants, the regular updating of IMI’s Financial Guidelines for participants). Furthermore, IMI has carried on implementing an intensive annual programme of ex post audits.

(10) An Emphasis of Matter paragraph is used to draw readers’ attention to a matter which is not materially misstated in the accounts, but is of such importance that it is fundamental to users’ understanding of the accounts.

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

ANNEX I Joint Undertakings’ Income (forecasted income budgets, entitlements established and amounts received) and Staff establishments plans JOINT UNDERTAKING Parent DG Policy area 2013 2012 Forecasted income budget (1) Entitlements established (2) Amounts received (3) Staff establishment plan (4) Forecasted income budget (1) Entitlements established (2) Amounts received (3) Staff establishment plan (4) 1 Artemis DG Connect Research 3 2 6 43 708 3 2 6 47 545 2 0 1 23 350 15 5 7 4 46 787 5 2 1 83 934 2 2 4 79 013 15 2 Clean Sky DG Research and Innovation Research 30 6 0 43 097 22 7 0 00 428 12 4 6 13 566 24 20 5 3 64 690 17 3 1 13 201 9 7 3 39 799 24 3 ENIAC DG Connect Research 17 2 6 96 508 17 2 6 08 748 3 6 5 29 216 15 12 8 0 59 958 12 7 7 55 025 1 5 4 57 127 15 4 Fusion for Energy DG Research and Innovation Research 1 29 7 0 13 166 1 29 6 9 52 709 24 5 0 02 495 262 1 52 3 7 85 957 1 52 3 3 45 616 26 1 2 39 530 262 5 Fuel Cells and Hydrogen — FCH DG Research and Innovation Research 7 4 4 82 039 7 3 6 72 484 5 6 3 93 265 20 8 3 3 11 640 8 2 8 43 794 5 3 6 15 206 17 6 Innovative Medicines Initiative — IMI DG Research and Innovation Research 25 5 7 15 919 25 4 4 35 104 12 5 8 29 159 36 37 3 7 63 361 35 7 8 98 596 9 7 7 83 960 35 7 SESAR DG MOVE Research 8 4 2 22 608 6 4 0 66 631 7 7 5 35 515 42 15 6 5 64 786 14 8 7 33 577 6 9 7 13 000 41 Total 2 22 2 8 17 045 2 12 1 3 82 649 68 6 0 26 566 414 2 52 8 2 97 179 2 46 5 8 73 743 61 7 6 27 635 409 (1) Forecasted income budget represent commitments appropriations (final budget). (2) Entitlements established represent commitments authorised. (3) Amounts received represent cash contribution during the year from the European Commission. (4) Final budget.