Special Report Achieving economy:  
keeping the costs of 
EU‑financed rural 
development project 
grants under controlEN 2014  NO 22
EUROPEAN
COURT
OF AUDITORS

EUROPEAN COURT OF AUDITORS  
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Luxembourg: Publications Office of the European Union, 2014
ISBN 978-92-872-1391-4
doi:10.2865/21745
© European Union, 2015
Reproduction is authorised provided the source is acknowledged.
Printed in Luxembourg
Achieving economy:  
keeping the costs 
of EU‑financed rural 
development project 
grants under control
(pursuant to Article 287(4), second subparagraph, TFEU )Special ReportEN 2014  NO 22
02
 Contents
Paragraph
 Glossary
I–IX Executive summary
1–15 Introduction
16–20  Audit scope and approach
21–100  Observations
21–35  Part I — Guidance, supervision and correction: the European Commission’s responsibility for 
ensuring that EU rural development funds are spent well
24–29  Once audits showed weaknesses in checks of project costs, the Commission responded by proposing 
financial corrections and by encouraging Member States to prepare action plans
30–31 Costs could have been better managed had the Commission issued guidance and detected weaknesses 
much earlier in the programming period
32–35  While the Commission’s recent initiatives have produced some results, the action plans do not address in 
sufficient depth the risks to the reasonableness of costs
36–55  Part II — Guarding against overspecification: approaches to ensure that the items for which the 
grant is approved are reasonable
38–42 Restricting grants to the costs of a standard specification is simple and effective where there are many 
similar projects or common types of expenditure
43–55 For other measures, where justified by the risk, proposed costs should be evaluated to ensure that 
specifications are reasonable
56–87  Part III — Getting the best price: approaches to ensure that the prices of the items approved are 
reasonable
58–63  Where feasible, using simplified cost options (or using maximum costs in a similar way) effectively limits the 
risks of excessive prices — as long as they are set at the right level
64–74 Comparing the prices of the items applied for to independent price data can provide assurance that prices 
are reasonable but this approach can be difficult to implement
75–85 Comparison of offers received from different suppliers can be a straightforward method to establish market 
prices but safeguards are needed to guard against manipulation and fraud
86–87  Where judgement is required, an independent expert opinion or that of an evaluation panel can give 
valuable assurance and can be particularly cost‑effective when targeted to higher‑risk cases
03 Contents
88–92  Part IV — Keeping the eye on the ball after project approval: approaches to ensure that the costs 
actually reimbursed are reasonable
90–91 Control systems should detect and check any material changes to the project made after the grant has been 
approved to be sure that the costs to be reimbursed are still reasonable
92–94 Clear rules, explicit declarations and checks on samples of payments can deter the concealment of 
discounts, rebates or other advantages given by the supplier that lower the real cost
95–100  Part V — Making it efficient: approaches to ensure that the level of requirements and checks is 
commensurate with the level of risk
96–98 Where the likelihood and potential impact of the risks is low, control systems can be designed that minimise 
the administrative burden
99–100 High‑value items, projects with high aid‑rates and other risk factors warrant an increased level of checks
101 – 111  Conclusions and recommendations
 Annex I —  Checklist developed by the ECA to assess the design of control systems in relation to 
the risks associated with rural development costs
 Annex II  — Rural development programmes selected for desk review
 Annex III — Use of simplified cost options in the 88 rural development programmes
 Annex IV —  Overview of the approaches followed in the rural development programmes 
selected for desk review
 Reply of the Commission
04
 Glossary
Control systems : The set of rules and procedures used to manage an organisation or a spending programme to 
achieve its objectives.
Gold‑plating : Embellishment beyond what is necessary, or the incorporation of costly and unnecessary features or 
refinements. In this report the term ‘gold‑plating’ refers to acquiring items (or services) that are of a higher quality 
or specification than necessary: buying a luxury car rather than an inexpensive utilitarian vehicle, for example.
Measure : An aid scheme for implementing a policy. A measure defines the rules for the projects that can be 
financed. Investment measures  are those that provide financial support for the acquisition of machinery and 
equipment, for construction or for works such as replanting forests.
Member State authorities : Member States or their regions designate a  managing authority  responsible for the 
planning, implementation and evaluation of the rural development programme and a  paying agency , which may 
undertake some of these tasks and makes the payments to the grant beneficiaries.
Outputs : That which is produced or accomplished by implementing a ‘project’.
Programming period : Period covered by the rural development programmes. This audit concerns the 2007 to 2013 
period. Payments for projects financed in this period may continue until December 2015. Rural development 
programmes for the 2014 to 2020 period had not been adopted at the time of this audit.
Project : An investment, service or other activity for which grant finance is sought/obtained.
Reference prices : Prices for items of equipment, machinery, construction materials or building costs, labour costs, 
etc. against which the Member State authorities evaluate the project costs proposed in grant applications.
Results : The direct effects or changes that occur by implementing a project.
Rural development programme (RDP) : A document prepared by a Member State and approved by 
the Commission to plan and implement the EU’s rural development policy at regional or national level.
Reimbursement of actual costs : Grant based on eligible costs incurred. Usually, the beneficiary has to present paid 
invoices as evidence of this.
05 Glossary
Simplified cost options:  Grants that are independent of the costs actually incurred. The main forms of simplified 
costs are:
 οStandard unit costs : the grant amount is calculated on the basis of a unit cost defined in advance. 
Example: A land‑owner is awarded a grant to establish a new wildlife ‑friendly hedge using native tree species. 
The standard unit cost per metre of hedge is 50 euro. If the land‑owner creates a 100 m long hedge, the grant 
paid will be 5 000 euro (50 euro x 100), regardless of the actual costs incurred in purchasing the plants and estab ‑
lishing the hedge.
 οFlat rate financing : the grant amount is determined for specific categories of eligible costs by applying a per ‑
centage to other categories of eligible costs. 
Example: A farmer is awarded a grant to construct a new cattle shed at a cost of 100 000 euro. The flat rate for 
architects’ and surveyors’ fees is 10 %. The farmer will receive, on top of the grant for the construction itself, 
a grant of 10 000 euro for architects’ and surveyors’ costs, whatever the actual fees paid are.
 οLump sums : a fixed amount of grant is paid on completion of specific activities/outputs or results. 
Example: A municipality is awarded a grant for organising an event. The lump sum for such events is 10 000 euro. 
The municipality will receive that amount, independently of the actual costs it incurs, provided it meets the 
grant conditions for the number of people attending, and the duration of the event.
06
 Executive  
summary
I
This audit concerns the costs of the EU’s rural develop ‑
ment policy. It focuses on the grants given towards the 
costs of investments and other projects undertaken 
by farmers, businesses, local authorities and other 
organisations in rural areas. These grants, which make 
up around half of the 100 billion euro EU expendi ‑
ture programmed for the 2007–13 period, are man ‑
aged by Member State authorities under Commission 
supervision.
II
With such large amounts at stake, the EU and the 
Member States share an interest in ensuring that the 
costs of rural development grants are kept under con ‑
trol. This is a key element of the ‘sound financial man ‑
agement’ required by the EU’s financial regulations, 
whereby all managers of the EU budget are expected 
to apply the principle of economy: giving support for 
the right things  at the best price .
III
The Court audits rural development expenditure every 
year and presents the findings in its annual and spe ‑
cial reports. A recurring finding is that Member State 
authorities do not sufficiently ensure that the costs 
approved for rural development grants are reasonable. 
The need for improving financial management in this 
area is clear. This led the Court to examine in detail the 
risks and the approaches followed by the Commission 
and Member States to address these risks.IV
The Court found that the approaches followed were 
not the most effective for keeping rural development 
costs under control. The Commission reacted after 
problems emerged rather than ensuring that systems 
were sound in the first place. Member States’ control 
systems addressed only some of the risks to economy 
or were flawed. More effective approaches were avail ‑
able but were not widely applied.
V
The Commission did not offer guidance or spread 
good practice at the start of the 2007–13 program ‑
ming period: it did not ensure that Member States’ 
systems were effective before they started approving 
large volumes of grants. By the time it took action, the 
bulk of the project grants had already been approved. 
But since 2012 the Commission has adopted a more 
active and coordinated approach. If followed through 
with a greater focus on economy, this should lead to 
better financial management in the next program ‑
ming period.
VI
Regarding the Member States, by 2014 the 15 larg ‑
est rural development programmes (RDPs) all had 
in place the basic systems required by the regulations 
for checking rural development costs. However, all 
had weaknesses in relation to the main risks such that 
overall, the costs of rural development grants were 
not well controlled. Analysis of information from all 88 
RDPs indicates that a similar situation prevails across 
the EU. In particular:
(a) Member States’ control systems focused on the 
prices  of the items or works in the grant applica ‑
tions with much less attention to whether the 
items themselves were reasonable or if the grant 
was cost‑effective in relation to the policy objec ‑
tives. This leads to risks of gold‑plating and poor 
value for money.
(b) The main methods used to check grant applica ‑
tions for reasonable prices were to compare offers 
from different suppliers or to compare to refer ‑
ence prices. The Court found that the systems in 
some Member States gave little assurance that 
the costs were reasonable  — using reference 
prices that were 30 % above real market prices, for 
example.
Executive summary 07
(c) Grants are approved in advance and paid once the 
applicant has purchased the items concerned or 
undertaken the works. Where changes to a project 
occurred after grant approval, loopholes in some 
Member State systems allowed costs to be reim ‑
bursed for which the reasonableness had not been 
checked.
(d) The level of requirements and checks gener ‑
ally did not take account of the different levels 
of risk. Many Member State authorities had the 
same approach to checking a 10 000 euro grant 
as to a 1 million euro grant. Where the risks were 
limited, the possibilities for simplification were not 
widely followed.
VII
This leads the Court to conclude that there is consider ‑
able scope for making real savings in rural develop ‑
ment project grants in the 2014–20 programming 
period by better approaches to controlling the costs. 
These funds could be made available to finance addi ‑
tional projects leading to greater outputs and results 
and achievement of objectives.
VIII
The Court also found that there were workable and 
cost‑effective approaches to the weaknesses identi ‑
fied — most of which are already implemented in one 
Member State or the other.
IX
Consequently, the Court recommends that before 
expenditure is committed in the new programming 
period, the Commission and Member States ensure 
that the approaches followed for all RDPs address the 
risks described in this report. Criteria for assessing this 
are in the report’s annex. An ex ante  assessment by 
Member State authorities should be part of this pro ‑
cess. The Court also recommends that the Commission 
and Member States check early in the new program ‑
ming period that the systems operate efficiently and 
are effective.
08
 Introduction
Reasons for undertaking the audit: 
better control of rural 
development costs could generate 
real savings
01 
This audit concerns the costs of the 
EU’s rural development policy. It 
focuses on the grants given towards 
the costs of investments and other 
projects undertaken by farmers, busi ‑
nesses, local authorities and other 
organisations in rural areas. The grants 
are managed by Member State author ‑
ities under the Commission’s supervi ‑
sion according to rules set in the EU 
regulations1. In general, these grants 
are approved on the basis of a project 
specification and prices proposed by 
the applicant and are paid once the 
applicant has purchased the items 
concerned or undertaken the works.
02 
In the 2007–13 programming period, 
the EU planned to spend almost 
100 billion euro on rural develop ‑
ment. Member States also planned an 
additional 55  billion  euro contribution 
from their own national and regional 
budgets. With such large amounts at 
stake, the EU and the Member States 
share an interest in ensuring that the 
costs of rural development grants are 
kept under control. This is a key ele ‑
ment of the ‘sound financial manage ‑
ment’ required by the EU’s financial 
regulations, whereby all managers of 
the EU budget are expected to apply 
the principles of economy, effective ‑
ness and efficiency.03 
However, in its audits of the 2007–13 
rural development policy the Court 
has found that the national and re ‑
gional authorities do not sufficiently 
ensure that the project costs for which 
these grants are given are reasonable. 
The Commission has come to similar 
conclusions following its own audit 
work. More details are given in para ‑
graphs 24 to 26.
04 
This indicates that a better control 
of costs could generate significant 
savings in rural development project 
grants while still obtaining the same 
outputs and results and achieving the 
same objectives. In the Court’s opinion 
substantial savings are achievable. 
Just a few hundred euros saved on 
each investment project could gener ‑
ate many millions of euros in savings. 
Each 1 % saving would amount to 
500 million euros saved from the EU 
budget over the programming period2. 
These funds could be made available 
to finance additional projects, lead ‑
ing to greater outputs and results and 
achievement of objectives.1 Council Regulation (EC) 
No 1698/2005 of 20 
September 2005 on support 
for rural development by the 
European Agricultural Fund 
for Rural Development 
(EAFRD) (OJ L 277, 21.10.2005, 
p. 1), Commission Regulation 
(EC) No 1974/2006 of 15 
December 2006 laying down 
detailed rules for the 
application of Council 
Regulation (EC) No 1698/2005 
on support for rural 
development by the European 
Agricultural Fund for Rural 
Development (EAFRD) (OJ 
L 368, 23.12.2006, p. 15) and 
Commission Regulation (EU) 
No 65/2011 of 27 January 2011 
laying down detailed rules for 
the implementation of Council 
Regulation (EC) No 1698/2005, 
as regards the implementation 
of control procedures as well 
as cross‑compliance in respect 
of rural development support 
measures (OJ L 25, 28.1.2011, 
p.  8) apply for the 2007–13 
programming period. 
This arrangement is known as 
‘shared management’. The 
Commission retains overall 
responsibility but does not 
itself approve grants or make 
payments to beneficiaries, 
such tasks being undertaken 
by the Member State 
authorities.
2 The investment measures 
make up approximately half of 
the programmed rural 
development expenditure.
09 Introduction
05 
A similar set of rural development 
measures is due to be implemented in 
the 2014–20 programming period, with 
the approval of new grants expected 
to start during 2015. The Commission 
is working with the Member States 
to improve the effectiveness of their 
control systems to ensure that they 
comply better with the regulations. 
Given the prospects that improve ‑
ments in financial management in this 
area could lead to real savings and 
better use of the EU budget, the Court 
decided to contribute to this process 
with an in‑depth audit on the current 
approaches for controlling the costs of 
rural development3.The rural development policy: 
over a million individual grants 
paid out to farmers, small 
businesses, local authorities and 
other organisations in rural areas
06 
The 2007–13 rural development policy 
was put into practice through 88 
national or regional rural development 
programmes across the EU. These 
programmes consisted of a number 
of ‘measures’ (aid schemes), each of 
which targeted specific beneficiary 
groups and project types through a set 
of eligibility rules and project selection 
criteria. The Member State authorities 
decided the grant rates (within the 
limits set by the regulations), which 
varied from below 10 % up to 100 % 
of the eligible project costs, depend ‑
ing on the measure. Through these 
measures the EU aims to induce and 
support activity that helps achieve the 
objectives of the policy: improving the 
competitiveness of agriculture and for ‑
estry; improving the environment and 
countryside; and improving the quality 
of life in rural areas and diversifying 
the rural economy4. Examples of the 
range of projects financed are shown 
in Box 1 .3 The Court’s mission is to 
contribute to improving EU 
financial management, 
promote accountability and 
transparency, and act as the 
independent guardian of the 
financial interests of the 
citizens of the Union. The 
Court’s role as the EU’s 
independent external auditor 
is to check that EU funds are 
correctly accounted for, are 
raised and spent in 
accordance with the relevant 
rules and regulations and have 
achieved value for money. 
More at: http://www.eca.
europa.eu/en/Pages/
MissionObjectives.aspx
4 More information on the rural 
development policy can be 
found on the Commission’s 
website: http://ec.europa.eu/
agriculture/rurdev/
index_en.htm
10 Introduction Box 1
Training for farmers financed through the ‘Training  
and information’ measure (Bulgaria)
Spraying machine financed through the ‘Farm  
modernisation’ measure (Germany)
Cattle shed with straw-spreading equipment financed 
through the ‘Farm modernisation’ measure (Luxembourg)
Grain drying and storage facilities financed through 
the ‘Adding value to agricultural and forestry products’ 
measure (Lithuania)
Drip irrigation system financed through the ‘Infrastructure 
related to the development of agriculture and forestry’ 
measure (Greece)
Maritime pine trees planted through the ‘Restoring  
forestry potential’ measure (France)
Flower shop financed through the ‘Support for the creation  
and development of micro-enterprises’ measure (Sweden)
Café at wildlife park financed through the ‘Encouragement 
of tourism activities’ measure (United Kingdom)Policy objective: Improving the quality of life in rural areas and diversifying the rural economyPolicy objective: Improving the environment and countrysidePolicy objective: improving the competitiveness of agriculture and forestryExamples of projects financed by rural development programmes
11 Introduction Box 2 Figure 1Typical steps for requesting and obtaining a grant
Applicant Member State authoritiesObtain oﬀers from 
suppliers and estimate  project costsCheck that costs are reasonableImplement projectCheck grant claim
Make payment for the agreed percentage of the approved costs incurredPay invoices
Claim grant 
paymentApprove grantPrepare  project proposal and application for grant
Common approaches used to check that project costs in grant applications are 
reasonable
Simplified example : A farmer needs a new 75 hp tractor. He obtains offers from three suppliers: 
offers A (44 000 euro), B (46 000 euro) and C (48 000 euro). He selects offer B and applies for a rural 
development grant of 50 % of the costs.
Comparison of different offers : The Member State authorities compare offers A, B and C and decide 
 whether the costs applied for (offer B: 46 000 euro) are reasonable.
Market research : The Member State authorities contact other suppliers or search on the Internet for the costs 
of equivalent 75 hp tractors and compare these to offer B.
Expert opinion : The Member State authorities ask an agricultural engineer to confirm that offer B is reason ‑
able. Alternatively they may consult an evaluation committee for an opinion.
Reference prices : The authorities compare offer B to a database of prices for different makes and models of 
tractors. If the reference price is 45 000 euro, they may nevertheless agree a grant of 23 000 euro based on 
offer B if they consider the cost of 46 000 euro to be justified. Alternatively, they may apply the reference price 
as a ceiling and approve a grant of 22 500 euro.
Simplified cost options : Instead of checking if offer B is reasonable, the Member State authorities offer 
a lump sum grant of 20 000 euro for the purchase of a tractor. This is paid irrespective of the type of tractor or 
actual costs incurred. Alternatively, they may set a  maximum cost of 40 000 euro per tractor and reimburse 
50 % of the actual costs incurred up to this amount.07 
For most of the measures covered by 
this audit (see ‘Audit scope’ in para ‑
graph 16), the applicant is reimbursed 
for the approved expenditure incurred. 
A typical process for obtaining a grant 
on a reimbursement basis is shown in 
Figure 1 . 08 
The main methods Member State 
 authorities use to check the project 
costs in grant applications are illus ‑
trated in Box 2 .
12 Introduction
09 
For the main investment measures, 
the mean total project cost is around 
125 000 euro. The amount of grant 
payable towards the project costs 
will depend on the aid rate but the 
measures are characterised by large 
numbers of relatively small grants  —
some of which can be for less than 
1 000 euro — and a smaller number of 
large grants, which can exceed  
1 million euro. Member State author ‑
ities expect to have approved around 
1,4 million individual grants by the end 
of the programming period.
Analysis of the risks: grant 
payments may be too high if given 
for unnecessary costs or based on 
uncompetitive prices
10 
As described above, the principle 
of economy applies to all grants or 
payments from the EU budget. Ac ‑
cording to this principle, subsidies 
should be given for the right things  at 
the best price . In the context of rural 
development projects, this means 
that the items for which the grant is 
given should be of the type, quality 
and quantity needed to achieve the in ‑
tended outputs and results. The grant 
for these items should be based on the 
lowest available price for the required 
specification.11 
In most cases, grants are given for only 
a proportion of total project costs and 
applicants must pay the balance from 
their own resources, giving the ap ‑
plicant an incentive to limit the project 
costs. Where aid rates are low, the 
incentive can be strong — but as aid 
rates increase the incentive diminishes.
12 
Any subsidy distorts the real cost–  
benefit relationship, which may 
encourage the applicant to specify 
a higher‑cost solution than necessary, 
from ‘gold‑plating’ (see Glossary)  
through to investments that are dis ‑
proportionate to the outputs or results 
expected to be achieved by undertak ‑
ing the project. Consequently there 
is a risk that the quantity and quality 
of the items financed may be greater 
than appropriate (risk of ‘ overspecifi -
cation ’) representing an unnecessary 
cost to the EU and national budgets.
13 
Subsidies also reduce the incentive for 
the applicant to search for the best 
prices. Applicants may prefer to favour 
a higher‑cost supplier. At the extreme, 
there is the possibility that they or the 
suppliers may manipulate the process 
thereby inflating the costs. These all 
lead to the risk that the grant may be 
based on prices that exceed the lowest 
available in a competitive market for 
items of the required specification (risk 
of ‘uncompetitive prices ’).
13 Introduction
14 
It is important that the approaches 
followed by Member State authorities 
to address these risks are effective be ‑
cause poor value for money and fraud 
not only increase costs to the budget, 
they also tarnish the reputation of 
the EU. However, a balance has to be 
found between the costs of imple ‑
menting the control systems and the 
benefits gained by mitigating the risks. 
Applicants incur costs in providing the 
information required to support their 
grant applications. Member States 
incur costs in checking and evaluating 
this information. These costs should be 
proportionate to the level of the risks: 
a 1 million  euro grant could warrant 
several days of work if that was neces ‑
sary to establish that the costs were 
reasonable. A 1 000 euro grant would 
not.
15 
Finally, there is a risk that the Commis ‑
sion may not detect any deficiencies in 
Member States’ control systems or may 
not take timely corrective action when 
weaknesses are identified.
14
 Audit scope and approach
Audit scope: the rural 
development measures 
implemented through grants
16 
The risks identified above apply 
particularly to the rural development 
measures implemented by way of 
grants towards the costs incurred by 
the beneficiary. These measures, which 
represent around 50 % of the total 
rural development costs programmed 
for the 2007–13 period5, are included in 
the scope of this audit (see  Figure 2) . 
The main measures concerned are:
 ο modernisation of agricultural 
holdings;
 ο adding value to agricultural and 
forestry products; ο infrastructure related to the devel ‑
opment and adaptation of agricul ‑
ture and forestry;
 ο training and other measures to 
improve the competitiveness of 
agriculture and forestry;
 ο investment measures related 
to land management and the 
environment;
 ο measures to diversify the rural 
economy and improve quality of 
life;
 ο local development measures using 
the LEADER approach.5 The other 50 % of rural 
development spending 
mostly comprises 
compensation payments to 
land owners calculated on 
a per hectare basis for 
activities such as protecting 
and enhancing the 
environment. The amounts 
payable are included in the 
RDPs and approved in 
advance by the Commission. 
The Court’s Special Report No 
7/2011 covered 
‘agri‑environmental 
payments’, which is the main 
area‑related measure ( http://
eca.europa.eu ).Figure 2Audit scope: the measures covered by this audit
Local development measures
4,7 
Measures aiming at diversifyingthe rural economy13
Investment measures concerningthe environment and land management4,9 Modernisation of agricultural holdings
11,6
Adding value to agricultural
and forestry products
5,5
Infrastructure related to the
development and adaptation of
agriculture and forestry
4,8
Training and other measures aimingat improving competitiveness2,8Programmed expenditure 2007–13 (billion euro)
Source:  European Commission.
15 Audit scope and approach
6 Member States have to 
comply with Article 24(2)(d) of 
Commission Regulation (EU) 
No 65/2011: ‘Administrative 
checks on applications for 
support shall in particular 
include verification of … the 
reasonableness of the costs 
submitted, which shall be 
evaluated using a suitable 
evaluation system, such as 
reference costs, a comparison 
of different offers or an 
evaluation committee.’Figure 3Audit questions and structure of the reportAudit approach: focus on the 
design of control systems, 
obtaining a wide geographical 
coverage through questionnaires 
and desk reviews
17 
The Court’s audits of rural develop ‑
ment expenditure have repeatedly 
found that Member State authorities 
have not sufficiently ensured that the 
project costs approved are reasonable6 
(see paragraphs 24 and 25). The need 
to improving financial management in 
this area is clear. This led the Court to 
question whether the approaches fol ‑
lowed by the Commission and Member 
States were the most effective in rela ‑
tion to the main risks. The audit placed 
a particular emphasis on identifying good approaches that other Member 
States can apply, thereby raising the 
general level of performance. To exam ‑
ine the scope for this, the Court set the 
audit questions shown in Figure 3 .
Part I
Part II
Part III
Part IV
Part VHas the Commission ensured that Member States 
have eﬀective systems for controlling the costs 
of rural development grants in accordance 
with the principle of economy?
… mitigate the risk 
of overspeciﬁcation?
… ensure that the 
prices of items approved 
are reasonable?
… ensure that the costs 
actually reimbursed 
are reasonable?
… relate the level of 
checks to the level of 
risk?Have the Commission 
and the Member 
State authorities 
followed the most 
eﬀective approaches 
for keeping the 
costs of rural 
development grants 
under control?
Have the Member 
States followed the 
most eﬀective 
approaches to…
16 Audit scope and approach
7 Where weaknesses had 
previously been identified, the 
Court examined whether the 
Member State authorities 
concerned had changed their 
approaches accordingly.18 
This report follows the same struc ‑
ture as the audit sub‑questions. Part I 
covers the supervisory role of the 
Commission. In Parts II to V, the Court 
examines the different approaches fol ‑
lowed by the Member State authorities 
to mitigate the key risks.
19 
A focus group of officials from the 
Commission and Member State au ‑
thorities supported the Court’s team in 
identifying elements key to the design 
of effective control systems. From this 
the Court developed a checklist to 
assess the design of control systems 
in relation to the risks (see  Annex I) . 
The Court’s evidence collection con ‑
sisted of a follow‑up of previous audit 
findings7, a questionnaire addressed to 
the managers of all the EU’s 88 RDPs 
and a desk review of the key proce ‑
dures applied in the 15 RDPs with the 
greatest planned expenditure on the 
measures within the scope of this audit 
(see  Annex II) . These 15 represent 64 % 
of the total planned expenditure on 
these measures for the EU as a whole. 
Short audit visits were made to four of 
these Member States to complement 
the desk reviews. Interviews were held 
with Commission officials and relevant 
documentation analysed. The audit 
examined the systems in place from 
the end of 2013 and was concluded in 
mid ‑2014.Limits of the audit scope and 
approach
20 
In this audit the Court has identified 
and assessed the design of the control 
systems  put in place by the managing 
authorities that are intended to ensure 
that rural development costs are 
reasonable. Even the best‑designed 
systems may not be effective if they 
are not implemented well. It was not 
the aim of this audit, however, to check 
how well the control systems were 
applied in practice. Such an approach 
would have duplicated the work done 
each year to prepare the Court’s an ‑
nual reports (see paragraphs 24 and 
25).
17
 Observations
8 This requirement is in 
Article 9.2 of Council 
Regulation (EC) No 1290/2005 
of 21 June 2005 on the 
financing of the common 
agricultural policy (OJ L 209, 
11.8.2005, p. 1).
9 Public procurement rules are 
intended to ensure that public 
bodies obtain the best prices 
for the goods and services 
they buy, as well as promote 
fair competition and 
transparency. Non‑compliance 
with these rules makes it less 
likely that the prices obtained 
are the best available.Part I — Guidance, 
supervision and 
correction: the European 
Commission’s 
responsibility for 
ensuring that EU rural 
development funds are 
spent well
21 
While the rural development spending 
programmes are managed by the 88 
Member State authorities, the Com ‑
mission is ultimately responsible for 
implementing the EU budget. Specifi ‑
cally, the Commission is required8 to 
check that management and control 
systems exist and function properly in 
the Member States, and that they ob ‑
serve the principles of ‘sound financial 
management’: economy, effectiveness 
and efficiency.
22 
The legislation provides various means 
by which the Commission can exercise 
its supervisory functions: Member 
States should inform the Commis ‑
sion of their management and control 
measures; paying agencies must be ac ‑
credited and national ‘certifying bod ‑
ies’ report annually on issues including 
the operation of control systems. The 
Commission meets periodically with 
Member State representatives and has 
contacts and formal annual meetings 
with the managing authority of each 
RDP . It adopts legislation with the 
detailed rules for implementing the 
policy and issues guidance. It also has 
its own audit department to check the 
operation of Member States’ systems. 
Finally, if it finds that the Member 
State authorities are not complying 
with the regulations, it can recover 
improperly spent funds.23 
The Court assessed whether the Com ‑
mission used these means to ensure 
that Member States’ systems for con ‑
trolling the costs of rural development 
grants are effective.
Once audits showed weak ‑
nesses in checks of pro ‑
ject costs, the Commission 
responded by proposing 
financial corrections and by 
encouraging Member States 
to prepare action plans
24 
The Court examines a large randomly 
selected sample of payments each 
year and checks the effectiveness of 
selected control systems. In each an ‑
nual report since that for the year 2011 
the Court has noted that the major ‑
ity of the systems for checking the 
reasonableness of rural development 
costs were not sufficiently effective 
(see  Figure 4).  In 2013 all four systems 
audited were found to be ineffective in 
this respect.
25 
In the audits for the 2011, 
2012 and 2013 annual reports, the 
Court found for the measures con ‑
cerned by this audit that around 
a third of the rural development pro ‑
jects had not been sufficiently checked 
for the reasonableness of costs. Where 
the beneficiaries were public bodies, 
almost half of the payments were af ‑
fected by non‑compliance with public 
procurement rules9.
18 Observations
Effectiveness of the Member State or regional systems for 
assessing the reasonableness  of costs
System to evaluate the reasonableness of costs audited and
no major weaknesses foundSystem to evaluate the reasonableness of costs ‘not eﬀective’
 
Systems for evaluating rural development costs not audited
GaliciaLombardy
SicilyBrandenburg
and BerlinFigure 4
Source:  ECA annual reports 2011, 2012, 2013.
26 
The Commission also has its own 
programme of audit enquiries, which 
identified similar findings, as did the 
Court’s performance audits of specific 
rural development measures10. While 
the Court and Commission audits are 
not designed to quantify the savings 
that could be made by better control 
of the costs, flaws in the systems and 
the high level of errors are strong 
indications that the potential savings 
could be considerable.27 
In response to the audit findings 
mentioned above, the Commission 
launched procedures for ‘financial cor ‑
rections’, whereby EU funding for the 
Member State concerned is reduced 
to compensate for the shortcomings 
identified. Procedures under way with 
eight Member States stem at least 
partly from failings in their checking 
of rural development costs or non‑  
compliance with public procurement 
rules.10 Special Reports No 5/2010 
‘Implementation of the 
LEADER approach for rural 
development’; No 8/2012 
‘Targeting of aid for the 
modernisation of agricultural 
holdings’; No 1/2013 ‘Has the 
EU support to the food 
processing industry been 
effective and efficient in 
adding value to agricultural 
products?’; No 6/2013 ‘Have 
the Member States and the 
Commission achieved value 
for money with the measures 
for diversifying the rural 
economy?’; and No 8/2013 
‘Support for the improvement 
of the economic value of 
forests from the European 
19 Observations
agricultural fund for rural 
development’ ( http://eca.
europa.eu ).
11 Commission staff working 
document on the assessment 
of root causes of errors and 
corrective and preventive 
actions in the rural 
development policy 
(SWD(2013) 244 final).28 
Following the Court’s 2011 annual re ‑
port, the Commission asked the Mem ‑
ber States to develop action plans to 
identify the causes of errors and define 
remedial actions. In 2012, 14 Member 
States set up such plans and all other 
Member States did so in 2013.
29 
In parallel, at the request of the Euro ‑
pean Parliament, the Commission 
analysed the main reasons for the high 
error rate and presented the results in 
June 201311. Two of the main reasons 
given were insufficient checks that 
the costs were reasonable, and non‑  
compliance with public procurement 
rules.Costs could have been bet ‑
ter managed had the Com ‑
mission issued guidance and 
detected weaknesses much 
earlier in the programming 
period
30 
There was no guidance by the Com ‑
mission at the start of the 2007–13 
programming period on the design 
of control systems to verify costs or 
on the risks to be addressed by those 
systems. The managers of the 88 RDPs 
were expected to develop their own 
approaches without information from 
the Commission on the standards 
expected. The Commission did not suf ‑
ficiently check that Member States had 
robust systems in place for checking 
grant applications before they ap ‑
proved large volumes of expenditure 
through the investment measures. The 
processes of accreditation and reports 
by certifying bodies did not alert the 
Commission in good time to the risks 
to the economy of the EU budget.
20 Observations
31 
By the time the first Member States 
produced action plans towards the 
end of 2012, only 1 year of the 7‑year 
programming period remained. Conse ‑
quently, the action plans came too 
late to have any effect on the bulk 
of the expenditure. For example, by 
that time the Polish authorities had 
already approved grants representing 
90 % of the budget for farm mod ‑
ernisation — the most important rural 
development measure financially  — 
and several measures in other Member 
States had already been closed for new 
applications.
While the Commission’s 
recent initiatives have pro ‑
duced some results, the 
action plans do not address 
in sufficient depth the risks 
to the reasonableness of 
costs
32 
Audits and pressure from the Commis ‑
sion have already had some positive 
results: several Member States in ‑
formed the Court that they introduced 
new procedures in 2013 and 2014 for 
checking rural development project 
costs. But Member State action plans 
did not cover all the regional RDPs 
or all the relevant measures and did 
not always propose changes even 
where audits had found specific 
weak  nesses12. Moreover, several of the 
plans put off any action until the next 
programming period.33 
Since the beginning of 2013, the Com ‑
mission has organised twice‑yearly 
seminars to discuss some of the 
key issues and asked Member State 
authorities to further develop their 
action plans. In February 2014 it issued 
a guidance note on avoiding fraud 
and, in September 2014, guidance on 
the use of simplified costs. This guid ‑
ance is aimed at the 2014–20 program ‑
ming period in which the Commission 
is encouraging Member States to make 
more use of simplified costs, which, 
it is hoped, will reduce the rate of 
errors13.
34 
However, for the measures within the 
scope of this audit only around 5 % of 
the expenditure is currently based on 
simplified cost options. The Commis ‑
sion has not issued guidance on ap ‑
proaches applicable for the remaining 
95 % of the expenditure, despite the 
evidence of shortcomings. This leads 
to the risk that, except for using simpli ‑
fied costs, the 88 managing authorities 
may not all identify and implement ef ‑
fective approaches for controlling the 
costs of rural development grants.12 Examples are shown in the 
Court’s annual report for 2013.
13 However, Member State 
representatives have indicated 
their concern that the diversity 
of the rural development 
measures makes the use of 
simplified cost options 
difficult; that the 
administrative costs involved 
in defining standard costs can 
be high; that a lengthy 
preparation time may be 
needed to undertake studies; 
and that the Member States 
would run the risk of 
systematic errors and large 
financial corrections if auditors 
found that the standard costs 
had been set too high.
21 Observations
14 One good example was in the 
United Kingdom (England), 
where an explicit check was 
made that the proposed 
building design or equipment 
specification are justified as 
being the most appropriate to 
the project.35 
The Commission and Member States 
have focused the action plans on im ‑
proving compliance with the imple ‑
menting regulations, thereby reducing 
the rate of errors. Clearly, this is impor ‑
tant and the Court has been calling for 
such action for many years. But com ‑
pliance with the regulations is not an 
end in itself — a focus is also needed 
on the ‘sound financial management’ 
principle of economy that the leg ‑
islation is intended to achieve (see 
paragraphs 2 and 10). In this respect 
even the best of the plans examined 
by the Court does not have a compre ‑
hensive response to the main risks to 
econ  omy — grants based on higher ‑
‑than‑necessary specifications and 
uncompetitive prices; post‑approval 
variations; and checks not related to 
the level of risk. The Court examines 
these and the possible approaches to 
them in Parts II to V of this report.Part II — Guarding 
against overspecification: 
approaches to ensure that 
the items for which the 
grant is approved are 
reasonable
36 
Managers of EU spending programmes 
are expected to apply the principle of 
economy described in the introduction 
to this report. According to this prin ‑
ciple, not only should project grants 
be based on reasonable prices but 
the project specification — the items 
financed  — should also be reasonable. 
Subsidies change the cost–benefit 
relationship, leading to a risk that ap ‑
plicants may specify higher‑cost pro ‑
ject proposals than necessary, ranging 
from ‘gold‑plating’ (see Glossary)  
through to investments that are dis ‑
proportionate to the expected results. 
The Court assessed the approaches fol ‑
lowed by Member State authorities to 
address this risk of overspecification.
37 
While all Member State authorities 
made checks of prices  (see Part III), few 
made explicit documented checks that 
project specifications were reason ‑
able14. Some made indirect, implicit 
or undocumented checks, as shown 
in paragraphs 46, 48 and 53. How ‑
ever, many Member State authorities 
mitigated risks of overspecification 
for some types of projects by restrict ‑
ing the maximum eligible costs or by 
using simplified cost options, as shown 
below.
22 Observations
Restricting grants to the 
costs of a standard specifica ‑
tion is simple and effective 
where there are many similar 
projects or common types of 
expenditure
38 
The risk of overspecification occurs 
where the grant is based on the costs 
of the items chosen by the applicant. 
The Court has observed that Member 
State authorities can largely avoid this 
risk by restricting the eligible costs 
to those of a ‘standard’ specification. 
With this approach the Member State 
authorities estimate the costs neces ‑
sary for a typical project or category 
of expenditure and limit all grants 
to these typical costs. An example is 
given in Box 3 .
39 
This approach has the advantages of 
being simple to implement and hav ‑
ing a predictable outcome: it gives 
certainty. This allows Member State au ‑
thorities  to dispense with burdensome 
requirements and checks of whether 
the specifications are reasonable for 
individual project applications. It does 
not prevent applicants from imple ‑
menting a higher‑cost solution — but 
the grant payment will be based on 
the standard, so the costs to the EU 
budget will be reasonable.
40 
However rural development projects 
require varied and sometimes innova ‑
tive solutions, involving a wide range 
of different types of expenditure. De ‑
fining a standard specification for all 
possible situations is hardly feasible. It 
is best applied where there are a large 
number of straightforward projects 
with similar types of expenditure.41 
Many Member State authorities fol ‑
lowed this approach to some extent by 
applying ‘simplified costs’ or ‘maxi ‑
mum costs’. These approaches are de ‑
scribed in Box 2 . Simplified costs were 
applied in 54 of the 88 RDPs, mostly 
to investments in land‑management 
measures designed to enhance the 
environment, or for planting and 
managing forests. A typical ex  ample 
is a standard payment per metre 
of hedge calculated on the basis of 
a standard specification (e.g. three 
hawthorn plants per metre). Several 
Member State authorities also set 
‘maximum costs’ in relation to project 
outputs in a similar way. These differ 
from ‘standard costs’ in that the ap ‑
plicant is reimbursed the actual costs 
incurred. Examples of types of expend ‑
iture where Member State authorities 
have restricted grants to standard or 
maximum costs are shown in Box 4 .
42 
While over half of the Member State 
authorities make use of simplified 
costs (and others use maximum unit 
costs in a similar way), the Court found 
that this is only for specific expend ‑
iture types within a limited number of 
measures (see  Annex III)  and amounts 
to only around 5 % of the budget. 
There is scope for wider application of 
these methods in other measures and 
in other RDPs.
23 Observations
Example of restricting eligible costs in a way that limits the risk of overspecification: 
crop‑spraying equipment in France
In France, farmers applying for grants towards the costs of crop‑sprayers frequently specified optional extra 
equipment that could reach 85 % of the total costs. Considering this to be unreasonable, in 2012 the French 
authorities placed a limit of 3 000 euro on the costs of such extras for which a grant would be payable.
Types of expenditure where Member State authorities restricted grants to standard 
or maximum costs in a way that limits the risk of overspecification
Standard unit costs
— per metre of hedging (e.g. in France under the measure ‘Conservation and upgrading of the rural heritage’)
— per hectare of land improvement (e.g. in Hungary under the measure ‘First afforestation of agricultural 
land’)
Maximum costs per unit of output or result
— per square metre of building constructed or renovated (e.g. in Bulgaria for buildings under the measure 
‘Village renewal and development’)
— per animal place (e.g. in France for cattle sheds under the measure ‘Farm modernisation’)
Maximum costs per category of expenditure
— maximum amount for a type of agricultural equipment (e.g. in France for spraying equipment under the 
measure ‘Farm modernisation’)
— maximum amount for technical or feasibility studies (e.g. in the Czech Republic for preparation of plans for 
biogas projects under the measure ‘Farm modernisation’)
— maximum percentage for fees (e.g. in Spain (Andalucía) for architects’ fees under the measure ‘Adding 
value to agricultural and forestry products’)Box 3 Box 4
24 Observations
For other measures, where 
justified by the risk, proposed 
costs should be evaluated to 
ensure that specifications are 
reasonable
43 
Where the costs are not restricted to 
those of a standard specification, the 
risk of overspecification needs to be 
addressed. Member State authorities 
followed three main approaches to 
this:
 ο standard checks to compare the 
proposed costs to benchmarks;
 ο individual evaluation of project 
specifications;
 ο expert opinions.
Standard calculations and 
comparison to benchmarks can 
quickly identify applications 
that may be overspecified
44 
For all but the smaller projects, ap ‑
plicants have to provide physical and 
financial data on their businesses 
and on the project plans, which the 
Member State authorities use to check 
eligibility and select the best projects. 
This information ranges from just a few 
figures to full business plans. Member 
State authorities can also make use of 
this information to check that the costs 
of the proposed project are reasonable 
in relation to the expected outputs or 
results: the contribution that the pro ‑
ject is likely to make towards achieving 
the RDP objectives. Examples include 
simple payback calculations or relating 
the capacity of agricultural equipment 
to the size and type of farm.45 
Member State authorities can establish 
standard calculations and spread ‑
sheets that allow their staff to quickly 
calculate financial ratios or other in ‑
dicators and compare them to bench ‑
marks or warning levels. This can be 
done with little additional time or cost 
using templates for application forms 
to ensure the information is consistent. 
Applications that fall within the normal 
ranges can have a reduced level of 
scrutiny and those outside the range 
be investigated more thoroughly to 
ensure that the costs are reasonable.
46 
These benchmarks can also be used as 
cost effectiveness or ‘value for money’ 
criteria for project selection. As an 
example, in the United Kingdom (Eng ‑
land) the authorities set a target that, 
on average, projects involving sup ‑
port for small rural businesses should 
generate one new job per GBP 30 000 
of subsidy. If they considered that 
the proposed project costs were not 
reasonable (i.e. too high) in relation 
to that target, they did not approve 
the grant. For the main investment 
measures, only 4 of the 15 RDPs re ‑
viewed evaluated whether costs were 
reason  able in relation to the expected 
outputs or results (see  Annex IV  and 
Figure 5) .
25 Observations
Member State authorities evaluating costs against the expected outputs or results1Figure 5
1 Excluding the measure for training and information.
Source:  ECA audit findings.Member State authorities evaluating costs
against expected outputs or results
Member State authorities not assessing
costs against the expected outputs or results
Not assessed
CampaniaEnglandDive rsifying the rural economy
Calculations and comparisons are made against benchmarks of costs per job created, costs per additional tourist bed, cost per person completing a training course, cost per business created and per m
2 business 
space, payback period of investments… 
Investments in irrigationThe cost-eﬀectiveness of the projects is assessed using for example the ratio of the project cost and the number of irrigated hectaresRenewable energyFor the construction of biogas plants, the authorities compare the ratio between the amount of expenditure and the total installed power capacity of the plant to a benchmark
Investments in irrigationIn the appraisal procedure, a ‘Project eﬃciency’ criterion compares project cost per irrigated hectare against the average cost programmed
26 Observations
Evaluation of individual 
project specifications can be 
difficult for non‑technical 
administrative staff but 
common‑sense checks and 
unambiguous rules can 
help prevent and detect 
overspecification
47 
In diverse programmes such as those 
for rural development, projects will 
not all have a standard set of outputs 
and results that allow costs to be 
readily evaluated through calculations 
of ratios or comparison with bench ‑
marks. Furthermore, where specifica ‑
tions exceed the norm, Member State 
authorities have to consider whether 
the higher specifications are justified 
by the individual circumstances of 
the project or because they represent 
better value for money. Such evalua ‑
tions of individual project specifica ‑
tions (including tender conditions and 
award criteria) can be difficult without 
specialist technical knowledge and can 
be time ‑consuming but are worth ‑
while for larger amounts. 48 
Some two thirds of Member State 
authorities informed the Court that 
their staff make common‑sense checks 
of project specifications, often using 
the experience they build up through 
processing a large number of projects. 
However, the Court has observed that 
the value of these checks is dimin ‑
ished if a record is not kept of what 
was checked and what standard was 
applied.
49 
Unambiguous rules help non‑technical 
staff to make consistent and fair deci ‑
sions when evaluating project propos ‑
als. A particular — but common — 
situation occurs where the applicant 
presents several suppliers’ offers for 
the project with differing specifica ‑
tions: different makes of equipment, 
different construction methods or 
materials, different time schedules 
or different after‑sales service, etc. 
Applicants will normally choose the 
offer that represents the best value 
for their business in terms of quality 
and cost (although this choice will be 
influenced by the subsidy). Where ap ‑
plicants do not choose the lowest‑cost 
offer, the Member State authorities 
have to evaluate if the additional 
quality or features of the higher of ‑
fer also represent the best value for 
money in terms of the policy objec ‑
tives, or whether it may be a case of 
gold‑plating.
27 Observations
50 
For this, the staff evaluating the costs 
of project proposals need clear criteria 
that they can apply consistently to all 
cases. Here, the Court has found a gen ‑
eral weakness as, instead of criteria, 
Member State authorities have just 
listed examples of the sort of justifica ‑
tions that might  be acceptable. One 
example is in Germany, where almost 
any conceivable reason — quality, 
price, technical suitability, environ ‑
mental qualities, operating and main ‑
tenance costs, profitability, customer 
service, technical assistance or delivery 
dates — can be taken into considera ‑
tion. Others, such as the French and 
English authorities, follow a similar ap ‑
proach. In its previous audits the Court 
found that Member State authorities 
were satisfied if one of these reasons 
was given but rarely evaluated wheth ‑
er it was sufficient to justify the ad ‑
ditional costs. A degree of judgement 
is required to assess the justifications 
given by the applicant but the project 
files lacked documentation to show 
the basis on which staff evaluating the 
application considered that the extra 
costs involved were reasonable.
51 
An alternative approach, followed by 
around a quarter (21) of the 88 Mem ‑
ber State authorities, is to always base 
the grant on the lowest valid offer. This 
has the advantages of simplicity — as 
it is unambiguous — and economy 
as the cost to the EU budget is the 
lowest. Such an approach does not 
prevent the applicant from choosing 
the ‘best value’ offer if that is higher — 
but the amount of grant  will always 
be determined on the lowest offer. In 
effect, applicants pay for the ‘extras’ 
(such as higher quality or an extended 
warranty) themselves without grant 
support. The different approaches are 
illustrated in Box 5 .52 
Of course, neither of the above 
approaches will be effective if the 
applicant manipulates the process of 
obtaining and presenting offers, for 
example by drafting the specifica ‑
tions in a way that excludes potential 
suppliers. This risk is covered in Part III: 
Getting the best price .
28 Observations
Different approaches to establishing the grant amount: lowest valid offer or  
applicant’s choice
 Simplified example : Farmers in Member States X and Y receive offers for 200 hp tractors from 
brands A, B and C for 80 000 euro, 90 000 euro and 100 000 euro respectively. The tractors are 
functionally equivalent but the farmers both prefer brand C. While it is the most expensive, it 
holds its value well and can be resold for 40 000 euro after 5 years. Taking the grant into account, 
this is better value than tractor A, which has a lower resale value.
Member States X and Y both approve grants for the purchase of tractor C but the amount of the grant is dif ‑
ferent. Member State X follows the ‘lowest offer’ principle and gives a 40 000 euro grant (50 % of the lowest 
valid offer). Member State Y checks that the farmer has justified the higher offer and gives a 50 % grant of 
50 000 euro based on the applicant’s choice.
(euro)
Member State X:  
grant based on lowest offerMember State Y:
grant based on applicant’s choice
Lowest valid offer 80 000 80 000
Applicant’s chosen offer 100 000 100 000
Grant approved at 50 % 40 000 50 000Box 5
Expert opinions can give good 
assurance that specifications 
are reasonable, provided 
that they are sufficiently 
independent
53 
Many RDP projects involve similar 
types of expenditure: agricultural 
machinery, agricultural installations, 
construction and rural infrastructure, 
for example. Several Member State 
authorities, including Hungary and 
Italy (Campania), employ staff with 
qualifications in these fields, such 
as agricultural engineers or quantity 
surveyors. These are able to under ‑
stand the technical specifications and 
apply their professional qualifications 
and experience to make sound judge ‑
ments on the project specifications 
proposed. Provided that the purpose 
and conclusion of the checks is clear 
and the work done is documented, 
the use of in‑house expertise can give reliable, independent assurance that 
the costs proposed are reasonable and 
allows the Member State authorities 
to identify any cases of gold‑plating. 
The deterrent effect of this is also im ‑
portant: a farmer that knows that the 
grant application will be evaluated by 
an agricultural engineer, for example, 
is less likely to apply for an excessive 
specification.
29 Observations
54 
However, it is not always feasible 
or cost‑effective for Member State 
authorities to employ staff with such 
expertise, particularly when there 
are too few projects of a particular 
type to justify it. Some Member State 
authorities, such as those in Greece 
and Lithuania, contract experts to give 
opinions on the specifications and 
costs of selected projects, particularly 
for projects that present specific risks 
because of their size or specificities, or 
because they differ from the normal 
ranges of costs.
55 
Other Member State authorities, 
such as those in Austria and Hungary, 
require applicants to provide a cer ‑
tificate or statement by a recognised 
expert such as a quantity surveyor on 
the project specifications. However, 
the reliance that can be placed on such 
statements is limited in practice. Most 
obviously, the experts will act in their 
clients’ interest, which may conflict 
with the Member States’ and the 
EU’s interests of achieving the policy 
objectives at the lowest possible cost. 
Secondly, the purpose of the expert’s 
statement may be to confirm that the 
specification complies with building 
regulations or other technical require ‑
ments. This is not relevant or useful for 
identifying potential overspecification.Part III — Getting the best 
price: approaches to 
ensure that the prices of 
the items approved are 
reasonable
56 
Following the principle of economy 
(see paragraphs 2 and 10), EU project 
funding should be based on prices 
that are the lowest available for the 
required project specification. How ‑
ever, subsidies reduce the incentive 
for the applicant to search for the best 
prices and applicants may prefer to 
favour a higher‑cost supplier, leading 
to the risk that grant applications may 
be based on uncompetitive prices. The 
Court assessed the approaches fol ‑
lowed by Member State authorities to 
address this risk.
57 
By the end of 2013, all 15 of the Mem ‑
ber State authorities had formal sys ‑
tems in place for checking that prices 
are reasonable. The main approaches 
followed (which are described in 
Box 2)  were:
 ο comparing the costs applied for 
with independent price informa ‑
tion (obtained through market 
research or from price lists or 
databases);
 ο comparing different offers ob ‑
tained by the applicant (includ ‑
ing through public procurement 
procedures);
 ο consulting experts.
An alternative approach followed that 
mitigated the risk was to use simplified 
or maximum costs to establish or limit 
project costs.
30 Observations
Where feasible, using simpli ‑
fied cost options (or using 
maximum costs in a similar 
way) effectively limits the 
risks of excessive prices — as 
long as they are set at the 
right level
58 
As described in paragraphs 38 to 42, 
grants can be based on simplified 
costs determined by the Member State 
authorities, an approach which limits 
the risk of overspecification. Maximum 
costs can be set for outputs, results or 
categories of expenditure in a similar 
way. Where these cost levels are set at 
or below the level of the best available 
market prices, it follows that the cost 
to the EU budget will be reasonable. In 
paragraphs 41 and 42, the Court found 
that over half the Member State au ‑
thorities made some use of simplified 
costs and there was scope for more 
widespread use of these approaches.
59 
Where a  maximum cost  is set, the ap ‑
plicant is reimbursed the lowest of the 
grant applied for, the amount actually 
paid or the maximum amount. This 
potentially gives the best economy 
for the EU and national budgets. With 
the simplified cost  methods, however, 
the applicant can theoretically re ‑
ceive a grant for more than the costs 
incurred. Provided that this occurs 
infrequently and is only for small 
amounts the extra cost can be justi ‑
fied by the gains from the additional 
simplification.60 
If ‘maximum costs’ are set at a level 
that exceeds the available market 
prices they would have little effect. If 
‘simplified costs’ are set too high this 
would lead to unjustified costs being 
incurred as described below. This is 
illustrated in Box 6 .
31 Observations
If simplified cost levels are 
set too high, they could affect 
the economy of the whole 
expenditure — for this reason 
Member State authorities 
should ensure they are soundly 
based and periodically review 
and adjust them
61 
Simplified costs have to be set in 
advance as they are needed for pre ‑
paring applications and approving 
the grant amount. Studies and pro ‑
jections are needed to establish the 
amounts, which will entail a number of 
assumptions. The Commission has issued guidance 
for Member State authorities to ensure 
that these calculations are sound. 
These authorities can obtain additional 
assurance by having the calculations 
audited.The difference between maximum unit costs and standard unit costs
Simplified example : Based on a study, the average cost of replanting a forest is estimated by 
the Member State authorities to be over 4 000 euro per hectare.
With a system of ‘maximum unit costs’ an amount of 4 000 euro per hectare is set as a ceiling. 
The applicant has to submit details of the actual costs incurred and the Member State authorities have to 
check these. The payment made is based on the actual costs per hectare up to the maximum.
With a system of ‘standard unit costs’ the Member State authorities pay the same amount of 4 000 euro per 
hectare to all applicants, regardless of the costs incurred. This is a simplification for the applicant — who does 
not have to prove that their costs are reasonable or submit details of the actual costs — as well as for the 
Member State authorities.
If the maximum cost is set at 6 000 euro it has no effect. If the standard cost is set at 6 000 euro it results in 
overpayments, as illustrated in the following table:
(euro)
Actual costs  
incurred per hectareGrant paid on basis of  
4 000/ha maximum costGrant paid on basis of  
4 000/ha standard costGrant paid on basis of  
6 000/ha maximum costGrant paid on basis of  
6 000/ha standard cost
3 000 3 000 4 000 3 000 6 000
4 000 4 000 4 000 4 000 6 000
5 000 4 000 4 000 5 000 6 000Box 6
32 Observations
62 
The resulting amounts will apply for 
a standard situation and may under ‑
state the prices available to some 
applicants and overstate others. This 
could lead to overpayments, where the 
grant exceeds the real costs incurred. 
An example is shown in Box 7 . Con ‑
sequently, Member State authorities 
should ensure that overpayments are 
exceptional. To this end, Member State 
authorities should periodically test 
a sample of real cases to be sure that 
the simplified costs are set at or below 
the level of generally available market 
prices.63 
The Court did not identify any Member 
State authorities that kept simplified 
costs under review in this way. How ‑
ever, some did have methods to ensure 
that their maximum unit costs  were 
reasonable, which could also be ap ‑
plied to simplified costs. For example, 
in Germany (Brandenburg and Berlin), 
the authorities adjusted each year the 
maximum cost per hectare for planting 
forests to 85 % of the average actual 
costs observed in the preceding year.
Standard unit costs based on theoretical calculations can overstate the available 
market prices, resulting in overpayments
The 2007 RDP for England included a standard cost of GBP 228 per hectare for management of scrub land un ‑
der the measure for ‘non‑productive investments’. The English authorities based this amount on estimates of 
the typical costs of a farmer undertaking this work. A well‑respected agricultural college checked the calcula ‑
tion. The Court’s audit of a randomly selected 2012 payment found that the farmer concerned had employed 
a contractor to do the work at a cost of GBP 95 per hectare.
The English authorities did not have a process in place to periodically compare the standard unit costs with 
the actual costs incurred for a sample of projects, which could have detected that the standard costs were out 
of line with real costs.Box 7
33 Observations
Comparing the prices of the 
items applied for to inde ‑
pendent price data can pro ‑
vide assurance that prices 
are reasonable but this 
approach can be difficult to 
implement
Market research can be used to 
get independent comparative 
price information for individual 
projects
64 
In 11 of the 15 RDPs subject to desk 
review (see Annex IV) , the Member 
State authorities sometimes undertake 
market research or compare with other 
similar projects to verify that the prices 
given in the application are reasonable 
(this method is often combined with 
the ‘comparison of offers’ described 
in Box 2  for added assurance). For 
example, in Poland, staff make Internet 
searches for prices, confirm prices with 
suppliers or ask for counter‑offers. As 
this information is independent  — i.e. 
it is not provided by the applicant — it 
can provide good‑quality evidence of 
the available prices.
65 
Market research is used successfully 
in some Member States, in particular 
where there is an indication of risk, 
but it is time‑consuming and it can 
be difficult to demonstrate that all 
applications have been evaluated 
consistently. This leads other Member 
State authorities to set up systems of 
reference prices instead (see below).Reference to price databases 
or listings can be efficient but 
an approach is needed that can 
cope with the huge variety of 
eligible items
66 
Most Member State authorities — 76 
of the 88 — have established price 
databases for at least some types 
of expenditure (most commonly for 
agricultural machinery) or refer to 
commercial price databases or listings, 
such as for unit prices for construction 
materials or building costs. EU‑wide, 
the costs of around a quarter of the 
rural development grant applications 
are evaluated against such reference 
prices. Two different approaches are 
followed. The majority — 63 of the 
Member State authorities  — consider 
the reference prices as ceilings  and 
limit the grant to the prices of the 
individual items listed in the database. 
In the second approach, the reference 
prices are considered as indications , so 
the authorities may approve grant ap ‑
plications with prices that exceed the 
reference if they consider the higher 
prices to be reasonable.
34 Observations
67 
With the great diversity of possible 
expenditure on the wide range of po ‑
tential rural development projects  —
which can range from basic inputs like 
concrete or labour to sophisticated 
computer‑controlled equipment  — 
comprehensive price databases can 
become costly to set up and manage 
and it can be difficult to ensure that 
the data is reliable, consistent and up 
to date. In Hungary, for example, the 
price database for machinery alone 
contains 230 000 items of different 
makes, models, options and qualities 
and has to be updated twice a year 
(construction‑related costs are in an ‑
other database).68 
Nevertheless, for the larger RDPs 
with sometimes thousands of similar 
project applications to process, the use 
of such databases can be an efficient 
way of checking prices, subject to the 
points made above. However, where 
the prices are listed for component 
items or inputs — such as construc ‑
tion materials — the work involved 
to check the prices can be consider ‑
able (see  Box 8) . This can also lead the 
Member State authority staff to focus 
on the prices of some easy‑to‑check 
items like the costs of concrete but 
to ignore more specialised finishings, 
for example, where the risks of exces ‑
sive prices may be greater. Member 
States such as Bulgaria, France and 
Greece avoid these problems by 
establishing reference prices based on 
outputs such as the size or capacity 
of the construction as a whole (these 
may be implemented as ‘maximum 
costs’ — see paragraph 41).
Comparison of approaches used to check the costs of construction projects for the 
farm modernisation measure: checking costs of component items (Lithuania) and 
checking costs of outputs (France)
In Lithuania, the authorities subscribe to commercial listings of construction costs. These show, for a given 
type of building, construction method and choice of materials, the typical costs per linear metre of founda ‑
tions, costs per square metre of roof and costs per square metre for walls, windows, decoration, tiling, etc. The 
staff evaluating project proposals take details of the proposed construction from the grant application and 
calculate the expected cost of each element using the price listings. The calculated costs of these elements 
are then compared with those in the grant application.
In France, typical construction costs have been established per animal or per square or cubic metre based on 
a study of past projects. For example, a shed for 40–60 cows is estimated at 2 920 euro per cow. A concrete 
slurry pit of up to 100 m3 is estimated at 157 euro per m3. The authorities can quickly calculate the cost per 
cow or per m3 of the project proposal and compare it with the expected cost.Box 8
35 Observations
15 It may, however, be easier to 
compile and maintain price 
databases from suppliers’ list 
prices rather than market 
prices. If this is the case, 
Member State authorities can 
apply a coefficient to the list 
prices to obtain an 
approximation of market 
prices to be used as 
a reference or ceiling.These databases and listings 
are only useful if the prices they 
contain are sufficiently close to 
the real market prices available
69 
In 6 of the 10 RDPs where reference 
prices are used for machinery and 
equipment (see  Figure 6) , prices are 
provided to the Member State author ‑
ities by the manufacturers and dis ‑
tributors or taken from their price lists 
or catalogues. An example is shown 
in Box 9 . However, it is normal com ‑
mercial practice to negotiate discounts 
from list prices, which may be substan ‑
tial (it is unusual to pay full list price 
for a new car, for example). This means 
that list prices are likely to overstate 
the real market prices available. Con ‑
sequently, these are of little value as 
reference prices (or as ceilings) except 
to identify the unusual situation of the 
prices proposed in the grant applica ‑
tion being above those offered by the 
manufacturer15. Other Member State authorities com ‑
pile reference prices by market surveys 
or collecting data from project approv ‑
als and payment claims.
Reference prices (or price ceilings) based on suppliers’ list prices are of little use for 
establishing that costs are reasonable
In Hungary, a database is maintained of prices for agricultural and forestry machinery, which are provided by 
distributors and manufacturers. The applicant does not have to provide offers from suppliers to support the 
grant application if the items concerned are listed in the database, which simplifies the process. The Hun ‑
garian authorities approve grant applications if the costs are equal to or below the prices in the database.
The Court compared prices actually offered to applicants by suppliers to the prices in the database. Twelve 
of the offers examined were for agricultural tractors. On average, these offers were 30 % lower than the price 
listed in the database. The Hungarian authorities replied to the Court that a difference of 25–30 % below the 
database prices was not unusual.
In this situation — which is not unique to Hungary — the comparison of the grant application to a price data ‑
base may comply with the letter of the implementing regulation (see paragraph 17) but it demonstrates only 
that the prices do not exceed the distributors’ and manufacturers’ list prices. It does not show that the prices 
are reasonable.Box 9
36 Observations Figure 6Sources used for establishing reference costs or price ceilings
Source:  ECA audit findings.Mark et pric es
Suppliers ’ list pric es
Not applicable or not assessed
Campania
AndalousiaMeasur es for farm modernisa tion
Online da tabase SimC oGuide 
provides r eference cost for farming 
equipmen t. It is upda ted annually 
by an or ganisa tion independen t 
from equipmen t suppliers . It is 
based on obser ved mark et pric es
Measur e for village r ene wal
Prices fr om a r egional c onstruc tion 
pricelist ar e used as a c eiling . 
These pric elists ar e upda ted 
annually and c ontain a verage 
mark et pric es obtained thr ough 
public pr ocuremen t procedur esThe refer ence pric e da tabase c ontains 
the pric es of goods and ser vices 
typically used for the measur es, and is 
upda ted c ontinuously with pric es fr om 
the oﬀers pr ovided b y the applican ts as 
well as the r esults of the mark et 
resear ch per formed b y the Member 
State authorities staﬀ
37 Observations
70 
If reference prices (or ceilings) are too 
high, this could also affect behaviour, 
encouraging applicants to propose 
prices up to the limit in order to max ‑
imise the amount of grant. This creates 
a disincentive to reduce costs and an 
incentive for collusion with suppli ‑
ers to artificially inflate prices — such 
as by providing ineligible goods or 
services hidden within the inflated 
costs of the eligible item or by offer ‑
ing hidden rebates. It can also lead to 
uncompetitive behaviour by suppliers. 
To avoid this risk, Member States such 
as Bulgaria do not display the prices 
in the public version of their reference 
price database.
71 
As with simplified costs, reference or 
maximum prices can go out of date 
and if based on construction costs in 
the capital city, for example, may not 
reflect those available in rural areas. 
Price databases should therefore 
be updated periodically and should 
reflect regional variations where these 
are significant.Where the prices of the 
items applied for exceed the 
reference price, judgement 
is needed to determine the 
level of grant that should be 
approved: clear rules and 
criteria are needed to support 
this
72 
By their nature, reference prices can ‑
not always reflect the market prices 
available at the time and place of every 
individual project. Some differences in 
prices are inevitable — especially for 
equipment if the reference price data ‑
base does not include the same make 
and model as the item applied for. 
Where the prices applied for exceed 
the reference prices, unless Member 
State authorities apply the reference as 
a ceiling, staff have to make a judge ‑
ment on whether the higher prices 
are reasonable. As this can be difficult 
and time‑consuming, small differences 
from reference prices can be accepted 
without further investigation as the 
potential cost saving would be low.
73 
Where differences exceeded the toler ‑
ated variance from reference prices, 
Member State authorities generally 
required the applicants to provide 
a justification. But there was a lack of 
clarity on the criteria applied to evalu ‑
ate these justifications and of docu ‑
mentation to show the basis on which 
costs above the reference prices were 
considered reasonable.
38 Observations
74 
However, Member State authorities 
such as France and Lithuania automati ‑
cally accepted differences of up to 30 
or 40 % above the reference prices 
without requiring any justification 
from the applicant and without first 
having established that differences of 
such magnitude reflect the prices re ‑
ally paid in situations without subsidy. 
The Court would question whether 
a price 30 % above a reference price 
can be automatically considered as 
reasonable and whether this practice 
accords with the principle of economy. 
The costs of an average food‑process ‑
ing project, for example, are around 
750 000 euro. If the reference price 
corresponded to this amount, the ap ‑
proach outlined above could allow an 
additional 300 000 euro of costs to be 
accepted without question. Where the 
reference prices themselves are based 
on list prices rather than real market 
prices (as is the case in Lithuania, for 
example), the risk that excessive prices 
may be approved is all the greater.Comparison of offers 
received from different 
suppliers can be a straight ‑
forward method to establish 
market prices but safeguards 
are needed to guard against 
manipulation and fraud
75 
A method commonly used in  rural 
development, as in many other 
grant‑based spending programmes, 
is to require the applicant to provide 
offers from suppliers to demonstrate 
that the grant application is based on 
reasonable prices. For larger amounts, 
particularly where public bodies are 
concerned, the offers may be obtained 
through a formal tendering process. 
The comparison of offers is a common 
commercial practice and often does 
not represent an additional burden for 
the applicant. Where there is genu ‑
ine competition between suppliers, 
a comparison of offers can be effective 
in demonstrating that the best avail ‑
able price has been obtained. Member 
State authorities evaluate the costs of 
some two thirds of rural development 
grant applications in this way.
39 Observations
The ‘comparative offers’ 
method relies on there being 
genuine competition, so if 
only one offer is provided 
(or the offers provided are 
not comparable), alternative 
methods are needed to check 
that the prices are reasonable
76 
Member State authorities typically 
require the applicant to submit two or 
three supplier offers in support of the 
grant application. However, on occa ‑
sions applicants only provide a single 
offer, which may be because an item 
is unique (there is only one possible 
supplier) or because other suppliers 
chose not to make an offer. It may also 
result from a manipulation of the call 
for offers by the applicant to favour 
a particular supplier.
77 
A single offer does not demonstrate 
that the best price has been obtained 
for the item in question. However, the 
Court has observed that Member State 
authorities have accepted single offers 
without making alternative checks to 
establish that the prices are reason ‑
able, such as market research, com ‑
parison with other projects or expert 
estimations. Examples from France and England are 
shown in Box 10) . The English author ‑
ities have since introduced procedures 
requiring such alternative checks to 
be made in cases where only a single 
offer is provided.
Measures are needed to deter, 
prevent, detect and correct any 
manipulation of the process to 
favour a particular supplier
78 
The vulnerability of the comparative 
offers method is that the price infor ‑
mation is provided by the applicant, 
not obtained independently by the 
Member State authorities. This opens 
up the possibility that the process 
will be manipulated in order to favour 
a higher‑cost supplier.
Single offers accepted by the authorities without making additional checks
In France, an applicant obtained two offers for the supply and installation of an automated fruit‑processing 
line but presented only the most expensive offer to the authorities as this corresponded best to his needs. The 
French authorities accepted the single offer without performing any check that the costs were reasonable.
In England, an applicant provided only one supplier offer for wine‑making equipment with the justification 
that the equipment was specific to the production of sparkling wines and there was only one supplier. This 
was accepted by the English authorities without question. However, the Court’s auditors were able to identify 
other suppliers of the same equipment.Box 10
40 Observations
79 
This may be for motives that are 
understandable: an applicant may 
prefer a higher ‑cost local supplier or 
contractor because the applicant has 
worked successfully with them in the 
past. Several Member State author ities 
explicitly accept such preferences as 
justification for accepting a higher ‑
cost offer, such as in Hungary, or for 
one of the aid schemes in England. In 
the Court’s view, such personal prefer ‑
ences are not sufficient justification for 
basing the grant on a higher offer.
80 
There is also a risk that the applicant 
may manipulate the process by defin ‑
ing the specification in such a way 
that only one supplier could easily 
comply — or simply not asking other 
potential suppliers to make offers. At 
the extreme, an applicant may even 
collude with the supplier to falsify of ‑
fers or be the victim of collusion and 
fraud by consultants or suppliers.
81 
While fraud is an exception, there 
is sufficient evidence that it exists 
from the Court and the Commission’s 
audit work and from the European 
 Anti‑Fraud Office (OLAF). Yet only 4 
of the 15 RDPs reviewed for the audit 
had introduced anti‑fraud measures 
in their management of rural devel ‑
opment grants. The Commission’s 
guidance suggests that training staff 
be aware of fraud, sharing information 
on cases detected, operating a sys ‑
tem of ‘red flags’ and using check ‑
lists designed to identify possible 
manipulation. One approach used in Member States 
such as Romania is to increase trans ‑
parency and competition by requiring 
private grant applicants to publish 
their calls for offers to suppliers on 
a website run by the paying agency.
Public procurement rules 
make manipulation and fraud 
more difficult to conceal, but 
do not eliminate these risks or 
guarantee in all cases that costs 
will be reasonable
82 
Public bodies are required to follow 
procurement procedures designed 
to obtain the best price while ensur ‑
ing fairness and transparency. Above 
certain thresholds EU directives 
apply16. Negotiated procedures with 
a single supplier can be followed in 
some situations but typically, for larger 
contracts, public bodies will obtain 
offers from different suppliers, which 
may be through an open invitation 
to tender. If properly applied, public 
procurement rules should reduce the 
opportunities for manipulation and 
fraud — although, as shown in para ‑
graph 25, public procurement rules are 
not always complied with.
83 
In 9 of the 15 RDPs reviewed 
(see  Annex IV) , the Member State 
authorities did not make checks that 
the costs applied for were reasonable 
if a public procurement procedure 
had been followed. However, such 
procedures may not result in multiple 
comparable offers being received  — 
which may be because of a genuine 
lack of competition, because the call 
for offers was not widely publicised or 
because the tender specifications or 
contract conditions excluded potential 
suppliers. If only one offer is received 
or the offers are not comparable, the 
fact that the procurement procedures 16 Details can be found at: http://
ec.europa.eu/internal_
market/publicprocurement/
index_en.htm
41 Observations
were followed does not demonstrate 
that the price of the selected offer is 
reasonable.
84 
Moreover, a public procurement proce ‑
dure does not in itself do anything to 
mitigate the risks of overspecification 
described in Part I. Court and Commis ‑
sion audits have found cases of public 
procurement where the specifications 
in the invitation to tender were exces ‑
sive, or where the award criteria gave 
undue weight to qualitative aspects 
without taking proper account of the 
costs.
85 
Consequently, if only one offer is 
received from a public procurement 
procedure, if there are risks of over ‑
specification or if there are weaknesses 
in the process followed, Member State 
authorities should make additional 
checks to establish that the costs 
proposed are reasonable where this is 
justified by the amounts at stake.Where judgement is 
required, an independent 
expert opinion or that of an 
evaluation panel can give 
valuable assurance and can 
be particularly cost‑effective 
when targeted to higher‑risk 
cases
86 
Paragraphs 53 to 55 of this report 
describe the use of experts for evalu ‑
ating project specifications. Experts 
can give similar assurance that prices 
are reasonable, and the same opinion 
can cover both the specification and 
the price. Using external experts can 
be costly, so is particularly relevant 
where there is a high financial risk or 
suspicion of manipulation. The Lithu ‑
anian example in Box 11  shows that 
well‑targeted use of experts can gen ‑
erate net savings to the national and 
EU budgets.
87 
In 10 of the 15 RDPs reviewed 
(see  Annex IV) , Member State author ‑
ities referred at least the larger grant 
applications to an evaluation panel 
that may comprise technical experts 
and/or other individuals with relevant 
knowledge. Such panels can help re ‑
duce the subjectivity of assessments of 
whether the prices (and the specifica ‑
tions) are reasonable.
42 Observations
Well‑targeted use of experts can generate net savings to the national and EU 
budgets
Where grant applications concern larger amounts, if only one offer is provided or there are other risk charac ‑
teristics, the Lithuanian authorities refer the project proposal to a firm of financial consultants for an expert 
review of the proposed costs. The Lithuanian authorities referred 214 cases to the consultants in 2012/13. The 
consultants concluded that the prices applied for exceeded the best available market prices in 27 cases. The 
Lithuanian authorities have calculated that every euro paid to the consultants resulted in a saving of over  
4 euro of EU and national funds.Box 11
Part IV — Keeping the eye 
on the ball after project 
approval: approaches to 
ensure that the costs 
actually reimbursed are 
reasonable
88 
As described above, Member State 
authorities are required to check that 
the grants they approve are based 
on reasonable costs. But some costs 
may still be uncertain at the grant ap ‑
plication stage, particularly for large 
construction projects. It can take some 
Member State authorities several 
months to process applications, so the 
prices obtained at the time of the ap ‑
plication may no longer be valid once 
the project starts, or the applicant’s 
business plans may have changed. 
Consequently, it is not unusual that the 
costs incurred will differ from the costs 
approved: both the specification and 
the prices may change.89 
Three types of risk appear when the 
applicant presents a grant payment 
claim for reimbursement of the costs 
incurred:
(a) the costs are no longer reasonable 
in terms of the actual outputs and 
results: costs that were approved 
for a 100 ‑animal ‑capacity cattle 
shed may not be reasonable if the 
shed actually built has a capacity 
of only 50;
(b) the project has been implemented 
in a different way, so the specifica ‑
tions and prices checked in the ap ‑
plication are no longer applicable: 
instead of a slate roof for the cattle 
shed, for example, the farmer con ‑
structs a metal roof for the same 
amount;
(c) savings made on elements of 
the project have been used for 
gold‑plating, as project promot ‑
ers tend to see the grant approval 
as a budget available to spend: if 
construction works come in under 
budget, for example, the saving 
may be spent on lavish fittings.
The Court assessed the approaches 
followed by Member State authorities 
to address these risks.
43 Observations
Control systems should 
detect and check any 
ma terial changes to the pro ‑
ject made after the grant has 
been approved to be sure 
that the costs to be reim ‑
bursed are still reasonable
90 
Except where ‘simplified costs’ apply, 
applicants must normally submit paid 
invoices to support their grant pay ‑
ment claims. Member State authorities 
check these invoices to ensure that 
there is a correct basis for reimburse ‑
ment. Where the actual project costs 
are exactly as detailed in the applica ‑
tion, no further checks are needed to 
establish that the costs are reasonable. 
But Member State authorities need 
rules and control systems in place to 
detect significant changes from the 
approved project costs and check that 
the costs are still reasonable.91 
The Court found that all of the 15 
Member State authorities had pro ‑
cedures to deal with changes to the 
approved project outputs or costs. 
Two alternative approaches were 
followed. In the first, the authorities 
specified the project costs in the grant 
agreement at the same level of detail 
as those that they had checked in the 
application: if the costs were checked 
item by item, the grant agreement 
specified the costs item by item. In 
the second approach, grant agree ‑
ments were made for the total project 
cost or for broad categories of cost 
(such as construction, equipment and 
fees) even where the costs had been 
checked on an item ‑by‑item basis. This 
second approach did not generally 
give good assurance that the three 
risks mentioned above were addressed 
and it allowed the reimbursement of 
costs for which the reasonableness 
had not been checked. An example is 
shown in Box 12 .
Measure for supporting small rural businesses in England: changes made to the 
project allowed the reimbursement of costs for which the reasonableness had not 
been checked
An applicant requested a grant for a project to renovate its premises and purchase specialised equipment. 
The applicant presented several offers for the building works, the equipment and other items including 
a new staff kitchen. These were checked and approved by the English authorities. When the applicant came 
to buy the specialised equipment it found a supplier offering a price well below the previous offers. It used 
the savings made on the equipment to do some works on the car park and to purchase a more expensive 
staff kitchen. As the total approved project costs were not exceeded, the English authorities did not check the 
reasonableness of these extra costs.Box 12
44 Observations
Clear rules, explicit declara ‑
tions and checks on samples 
of payments can deter the 
concealment of discounts, 
rebates or other advantages 
given by the supplier that 
lower the real cost
92 
In most RDPs, applicants are required 
to present their payment claims net of 
any discounts. This may be required 
by the general administrative law of 
the Member State or in the rules for 
implementing the aid measure. In 3 of 
the 15 RDPs examined (see  Annex IV) , 
the Member State authorities also 
required the applicant to make an ex ‑
plicit declaration in the payment claim 
(for example by ticking a box yes/no). 
Another good practice is to include 
examples in the aid scheme guidance 
to show how the applicant should deal 
with various types of discounts, re ‑
bates or other advantages given by the 
supplier that lower the real cost. While 
these approaches would not pre ‑
vent intentional fraud, they can have 
a deterrent effect. They also cover the 
cases where applicants do not think 
about whether a discount or rebate 
should be deducted from the claim, or 
where they are unsure.93 
Beyond having clear rules and dec ‑
larations, Member State authorities 
should check the invoices provided 
in support of the payment claims for 
any indications of discounts, rebates 
or other advantages and ensure that 
these are deducted. As these may not 
be shown on the invoice (for example, 
a supplier may give a rebate at the end 
of the year), Member State authorities 
should also make further checks for 
a sample of payments. Such checks are 
time‑consuming and may require con ‑
tacting the suppliers and/or visits to 
the applicant to check their account ‑
ing and bank records. An opportunity 
for this is the ‘on ‑the‑spot’ and ‘ ex 
post ’ checks on a sample of payments 
required under the EU legislation17.  
Six of the 15 Member State authorities 
did this (see  Annex IV).
94 
Undertaking such checks cannot de ‑
tect and correct all instances of hidden 
discounts or other advantages but it 
serves two purposes. Firstly as a deter ‑
rent: applicants are less likely to hide 
discounts if they know that there is 
a chance it will be checked. Secondly, 
it provides feedback to the Member 
State authorities about the incidence 
of such practices so they can adjust 
their control systems appropriately.17 Commission Regulation (EU) 
No 65/2011.
45 Observations
Part V — Making it 
efficient: approaches to 
ensure that the level of 
requirements and checks 
is commensurate with the 
level of risk
95 
The potential financial impact of 
reimbursing unreasonable costs due 
to overspecification or excess price 
depends on how frequently it hap ‑
pens and the amounts involved. As the 
potential financial impact increases, so 
should the level of checks: they should 
be proportionate to the level of risk 
involved. To avoid an unnecessary ad ‑
ministrative burden, the requirements 
applicants must comply with should 
be the minimum necessary to permit 
those checks. The Court assessed 
the approaches followed by Member 
State authorities to match the level of 
requirements and checks to the level 
of risks.
Where the likelihood and 
potential impact of the risks 
is low, control systems can be 
designed that minimise the 
administrative burden
96 
The lower the grant as a proportion 
of total project costs (the effective aid 
rate), the greater the amount that the 
applicant has to contribute from their 
own resources. This increases the ap ‑
plicant’s incentive to get the best price 
and reduces the incentive to inflate 
the specification. However, none of the 
15 Member State authorities reviewed 
reduced their requirements or checks 
to reflect the reduced risk associated 
with low effective aid rates.97 
Where the Member State authorities 
had independent information on the 
prices, notably in databases of refer ‑
ence prices, or where they set maxi ‑
mum costs, they mostly reduced the 
requirements on applicants to reflect 
the lower risk. For items in the data ‑
base of machinery prices in Hungary, 
for example, applicants did not have 
to provide any offers to support their 
grant applications. Use of simplified 
costs removes the need to check costs, 
but this approach was not widely used 
(see paragraph 42).
98 
Most Member State authorities re ‑
duced the requirements and checks 
for very low‑cost items by requiring 
a reduced number of offers, accept ‑
ing price lists or website screen prints 
instead of offers, or excluding very 
small individual items from the eligible 
costs. They also reduced require ‑
ments for business plans and other 
information.
46 Observations
High‑value items, projects 
with high aid rates and 
other risk factors warrant an 
increased level of checks
99 
Across the EU, the average rural 
development investment project 
costs around 125 000 euro. For pro ‑
ject costs of this amount, all Member 
State authorities require two or three 
supplier offers or check the proposed 
costs against price databases. Some 
also check value for money, do market 
research on prices or consult experts, 
as described earlier in this report. But 
where the eligible project costs (and 
therefore the amount of grant) are 
much higher than the average amount, 
few authorities make additional or 
more extensive checks, despite the 
potential impact of the risks being 
higher18.
100  
However it is not only high‑value 
projects that present higher risks. 
In particular, the higher the aid rate, 
the lower the applicant’s incentive to 
limit the costs by searching for the 
best price or by more economical 
specifications. As aid rates approach 
100 %, the risk of overspecification 
and gold‑plating becomes very high, 
whether the applicant is a public body 
or in the private sector19. Yet none 
of the 15 Member State authorities 
reviewed increased their requirements 
and checks to reflect the increased 
risks associated with high aid rates. 
This is a particular concern where the 
Member State authorities made no 
checks on the reasonableness of costs 
if the applicant followed public pro ‑
curement procedures, as these do not 
in themselves give assurance that the 
project specifications are reasonable 
(see paragraphs 83 to 85).18 Where the applicant is a public 
body, it is normally bound to 
follow additional procurement 
procedures for higher value 
contracts and the Member 
State authorities have to check 
that the procedures are 
correctly followed.
19 Public bodies and associations 
are often given grants of up to 
100 %. This is much less 
frequent for private‑sector 
projects but it does occur. For 
example in Italy (Campania) 
100 % grants were offered to 
private businesses for farm 
diversification and rural 
business development 
projects.
47
 Conclusions and 
recommendations
101  
In this audit the Court questioned 
whether the approaches followed by 
the Commission and Member States 
were the most effective for keeping 
the costs of rural development grants 
under control.
102  
The Court found that the approaches 
followed were not the most effective. 
The Commission reacted after prob ‑
lems emerged rather than ensuring 
that systems were sound in the first 
place. Member States’ control systems 
addressed only some of the risks to 
economy or were flawed. More effec ‑
tive approaches were available but 
were not widely applied.
103  
The Commission did not offer guid ‑
ance or spread good practice at the 
start of the 2007–13 programming 
period. It did not ensure that Member 
States’ systems were effective before 
they started approving large volumes 
of grants. By the time it took action, 
the bulk of the project grants had 
already been approved. But since 2012 
the Commission has adopted a more 
active and coordinated approach. If 
followed through with a greater focus 
on economy, this should lead to bet ‑
ter financial management in the next 
programming period.104  
Regarding the Member States, by 
2014 the 15 largest rural development 
programmes all had in place the basic 
systems required by the regulations for 
checking rural development costs. The 
methods used varied, and the Court 
identified some well‑designed ap ‑
proaches to address certain risks. But, 
as shown by the overview in Annex IV , 
all had weaknesses in relation to the 
main risks such that overall, the costs 
of rural development grants were not 
well controlled. Analysis of information 
from all 88 RDPs indicates that a simi ‑
lar situation prevails across the EU. In 
particular:
(a) Member States’ control systems 
focused on the prices of the items 
or works in the grant applications 
with much less attention to the 
specification : whether the items 
themselves were reasonable or if 
the grant was cost‑effective in rela ‑
tion to the policy objectives. This 
leads to risks of gold‑plating and 
poor value for money.
(b) The main methods used to check 
the prices in grant applications 
were to compare offers from differ ‑
ent suppliers or to compare them 
to reference prices. The Court 
found that the systems in some 
Member States gave little assur ‑
ance that the costs were reason ‑
able  — using reference prices 
that were 30 % above real market 
prices, for example.
48 Conclusions and recommendations
(c) Grants are approved in advance 
and paid once the applicant has 
purchased the items or under ‑
taken the works concerned. Where 
changes to a project occurred after 
grant approval, loopholes in some 
Member State systems allowed 
costs to be reimbursed for which 
the reasonableness had not been 
checked.
(d) The level of requirements and 
checks generally did not take 
account of different levels of risk. 
Many Member State authorities 
had the same approach to check ‑
ing a 10 000 euro grant as to a   
1 million euro grant. The possibili ‑
ties for simplification where the 
risks were limited were not widely 
followed.
105  
The main flaws or gaps in the ap ‑
proaches followed are summarised in 
Box 13 .
106  
This leads the Court to conclude that 
there is considerable scope for mak ‑
ing real savings in rural development 
project grants in the 2014–20 program ‑
ming period by better approaches to 
controlling the costs. These savings 
could be made available to finance 
additional projects, leading to greater 
outputs and results and achievement 
of objectives.107  
The Court also found that there were 
workable and cost‑effective ap ‑
proaches to mitigate the risks identi ‑
fied — most of which are already 
implemented in some RDPs. These are 
described in the main body of the re ‑
port. Where sufficient evidence could 
be obtained from the desk review of 
the 15 largest RDPs, an overview of 
some of these approaches is given in 
Figure 7  below and summarised in 
Annex IV .
108  
The Court welcomes the Commission’s 
intention to issue guidance on simpli ‑
fied costs (although Member States 
have indicated that simplified cost 
options are unlikely to be widely ap ‑
plied due to the diverse nature of rural 
development grants). The Court also 
welcomes the Commission guidance 
on tackling fraud and the ‘action plans’ 
developed by the Member States on 
the initiative of the Commission. The 
plans seen by the Court show improve ‑
ments in some of the basic systems 
but do not address many of the design 
weaknesses listed in paragraph 105 
above.
49 Conclusions and recommendations
Main weaknesses observed in the design of control systems for rural development 
costs
Risk of overspecification:
 οother than for land‑management and training costs, limited use of the possibilities for restricting grants to 
‘standard’ costs (see paragraphs 41 and 42);
 οlittle consideration of whether costs were reasonable in relation to the expected outputs and results — 
few Member State authorities took into account the cost‑effectiveness or value for money of the grant 
applications (see paragraph 46);
 οa lack of reliable approaches to the risk of gold‑plating (see paragraphs 48 to 50).
Risk of grant approvals being based on prices that are too high:
 οstandard unit costs not checked to see if they resulted in overpayments in practice (see paragraphs 62 and 
63);
 οreliance on checks against price databases containing list prices that were commonly 20–30 % above the 
real market prices (see paragraphs 69 and 71);
 οacceptance of grant applications where the prices exceeded reference prices by as much as 30 or 40 % 
without requiring justification (see paragraph 74);
 οinsufficient safeguards when relying on the comparison of supplier offers (see paragraphs 77 to 81);
 οreliance on checking compliance with public procurement procedures (where applicable) without also 
checking that the costs proposed were reasonable (see paragraphs 83 to 85).
Risk that the costs actually reimbursed may not be reasonable:
 οloopholes in the procedures after approval of grant applications, which mean that the costs actually reim ‑
bursed may be different from those that have been accepted as reasonable (see paragraphs 91 and 92).
Risk that the level of requirements and checks is insufficiently related to the level of risks:
 οrequirements and checks not increased where aid rates are high (and the applicant has little incentive to 
limit the costs) or for very large grants (see paragraphs 99 and 100).Box 13
50 Conclusions and recommendations Figure 7Overview of approaches in the 15 RDPs audited
Assess whether costs are reasonable in terms of outputs or results
Check whether standard costs result in overpayments
Use real market prices as reference prices for equipment and
machinery rather than suppliers’ list prices
Check that costs are reasonable when public
procurement procedures followed
Take measures to mitigate the risks of fraud
Perform on-the-spot checks for a sample of payments that
claims reﬂect all ﬁnancial beneﬁts received or due from suppliers
Design higher requirements and/ or checks where aid rates are high
Design  higher requirements and/ or checks for high-value projectsRDPs following the approach
RDPs not following the approach
Approach not applicable or not assessed
0 5 10 15
Source:  ECA audit findings.
51 Conclusions and recommendations
109  
In many cases, Member State author ‑
ities will develop the detail of their 
control systems — the forms, the in ‑
structions, the procedures and check ‑
lists — once the RDPs for 2014–20 
have been approved. But unless these 
control systems address the risks iden ‑
tified in this report, the weaknesses 
are likely to persist. Approaches are 
available that do not involve adding 
more and more requirements and 
checks, but better target the effort to 
where the risks are greatest. The best 
control systems are not only effective 
— designed to achieve economy — 
but also efficient — appropriate to the 
level of risk.110  
The ‘good design’ checklist presented 
in Annex I  provides a comprehensive 
set of criteria for assessing whether 
control systems address the risks 
described in this report. The Court 
recommends  that before expenditure 
is committed in the new programming 
period, the Commission and Member 
States cooperate to ensure that the 
approaches followed for all RDPs meet 
these criteria and target the areas of 
greatest risk. An ex ante assessment of 
the control systems by Member State 
authorities’ internal audit services (or 
by other inspection or audit bodies) 
should be part of this process.
111 
Good systems design is only the first 
step. How the systems are imple ‑
mented in practice is also key. The 
Court therefore recommends  that the 
Commission and Member States check 
early in the new programming period 
that the systems operate efficiently 
and are effective in relation to the risks 
highlighted in this report.
This Report was adopted by Chamber I, headed by Ms Rasa BUDBERGYTĖ, Member 
of the Court of Auditors, in Luxembourg at its meeting of 26 November 2014.
 For the Court of Auditors
 Vítor Manuel da SILVA CALDEIRA  
 President
52
Checklist developed by the ECA to assess the design of control systems in relation to 
the risks associated with rural development costs
Risk Design feature See paragraphsOverspecification1.  Restrict the eligibility to the costs of a standard specification where there are many similar 
projects or common types of expenditures
2. Evaluate the proposed costs to ensure that specifications are reasonable
(a)  Make standard calculations and compare to benchmarks to quickly identify applications that are 
overspecified.
(b) Evaluate if costs are reasonable against cost -effectiveness or value -for-money criteria.
(c)  Document assessments of whether specifications are reasonable and the basis for this, whether com -
parison with other projects, technical evaluation or common -sense judgement.
(d)  If grants are not based on the lowest valid offer, establish clear criteria for establishing whether the 
costs of the higher offers are reasonable; document the evaluation of the extra costs involved.
(e)  Use independent expert opinions for assurance that specifications are reasonable, particularly where 
projects present risks because of their size, technical complexity or lack of comparative information.38–42
44–45
46
47–48
49–51
53–55Uncompetitive prices3.  Where feasible, set maximum costs or use simplified cost options and periodically check that 
they do not exceed generally available market prices
4. Compare the prices of the items applied for to independent data
(a)  Where justified by the risk, use market research to get independent comparative price information for 
individual projects.
(b)  When using reference price databases, use real market prices (or apply a coefficient to suppliers’ list 
prices); update prices periodically and ensure they reflect any large regional differences.
(c)  Define clear rules and criteria for when the price applied for exceeds the reference to establish whether 
the higher costs are reasonable; document the evaluation of the extra costs involved. If a percentage 
variation from reference prices is automatically accepted, ensure that the percentage used can be justi -
fied in relation to real market prices.
5. Design safeguards against manipulation and fraud when evaluating offers from suppliers
(a)  If only one offer is received or if the offers received are not comparable, use alternative methods to check 
that the prices are reasonable.
(b) Design measures to deter, prevent, detect and correct any manipulation to favour a particular supplier.
(c) Follow the Commission’s guidance to prevent and detect fraud.
(d)  When public procurement does not result in several competitive offers, or if the procedures followed are 
flawed, take additional steps to ensure that the costs are reasonable.
6. Use independent expert opinions to get valuable assurance where this is cost‑effective
(a)  When judgement on the reasonableness of costs is required, use expert opinion or that of an evaluation 
panel to get additional certainty that the decision is well -founded.
(b) Refer higher -risk cases to internal or external experts.58–63
64–65 
66–71
72–74
75–77
78–80
81
82–85
86–87
86–87Annexes Annex I
53 Annexes
Risk Design feature See paragraphsProject changes7.  Design control systems to detect and check significant changes to the project made after the 
grant has been approved to ensure that the costs are still reasonable
(a)  Require a clear breakdown of costs both in the grant application and payment claim; specify costs in the 
grant agreement at the same level of detail at which they were checked.
(b)  Set clear rules and procedures to check that the costs of material changes from the approved project 
costs are reasonable and that any savings are not used for gold -plating. 
8.  Design rules to deter concealment of discounts, rebates or other advantages given by the sup ‑
plier that lower the real cost
(a) Require explicit declaration in payment claims of discounts, rebates or other advantages.
(b)  Make additional on -the-spot checks for a sample of payments to detect hidden discounts, rebates or 
other advantages.90–91
90 –91
92
93–94Relation ‑
ship to the 
risks9.  Where the likelihood and potential impact of risks is low, design control systems that minimise 
the administrative burden
10.  Increase the requirements and checks for high‑value items, projects with high aid rates and 
other risk factors96–98
99–100Annex I
54 Annexes Annex IIRural development programmes selected for desk review
1 For the measures in the scope of this audit, as of 31 December 2013.
Source:  ENRD.7367719629709891 0391 2271 3971 7241 8052 0592 1172 4084 6076 645 Poland
Romania
Hungary
France, Mainland
Portugal, Mainland
Greece
Bulgaria
Spain, Andalusia
Czech Republic
Slovakia
United Kingdom, England
Lithuania
Austria
Germany, Brandenburg and Berlin
Italy, Campania
All other RDPs64 % of total budget
for the measures inthe audit scope(29,5 billion euro)
15 677Programmed expenditure (2007–13) for the 15 largest RDPs¹ (million euro)
55 Annexes Annex IIIUse of simplified cost options in the 88 rural development programmes
Source:  ECA questionnaire.Number of RDPsLump sumsStandard unit costs
Reimbursement of actual costs
Non-productive investments — ForestFirst aﬀorestation- Agricultural land
Establishment of agro — forestry systems
Farm modernisationRestoring forestry potentialFirst aﬀorestation — Non-agricultural land
Encouragement of tourismConservation/ upgrading natural heritage
Relief and advisory services
Business creation and developmentDiversiﬁcation
Basic services
Village renewal
Training and information (rural)Training and information (agriculture/forest)Non-productive investments — Farm
Improvement of economic value of forest
Advisory services
Infrastructure
Food quality schemes0 10 20 30 40 50 60 70 80 90RDPs using standard unit costs or lump sums as one of the methods, by measure
56 Annexes
Overview of the approaches followed in the rural development programmes 
selected for desk review 
Bulgaria
Czech Republic
Germany 
(Brandenbourg)
Greece
Spain (Andalucia)
France (Mainland)
Italy (Campania)
Lithuania
Hungary
Austria
Poland
Portugal 
(Mainland)
Romania
Slovakia
UK (England)
Assess costs against the expected outputs or 
results √ √ √ √
Check whether standard costs result in 
overpaymentsN/A N/A N/A N/A N/A N/A
Use market research where necessary to get 
independent comparative price information for 
unusual or complex projects√ √ √ √ √ √ √ √ √ √ √
Use real market prices as reference prices for 
equipment and machinery etc. and not suppli -
ers’ list prices √ N/A √ √ N/A √1N/A
Take measures to mitigate the risks of fraud 
regarding supplier offers and procurement √ √ √ √ √ √ √
Check that the costs are reasonable even when 
public procurement procedures have been 
followed√ √ √ √ √
Use evaluation committees or experts to assess 
specifications and/or prices√ √ √ √ √ √ √ √ √ √ √
Require applicants to explicitly declare in 
their payment claims all financial benefits 
(discounts, rebates, etc.) received or due from 
suppliers √ √ √
On-the-spot checks that all financial benefits 
received or due from suppliers are taken into 
account for the final payment√ √ √ √ √ √
Higher requirements and/or checks for meas -
ures with high aid rates
Lower requirements and/or checks for low-
value items √ √ √ √ √ √ √ √ √ √ √ √
Higher requirements and/or checks for very 
large projects√ √ √ √ √ √ √ √ √ √ √ √
Key
√ Included in the procedures for the main measures where it is relevant 
Not included in the procedures for the main measures
Not assessed
N/A Not applicable
1 The equipment price database has not been updated since 2006. The Romanian authorities informed the Court that a new database is  
being established based on suppliers’ list prices.Annex IV
57
VI (a)–(d)
During its own audits, the Commission has found 
similar weaknesses to those indicated by the Court 
and financial corrections have been applied to 
cover the risk to the fund. Some conformity clear ‑
ance procedures are still ongoing and are likely to 
lead to further financial corrections.
The action plans developed by the Member States 
in the exercise of reducing the errors in the imple ‑
mentation of the rural development measures 
include better methods for assessing the reason ‑
ableness of costs.
For the 2014–20 programming period the enhanced 
use of standard costs should reduce the risk of 
errors in this respect.
VIII
The European Network for Rural Development 
(ENRD) will disseminate good practices through 
dedicated seminars and webpages.
IX
The Commission accepts the Court’s recommenda ‑
tion that Member States should have an effective 
and efficient control system in place up front. It will 
encourage the Member States to use the checklist 
and the criteria developed by the Court and con ‑
tained in Annex I.
By January 2015, the Commission will also provide 
guidance on controls and penalties under rural 
development, including a specific section on rea ‑
sonableness of costs and the checklist for managing 
authorities annexed in the special report.
Furthermore, training and sharing of experiences 
will be part of ENRD activities in the 2014–20 period.
1 Article 24(2)(d) of Commission Regulation (EU) No 65/2011.
2 Regulation (EC) No 1975/2006.Executive summary
II
The Commission is fully committed to achieving 
better economy and efficiency in rural develop ‑
ment expenditure, in particular when awarding 
grants for investment operations to private and 
public beneficiaries (reasonableness of costs). To 
this end, the Commission has adopted a more 
active and coordinated approach, with greater 
focus on economy, which it expects will lead to bet ‑
ter financial management in the next MFF, as shown 
in the replies below.
III
The Commission carries out conformity audits in the 
Member States to verify that the expenditure paid 
is in compliance with the rules. In these audits the 
Commission has also found weaknesses regarding 
the reasonableness of costs. Financial corrections 
have already been made in this respect and a num ‑
ber of conformity clearance procedures are cur ‑
rently ongoing and should lead to further financial 
corrections.
IV
Paying agencies must comply with the accreditation 
criteria laid down in Annex I of Commission Del ‑
egated Regulation (EU) No 907/2014  (programme 
2014–20) before any payments may be made. Article 
24(2)(d) of Regulation (EU) No 65/2011 required 
Member States to assess the reasonableness of 
costs during administrative checks using a suitable 
evaluation system, such as reference costs, compari ‑
son of offers or an evaluation committee. This provi ‑
sion has been maintained for the 2014–20 period.
V
Initially, the provisions on the evaluation of the 
reasonableness of costs submitted were regarded 
as self‑explanatory1. Indeed, at the time of recasting 
the previous legal framework, which took place in 
spring 20102, no major difficulties had been brought 
to the attention of the Commission on this point. 
In the process of approving the recast, only one 
question (whether maximum costs were a suitable 
method) was presented and answered.Reply of the  
Commission
Reply of the Commission 58
15
In its own audits, the Commission always assesses the 
reasonableness of costs for investment measures and 
the respect of public procurement procedures.
Almost all audits conducted by the Commission identi ‑
fied weaknesses with regard to the reasonableness of 
cost. These weaknesses should be addressed by the 
Member States and they are followed up in subsequent 
audits.
DG Agriculture and Rural Development's system ‑ and 
risk‑based audit strategy takes into account the findings 
from previous DG Agriculture and Rural Development 
audits, from the Court of Auditors, from OLAF and from 
the national certification bodies in order to identify 
the most risky areas where future audits shall focus. In 
addition, the audit strategy for the period 2014–20 will 
ensure a better coverage of the overall expenditure and 
intensive audit activities will continue to cover the most 
risky areas.
The action plans on ‘error rates’ include preventive and 
corrective actions to address weaknesses related to the 
reasonableness of costs if such weaknesses have been 
detected by the Commission or the Court of Auditors’ 
audits.
The new common agricultural policy (CAP) regulation 
((EU) No 1306/2013) provides that the Commission may 
reduce or suspend interim payments to Member States 
if control systems are not effective or when remedial 
measures have not been implemented. A fast tool 
will be the possible interruption of interim payments 
in case of concerns on the legality and regularity of 
payments.
Considering the above, the Commission is confi ‑
dent that deficiencies will be revealed earlier, and 
that this will lead to a better mitigation of risks and 
a faster implementation of the necessary corrective 
actions.Introduction
03
As mentioned by the Court, the Commission carries 
out conformity audits in the Member States to ver ‑
ify that the expenditure paid is in compliance with 
the rules. In these audits the Commission has also 
found weaknesses regarding the reasonableness of 
costs. Financial corrections have already been made 
in this respect (e.g. 19 million euro for Bulgaria) and 
a number of conformity clearance procedures are 
currently ongoing and should lead to further finan ‑
cial corrections.
On 19 December 2013 the Commission adopted 
guidelines for determining financial corrections 
to be made by the Commission to expenditure 
financed by the Union under shared manage ‑
ment, for non‑compliance with the rules on public 
procurement. According to these guidelines, the 
non‑respect of procurement rules is to be judged 
based on the principle of proportionality.
04
The Commission agrees that additional savings 
could be made and will take the Court’s observa ‑
tions into account.
05
For the 2014–20 programming period the possibil ‑
ity of using standard costs will be generalised and 
encouraged. This should reduce the risk for the 
fund and also reduce the administrative burden for 
the Member States.
Reply of the Commission 59
22
In addition, the Commission now also has the right 
to suspend payments under certain conditions, i.e. 
if there is a serious deficiency in the effective func ‑
tioning of the management and control system and 
the Member State has failed to take the necessary 
action to remedy the situation.
24–28
Financial corrections have already been made in 
this respect and a number of conformity clearance 
procedures are currently ongoing and should lead 
to further financial corrections.
In almost none of the audits performed by the 
Commission could the reasonableness of costs be 
considered as totally satisfactory. When such weak ‑
nesses were found, apart from the financial conse ‑
quences, recommendations were issued. In some 
cases this led to corrective actions.
In its 2013 annual report, the Court of Auditors 
observed that the Member States had enough 
information to detect and correct the majority of 
the errors found in the area of rural development. 
For investment measures, the Court observed that 
Member States could have detected and corrected 
all quantifiable errors in the transactions reviewed3.
It should be noted that the weaknesses identified 
by the Court in its audits for its annual reports are 
followed up by the Commission through desk audits 
or conformity audits or by the certifying body.
3 European Court of Auditors’ Annual Report 2013, paragraph 4.8.Observations
21
The EAFRD is implemented under shared management. 
The Commission implements the budget and imple ‑
mentation tasks are shared with the Member States. 
The latter are required to take the necessary measures 
to ensure that the actions are financed correctly and 
in accordance with EU rules. While DG Agriculture and 
Rural Development is fully assuming its responsibili ‑
ties, the detection and correction of errors are first and 
foremost in the hands of the Member States.
The Commission carries out conformity audits in 
the Member States to verify that the expenditure 
paid is in compliance with the rules. These conform ‑
ity audits could lead to financial corrections and 
a list of recommendations on how to improve the 
management and control system.
When Member States do not implement proposed 
actions, they may be subject to suspension of pay ‑
ments and financial corrections.
Reply of the Commission 60
In addition, on 19 December 2013, the Commis ‑
sion adopted guidelines for determining finan ‑
cial corrections to be made by it to expenditure 
financed by the Union under shared manage ‑
ment, for non‑compliance with the rules on public 
procurement.
As regards the assessment of the control systems 
in place, the Commission has found that well ‑
designed control systems were not always well 
implemented in practice.
32
The action plans were introduced following the 
Court of Auditors’ findings in its annual report for 
2011. This has been a substantial task for the Mem ‑
ber States.
The Commission has developed detailed tools to 
improve the quality of the action plans to address 
the root causes of error. These included the prepar ‑
ation of guidelines on topics such as simplified 
costs, public procurement, verifiability and control ‑
lability of the measures in the rural development 
plans, as well as organising specific anti‑fraud 
strategies.
In the latest update (September 2014) of the action 
plans, Member States had to take into account the 
Court’s and the Commission’s audit findings to 
a much larger extent. Indeed, 46 % of the actions 
presented by Member States addressed concrete 
audit findings, 50 % of which came from the Court’s 
reports.
It should be noted that the Commission’s powers have 
been strengthened with the new CAP regulation ((EU) 
No 1306/2013). Article 41(2) provides that interim 
payments to the Member State may be suspended or 
reduced when it is found that key components of the 
national control system are not effective or when the 
necessary remedial measures have not been imple ‑
mented. Article 36(7) provides for the interruption 
of interim payments as a first quick and reactive tool 
in case of concerns on the legality and regularity of 
payments.
Furthermore, in order to avoid financial corrections, 
each paying agency for which reservations have been 
made in DG Agriculture and Rural Development's 
annual activity report will have to act promptly.29
As described by the Court in paragraph 33, follow ‑
ing the analysis, four seminars were organised with 
the Member State authorities. During the seminars 
the issues linked to the reasonableness of costs 
and public procurement were discussed and good 
practises shared. Member States are also imple ‑
menting action plans on error rates, which in some 
cases include actions to improve the assessment of 
reasonableness of costs.
In the particular case of public procurement, a guid ‑
ance document on the most common irregularities 
in the management of ESI funds has already been 
presented to Member States (Fourth seminar on 
error rate, October 2014).
30
For the new programming period 2014–20, the 
Commission put forward simplified cost options 
(flat ‑rate financing, standard scales of unit costs, 
lump sums) as an efficient means to ensuring rea ‑
sonableness of costs.
Regulation (EU) No 1303/2013 includes options for 
the European Structural and Investment Funds to 
calculate eligible expenditure of grants and repay ‑
able assistance on the basis of real costs, but also 
on the basis of flat ‑rate financing, standard scales of 
unit costs and lump sums.
Guidance on simplified cost options (SCOs) has 
been prepared by the Commission in order to 
provide technical guidance on the three kinds of 
simplified costs applicable and to share the best 
practices with a view to encouraging Member 
States to use simplified costs. However, it is up to 
the Member States to decide whether to use the 
simplified cost options.
In a seminar on error rate organised in October 
2014, guidance on how to prevent irregularities 
under public procurement procedures was pre ‑
sented to the managing authorities and paying 
agencies of all Member States. Finally, guidance on 
controls and penalties under rural development will 
be made available before the end of 2014.
Reply of the Commission 61
42
See reply to paragraph 34.
44–49
The monitoring and evaluation systems set up by 
Member States following Annex IV of Commission 
Implementing Regulation (EU) No 808/2014 (the 
rural development implementing act) could be 
a useful tool to assess the reasonableness of costs 
in the light of the outputs, results and impacts 
achieved and/or planned. The Commission will 
recommend that Member States improve the 
cost‑efficiency and cost‑effectiveness assessment of 
individual projects and operations.
52
Specific workshops on anti‑fraud strategies are 
being organised in almost all Member States by DG 
Agriculture and Rural Development.
See reply to paragraph 33 for further details.
54
Good practices in this field will be shared through 
the ENRD during the 2014–20 period.
61
There are different methodologies that can be applied 
in order to determine the simplified cost options, as 
spelt out under Article 67(5) of Regulation (EU) No 
1303/2013. Furthermore, according to Article 62(2) of 
Regulation (EU) No 1305/2013, the managing author ‑
ities shall include in their rural development pro ‑
grammes a statement confirming the adequacy and 
accuracy of the calculations. This statement must be 
carried out by a functionally independent body.33
In addition, the Commission provides anti‑fraud 
seminars to the paying agencies in the Member 
States (and candidate countries). The seminars aim 
at sharing information on areas with a high risk of 
fraud and how to detect and prevent it. By the end 
of 2014, the following Member States will have been 
covered by these seminars: Austria, Belgium (Flan ‑
ders), Cyprus, the Czech Republic, Denmark, Estonia, 
Finland, France, Germany, Greece, Ireland, Latvia, 
the Netherlands, Poland, Portugal, Rom  ania, Slo ‑
vakia, Slovenia, Spain and Sweden. Seminars in the 
remaining Member States are under preparation.
34
In the 2007–13 period, for the majority of the rural 
development investment measures, there was no 
specific legal basis for the use of simplified cost 
options. Regulation (EU) No 1303/2013 (Articles  67 
and 68) has included the possibility for all Euro ‑
pean Structural and Investment Funds to imple ‑
ment these options and, therefore, it is expected 
that, with the help of enhanced guidance by the 
Commission, a bigger share of the expenditure 
will be based on simplified cost options in the new 
programming period. Of course it is ultimately up 
to Member States to decide whether they want to 
make use of simplified cost options.
35
The action plans are focused on the identification 
and correction of the main sources of irregularities 
in the expenditure, including weaknesses in check ‑
ing the reasonableness of costs. In fact, the staff 
working document presented in June 2013 by the 
Commission4 included the poor assessment of the 
reasonableness of costs as one of the main roots of 
errors (RC10). Since then, Member States have pro ‑
gressively identified shortcomings in this field and 
have launched preventive and corrective actions.
4  Commission staff working document on the assessment of root 
causes of errors and corrective and preventive actions in the 
rural development policy (SWD(2013) 244 final).
Reply of the Commission 62
81
The implementation of Delegated Regulation (EU) 
No 907/2014 will help in the prevention and detec ‑
tion of fraud. Annex 1 to this regulation provides 
that the paying agency has to ensure that staff 
training includes fraud awareness.
Under the new Regulation (EU) No 1306/2013, 
Delegated Regulation (EU) No 907/2014 and Com ‑
mission Implementing Regulation (EU) No 908/2014, 
Member States are obliged to more specifically 
address fraud as a risk for the funds. This subject is 
also specifically addressed in the anti‑fraud semi ‑
nars (cf. reply to paragraph 33).
86
Good practices in this field will be shared through 
the ENRD during the 2014–20 period.
90
Article 48(3) of Commission Implementing Regula ‑
tion (EU) No 809/2014 obliges Member States to 
verify the completed operation compared with the 
operation for which the application for support 
was submitted and granted. This provision should 
allow Member States to detect cases where the final 
output is not the same as the one the beneficiary 
initially committed to.
Conclusions and recommendations
103
Initially, the provisions on the evaluation of the 
reasonableness of costs submitted were regarded 
as self‑explanatory5. Indeed, at the time of recasting 
the previous legal framework, which took place in 
spring 20106, no major difficulties had been brought 
to the attention of the Commission on this point. 
In the process of approving the recast, only one 
question (whether maximum costs were a suitable 
method) was presented and answered.
5 Article 24(2)(d) of Regulation (EU) No 65/2011.
6 Regulation (EC) No 1975/2006.62
Under the current legal framework, the Commission 
cannot oblige Member States to update or period ‑
ically review the simplified cost options’ methodol ‑
ogy put in place by the managing authorities fol ‑
lowing Article 67 of Regulation (EU) No 1303/2013, 
although the Commission encourages that the 
systems in place reflect the development of market 
prices over the time.
Box 7
For the coming 2014–20 period, such a system 
should be based on a fair, equitable and verifiable 
calculation, taking into account, inter alia, statist ‑
ical data, historical data or usual cost accounting 
practices.
Specifically for the investment measures, the Com ‑
mission will encourage the Members States to per i‑
odically review the simplified costs option method ‑
ologies, to be in line with market developments.
71
The Commission encourages Member States to 
ensure that the systems in place reflect the devel ‑
opment of market prices over time.
78–79
There may be circumstances when the use of 
a higher ‑cost supplier can be justified, as the Court 
describes in paragraphs 47 to 52, but the Commis ‑
sion agrees that manipulation is not acceptable.
80
The extreme cases are indeed cases that have often 
been seen in OLAF investigations.
Reply of the Commission 63
110
The Commission accepts this recommendation. 
Member States should ensure up front that they 
have efficient control systems in place. The Com ‑
mission will encourage the Member States to use 
the checklist and the criteria developed by the 
Court and contained in Annex I.
By January 2015, the Commission will also provide 
guidance on controls and penalties under rural 
development, including a specific section on rea ‑
sonableness of costs and the checklist for managing 
authorities annexed in the special report.
Furthermore, training and sharing of experiences 
will be part of the ENRD activities in the 2014–20 
period.
111
The Commission accepts this recommendation and 
will follow up with the Member States the actions 
taken.
As regards the performance risks, the Commission 
will encourage Member States to share experiences 
and good practices in the framework of regular 
meetings.In the meantime, the Commission has prepared 
guidance on simplified cost options (SCOs) in order 
to provide technical guidance on the three kinds 
of simplified costs applicable and to share the 
best practices with a view to encouraging Member 
States to use simplified costs. However, it is up to 
the Member States to decide whether to use the 
simplified cost options.
In a seminar on error rate organised in October 
2014, guidance on how to prevent irregularities 
under public procurement procedures was pre ‑
sented to the managing authorities and paying 
agencies of all Member States. Finally, guidance on 
controls and penalties under rural development will 
be made available before the end of 2014.
In addition, on 19 December 2013, the Commis ‑
sion adopted guidelines for determining finan ‑
cial corrections to be made by it to expenditure 
financed by the Union under shared manage ‑
ment, for non‑compliance with the rules on public 
procurement.
For the programme 2014–20, the Commission put 
forward simplified cost options (flat rate financing, 
standard scales of unit costs, lump sums) as an effi ‑
cient means for ensuring reasonableness of costs.
Regulation (EU) No 1303/2013 includes options for 
the European Structural and Investment Funds to 
calculate eligible expenditure of grants and repay ‑
able assistance on the basis of real costs, but also 
on the basis of flat ‑rate financing, standard scales of 
unit costs and lump sums.
As regards the assessment of the control systems 
in place, the Commission has found that well ‑
designed control systems were not always imple ‑
mented well in practice.
Reply of the Commission 64
In relation to compliance risks, in March 2014 DG 
Agriculutre and Rural Development  adopted a new 
multiannual audit strategy for 2014–20. This audit 
strategy continues to be risk‑based; in order to 
achieve optimal audit coverage, it now features 
a rolling 3‑year audit programme applicable as from 
July 2014. This programme is supported by a central 
risk analysis (CRA) and will be reviewed annually.
Financial corrections deriving from these audits are 
based on identified weaknesses in the implementa ‑
tion of the control systems and on an estimation 
of the financial risk that these weaknesses entail 
for the EU budget. On the basis of its audits, the 
Commission can also identify the actual sources and 
causes of the errors found and request the Member 
States to elaborate specific and targeted remedial 
actions.
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QJ‑AB‑14‑022‑EN‑N ISSN 1977 ‑5679
Member States implement a large part of the 
EU’s rural development policy by providing 
grants towards the costs of investments and 
other projects undertaken by farmers, rural 
businesses, associations and local authorities. 
The Court found that some Member States had 
poorly designed systems for checking that the 
costs of these grants were reasonable. Workable 
and cost-effective approaches existed but were 
not widely followed. The Court outlines good 
practices found in the course of its audit, and 
concludes that there is considerable scope for 
making real savings in rural development project 
grants in the 2014–20 period by applying these 
good practices.
EUROPEAN
COURT
OF AUDITORS