EN Official Journal of the European Union C 368/24

REPORT

on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year 2010, together with the replies of the Joint Undertaking

2011/C 368/04

INTRODUCTION

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

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

3. The members of the Joint Undertaking are Euratom, represented by the European Commission, the Member States of Euratom and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion and have expressed their wish to become Members (at 31 December 2010: Switzerland).

4. When the Joint Undertaking was set up, the indicative total resources deemed necessary for the period 2007 to 2041 were 9 653 million euro. The total contribution from Euratom was set at 7 649 million euro, of which a maximum of 15 % for administrative expenditure. Other resources consist of contributions from the ITER host state (France), the annual membership contributions, voluntary contributions from members other than Euratom, and additional resources to be received under terms approved by the Governing Board. The Court draws attention to the requirement for substantially increased resources for the ITER project (see paragraphs 27-29).

STATEMENT OF ASSURANCE

5. Pursuant to the provisions of Article 287(1) of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (5) of the European Joint Undertaking for ITER and the Development of Fusion Energy, which comprise the ‘financial statements’ (6) and the ‘reports on the implementation of the budget’ (7) for the financial year ended 31 December 2010, and the legality and regularity of the transactions underlying those accounts.

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

The Director's responsibility

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

The Court's responsibility

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

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

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

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

Opinion on the reliability of the accounts

12. In the Court's opinion, the annual accounts of the Joint Undertaking fairly present, in all material respects, its financial position as of 31 December 2010 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation.

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

13. In the Court's opinion, the transactions underlying the annual accounts of the Joint Undertaking for ITER and the Development of Fusion Energy for the financial year ended 31 December 2010 are, in all material respects, legal and regular.

14. The comments which follow do not call the Court's opinions into question.

COMMENTS ON THE BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the budget

15. The final budget included commitment appropriations of 444,1 million euro and payment appropriations of 241,7 million euro. Carry-overs from 2009 amounted to 106,8 million euro in commitment appropriations and 52,2 million euro in payment appropriations (mainly appropriations accruing from the ITER host state and assigned to the ITER construction). The utilisation rate for payment appropriations was only 63,4 % (13) as a result of the delays in implementing activities and this is also reflected in the high cash balance, which amounted to 78,8 million euro at the end of the year (26,8 % of the available payment appropriations in 2010).

Reorganisation of the Joint Undertaking and internal control systems

16. The Court of Auditors reported in its two previous Specific Annual Reports that the Joint Undertaking's internal control systems had not been fully established and implemented as required by its Financial Regulation (14). Similarly, on 31 May 2010 the Joint Undertaking's Internal Auditor issued a report on the financial circuits which raised concerns about the financial circuits and the separation of duties.

17. In response to this, the Governing Board adopted a management improvement plan in June 2010 and, in October, a proposal to change the organisational structure. The new organisational structure (15) became operational on 1 January 2011.

18. Despite these changes, the responsibility for the financial circuits had still not been fully assigned at the time of the audit (April 2011), since some key posts were still vacant (16) (e.g. Head of ITER department, Head of Administration and Head of Budget and Finance unit).

IT systems

19. While the financial and accounting systems (ABAC and SAP) used by the Joint Undertaking are owned by the Commission and have been validated by the Accounting Officer, the other important business processes which provide financial information have not yet been validated. As mentioned in the Court's 2009 report (17), an appropriate tool for the management of the operational contracts (ABAC contracts or similar), integrated with the budget and financial reporting systems, is not yet in place.

OTHER MATTERS

Grants and procurement

20. The Court tested a sample of nine procurement and six grant award procedures. For three of the nine procurement procedures audited, only one offer had been received by the Joint Undertaking. For the grants, the average number of proposals received was only one per call. While recognising the fact that the Joint Undertaking is operating in a highly specialised industrial area, the Court recommends that it should make further efforts to maximise competition and should follow the value-for-money principle in the call preparation, publication, evaluation and contract management phases.

21. The controls applied by the Joint Undertaking before payments are made under grant agreements are not sufficiently documented to provide assurance regarding compliance with the financial requirements and the eligibility of the underlying costs (18).

22. The Court welcomes the fact that the Joint Undertaking has started to develop an ex-post audit strategy, to be implemented in 2012. The ex-post audit strategy is a key control aiming to assess the legality and regularity of the underlying transactions and should be put in place as soon as possible. It should also cover grants and operational procurement contracts.

Late payment of membership contributions

23. In 2008 and 2009, the Court observed that a number of Members of the Joint Undertaking did not pay their membership contributions within the deadline set by the Governing Board. For 2010, the deadline was 31 May 2010 but only 14 out of the 28 Members paid on time.

Commission Internal Audit Service

24. The Court pointed out in its Opinion No 4/2008 that the Financial Regulation of the Joint Undertaking does not refer to the powers of the Commission's internal auditor to perform audits of the Joint Undertaking. Although the Financial Regulation of the Joint Undertaking has not yet been amended to include the powers of the Commission's internal auditor (19), the Commission and the Joint Undertaking have taken action to ensure that the respective operational roles of the Commission's Internal Audit Service and the Joint Undertaking's internal auditing function are clearly defined.

Audit Committee of the Joint Undertaking

25. The Court also pointed out in its Opinion No 4/2008 that, in view of the size of the budget and the complexity of the tasks to be performed by the Joint Undertaking, an Audit Committee reporting directly to the Governing Board should be set up. The Court welcomes the decision of the Governing Board to set up an Audit Committee (20).

Host State agreement

26. The host agreement on the site and support, privileges and immunities that was signed between the Kingdom of Spain and the Joint Undertaking on 28 June 2007 states that permanent premises are to be made available to the Joint Undertaking no later than 3 years after the signing of the agreement. At the time of the audit, permanent premises had not been made available to the Joint Undertaking.

Status of the financing of the ITER project

27. In May 2010, the Commission issued a communication to the European Parliament and to the Council on the status of the ITER project (21), in which it estimated that around 1,4 billion euro will be needed to meet the cost increases in the Euratom contribution to ITER in 2012 and 2013.

28. In July 2010, the Commission made a proposal to amend the current multiannual financial framework and to meet the additional financial needs for 2012 and 2013 (22). The European Parliament and the Council did not reach an agreement on this proposal. At the time of the audit (April 2011), the financing of the EU contribution to the ITER project remained unresolved.

29. The Court notes that these developments may significantly affect the activities and the budget of the Joint Undertaking and possibly delay the Euratom contribution to the construction phase of the ITER project.

This Report was adopted by Chamber IV, headed by Mr Igors LUDBORŽS, Member of the Court of Auditors, in Luxembourg at its meeting of 25 October 2011. For the Court of Auditors Vítor Manuel da SILVA CALDEIRA President

(1) ITER: International Thermonuclear Experimental Reactor.

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

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

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

(5) These accounts are accompanied by a report on the budgetary and financial management during the year which gives, inter alia, an account of the rate of implementation of the appropriations with summary information on the transfers of appropriations among the various budget items.

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

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

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

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

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

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

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

(13) 55,8 million euro of payment appropriations were carried over to 2011, and 51,8 million euro of payment appropriations carried over from 2009 were cancelled at the end of the year.

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

(15) The new organisational structure is oriented towards ‘project management’.

(16) It is expected that these posts will be filled during 2011.

(17) Paragraph 20 of the Court's 2009 report.

(18) The Internal Auditor of the Joint Undertaking has also noted that the ex-ante control approach for payments of cost claims is not effective and not well prepared to process cost claims, although the underlying transactions are legal and regular.

(19) See the Court's Opinion No 4/2008.

(20) The Audit Committee is initially established for a period of 2 years and is composed of five persons, one of them designated by Euratom.

(21) Communication from the Commission to the European Parliament and to the Council: ITER status and possible way forward, COM(2010) 226 final of 4 May 2010.

(22) Proposal for a Decision of the European Parliament and of the Council amending the Interinstitutional Agreement of 17 May 2006 on budgetary discipline and sound financial management as regards the multiannual financial framework, to address additional financing needs of the ITER project, COM(2010) 403 final of 20 July 2010.

ANNEX European Joint Undertaking for ITER and the Development of Fusion Energy (Barcelona) Competences and activities Areas of Union competence deriving from the Treaty (Extracts from Articles 45 and 49 of the Treaty establishing the European Atomic Energy Community) Chapter 5, on ‘Joint Undertakings’, of the Treaty establishing the European Atomic Energy Community, and in particular: Article 45: ‘Undertakings which are of fundamental importance to the development of the nuclear industry in the Community may be established as Joint Undertakings within the meaning of this Treaty, in accordance with the following Articles’ Article 49: Joint Undertakings shall be established by Council decision. Each Joint Undertaking shall have legal personality. Competences of the Joint Undertaking (Council Decision 2007/198/Euratom) Objectives — to provide the contribution of the European Atomic Energy Community (Euratom) to the ITER International Fusion Energy Organisation, — to provide the contribution of Euratom to Broader Approach Activities with Japan for the rapid realisation of fusion energy, — to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities including the International Fusion Materials Irradiation Facility (IFMIF). Tasks — oversee preparation of the ITER project site, — provide components, equipment, materials and other resources to the ITER Organisation, — manage procurement arrangements vis-à-vis the ITER Organisation and, in particular, associated quality assurance procedures, — prepare and coordinate Euratom's participation in the scientific and technical exploitation of the ITER Project, — coordinate scientific and technological research and development activities in support of Euratom's contribution to the ITER Organisation, — provide Euratom's financial contribution to the ITER Organisation, — arrange to make human resources available for the ITER Organisation, — interface with the ITER Organisation and carry out any other activities in furtherance of the ITER Agreement. Governance 1 — Governing Board The Governing Board shall be responsible for the supervision of the Joint Undertaking in the pursuit of its objectives and ensure close collaboration between the Joint Undertaking and its Members in the implementation of its activities. 2 — Executive Committee The Executive Committee shall assist the Governing Board in the preparation of its decisions and shall carry out any other tasks which the Governing Board may delegate to it. 3 — Scientific Programme Board The Scientific Programme Board shall advise the Governing Board and the Director, as necessary, on the adoption and implementation of the project plan and work programmes. 4 — Director The Director shall be the chief executive officer responsible for the day-to-day management of the Joint Undertaking and shall be its legal representative. 5 — External Audit Court of Auditors. 6 — Internal Audit Established as of 1 July 2009. 7 — Discharge Authority The European Parliament, on a recommendation from the Council. Resources available to the Joint Undertaking in 2010 Budget 241,70 million euro, of which 93 % funded by Union contribution. Staff at 31 December 2010 234 permanent posts provided for in the establishment plan, of which 185 posts were occupied. Other staff: — Seconded National Experts: 6 — Contract staff: 84 — Local staff: n/a — Total staff employed: 275 Allocated to (approximately): — Operational activities: 160 — Administrative tasks: 60 — Mixed tasks: 55 Activities and services provided in 2010 — Operational Contracts: 44 awarded for a total value of 826 million euro (42 launched), — Administrative Contracts: 7 awarded for a total value of 6 million euro (5 launched), — Grants: 23 for a total value of 8 million euro (16 launched), — Budget Implementation: — 99,9 % in commitment appropriations (99,8 % operational and 99 % administrative), — 63,4 % in payment appropriations (61,8 % operational and 77 % administrative), — Procurement Arrangements: — 4 for the ITER project (384,44 kIUA (1) equivalent to 615 million euro) (total of 803,7 out of 1 135,9 kIUA or 66 % of all the European in-kind contributions planned), — 5 for the Broader Approach Activities (98,4 kBAUA equivalent to 66 million euro out of a total of 236,4 kBAUA planned for all the European contributions), — ITER Credit Awarded: 10,4 kIUA (equivalent to 16,6 million euro). Source: Information supplied by the Joint Undertaking. (1) IUA: ITER unit of account.