EN Official Journal of the European Union L 252/244

RESOLUTION (EU) 2017/1679 OF THE EUROPEAN PARLIAMENT

of 27 April 2017

with observations forming an integral part of the decision on discharge in respect of the implementation of the budget of the European Institute of Innovation and Technology for the financial year 2015

THE EUROPEAN PARLIAMENT,

— having regard to its decision on discharge in respect of the implementation of the budget of the European Institute of Innovation and Technology for the financial year 2015,

— having regard to the Court of Auditors' special report No 12/2016 entitled ‘the Agencies' use of grants: not always appropriate or demonstrably effective’,

— having regard to Rule 94 of and Annex IV to its Rules of Procedure,

— having regard to the report of the Committee on Budgetary Control (A8-0127/2017),

A. whereas, according to its financial statements, the final budget of the European Institute of Innovation and Technology (the ‘Institute’) for the financial year 2015 was EUR 266 566 618, representing an increase of 14,35 % compared to 2014,

B. whereas, according to its financial statements, the overall contribution of the Union to the Institute's budget for 2015 amounted to EUR 215 030 200, representing an increase of 26,63 % compared to 2014,

C. whereas the Court of Auditors (the ‘Court’), in its report on the Institute's annual accounts for the financial year 2015 (the ‘Court's report’), stated that it had obtained reasonable assurances that the Institute's annual accounts are reliable, but could not obtain sufficient appropriate audit evidence on the legality and regularity of the underlying transactions,

D. whereas in the context of the discharge procedure, the discharge authority stresses the particular importance of further strengthening the democratic legitimacy of the Union institutions by improving transparency and accountability, implementing the concept of performance-based budgeting and good governance of human resources,

Basis for a qualified opinion on the legality and regularity of the underlying transactions

1. Recalls that the Union contribution to the Institute's budget in the 2014 to 2020 financial period is provided under the financial envelope of the Horizon 2020 and that the Institute is bound by the provisions of Regulation (EU) No 1290/2013 (the ‘Horizon 2020 rules’); recalls, moreover, that Horizon 2020 is the successor programme of the Seventh Framework Programme, which ran from 2007 to 2013 and in which the Institute did not participate;

2. Points out that from 1 January 2014 the legal basis for the reimbursements of indirect eligible costs related to grants is Article 29(1) of Horizon 2020 rules, together with Article 90(1) of the Institute's financial regulation (1) which provides for a flat rate reimbursement of 25 % of the indirect eligible costs related to grants; notes, however, that, according to Article 75(8) of the Institute's former financial rules (2), which were repealed with effect from 1 January 2014, the threshold for a flat rate reimbursement of indirect costs for non-profit public bodies, higher education establishments, research organisations or small and medium-sized enterprises could have been raised to 40 %;

3. Notes that, according to the Court's report, the Institute, in its 2014 grant agreements signed in February 2014, provided for a 40 % flat-rate reimbursement of indirect eligible costs contrary to the Horizon 2020 rules already in force at the time; notes, moreover, the Court's opinion that, as the Institute did not participate in the Seventh Framework Programme, Article 57 of the Horizon 2020 rules which dealt with the transition from the Seventh Framework Programme to Horizon 2020 did not apply to the Institute and the Court therefore identified those reimbursements as irregular;

4. Notes that, according to the Court's report, the errors found as a result of ex-post verification of a sample of 2015 grant transactions, after correcting for the overpayment of those flat-rate reimbursements, led to a residual error rate of 2 % for the 2014 grant transactions; notes that, according to the Court, the combined error rate for both identified ex-post verification errors and the flat-rate reimbursements was 4,9 % of the Institute's total 2015 expenditure, resulting in the Court issuing of a qualified opinion on the legality and regularity of the transactions underlying the Institute's accounts;

5. Notes, however, that the Institute's grant agreements were based on the annual call for the preparation of the 2014 knowledge and innovation community (KIC) business plans, launched by the Institute in April 2013; notes, moreover, that, in accordance with the Institute's financial rules, as well as with Article 189 of Commission Delegated Regulation (EU) No 1268/2012 (3), the Institute's call allowed the grant beneficiaries falling into the categories described in Article 75(8) of the Institute's financial rules to establish their project budgets, for activities planned for 2014, using the 40 % flat-rate reimbursement for budgeting of indirect costs; notes that the KICs participating in the April 2013 call relied on that provision when constructing and submitting this proposal;

6. Notes, moreover, that the Institute's governing board, following the evaluation of the 2014 KIC business plans by external experts, decided on the 2014 funding allocation to KICs on 5 December 2013, before adopting the Horizon 2020 rules; notes from the Institute that the 2014 grant agreements were signed in line with the initial conditions of the annual call;

7. Is of the opinion that the transitional measures under Article 57(2) of the Horizon 2020 rules were not meant to be restricted solely to the assistance granted under the Seventh Framework Programme, but also to other ongoing actions in the field of research and innovation which were subject to Horizon 2020 rules after its entry into force, such as the Institute's 2014 grant agreements; highlights that the purpose of the transitional measure provided by Article 57 of the Horizon 2020 rules is to provide legal certainty and to ensure the continuity of the legal framework applicable at the time of the initiation of such actions; acknowledges that the Institute's subsequent grant agreements are in line with the Horizon 2020 rules in force, in particular with regard to the application of the flat rate reimbursement of 25 % of the indirect eligible costs related to grants, as well as that no further corrective measure could be taken by the Institute regarding this issue; notes also that any attempt to recover the funds deemed to be irregular by the Court could lead to legal action by many of the Institute's beneficiaries, which risks resulting in significant reputational damage for the Institute, as well as for the Horizon 2020 and the Commission as a whole;

Comments on the legality and regularity of transactions

8. Notes that, according to the Court's report, the Institute informed the KICs in 2015 that its financial contribution over the first five years (2010 to 2014), did not exceed the 25 % ceiling of their respective global expenditure; notes, moreover, that the poor definition of KIC complementary activities (KCAs) impaired any clear assessment as to whether costs associated to KCA should be accepted or not in the maximum Institute contribution; notes that the Institute and the Commission accepted the Court's recommendation to remove the 25 % funding condition in order to alleviate the operational and financial reporting burden on the KIC partners; acknowledges that, until such an amendment is adopted, the Institute is to implement the applicable legal basis;

Budget and financial management

9. Notes that, according to the Institute's final accounts that its budget monitoring efforts during the financial year 2015 resulted in an authorised budget implementation rate of 90,58 %, representing a decrease of 3,55 % compared to 2014; notes that the payment appropriations execution rate was 96,49 %, representing an increase of 4,02 % compared to 2014;

10. Notes that, according to the Court's report, even though the Institute is allowed to re-enter unused appropriations in the budgets of the following three years, it had not adapted its process in time to re-enter EUR 26 600 000 available from the 2014 grant agreements in the 2015 to 2017 budgets; notes, moreover, that those appropriations result from the lower than expected use of funds by KICs; notes that in 2015 the Institute carried out a budget review and requested the KICs to revise their 2015 business plans and budgets which were resubmitted as amended; notes that, as a result of the reduction in KIC budgets, the Institute could decommit unspent amounts, which were then cancelled and re-entered in the estimate of revenue and expenditure for 2016; notes that this resulted in an improved management of the Institute's budget in close collaboration with the KICs;

Commitments and carry-overs

11. Notes that, according to the Court's report, the level of carry-overs for committed appropriations for Title II was EUR 400 000 (44 %), compared to EUR 500 000 (36 %) in 2014; acknowledges that those carry-overs related mainly to contracts for IT services going beyond year-end and for meetings for which invoices had not yet been received;

12. Notes that carry-overs may often be partly or fully justified by the multiannual nature of the Agencies' operational programmes, do not necessarily indicate weaknesses in budget planning and implementation and are not always at odds with the budgetary principle of annuality, in particular if they are planned in advance and communicated to the Court;

Internal controls

13. Recalls that, in accordance with Article 34 of the Horizon 2020 rules, the certificate on the financial statements (CFS) requested from KIC partners claiming reimbursement of more than EUR 325 000 is to contribute to the Institute's ex-ante verification of cost statements; notes that, according to the Court's report, the quality of those certificates varies significantly, limiting the assurance that can be obtained from them and requiring the Institute to carry out additional checks; notes that, according to the Institute, it applies the audit certificate methodology devised by the Commission's Directorate-General for Research and Innovation for Horizon 2020, starting from the 2014 grant agreements; notes, furthermore, that the revised methodology includes more detailed instructions and agreed upon procedures as well as 63 standard factual findings covering all cost categories; recognises that the Institute has developed a comprehensive grant assurance strategy that is built on both ex-ante and ex-post verification, including the CFS, in order to ensure the legality and regularity of transactions;

Prevention and management of conflicts of interests and transparency

14. Notes that the annual declarations of interests of governing board members, the interim director and senior management staff are published on the Institute's website; notes also that a screening of submitted declarations is performed to verify their factual accuracy; observes that in the case of experts, the Institute follows the Horizon 2020 rules on conflicts of interests;

15. Notes that the Institute intends to conclude its internal rules on whistleblowing in the first half of 2017; calls on the Institute to adopt an internal whistleblowing policy which will foster a culture of transparency and accountability in the workplace, to inform and train employees regularly of their duties and rights with regard to that policy, to ensure protection of the whistleblower from reprisal, to follow up the substance of whistleblowers' alerts in a timely manner, and to put in place a channel for anonymous internal reporting; calls on the Institute to publish annual reports on the number of whistleblower cases and on how they were followed up and to provide those annual reports to the discharge authority; asks the Institute to keep the discharge authority informed of its progress with regard to this matter;

16. Notes that, according to the Court, for the selection of external experts evaluating KIC proposals and business plans the Institute makes use of Article 89 of the Institute's financial regulation to derogate from the obligation of launching a call for expression of interest; notes, however, that Institute has not fully established internal procedures to regulate implementation of this derogation; notes that, in practice, Institute established its pool of experts using existing expert lists and databases of other institutions and bodies of the Union and individuals not on these lists following recommendations from the Institute governing board and members of staff; nevertheless welcomes improvements in the expert selection process for KIC proposals and encourages the Institute to be committed to improving the efficiency and effectiveness of this process and ensuring maximum transparency and integrity thereof by setting relevant internal measures, while ensuring absence of potential conflicts of interests;

17. Notes with concern that the Institute has not taken specific initiatives in order to increase transparency relating to its contacts with stakeholders and lobbyists; calls on the Institute to enact a proactive transparency policy with regard to lobbyists;

Recruitment procedures

18. Notes with satisfaction that the Institute has achieved full staffing through a series of measures implemented in 2015 to 2016 to improve the staff management, recruitment process and work environment; observes that since December 2016, the Institute employs 59 members of staff (in 63 authorised positions), which represents the highest number of members of staff employed in the history of the Institute, and that recruitment for remaining vacant posts is ongoing; acknowledges, nevertheless, that the actions taken by the Institute cannot fully compensate for the negative effects of the low and steadily decreasing correction coefficient affecting salary levels in Hungary;

Other comments

19. Notes that, according to the Court, the original target set by the Commission for the Institute to obtain financial autonomy was 2010; notes, furthermore, that the Institute obtained partial financial autonomy in June 2011, on the condition of continued ex-ante approval of grant related transactions and of procurements above EUR 60 000 by the Commission's Directorate-General for Education and Culture; notes that, according to the Institute, it requested that the Commission re-launch the process leading to full financial autonomy; acknowledges, furthermore, that the Commission set out the roadmap and timetable of the process in May 2016 and looks forward to the Commission's financial autonomy assessment which is expected in the first half of 2017; notes that the Institute hopes that full financial autonomy will be granted before the end of 2016 and asks that the Institute report to the discharge authority on developments related to this matter;

20. Notes that, according to the Court, despite a valid rationale, the Institute's complex operational framework and management problems have impeded its overall effectiveness; notes that the Institute has the ability to support the entire innovation scheme from start-ups to innovation-driven projects run by multiple KIC partners, however, it lacks coordination at Union level with the relevant Commission's DGs, and the interaction between the KICs and other Union initiatives is insufficient;

21. Notes that the Institute funds the ‘EIT Digital Master's programme’, which combines a lump sum of maximum EUR 8 000 per student in addition to actual costs including flat rate based indirect costs; notes that, according to the Court, this funding model has never been formally defined and does not allow a distinction between activities covered by the lump sum and those covered by the actual costs; notes that, according to the Institute it should move towards a single lump sum model for financing such programmes in order to simplify the cost reporting once sufficient statistical data is available to establish such a single lump sum; calls on the Institute to report to the discharge authority on the implementation of the new financing model;

22. Notes that, according to the Court's report, one KIC legal entity paid performance-based additional remuneration of EUR 646 000 to 55 of its members of staff, based on the decision of the KIC supervisory board and which the Institute reimbursed in full; notes that, according to the Court, paying such performance-based remuneration using public funds is an unusual practice; accepts, however, that the KICs are business-driven organisations which aim for financial sustainability, and where the use of variable elements as part of the basic remuneration can provide a strong incentive for good performance and ensure that value for money is achieved; notes, furthermore, that Horizon 2020 expressly provides for variable components of basic remuneration to be eligible costs; highlights the fact that the Institute's contribution to salaries paid to KIC management staff, including performance-based remuneration, is to be kept below the ceiling established by the Institute in its 2016 grant agreements and onwards; notes that under the reformed rules with double ceilings which applied from 2016, the high levels of performance-based additional remuneration paid in 2015 are no longer possible;

23. Notes that the principle of sound financial management was also breached when a KIC partner procured public relations services with daily rates ranging from EUR 800 to EUR 3 250 per person, which was also fully reimbursed by the Institute;

24. Notes that in 2015 45 of the Institute's members of staff participated in ‘other events’ for which the cost was EUR 10 730,21 (EUR 238,45 per person);

25. Notes with concern that general visibility of the Institute is low and some of the KIC partners are not aware of their affiliation with the Institute; calls for better visibility and promotion of the Institute brand as a unique innovation community; welcomes the recent success in listing 18 Institute community members in the Forbes 30 under 30 list, featuring Europe's best young innovators and entrepreneurs;

26. Refers, for other observations of a cross-cutting nature accompanying its decision on discharge, to its resolution of 27 April 2017 (4) on the performance, financial management and control of the agencies.

(1) Decision of the governing board of the European Institute of Innovation and Technology (EIT) of 27 December 2013 on adopting the financial regulation for the European Institute of Innovation and Technology.

(2) Decision by the European Institute of Innovation and Technology of 20 April 2009 adopting the Financial Rules of the European Institute of Innovation and Technology.

(3) Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 on the rules of application of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council on the financial rules applicable to the general budget of the Union (OJ L 362, 31.12.2012, p. 1).

(4) Texts adopted, P8_TA(2017)0155 (see page 372 of this Official Journal).