EN Official Journal of the European Union L 246/27

RESOLUTION (EU, EURATOM) 2016/1461 OF THE EUROPEAN PARLIAMENT

of 28 April 2016

with observations forming an integral part of the decisions on discharge in respect of the implementation of the general budget of the European Union for the financial year 2014, Section III — Commission and executive agencies

THE EUROPEAN PARLIAMENT,

— having regard to its decision on discharge in respect of the implementation of the general budget of the European Union for the financial year 2014, Section III — Commission,

— having regard to its decisions on discharge in respect of the implementation of the budgets of the executive agencies for the financial year 2014,

— having regard to Rule 93 of and Annex V to its Rules of Procedure,

— having regard to the report of the Committee on Budgetary Control and the opinions of the other committees concerned (A8-0140/2016),

A. whereas Union spending contributes significantly to achieving policy objectives and represents on average 1,9 % of Union Member States’ public expenditures, however in some particular cases well over 10 %;

B. whereas when the Parliament grants discharge to the Commission it verifies, on the one hand, whether funds have been spent legally and regularly, and on the other hand, whether policy goals have been achieved, appropriate results reached and the principles of sound financial management and a ‘performance culture’ respected;

C. whereas the 2014 discharge procedure covers a year in which two programming periods coincide and that in many cases recorded spending is related to the 2007-2013 programming period;

D. whereas the main 2014 Commission discharge priorities are the following ones: (a) adoption of a strengthened performance-based and result-oriented approach to contribute to a balance between its traditional way and implementation of new elements reflecting the current and future needs for Union finance; (b) focus on 2014 as the first year of a new programming period introduced with important results-orientated elements; (c) outline some improvement in data availability and disposability to assess real benefits; (d) include in the discharge process some evaluation of the quality of the regulatory framework for the allocation of Union budget expenditure; (e) approach the discharge process not exclusively as it is related to the particular year, but as a continuous process; of which follow-up constitutes a substantial part; (f) approach the discharge process from the perspective of the close relationship between the Union budget and the new Union macroeconomic policy paradigm (1), keeping in mind the genuine aim of the Union budget to contribute to achievement of Union sectoral policy goals; (g) approach the discharge process as an important platform for policy recommendations to be applied and implemented in Union financing;

E. whereas the new aspects of the 2014-2020 new Multiannual Financial Framework (MFF) that are relevant for the 2014 Commission discharge are: (a) thematic concentration — Union funding should support only priority areas, not everything; priorities should be precisely defined and backed by quantitative analysis and feasible plans to achieve them, where appropriate; the set of priorities should be sharply limited; priorities should be covered by substantial funding to reach real results and benefits; (b) an integrated and place-based approach and synergies — programmes and projects should bring not only their own results and benefits, but the results and benefits should complement those of other programmes and projects through synergies while respecting the subsidiarity and proportionality principle; synergies should be achieved within a given territorial area; for that system to function, it is important to create a management matrix to create appropriate conditions for integrated projects; (c) conditionalities and performance reserve — sound financial management principles are based on the fact that Union funding is allocated in appropriate national fiscal, macroeconomic and institutional circumstances that serve as a precondition for funding itself; on the other hand, as a bonus for good performers, a performance reserve has been introduced; (d) simplification — the system of Union funding is extraordinarily complicated in several ways, which presents an impediment to effective management and to measuring real results and benefits; (e) better quantified results — it is important to measure effectively the results that have been achieved and to draw policy lessons from these observations; it is therefore crucial to improve benchmarking and systems for data analysis and also for management to focus on such data and on other indicators of improvement;

F. whereas the Commission is ultimately responsible for the implementation of the Union budget while the Member States have a duty of sincere cooperation with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management; whereas Member States, especially in the context of a shared management of funds, have a special responsibility for implementing the Union budget;

G. whereas it is crucial that, where a shared management of funds is concerned, the data communicated by the Member States are fair and accurate; whereas it is crucial that Member States understand their own responsibility for the management of Union funds under shared management;

A. GENERAL CHAPTERS

Commission commitments with regard to discharge priorities

1. Recalls that pursuant to Article 319(3) of the Treaty on the Functioning of the European Union: ‘The Commission shall take all appropriate steps to act on the observations in the decisions giving discharge and on other observations by the European Parliament relating to the execution of expenditure, as well as on comments accompanying the recommendations on discharge adopted by the Council’;

2. Regrets that the Commission’s answers remain ambiguous in a number of respects;

3. Notes the Commission proposal amending Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (2), as regards the secretariat of the Supervisory Committee of the European Anti-Fraud Office (OLAF);

4. Calls again on the Commission to submit a communication to the Parliament in time for the mid-term review of the MFF with proposals on how the new and potential challenges requiring Union budgetary support could be met and explaining how it will in future reconcile long-term political objectives (such as the Europe 2020 Strategy) with the future, post-2020, MFF;

5. Reminds the Commission that the Court of Auditors (‘the Court’) has been asking for the establishment of a long-term cash flow plan for several years; calls on the Commission to submit such a plan before the end of 2016;

6. Calls on the Commission to revise the Code of Conduct for Commissioners in light of demands made in the 2014 Commission discharge resolution in time for the 2015 Commission discharge procedure;

7. Urges the Commission not to adopt the new framework for Commission expert groups until a meeting of Vice-President Timmermans, the European Ombudsman, key Members of Parliament and civil society has taken place to discuss the final issues concerning both the contents of the new horizontal rules and their implementation;

8. Calls on the Commission to instruct its directorates general to publish all country-specific recommendations they have issued in the context of the European Semester in their respective annual activity reports;

Strategy and mission: continuity and innovation

9. Notes the need to respect the existing discharge principles and new aspects and principles in the latest MFF; notes therefore the need for an innovative approach to evaluate the first year of the MFF and to adjust the approach to the discharge better to the changed needs and requirements in the Union budget;

10. Considers that the main innovation in the discharge’s content should consist in striking an improved balance between on the one hand the formal and procedural matters of the Union budget’s utilisation, and on the other performance-based and results-oriented approaches, while taking into account absorption capacity utilisation;

11. Underlines that in the past, the discharge procedure primarily verified the legality and regularity of financial transactions; believes, in the context of the Commission initiative ‘An EU budget focused on results’, that more emphasis should also be given in future, beyond the above verifications, to examining whether the results achieved by projects and programmes match the intended objectives;

12. Notes that the discharge strives to create a common approach to the particular elements of Union budgetary policy, especially those that have been newly introduced, namely the performance aspects and the aspects related to the preventive and corrective capacity of supervisory and control systems;

13. Considers that a results-oriented budget requires strong, solid and commonly agreed indicators; notes, however, that these indicators still need to be agreed with the co-legislators, the Commission and through extensive consultation with Member States’ authorities and other stakeholders. Welcomes in this sense the establishment of the inter-institutional working group on performance-based budgeting of results-oriented budget that has only recently started its work; encourages all parties involved to accelerate its work while ensuring that a high quality set of indicators is agreed;

14. Underlines that the main objective of the Union budget is to benefit Union citizens and, in parallel, to protect the Union’s financial interests and comply with the obligations and objectives laid down in the Treaties; the benefits consist in support oriented towards development and current priorities compatible with the economic policy context and economic performance, also taking into account the necessary flexibility to cope with new situations that may arise and with emergencies; the protection of Union financial interests requires the correct utilisation of expenditures in line with rules and without errors or fraud. The discharge approach should contribute to reaching a balance between these elements;

15. Further underlines the Commission’s obligation to ensure the correct application of Union law pursuant to Article 17(1) TEU and asks the Court to prepare a special report on whether the Commission has made good use of its powers in supporting and controlling Member States when implementing Union law;

Getting results from the Union budget

16. Notes that the key principle for the 2014 Commission discharge is the soundness of financial flows and real programmes and projects behind them, in light of an assessment of the optimal utilisation of Union funds in all respects;

17. Welcomes the fact that the structure and content of the Court2014 annual report follows the headings of the MFF and places greater emphasis on performance and results; appreciates that the shared management chapters of the report include, as a pilot exercise, the preliminary results of performance assessments of programmes;

18. Is aware that the move to an increased level of performance auditing cannot be done in a single step, as it is only once the basic legal acts and the budget are drafted with the intention to align policy objectives with qualitative indicators or to produce measurable results that performance audits can move forward;

19. Believes in this context that the MFF represents an important step forward by introducing ex ante conditionalities, performance reserves, and more possibilities for simplification and synergies between funds;

20. Points out that since the periods covered by the Union’s 10-year strategy and its seven-year budgetary period are not aligned, the Commission’s ability to monitor the contribution of the Union budget to the Europe 2020 Strategy is limited for the first half of the strategy period, albeit that all the data necessary for performing annual checks are available;

21. Points out, nevertheless, that the objectives and the budget for results must be geared to the objectives laid down in the Treaties, the Europe 2020 Strategy and sectoral and cohesion policies and must be sufficiently flexible so that it can be adapted to emergency situations that may arise, such as the economic crisis and/or the refugee crisis;

22. Notes that 2014 was a zero year of absorption for some programmes, funds and instruments of the 2014-2020 MFF due to the late adoption of the relevant regulations and the resulting late approval of secondary legislation and programming documents;

23. Recalls that the 2014-2020 MFF is the first to make fewer budgetary means available than its predecessors and that pressure on the payment ceilings is much greater than in previous MFFs;

24. Recalls that in its resolutions (3) accompanying the discharge decisions, the Parliament has since 2013 asked the Commission to focus its implementation of Article 318 of the Treaty on the Functioning of the European Union (TFEU) — concerning its evaluation report — on the implementation of the Union’s 10-year growth and jobs strategy and its real performance and results; welcomes the fact that the Court has chosen to focus Chapter 3 of its 2014 annual report on the Europe 2020 Strategy and asks the Court to continue and to develop this performance- and results-oriented approach;

25. Stresses that the architecture of the Europe 2020 Strategy is extremely complex (comprising five headline targets, seven flagships initiatives and 11 thematic objectives for the European Structural and Investment Funds (ESIFs)); notes that those various tools are not designed to translate the political objectives of the strategy into practical operational objectives, by means of synergies;

26. Regrets that despite some progress mentioned by the Court in its 2014 annual report (4), the Commission has so far only reported on the contribution of the Union budget to achieving the objectives of the Europe 2020 Strategy (in accordance with Article 318 TFEU) in an evaluation report in a limited way; points out that the 2007-2013 MFF does not require comprehensive reporting on the Union budget contribution to the Europe 2020 Strategy objectives as was intended prior its adoption;

27. Welcomes the fact that some elements of an effective monitoring and reporting system are in place, in particular as regards the statistical tools created by Eurostat, but regrets that the Commission’s review of the Europe 2020 Strategy has been delayed until early 2016 and that the results of public consultation on the Europe 2020 Strategy do not provide any substantial feedback for the role of Union funding;

28. Deplores the fact that high-level Europe 2020 Strategy targets are not systematically translated into operational objectives in partnership agreements and programmes; notes that current legislation does not require the European Agricultural Funds for Rural Development (EAFRD) and European Maritime and Fisheries Fund (EMFF) to be structured around thematic objectives;

29. Points out, as acknowledged by the Commission in its replies to the remarks made by the Court (5), that the Union’s objectives are defined in the treaties and have to be pursued and respected (e.g. the common agricultural policy), and within this framework, the Union budget is allocated to the various activities and aligned as much as possible with the changing headline Union priorities (i.e. Lisbon strategy, Europe 2020 strategy);

30. Regrets that the potential benefits from achieving synergies between the five ESIFs by placing them under one umbrella of regulatory and management framework and one partnership agreement per Member State have not yet been realised and that different rules continue to apply at fund and thus at programme level; stresses that only carefully considered partnership agreements and programmes should be adopted in order to ensure an effective implementation of ESIFs;

31. Expects the Commission to report on the contribution of the Union budget to the achievement of Europe 2020 Strategy objectives; agrees that it is a challenging task to report consistently on the thematic objectives for all five ESIFs and hence on the contribution of these funds to the Europe 2020 Strategy; notes that the Commission must in 2017 deliver the first strategic report on the contribution to the Europe 2020 Strategy;

32. Underlines however that 3/4 of Structural Funds projects achieved their policy goals entirely or in parts and that only in 2 % of the cases none of the objectives set up in the operational programme or on the grant agreement were attained;

33. Observes that the Court has focused mainly on analysing consistency of Member States’ partnership agreements with the Europe 2020 Strategy targets as a prerequisite for better performance; asks the Court to present information in its next annual report about translation of the Europe 2020 Strategy targets into expected achievements under other programmes and funds directly managed by the Commission;

34. Points out that the introduction of common performance indicators for each fund would be an important step, while regretting that: (a) Member States are not required to include common indicators in their programmes, with the exception of the Youth Employment Initiative and EAFRD, and results-based assessments do not form part of the initial control stage in the Member States; (b) except for two funds (the European Regional Development Fund (ERDF) and the Cohesion Fund (CF)), common indicators are not shared between different funds; (c) milestones only exist for the performance framework whilst targets may lack ambition; (d) the Commission continues to have limited capacity for performance monitoring and evaluation;

35. Takes note that according to the Court, there are inherent weaknesses in the performance framework of the common provisions regulation on ESIF (6), as poor results do not lead to the loss of the performance reserve for Member States and as the financial sanctions available to the Commission are limited; however, considers that before asking for sanctions a better system for performance measurement should be in place and potential sanctions should be preceded by a process of assisting Member States to improve performance;

36. Calls on the Commission to make fuller use of the scope afforded by existing legislation with regard to the performance reserve so as genuinely to create a financial incentive to improve financial management in practice; calls furthermore for greater use to be made of the performance reserve as an instrument to increase the element which is conditional on performance when the legislation is next revised (7);

37. Takes note that the guidance given by the Commission’s central services has improved in the annual reporting on performance by the directorates-general (DGs), but reiterates that the DGs’ objectives are not fit for management purposes and that difficulties remain with indicators for monitoring performance; notes also that all the indicators put in place in the preceding years to measure the progress of the Europe 2020 Strategy reforms at both Union and national levels have been removed from the annual activity report of the Secretary General of the Commission in 2014 and been included instead in the management plans and annual activity reports of operational DGs;

38. Requests that the Commission consider making proposals with a view to: (a) better aligning the MFF to the Europe 2020 strategy and proposing its revision if needed to better match the Europe 2020 Strategy; (b) reflecting the high-level political goals of the Europe 2020 Strategy in Union-level objectives; (c) making sure that partnership agreements and programmes translate the Union-level objectives into thematic objectives that can be linked to operational objectives at the level of the Member States or in the programmes directly managed by the Commission;

39. Asks the Commission to propose to the legislator that: (a) Member States include in their partnership agreements and programmes a statement of the quantifiable results that the funding is intended to achieve, where appropriate; (b) all partnership agreements and programmes include common results indicators, where possible shared by different funds, designed to monitor progress at the local, Member-State and Union level; (c) the performance framework be based as far as possible on these common results indicators;

40. Asks the Commission to include in the next evaluation reports provided for in Article 318 TFEU an analysis of the efficiency, the effectiveness and the results achieved in terms of growth and jobs by the investment plan of EUR 315 billion announced by the President of the Commission Jean-Claude Juncker, on 26 November 2014 in the plenary session of the Parliament;

Follow-up of the 2013 Commission’s discharge

41. Regrets that the overall error rate remained at almost the same level and that payments remained materially affected by error; Chapter 2013 2014 Transactions Error rate (8) (%) Transactions /EUR Error rate (%) Revenue 55 0,0 55 0,0 Competitiveness, Research, Education, Transport, Other Programmes 160 4,0 166/13 billion 5,6 Cohesion 343 5,3 331/55,7 billion 5,7 Regional and urban policy area 168 6,4 161 6,1 Employment and social affairs policy 175 3,1 170 3,7 Natural resources 360 4,4 359/57,5 billion 3,6 EAGF — market and direct support 180 3,6 183 2,9 Rural development, environment, climate action and fisheries 180 7,0 176 6,2 Global Europe 182 2,1 172/7,4 billion 2,7 Administration 135 1,1 129/8,8 billion 0,5 Total 1 180 4,5 1 157 /142,4 billion 4,4

42. Regrets that a lack of reliability of the first-level checks performed by the Member States in shared management and weaknesses in excluding ineligible land from the land parcel identification system (LPIS) still persist; points out that according to the Court’s annual report for 2014, both the shared management areas and all other operational expenditure (which is mostly directly managed by the Commission) have an estimated error rate of 4,6 %; notes however that considerable remedial work had been carried out;

43. Notes with concern that implementation of the following recommendations and requirements in the 2013 Commission discharge is still pending: (a) a sanction system if Member States transmit incorrect programme information and declarations and in the case of false or incorrect reporting by paying agencies including the three following dimensions, namely inspection statistics, statements by the paying agencies, and the work carried out by the certification bodies; (b) publishing, where they have voluntarily decided to present them, not only the national declarations but also the annual summaries and management declarations, as ‘confidential documents’ where applicable, in order to give more insight into and achieve a real improvement in financial management; however it is still not clear how effective these measures will be considering the differences in Member States’ structures and the political accountability of the different national authorities; (c) analysis and information on the preliminary results achieved by the investment plan for Europe as announced by the President of the Commission, Jean-Claude Juncker, in November 2014 to the Parliament;

44. Notes with concern that only 20 recommendations were implemented fully, 26 recommendations are being implemented in most respects and 19 are being implemented in some respects out of 65 of the Court’s recommendations made in years 2011-2012; calls on the Commission to adopt Parliament’s recommendations and requirements and to continue implementing the Court’s recommendations;

45. Stresses that from the point of view of the Parliament it is unsatisfactory when adversarial procedures end with the Commission and the Court drawing different conclusions; calls therefore on both institutions to avoid such an outcome;

46. Requests an action plan from the Commission with deadlines and objectives to strengthen the prevention of these recurrent errors;

Position of the Court: the Court’s statement of assurance

47. Welcomes the fact that the Court gives a clean opinion on the reliability of the accounts for 2014, as it has done since 2007, and that the Court concluded that revenue was free from material error in 2014; notes also with satisfaction that the commitments underlying the accounts for the year ended 31 December 2014 are legal and regular in all material respects;

48. Notes that the overall results correspond generally with the Court’s previous observations;

49. Deplores the fact that for 21 years in a row, payments have been materially affected by error due to the partial effectiveness of the supervisory and control systems;

50. Regrets that payments are affected by an error rate of most likely 4,4 %; recalls that the most likely error rate for payments was estimated in the financial year 2013 at 4,7 %, in the financial year 2012 at 4,8 % and in the financial year 2011 at 3,9 % (9); among particular items, the highest levels of error were identified in spending in favour of economic, social and territorial cohesion (5,7 %) and competitiveness for growth and jobs (5,6 %); on the other hand, administrative expenditures are connected with the lowest estimates of identified error (0,5 %);

51. Wonders whether the error rate for particular transactions is based on a comparable basis and therefore should serve as a comparable benchmark; notes that the error rate for cost reimbursement schemes (5,5 %) is based on cost eligibility in comparison with entitlement programmes (2,7 %), where it is based only on a necessity to meet a set of conditions;

52. Notes that if the corrective measures taken by the Member States and the Commission had not been applied to the payments audited by the Court, the overall estimated level of error would have been 5,5 % rather than 4,4 %; urges therefore the Commission, authorities in the Member States or independent auditors to use all information available to prevent, detect and correct possible errors;

53. Stresses that for the operational expenditure the estimated level of error for spending under shared management with the Member States amounts to 4,6 % (2013: 4,9 %) which remains at an very high level; is worried that for the other forms of operational spending where the Commission has a leading role, the estimated level of error has rocketed up to 4,6 % (2013: 3,7 %);

54. Notes that the Commission recognises that spending is affected by a material level of error, as it presents in its 2014 synthesis report the amount at risk as a range from EUR 3,7 to 5 billion which represents between 2,6 % and 3,5 % of payments; notes that the Commission estimates that it will in future years identify and correct errors for a total of approximately EUR 2,7 billion;

55. Endorses the Court’s view that despite improvements in its analysis of the impact of corrective action, the Commission has not eliminated the risk that the impact of corrective actions is overstated or of limited relevance (10);

56. Is of the opinion that for more than three quarters of 2014 expenditure, Commission DGs base their estimates of the amount at risk on data provided by national authorities; notes that the Commission states in its synthesis report that the reliability of Member States control reports remains a challenge;

57. Notes the fact that for 12 Commission DGs, the estimated corrective capacity is higher than the estimated amount at risk, which reflects the multiannual nature of corrective systems;

58. Calls on the Commission to revise the method for calculating the corrective capacity in time for the 2015 discharge procedure;

59. Remarks that whenever the Commission has evidence of reduced absorption capacity in Member States, the Commission should assess all flexibility provisions of the MFF Regulation and in the first instance propose measures for overcoming insufficient absorption capacity before taking other actions;

60. Points out that more than two thirds of financial corrections recorded for cohesion in 2014 are cases where authorities in the Member States withdrew declared expenditure and replaced it with new expenditure; welcomes that such procedures are limited in the 2014-2020 programing period;

61. Asks the Commission in cooperation with the Member States to assess for each policy domain and for the Union budget as a whole, the level of error remaining after all corrective measures, taking into account the multiannual nature of programmes;

62. Calls on the Commission to apply strictly Article 32(5) of the new Financial Regulation if the level of error is persistently high, and consequently to identify the weaknesses in the control systems, analyse the costs and benefits of possible corrective measures and take or propose appropriate action in terms of simplification, improvement of control systems and redesign of programmes or delivery systems before the mid-term review of the 2014-2020 programming period;

63. Underscores the Court’s observation that if the Commission, authorities in the Member States or independent audits had made use of all the information available to them, they should have been able to prevent, detect, or correct a significant proportion of the errors before these were made; expresses concern at the fact that the Commission has admitted that it takes at least 10 years to correct errors; points out that using all the information available might have reduced the level of error by 3,3 percentage points for both expenditure under regional and urban policy (6,1 %) and for rural development, the environment, climate action and fisheries (6,2 %); stresses that using all the information available might have reduced the level of error by 2,8 percentage points for competitiveness for growth and jobs, which are directly managed by the Commission;

64. Notes that in 2014, new emphasis was laid on results-oriented budgeting and analysis accompanied with a change in methodological approaches; in this context, underlines the need for a clear and transparent survey of the 2014 Union budget contribution to results achieved in connection with the Europe 2020 Strategy and sectoral policy objectives;

65. Notes also that the practice of the annual activity reports aims at allowing identification of the results brought by interventions, but it still looks rather to output than to results;

66. Endorses the reservations issued by the Director-General of DG REGIO in its annual activity report concerning the ERDF/Cohesion Fund management and control systems for the 2007-2013 programming period in 12 Member States (77 programmes) and ETC programmes; is of the opinion that those reservations demonstrate that the control procedures put in place in the Commission and the Member States cannot give the necessary guarantees concerning the legality and regularity of all the underlying transactions in the corresponding policy areas;

67. Endorses the reservations issued by the Director-General of DG AGRI in its annual activity report concerning the following items of expenditure: — ABB02— Expenditure on Market Measures: where there are EUR 77,7 million at risk and eight elements of reservation; involving four aid schemes in seven Member States: Austria, France (where two aid measures are concerned), the Netherlands, Poland, Spain, Romania and the United Kingdom, — ABB03— Direct payments: where there are EUR 831,6 million at risk, involving 15 paying agencies in six Member States: Spain (where 10 paying agencies are concerned), France, the United Kingdom (the Rural Payments Agency in England), Greece, Hungary and Portugal, — ABB04— Rural development expenditure: where there are EUR 532,5 million at risk, involving 28 paying agencies in 16 Member States: Bulgaria, Germany (where three paying agencies are concerned), Denmark, Spain (six paying agencies), France (two paying agencies), the United Kingdom (two paying agencies), Hungary, Greece, Italy (where four paying agencies are concerned), Lithuania, Latvia, Netherlands, Poland, Portugal, Romania and Sweden; — ABB05— IPARD expenditure for Turkey: where there are EUR 5,07 million at risk; is of the opinion that those reservations demonstrate that the control procedures put in place in the Commission and the Member States cannot give the necessary guarantees concerning the legality and regularity of all the underlying transactions in the corresponding policy areas;

68. Endorses the reservations issued by the Director-General of DG EMPL in its annual activity report; notes that its annual activity report contains a reservation relating to payments made for the 2007-2013 programming period for an amount at risk of EUR 169,4 million in 2014, involving expenditure on management and control systems for 36 specific European Social Fund (ESF) operational programmes in Belgium, Czech Republic, France, Germany, Greece, Hungary, Italy, Romania, Slovakia, Spain and the United Kingdom for the programming period 2007-2013; is of the opinion that those reservations demonstrate that the control procedures put in place in the Commission and the Member States cannot give the necessary guarantees concerning the legality and regularity of all the underlying transactions in the corresponding policy areas;

69. Requests the director general of DG DEVCO to provide a more risk differentiated assurance in his annual activity report and to subsequently direct more of their control resources towards areas covered by specific reservations;

70. Calls on the Council to adopt a more vigilant position on the discharge and welcomes the critical stance taken by Sweden and the United Kingdom in asking the Commission and the Court to: — focus on areas and recipients with a high risk of errors instead of adding more controls for all; — focus on ex ante controls rather than ex post controls; — preserve the unanimously agreed payment ceilings, in particular by maintaining fiscal discipline in relation to commitments, effectively de-committing unused appropriations in order to make room for new priorities and programmes, increasing transparency by providing long-term forecasts, ensuring a balance between commitments and payments and reducing excessive cash balances in financial instruments, given that more than EUR 14 billion in unutilised funds remains locked within such instruments, which could be used for more urgent needs and priorities; welcomes also Sweden’s and the United Kingdom’s exhortation to Member States authorities to make better use of the available information to prevent, detect and correct errors before declaring expenditure to the Commission;

Summary

71. Concludes that the discharge: (a) priorities include a balanced approach between traditional methods and a strengthened focus on performance and results, taking account in every case of the obligations arising from the Treaties, the sectoral policies and the flexibility necessary to deal with unforeseen events; (b) requires improvement in data availability and management to declare the performance and results; (c) appreciates a strengthened linkage of the Union budget with key Union policy strategies and concepts (as the Europe 2020 Strategy) and their correlation with key sectoral policies; (d) respects improved management and control methods in line with sound financial management principles; (e) provides room to develop the observations from the previous discharges in the form of regular follow-up; (f) regrets the significant increase in errors in operational expenditure directly managed by the Commission, which have risen to a point where they now match the level of error for spending under shared management with the Member States for the first time;

B. SPECIFIC CHAPTERS

General budgetary and financial management

72. Points out that sound financial management is about the real results of Union budget interventions, provided of course that they respect legality and regularity rules and contribute to the Union budget’s added-value from a Union perspective; stresses that minimising the error rates and cases of fraud are a necessary precondition to following sound financial management principles;

73. Underlines that the level of error rate does not necessarily mean a case of fraud, inefficiency, or waste, but an estimate of financial flows that should not have been paid out as they were not used in line with rules and regulations; emphasises, however, that the sharp increase of serious errors in the context of public procurement procedures is a matter of grave concern, as Member States have had years of experience with the existing procurement rules, and that if they already face difficulties with these rules, this does not bode well for when they have to adapt national legislation and procedures to the new directives on procurement and concessions; recognises that the error rate is not well understood by Union citizens and asks the Court in this context to launch a debate with the Commission with a view to identifying potential methodological shortcomings and agreeing on common standards in reporting the error rate;

74. Recommends that the rules and regulations be verified via a regulatory impact assessment (RIA) (11) process to test their compatibility and compliance with Union needs and targets, as in the case of cost reimbursement schemes, while the most typical example of errors include payments for ineligible costs (41 %) and errors in public procurement (27 %); notes that those errors can differ from a fraud or an act of deliberate deception to gain benefit;

75. Draws attention in this regard to the fact that implementation of the 2014 Union budget was exercised under differing regulatory frameworks, due to the fact that in that year there were two frameworks in force for the periods 2007-2013 and 2014-2020;

76. Points out therefore that it is correct and substantial to distinguish between different types of error rate related to the different types of Union budgetary expenditure, as they are allocated under different criteria and therefore it is very difficult to compare them;

77. Notes that in its effort to support a reinforced performance culture, the Court’s 2014 annual report pays strong attention to Union budget performance issues, having tested as a pilot the real complementarity between Union funding and the Europe 2020 Strategy; notes that the Court underlined and identified a low and weak interconnection between partnership agreements/operational programmes and the Europe 2020 Strategy; however, draws attention to the fact that such complementarity should be considered within the overall context of the fund-specific missions pursuant to their Treaty-based objectives, including economic, social and territorial cohesion;

78. Expresses concern at the rate of absorption of funds in Member States, which varies between 50 % and 92 %; calls on the Commission to present a thorough analysis of why it is that some regions still exhibit low rates of absorption and to assess specific ways of remedying the structural problems underlying those imbalances;

79. Appreciates the innovative nature of the Court’s 2014 annual report which included a results- and performance-based approach, assessing the application and orientation of Union budgetary interventions against the Europe 2020 Strategy priorities; considers that a results- and performance-based approach should be applied in the coming years, when drafting country-specific recommendations (CSRs) in the context of the European Semester;

80. Underlines that the Court’s observations on achievements highlight the need to apply measures to improve budgetary performance and shared management standards;

Budgetary performance

81. Notes that budgetary performance means an appropriate focus of Union budget expenditures on real Union priorities for the particular period;

82. Points out that the performance culture is based on three key pillars: strategy, simplification, and the budgetary procedure;

83. Recommends a continuation of the process of simplification of both procedures and budgetary content leading to a reduction of excessive administrative burdens and to limitations on gold-plating in particular Member States; stresses that the process of simplification should not lead to deregulation and should not mean forgetting about control mechanisms and procedures i.e. ex ante audits; underlines that simplification should not cause overly frequent changes in the regulatory framework, leading to additional burdens for administration and beneficiaries, thus undermining intended positive developments of simplification; welcomes the existence of the high-level group created by the Commission and is expecting results;

84. Recommends an improvement in the budgetary procedure in terms of providing performance information and management, including the cost-effectiveness of controls, declaration of assurance and discharge, project databases and communication;

85. Calls on the Commission to improve communication and cooperation between actors involved in budget planning, implementation and discharge, and with the wider public, by aligning expectations, sharing experiences on implementation and reporting on the attainment of results;

86. Calls on the Commission to consider using tools such as social media, surveys and focus groups to measure public awareness and assess ways to improve their communications strategy in future regarding the results of the projects to the citizens;

87. Welcomes the new interinstitutional working group on performance-based budgeting in order to reach a common understanding of performance-based and results-oriented budgeting principles;

88. Recommends corresponding improvements in areas such as the alignment of control intensity with risk, mapping performance reporting or the reliability of control results reported by Member States;

89. Notes that the Commission has created enormous analytical capacity, focused mostly on sectors relevant for individual DGs, without analysing horizontal, multi-disciplinary issues and the real results of its policies (co-)financed by the Union budget;

90. Recommends focusing on the performance-based approach and on the issue of market imperfections/failures, as this approach helps focus Union funding interventions on areas where criteria of economy, efficiency and effectiveness are best accommodated; points out that the design should be tailored to a set of different market imperfection/failure types, one connected with information asymmetry and the other related to commercial assessments of return that broadly do not include all positive externalities and wider social benefits whereas both are justifiably supported by Union funding;

91. Suggests that the Commission adopt a criterion based on what would likely have occurred if the project or activity concerned had taken place or had not received Union funding, when evaluating Union added-value;

92. Calls urgently for clarification as to how much money was paid from Union funds to media undertakings in each Member State, which undertakings have received payments and whether the reason was to publicise the funds or another reason;

Shared management

93. Recalls that a large responsibility for correct allocation of the Union budget lies with the Member States, as 76 % of expenditure is spent under shared management; stresses that Member States have an important responsibility for correctly and lawfully implementing the Union budget when they are responsible for the management of Union funds;

94. Stresses that a key to correct allocation is a correct definition of Union needs combined with the Member States’ development priorities;

95. Underlines that the better Member States strive to fulfil the national and quantified Europe 2020 Strategy targets, the more Union budgetary spending can be targeted, and the more those targets will reflect the real Union economic, social, territorial and environmental needs, the better the Union will ensure an environment for sound financial management; in this context, recommends the creation of a permanent platform composed of the Commission, national governments’ representations, including the permanent representations to the Union, regional governments and authorities;

96. Shares the Court’s finding that the Commission, national authorities and independent auditors must use all the available relevant information to prevent, or detect and correct errors before reimbursement; firmly states that when data are available there should be no reason for the Commission, the national authorities and the independent auditors not to take the appropriate measures to prevent, detect and correct errors;

97. Calls on the Court to develop a system, together with national audit authorities, which will allow the Court to evaluate the follow-up Member States have given to its recommendations;

98. Calls on the Commission to provide guidance to the Member States so that partnership agreements and operational programmes transpose more fully the Europe 2020 Strategy and also implement the concept of common results indicators as proposed in the Court’s 2014 annual report;

99. Deems it useful that the Parliament and the Council find together a way how to address the issue of Member States’ spending under the shared management;

100. Endorses the inclusion of CSRs in partnership agreements;

101. Urges the Commission to strengthen the negotiations with the Member States regarding the necessity of publishing national declarations and annual summaries;

Financial corrections and recoveries

102. Is concerned that for the financial corrections implemented in 2014 (as compared to Union payments received) some Member States’ rates lay three times above the average percentage of 2,3 % (Slovakia 8,7 %, Czech Republic 8,1 %, Greece 4,7 %);

103. Notes that for the 2007-2013 programming period, EUR 209 million of financial corrections under ESF have been confirmed and EUR 156 million implemented, out of which EUR 95 million were confirmed in 2014; remarks that Member States with the highest level of corrections are Spain (EUR 56 million), Romania (EUR 43 million); Poland (EUR 32 million) and France (EUR 20 million);

104. States that the cumulative amounts corrected for cohesion policy in 2007-2013 represent 0,9% of the budget allocations; shares the Commission’s view that financial corrections for the 2007-2013 period are expected to continue to increase in the coming years as its programmes start to close;

105. Notes that for ERDF/CF programmes, the Commission has imposed around EUR 2 billion of financial corrections cumulatively since the beginning of the 2007-2013 programming period, which includes EUR 782 million of financial corrections applied by the Member States before or at the same time as declaring the expenditure to the Commission; observes with concern that the principal Member States concerned are Czech Republic (EUR 719 million), Hungary (EUR 298 million), Greece (EUR 257 million), Spain (EUR 237 million), Slovakia (EUR 152 million), Romania (EUR 146 million) and Italy (EUR 105 million);

106. Notes that for ESF, the Member States with the highest level of cumulative financial correction figures are Romania (EUR 355 million), Spain (EUR 213 million) and Poland (EUR 152 million);

107. Considers financial corrections and recoveries are effective means to protect the Union’s budget; regrets however that due to the legal framework for protecting Union financial interests, the complexity of the related procedures and the number of control layers involved in many areas, errors can only be corrected several years after they have occurred;

Protection of financial interests

108. Underlines that corruption and fraud erode trust in public institutions and democracy, and undermine the functioning of the Union’s internal market; notes that an integrated approach whereby Union institutions (and Member States) work together is necessary; regrets that several Union institutions (Commission and agencies, European Anti-Fraud Office, the Court) report on fraud in different ways;

109. Recommends that the Commission fit all reporting arrangements into a single coherent system to protect the financial interests of the Union, thereby making the fight against fraud and corruption more effective; recalls the importance of a coherent legislation inside the Union to efficiently fight against organised crime operating at a transnational level;

110. Points out that transparency is the most effective instrument for combating abuse and fraud; calls on the Commission to improve legislation in this regard, making it compulsory to publish data relating to all the beneficiaries of Union funding, including data on subcontracts;

111. Urges the Commission to join the Criminal Law Convention on Corruption (ETS No 173) of the Council of Europe and to speed up the negotiations on the participation of the Union in the Group of States against Corruption (GRECO), in order to contribute to more co-ordinated anti-corruption policies in Europe;

112. Calls on the Commission to assume full responsibility for the recovery of funds unduly paid into the Union’s budget and to establish uniform reporting principles in all Member States with a view to ensuring comparable, reliable and adequate data collection;

113. Welcomes the Commission’s statement in its 2014 Annual Protection of Financial Interest Report (PIF), which reminds that both the PIF directive and the European Public Prosecutor’s Office regulation (EPPO regulation) ‘would complement and strengthen the legal framework and would considerably reinforce the fight against fraud’; reiterates its views that there is an urgent need to adopt the PIF Directive, with VAT included in its scope and with a clear definition of PIF offences, minimum rules for maximum applicable imprisonment penalties, and minimum rules on the statute of limitations as soon as possible; recalls the Taricco Case, in which the Court of Justice of the European Union draws attention to the fact that VAT fraud is indeed included in the 1995 PIF Convention’s definition of PIF fraud; calls on the Commission to clarify the relations between Eurojust, the European Public Prosecutor’s Office (EPPO) and European Anti-Fraud Office (OLAF) and to examine the possibility of a stronger integrated approach of these agencies in order to make investigations more effective;

114. Welcomes the Commission’s decision to increase transparency by improving its system of expert groups, particularly as regards the procedure for selecting experts, through the development of a new conflict-of-interest policy for experts appointed in a personal capacity, implying the possibility for Parliament to exercise direct control over such appointments; takes note of the requirement for experts to be registered in the transparency register where relevant; urges the Commission, however, to take into account the recommendations both of the European Ombudsman concerning the composition of the expert groups and of the study ‘Composition of the Commission’s expert groups and the status of the register of expert groups’ when drafting amendments to the current horizontal rules governing expert groups, in order to create a more systematic and transparent approach; requests that the Commission engage in a dialogue with Parliament before the rules are formally adopted, especially in relation to the upcoming report of the Committee on Budgetary Control and the Committee on Legal Affairs on this matter; encourages the European agencies to consider reforms in a similar sense;

115. Stresses that Member States are not following up alleged cases of fraud affecting the financial interests of the Union as submitted to them by OLAF; calls on the Commission to take appropriate measures and on OLAF to continue to support the Member States in improving their performance in the prevention and detection of fraud against European funds;

116. Invites the Commission to develop a system of strict indicators and uniform criteria; is concerned about the reliability and quality of data coming from the Member States; calls on the Commission, therefore, to work closely with Member States to guarantee comprehensive, exact and reliable data keeping in mind the goal of full implementation of the Single Audit Scheme;

117. Reiterates its request that the Commission report biannually to Parliament and to the Council on the implementation by the Union institutions of their internal anti-corruption policies, and is looking forward to reading the next report in early 2016; asks the Commission to add a chapter on the performance of the Union institutions in fighting corruption and is of the opinion that the Commission’s future anti-corruption reports should always cover all the Union institutions and bodies;

118. Expresses concern about the data provided by Eurodad on money laundering, in which Luxembourg and Germany rank top for the risk of money laundering; regards it as essential that the Member States should transpose in full the Union directive on money laundering and introduce a public register of the ownership of companies, including trusts;

119. Calls for switching from a voluntary to a mandatory Union register for all lobbyists performing their activities towards the Commission;

120. Considers the Commission’s first biennial anti-corruption report to be a promising attempt to better understand corruption in all its dimensions, to develop effective responses with a view to tackling it, and to pave the way for enhanced accountability of the public sphere to Union citizens; reaffirms, in this context, the importance of the Union’s zero-tolerance policy on fraud, corruption and collusion; considers it regrettable, however, that this report did not include the anti-corruption policies of the Union institutions themselves;

121. Demands that in its second anti-corruption report, at the latest, the Commission carries out further analysis at the level of both the Union institutions and the Member States of the environment in which policies are implemented, in order to identify inherent critical factors, vulnerable areas and risk factors conducive to corruption;

122. Calls upon the Commission to fulfil without delay its reporting obligations under the UN Convention against Corruption;

Error rate in general

123. Notes with concern that the most common types of errors detected are ineligible costs included in cost claims (41 %), serious errors in public procurement (27 %) and incorrect declarations of area by farmers (20 %);

124. Notes however that the percentage of serious errors by Member States in public procurement was significantly reduced from 45 % in 2013 in the regional policy area to 25 % of all qualified errors for the combined policy area economic, social and territorial cohesion in 2014;

125. Finds it alarming that in many cases of quantifiable errors, the Commission, national authorities or independent auditors had sufficient information to prevent or detect and correct the errors before accepting the expenditure; if all this information had been used to correct errors, the estimated level of error could have been significantly lower;

126. Notes that for entitlement programmes the estimated level of error is 2,7 % (3 % in 2013), thus significantly lower than in reimbursement expenditures where the estimated level of error is 5,5 % (5,6 % in 2013); asks the Commission to evaluate switching from a reimbursement scheme to an entitlement scheme where appropriate, as a means of simplification;

Best practice

127. Urges Member States to take their obligations to reach Union 2020 Strategy targets as seriously as they do in the case of CSRs and the European Semester procedure; this would reflect a visible change in performance understanding, which should be further followed by implementing evaluating processes with impact, such as the performance reserve for responsible beneficiaries, and sanctions and limitations for the others;

Evaluation and analysis of the main results of 2014 Union budget

128. Notes that a total of about EUR 142,5 billion in 2014 represent almost 2 % of total public expenditure in Union Member States, or 1 % of Union GDP;

129. Requests that identifying the real effects of the Union budget utilisation on Union macroeconomic indicators becomes a subject of discharge procedures;

130. Regrets that only 47 % of the contributions to the financial engineering instruments (FEI) were paid out to the final recipients by the end of 2013 in shared management (37 % paid out at the end of 2012) and that cash held in FEI under indirect management remain high (EUR 1,3 billion in 2014; EUR 1,4 billion in 2013);

131. Notes the Court’s recommendation to the Commission to submit a legislative proposal to amend the applicable regulation concerning the extension of the eligibility period for FEI under Council Regulation (EC) No 1083/2006 (12) and of the Commission’s reply thereto;

132. Following the Court’s recommendation, calls upon the Commission to consider in its budgetary and financial management the capacity constraints in some Member States, in order to avoid the under-utilisation of funds and to increase the absorption rates, especially in the area of the ESIFs; while acknowledging the actions taken so far, such as the set-up of the Task Force for Better Implementation, which has already generated improvements;

133. Requests that the Commission take measures to reduce outstanding commitments, including a timely closure of the 2007-2013 programmes and a reduction of cash held by fiduciaries;

134. Reiterates that the Commission should establish annually a long-term cash flow forecast covering budgetary ceilings, payments needs, capacity constraints and potential withdrawal of commitments in order to better match payments needs and funds available (13);

135. Is of the opinion that the MFF mid-term revision, to be presented by the Commission by the end of 2016, is the first and best opportunity to structurally tackle the high level of RAL; urges the Commission to come up with a proposal to revise the MFF regulation in order to fix, among other matters, the RAL;

Outstanding payments

136. Stresses that commitments made amounted in 2014 to EUR 109,3 billion, i.e. 76,6 % of commitment appropriations available and that as result a very high level of appropriations for commitments is available in 2015 (with carry-over EUR 12,1 billion, the ceiling being increased by EUR 16,5 billion);

137. Regrets that despite the level of payments continuing to be higher than the MFF ceiling, use of the contingency margin unpaid payments claims rose by EUR 1,4 billion to EUR 25,8 billion; stresses the importance of fully respecting the joint statement on a payment plan 2015-2016 agreed between Parliament, Council and Commission, following the shared commitment to reduce the backlog of outstanding payment claims for the 2007-2013 cohesion programmes to around EUR 2 billion by the end of 2016; takes the view that in de facto terms this state of affairs constitutes a breach of Article 310 TFEU, which states that the revenue and expenditure shown in the budget must be in balance;

138. Stresses that the reduction in the level of outstanding commitments is forecasted to be temporary because of the requested increase in the MFF ceiling for 2015 and subsequent years;

139. Points out in particular that by the end of 2014, payments to Member States for the multiannual ESIFs for 2007-2013 (14) had reached EUR 309,5 billion; i.e. 77 % of the EUR 403 billion for all the operational programmes, where five Member States (namely Czech Republic, Spain, Italy, Poland and Romania) account for more than the half of the unused commitments of multiannual ESIFs;

140. Regrets that the backlog in the absorption of multiannual funds is significant and may create a real problem for some Member States (15); supports and recognises, in this connection, the usefulness of applying flexibility options, given the delays in launching all the programmes;

Revenue

141. Notes that the revenue flows are based on a multi-channel principle: (a) the largest proportion is still contributed by Member States depending on their gross national income (GNI), in 2014 this contribution amounted to EUR 94,9 billion; (b) other sources include payments based on the VAT collected in individual Member States, which amount in total to EUR 17,7 billion; (c) customs and agricultural duties represent the third substantial source, at EUR 16,4 billion;

142. Welcomes the fact that two recommendations are being implemented in most respects and one recommendation is being implemented in some respects out of the Court’s three recommendations made in 2011-2012; GNI

143. Underlines that, until changes are made to the Union’s own-resources system, a GNI parameter is a key factor behind the revenue issue of the Union budget and stresses that a correct and objective measure of that is therefore a key issue, the only serious one regarding the revenue topic under the current Union budget’s architecture and that it is very important to have reliable and flexible databases for calculating Member States’ contributions;

144. Calls therefore on the Commission to declare that GNI data submitted by Member States are reliable and their contributions therefore correct;

145. Recalls that in 2014, updates to GNI data led to adjustments to Member States’ contributions of an unprecedented size, amounting to EUR 9 813 million;

146. Stresses that the impact of these major revisions to the GNI balances could have been smaller if a common Union revision policy harmonising the timetable for major revisions had been in place;

147. Regrets that VAT fraud, and in particular the so-called carousel or missing-trader fraud, distorts competition and deprives national budgets from significant resources and is detrimental to the Union budget; points out that the VAT gap and the estimated losses on VAT collection amounted to EUR 168 billion in 2013; is concerned that the Commission has no reliable data on VAT and carousel fraud; notes, that the current VAT system remains fragmented and creates significant administrative burdens, especially for SMEs and online companies; is concerned that the new system of accountability for VAT as an own resource could not totally achieve its goal of simplification and stresses the responsibility of Member States to address the weaknesses in Eurofisc and better coordinate their policies on reverse charges, to facilitate the exchange of information and help combat irregularities and frauds; asks the Commission to propose legislative amendments enabling effective cross-checks between customs and tax data and to focus its monitoring of Member States on improving the timeliness of their replies to information requests and the reliability of the VAT Information Exchange System;

Measures to be taken

148. Asks the Commission to provide analysis regarding the future of Union funding evaluating the adequacy of the own resource base;

149. Regrets that proposals put forward by the Commission in 2013 to introduce a common Union revision policy are still outstanding, with no further action having been taken by the Commission despite the fact that 19 Member States indicated that they would at least partly align themselves with the Union revision policy by September 2014;

150. Is pleased at the establishment of the High-Level Group on Own Resources; welcomes the first evaluation report that it submitted at the end of 2014 and agrees that the system has gradually become dominated by national contributions, with a leftover portion of independent, genuinely European own resources; considers that the current system of own resources should move forward from the current national debate on net contributors and recipients, which is remote from the Union’s citizens, towards a system that is recognisably in the general interest of the Union and its policies;

151. Points out that changes resulting from the work on reservations would have been mitigated if the Commission’s verification cycle had been shorter and recalls that the Parliament urged the Commission in its resolution of 29 April 2015 concerning discharge for the financial year 2013: (a) to shorten the duration of its verification cycle of GNI; (b) to limit the use of general reservations to exceptional cases;

152. Notes with deep concern that the Commission announced that the next verification cycle will be completed only in 2019 and that the reservations will cover at least nine years, as the previous one did;

153. Points out that according to the Court, the quality of the checks made by the Member States customs has not improved; regrets that the updated version of the Customs Audit Guide issued by the Commission in 2014 does not cover some of the shortcomings identified by the Court, in particular for the issues related to how to deal with imports cleared in other Member States;

154. Asks the Commission to: (a) take measures to reduce the number of years covered by reservations at the end of next verification cycle for GNI-based contributions; (b) put in place the arrangements needed to reduce the impact of revisions of methods and sources presented by Member States for the compilation of their GNI; (c) improve the existing guidance given to Member States’ customs authorities as to the checks they make (in particular the post-clearance audits); and (d) ensure that Member states have the appropriate systems in place for preparing and managing their statements of customs duties and sugar levies; (e) extend the risk assessment capacity of Eurofisc to cover the VIES system (transnational VAT information exchange system);

Best practice

155. The revenue side is not affected by material errors, which is a kind of best practice itself, as well as the current practice of Member States’ contributions based on the GNI principle that so far has sense; however, to keep this model functioning requires a permanent assessment of economic performance in Member States; an alternative to increase the own resource base still remains a topical issue for the future;

Competitiveness for growth and jobs

General issues

156. Welcomes the fact that the structure of the Court’s annual report follows, for the first time, the headings of the MFF which entered into force on 1 January 2014; in 2013 the chapter was called ‘Research and other internal policies’; notes, however, that this structural change limits the comparability of the Court’s findings with those of previous years;

157. Notes also that research and innovation accounts for 61 % (EUR 8,1 billion) of spending, through the Seventh Framework Programme for Research and Technical Development 2007-2013 (FP7) and Horizon 2020 — the Framework Programme for Research and Innovation 2014-2020 in education, training, youth and sport programmes (EUR 1,5 billion), space programmes (EUR 1,4 billion), transport (EUR 0,8 billion) and other actions and programmes (EUR 1,5 billion) account for the remaining 39 %;

158. Recalls that heading 1a of the MFF has been sharply reduced during the MFF negotiation (– 24 % compare to the initial Commission’s proposal); is aware that the heading 1a includes spending in favour of improving research and innovation, enhancing education systems and promoting employment, ensuring a digital single market, promoting renewable energy and energy efficiency, modernising the transport sector and improving the business environment, especially for SMEs;

159. Stresses that 90 % of spending within this area represent grants to private and public beneficiaries;

160. Welcomes that three recommendations were implemented fully and six recommendations are being implemented in most respects out of nine of the Court’s recommendations made in years 2011-2012;

Europe 2020

161. Is aware that the cumulative total of grant agreements for the whole FP7 stands at 26 078 (of which a total of 9 627 have been closed); at the same time the Commission launched the 2014-2015 work programme of Horizon 2020, which was a great success with 46 097 proposals being received by 25 February 2015: for 79 concluded calls, 25 903 proposals were eligible, 3 765 were retained for funding and 1 410 grant agreements were signed;

162. Is pleased that the Commission was able to meet most targets of the key performance indicators (KPI); doubts however, that the target of investing, by 2020, 3 % of the Union GDP in research and development can be met; calls on all Member States to rise to the challenge; notes that the situation seems to be particularly difficult for Croatia, Finland, Luxembourg, Portugal, Romania, Spain and Sweden; calls upon the Commission to draw the necessary conclusion for the forthcoming mid-term revision of the MFF to be presented by the end of 2016;

163. Welcomes the impact of European research (networks) on fighting Ebola, improving cancer treatments, creating a single European area for clinical research, fighting floods, increasing food safety and improving the safety of cruise ships, to name just a few;

164. Welcomes the fact that the ex post evaluation of the 7FP became available in November 2015; expects that its findings and recommendations can still be considered for the work programmes of Horizon 2020;

165. Notes with interest the first available information about the ‘State of the Innovative Union 2015 Report’ (16) which provides an update on the state of implementation of the 34 commitments made under the Europe 2020 Strategy’s Innovation Union Flagship Initiative;

166. Recalls that ‘Societal Challenge 6 (SC6)’, in particular, the social sciences and humanities, was a priority of Parliament, which it introduced during the development of Horizon 2020; recalls the importance of this component in the domains in which the Union is facing particular challenges, such as tackling unemployment, radicalisation, terrorism, supporting migrants, economic and monetary governance, and the fight against inequality; is concerned, therefore, that during the implementation phase of the programme, the social sciences and humanities have been downgraded as a priority through the loss of their dedicated leadership and the reduction in their commitment appropriations by 40 % at a time when the overall envelope for Horizon 2020 under the 2014-2020 MFF has increased;

Management issues

167. Points out that: (a) general conclusions and observations for shared management practice are valid for competitiveness; (b) synergy and an integrated approach between different types of instruments to support research, development and innovations (R&D&I) exist, however should be further improved; (c) Horizon 2020 has implemented simpler rules in comparison with the 7FP; on the other hand, within Horizon 2020, there are supported areas that are more potentially risky, such as business-oriented projects with SME participation and utilising new innovative instruments, including financial ones;

168. Calls on beneficiaries to make maximum use of audit certificates, as audit certificates reduce error rates by 50 % compared with uncertified cost claims; considers, however, that the error rate found by external audits should be substantially improved given the highly specialised support received from the Commission; welcomes in this context all the guidance, seminars, templates and the list of the most common errors which the Commission put at the disposal of beneficiaries and audit bodies, but calls on the Commission to take more incisive measures to ensure that external audit certificates more accurately reflect the error rate;

169. Supports the Commission’s endeavour to develop further risk management in the research area; welcomes in this context that for ex post audits the selection of participants to be audited is already largely risk-driven: the Commission expects that 83 % of the audits undertaken over the 2012-2016 period will be selected according to risk criteria;

170. Welcomes the creation of a common support centre which provides assistance for all research services in the area of legal support, audit, business process, IT, and information and data;

171. Recognises that significant support for research and innovation is included in the ESIF partnerships agreements and operational programmes of the Member States and regions, thereby creating more synergies; the support amounts to more than EUR 42 billion for core research and innovation and EUR 118 billion for research and innovation in the broader sense;

Legality and regularity; error issues

172. Is deeply concerned that the Court analysed 166 transactions out of which 79 were affected by error; notes that based on 53 quantified errors the estimated level of error is 5,6 %;

173. Finds it alarming that in 27 cases of quantifiable errors, the Commission, national authorities or independent auditors had sufficient information to prevent or detect and correct the errors before accepting the expenditure; if all this information had been used to correct errors, the estimated level of error for this chapter would have been 2,8 percentage points lower; this situation, which remained unchanged for some years now, proves a lack of diligence;

174. Considers it intolerable that the error rate for FP7 has not improved on FP6, and that, according to the statements by the Director-General of DG RTD it will be even worse; takes the view the error rate for FP7 should have improved given the greater experience acquired in project management; deplores the fact that the dramatic rise in the error rate in the area of ‘competitiveness for growth and employment’ in 2014 only serves to highlight the sound management of the programme in recent years;

175. Deplores the fact that the area of expenditure ‘competitiveness for growth and employment’ saw the steepest rise in error rates in the Union between 2013 and 2014;

176. Regrets that the sources of errors have remained the same: (a) in the research area (Research): incorrectly calculated personnel costs, other ineligible direct costs such as unsubstantiated costs for travel or equipment; ineligible indirect costs based on erroneous overhead rates or including ineligible cost categories not linked to the project; (b) for other spending instruments (Other): unsubstantiated and ineligible costs, as well as cases of non-compliance with the rules on public procurement; (%) Contribution by type of error Research Other Incorrectly calculated personnel costs 30,5 2,5 Other ineligible direct costs 17,5 13,5 Ineligible indirect costs 20 Non-compliance with the rules on public procurement 14 Ineligible subcontracting 2 Total 70 30

177. Remains convinced that the Commission must continue to strive for an acceptable balance between the attractiveness of programmes to participants and the legitimate necessity of accountability and financial control; recalls, in this connection, the statement of the Director-General in 2012 that a procedure designed to attain a residual error rate of 2 % under all circumstances is not a viable option (17);

178. Takes note that the director-general of the Directorate-General for Research and Innovation, as in previous years, has issued a horizontal reservation concerning the rate of the residual error within cost claims in the FP7, implemented directly by DG RTD, and in the payments to the Innovative Medicines Initiative Joint Undertaking, where the estimated residual risk is 3 % and the estimated impact is EUR 111,39 million;

179. Acknowledges that certain parts of FP7 expenditure were not covered by a reserve where there was evidence that the risks (and so the residual error rates) were significantly lower than for all expenditure; within RTD this applies to expenditure given to Fusion for Energy Joint Undertaking, Clean Sky and Fusion Cells and Hydrogen Joint Undertaking; outside DG RTD this also applies to expenditure by the Research Executive Agency under the Marie Curie programme, and all expenditure from the European Research Council Executive Agency;

180. Concludes that, whereas the horizontal reservation may be legally necessary, such a reservation sheds a negative light on the Commission’s financial management, in particular as the Directorate-General for Research and Innovation can give full assurance of 97 % of this expenditure;

181. Takes note that in the area of research, the Commission has issued recovery orders, in 2014 and 2015, worth EUR 42 million; EUR 31 million has already been retrieved, the rest is not yet recovered, either because of bankruptcy or pending enforced recovery;

182. Deplores the recent press reports casting doubt on DG RTD’s ability to protect the financial interests of the Union in an effective manner; calls on the Commission to clarify the circumstances that have been well documented in the media and point to a clear case of maladministration and unequivocal damage to the Union’s financial interests and reputation; calls on the Ombudsman to open an investigation into the matter;

183. Deplores the fact that the simplification has done away with ex ante audits (there is now no ex ante certification for spending of over EUR 375 000, for instance), giving rise to cumulative mistakes that lead to a widespread, ever-growing error rate that seems unlikely to be reduced in the case of Horizon 2020, given the increase in bodies responsible for managing expenses in relation to FP7;

Data reliability issues

184. Regrets that there is a problem with the secondary data analysis necessary for performance-based evaluations; considers that this should be considered as a challenge for the short-term future; recalls the need to improve information management;

Performance- and result-based approach

185. Notes that the real effects and results of R&D&I from the point of view of commercialisation and value-added contribution are absolutely substantial;

186. Welcomes the positive outcomes estimated by the High-level Expert Group carrying out the ex post evaluation of FP7, namely: that the programme created directly over 1,3 million job-years (through projects funded over a period of 10 years) and indirectly 4 million job-years over a period of 25 years; that each euro spent by FP7 generated approximately 11 euros of direct and indirect economic effects through innovations, new technologies and products and that its financial contribution to SMEs exceeded the target of 15 % and reached 17 % (5 billion euro);

187. Points out that for strengthening the performance approach, the Court provided a pioneering test on the Europe 2020 Strategy indicators, where R&D expenditures play an important role;

188. Asks the Commission to transmit to the Parliament the action plan presented to the ITER Council in November;

189. Insists on receiving from the Commission, by June 2016, an update on a long term project schedule and associated costs for ITER in preparation of budgetary decisions for the following year; recalls that for 2016 payment appropriations at a level of almost EUR 475 million have been set aside for ITER;

Financial instruments

190. Notes that especially for Horizon 2020, very advanced innovative financial instruments represent one of the key areas for practical implementation; welcomes in this regard the launch in 2014 of a new range of products under ‘InnovFin — EU finance for Innovators’ as a joint initiative launched by the European Investment Bank Group (EIB and EIF) in cooperation with the Commission;

191. Asks the Commission to present information in future discharge procedures about the implementation of the InnovFin which covers the Union budget share taking part in this financial instrument;

192. Points out that certain sectors and policy fields, such as railway infrastructure or theoretical or basic research, are less suited to financing via financial instruments, and thus risk being excluded from the scope of Union activities;

Best practice

193. Notes that the audit activities in this area were intensified and coordination by the Common Audit Service improved, while it is provided as a shared management service for all the DGs, executive agencies and joint undertakings involved in research and innovation spending;

194. Considers a potential good practice to be a specific kind of outsourcing, utilised the management of big programmes in this area through special agencies; as such a practice has only been in place for a short period, it is not possible to declare hard results, however, as a method and model, it seems to be very innovative;

Measures to be taken

195. Concludes that the Commission should: (a) adopt a set of measures to reduce the relatively high error rate in this area, improve data and information management to analyse also very advanced R&D&I projects and test their real impact against the potential of Horizon 2020; (b) present a report evaluating the current experience with a new practice to utilise special agencies in this segment (18) from the budgetary point of view as well as to introduce on a regular basis reporting on compliance with the relevant Europe 2020 Strategy indicators;

196. Calls on the DG RTD to improve information management, especially in line with a performance culture to include all stakeholders, especially new ones, and to improve information management with beneficiaries in Member States; recommends more inclusion of independent auditors focusing not only on errors, but also on the performance cycle, including an appropriate evaluation of risks; additionally, regulatory rules should undergo an impact assessment;

197. Calls on DG RTD to publish, in its respective annual activity reports, its contribution to the CSR in a comprehensive and detailed way, as these recommendations should demonstrate how the DG facilitates Member States’ progress towards the EU 2020 Strategy objectives;

198. Notes that the Commission launched a stakeholder consultation on additional simplifications that should be introduced in Horizon 2020; requests information on how additional simplifications will be implemented;

199. Emphasises that simplification and participation in Horizon 2020 should be also the guiding principle of the Annotated Grant Agreement; stresses that unlike FP7 internally invoiced costs need to be divided up and reported according to different costs categories, including personnel costs, under Horizon 2020; calls therefore on the Commission to revise the annotations and allow internally invoiced costs to be eligible as other direct costs without splitting into cost categories and without time records for services;

Economic, social and territorial cohesion

General issues

200. Welcomes the fact that the structure of the Court’s annual report follows, for the first time, the headings of the MFF which entered into force on 1 January 2014; in 2013 the Court’s annual report contained two distinct chapters: one on ‘Regional policy, transport and energy’ and the other one on ‘Employment and social affairs’; considers, however, that this policy change limits the comparability of the Court’s findings with those of previous years;

201. Notes that economic, social and territorial cohesion redistributes a substantial part of the Union budget, which amounted in 2014 to EUR 54,4 billion; 80 % of this amount was allocated in favour of regional and urban policy, mainly through the ERDF and CF, 20 % then represented mainly by the ESF for the purpose of employment and social affairs;

202. Points out that ERDF and CF in the particular period mainly supported areas including infrastructure projects, the creation or preservation of jobs, regional economic development initiatives and SME activities (ERDF) and investments in infrastructure in the fields of environment and transport (CF);

203. Points out that the ESF supports investments in human capital and actions aimed at improving the adaptability of workers and enterprises to the changes in working patterns, increasing access to employment, reinforcing the social inclusion of disadvantaged persons and strengthening the capacity and efficiency of administrations and public services; considers that despite the existence of performance indicators, the results of ESF investments are, therefore, more difficult to quantify;

204. Welcomes the fact that eight recommendations were implemented fully, seven recommendations are being implemented in most respects and one recommendation is being implemented in some respects out of the Court’s 16 recommendations made in years 2011-2012;

Europe 2020

205. Notes that in the area of regional and urban policy, the four most important KPI include: number of jobs created, number of enterprises cooperating with supported research institutions, number of enterprises receiving support, and additional capacity for renewable energy production; whereas global achievements reported in Member States’ implementation reports progressed on average by 29 % compared to the previous year, not all targets will be met due to the economic crisis, according to the Commission; calls upon the Commission to draw the necessary conclusion for the forthcoming mid-term revision of the MFF to be presented by the end of 2016;

206. Welcomes the Commission’s efforts to further enhance the contribution of the cohesion policy to Union economic governance screening all the 2014-2020 partnership agreements and operational programmes so as to ensure that that the relevant CSRs adopted by the end of June 2014 were adequately reflected in Member States’ development and competitiveness strategies;

207. Notes that by the end of 2015, on average 89 % of funds for the 2007-2013 programming period were used (considering the absorption rate) with Italy (79 %), Romania (70 %) and Croatia (59 %) trailing behind;

208. Points out that two of the most important performance indicators in the area of employment and social affairs are the unemployment rate and the number of jobs created and/or maintained; welcomes the fact that the preliminary findings of the ex post evaluation of the programming period 2007-2013 show that 8,8 million ESF participants gained (or maintained) employment as a result of ESF interventions during this period by the end of 2013; welcomes also the fact that more than 300 000 people supported by the ESF became self-employed and more than 50 000 start-ups were supported;

209. Attaches particular importance to the Youth Guarantee; notes therefore with satisfaction that 110 300 unemployed young people participated in actions financed by the Youth Employment Initiative (YEI) in 2014; EUR 1,3 billion are already allocated to projects on the ground; in this context is grateful for the guidance provided in the Court’s Special Report 3/2015 and the Commission’s constructive reaction to the findings; however stresses that in some Member States there still are some difficulties in implementing the Youth Guarantee and in ensuring a sufficient project pipeline for the Youth Employment Initiative (YEI);

210. Notes the findings of the Commission report on the European Globalisation Adjustment Fund (EGF), indicating that for the two years combined (2014-2015), 7 636 workers (44,9 % of the beneficiaries) had found a new job at the end of the EGF implementation period;

211. Shares the Commission’s opinion that unemployment rates (especially long-term unemployment) and the percentage of young persons not in employment, education or training (NEETs), are indications of mismatch in the labour market; notes that the five countries with the highest level of long-term unemployment (as share of the active population) in the Union are Greece (19,5 %), Spain (12,9 %), Croatia (10,1 %), Slovakia (9,3 %) and Portugal (8,4 %) against the Union average of 5,1 %; and that the countries with the highest rate of NEETs are Cyprus (33,7 %), Bulgaria (30,9 %), Hungary (30,3 %), Greece (30,0 %) and Romania (26,9 %), compared with an Union average of 16,37 %;

212. Welcomes the achievements from the implementation of 2007-2013 ERDF/CF programmes, illustrated by some core indicators annually reported by the Member States and results from preliminary assessment of latest available data showing that approximately 950 000 jobs were created, 36 000 enterprises cooperated with research institutions, more than 270 000 enterprises received support and the additional capacity of renewable energy production was more than 4 000 megawatts;

213. Welcomes the fact that the Court, for the first time, also tried to evaluate the performance of programmes in a pilot project exercise, and that the audit concludes that 89 of the 186 projects (48 %) reached (or exceeded) all targets that had been specified to measure the project performance; notes that for 56 projects (30 %) the Court found that one or several indicators specified for the project did not attain the intended target value, and that in 17 cases (9 %) the deadline to attain the targets was reached for some, but not all targets by the time of the audit; encourages the Court to continue to refine this exercise in particular for programmes under the new financial period 2014-2020;

Management issues

214. Emphasises that expenditure under MFF heading 1b falls under shared management; in this area, Member States bear primary responsibility for implementing the OP and for preventing, detecting and correcting irregular expenditure;

215. Stresses strongly that especially for cohesion, the extent of shared management is substantial and specific for two reasons: the programmes are implemented in Member States and their regions according to common Union rules, but respecting their specific needs; and second, there is also a shared financing when projects are co-financed by Member States and beneficiaries in many cases as well;

216. Finds it unacceptable that in 21 cases of quantifiable errors made by beneficiaries, national authorities had sufficient information to prevent or detect and correct the errors before declaring the expenditure to the Commission; had all this information been used to correct errors, the estimated level of error for this chapter would have been 1,6 percentage points lower; in addition, the Court found that for 13 cases, the error that it detected was made by national authorities; these errors contributed 1,7 percentage points to the estimated level of error; this situation, which remained unchanged for some years now, proves a lack of diligence;

217. Stresses that under the ESF the most common types of eligibility issues detected are the following: expenditure declared outside the eligibility period (Czech Republic, Germany), overcharged salaries (Germany, Finland, Poland, Portugal), costs not related to the project (the Netherlands, Poland, Portugal), non-compliance with national eligibility rules (Poland) and revenue not deducted (Austria); the most common examples of failures to comply with public procurement rules are the following: unjustified direct award (Germany, Italy), unjustified direct award of additional works/services, unlawful exclusion of bidders, conflict of interest and discriminatory selection criteria (Finland);

218. Observes that the Court analysed 161 transactions in the regional and urban area (101 concerned ERDF, 55 concerned CF and five concerned financial instruments) and 170 transactions of the ESF; and that 135 of 331 transactions were affected by errors; notes that the Court estimates the error rate to be 5,7 % (ERDF and CF error rate estimated to be 6,1 %, ESF error rate estimated to be 3,7 %);

219. Calls on the Commission to create an effective tool to contribute to the improvement of the reliability of controlling and auditing activities provided by the national authorities; recalls the importance of extending transparency on data regarding the public procurement in order to improve accessibility and controls, by publishing details of contractors and their subcontractors;

220. Takes note that, according to all available audit results at end of November 2015, 90 % of ERDF/Cohesion Fund programmes management verifications were functioning well or subject to small improvements; recalls that the root causes of errors made by Member States are complex management structures and the loss of expertise as a consequence of high staff turnover or insufficient staff allocation due to budgetary constraints;

221. Calls on the Commission to provide the Member States with stronger incentives to boost the use of innovative financial instruments in their regional policy, while taking into consideration lessons learnt from the period 2007-2013 in order to avoid blocking funds in financial instruments;

222. Draws attention to the recommendations in the Court’s Special Report 10/2015 ‘Efforts to address problems with public procurement in Union cohesion expenditure should be intensified’ and welcomes the Commission’s positive reaction to the Court’s findings;

223. Is pleased that the Commission published a document entitled ‘Public Procurement — Guidance for practitioners on the avoidance of the most common errors in projects funded by the European Structural and Investment Funds’ in October 2015; criticises, nonetheless, the fact that the main source of expenditure-related errors under the heading ‘Economic, social and territorial cohesion’ continues to be breaches of the rules on public procurement, which account for almost half the estimated error rate; points out that the serious breaches of the rules on public procurement include the direct award of additional contracts or additional works or services for which no justification is given, the illegal exclusion of bidders, conflicts of interest and discriminatory selection criteria; regards as essential a policy of complete transparency in respect of information concerning contractors and subcontractors, with a view to addressing errors and abuses of the rules;

224. Welcomes the fact that the Commission set up, in November 2014, a task force for better implementation for Bulgaria, Croatia, the Czech Republic, Hungary, Italy (South), Romania, Slovakia and Slovenia in order to avoid a de-commitment of funds;

225. Recalls that the legal framework for European Structural and Investment Funds (ESIF) 2014-2020 has also introduced ex ante conditionalities for the effective and efficient use of Union funds, which cover inter alia Member States’ public procurement systems; in that context, actions plans have been adopted for 12 countries (Bulgaria, Czech Republic, Greece, Hungary, Croatia, Italy, Latvia, Malta, Poland, Romania, Slovenia and Slovakia) and will be assessed by 2016; recalls that fulfilling the ex ante conditionalities is a precondition for funding; asks for the necessary full transparency on the financing of infrastructural projects, including publication of ex ante and ex post assessments of the economic, environmental and social sustainability of projects;

226. Calls on the Commission to publish all the documents concerning the project to build the Lyon-Turin high-speed rail line and the funding arrangements for the project;

227. Welcomes the fact that the DG REGIO has carried out 265 audit missions since 2009; DG REGIO concluded that the work of 42 audit authorities in charge of auditing around 91 % of ERDF/CF allocations for the 2007-2013 period can in general be relied upon; concerning DG EMPL at the end of 2014, 87 audit authorities out of 92 have been assessed (94,6 %); they cover 113 out of 118 OPs, representing 99,1 % of the financial programming of the 2007-2013 programming period;

228. Notes that interruptions and pre-suspension procedures concerned 121 ERDF/CF programmes and almost EUR 7,9 billion of payment claims submitted by the Member States; notes also that for the ESF, the Commission sent 11 warning letters and 18 pre-suspension letters, that it instituted 31 interruptions of payments and suspended 11 operational programmes, and that in total, EUR 1,3 billion of payment claims were interrupted;

229. Takes note that in 2014 as a result of the strict supervision and interruption policy of DG REGIO and DG EMPL and growing number of action plans, EUR 840 million of financial corrections were confirmed and EUR 854 million were implemented for ERDF/CF for all programming periods (decided in 2014 and in previous years); and that for ESF 2007-2013 period EUR 209 million of financial corrections were accepted/decided and EUR 155,9 million were implemented (decided in 2014 and in previous years);

230. Observes with satisfaction that in 2014, and thanks to the Commission’s supervisory role, certifying authorities applied financial corrections of EUR 782 million before declaring expenditures to the Commission concerning ERDF/CF which has preserved the EU budget from payments of incorrect expenditures;

231. Is concerned that, according to the Court, the Europe 2020 Strategy is not systematically translated through thematic objectives into operational targets in partnership agreements and programmes; notes, however, that it is transposed into operational objectives at ESIF programme level through specific objectives aligned with the 11 thematic objectives; considers that results can only be meaningfully evaluated when thematic objectives and operational programmes are aligned and performance indicators and benchmarks make it possible to measure progress;

232. Observes that partnership agreements and general regulation on one hand create common rules that should encourage an integrated approach, but that on the other hand, each of the funds is managed by a specific regulation and procedures;

233. Notes with interest that the Court will present, in the near future, a special audit of the partnership agreements and the performance-focused framework in cohesion policy;

234. Regrets that the number of OPs subject to reservation increased from 73 to 77 for ERDF/CF OPs in 2014 and remained unchanged to 36 OPs for ESF; the estimated financial impact of these reservations decreased from EUR 423 million in 2013 to EUR 224 million in 2014 for ERDF/CF and increased from EUR 123,2 million in 2013 to EUR 169,4 million in 2014 for ESF;

235. Agrees with the outline of the joint audit strategy for the 2014-2020 period where priority for thematic audits will be given to two areas: the reliability of systems for reporting performance data (a new feature linked to the result orientation of the policy) and financial instruments;

236. Regrets that Member States have not yet fully embraced the simplified cost options (SCO) under the ESF; welcomes the report ‘Simplified cost options in the European Social Fund’ where DG EMPL expects that under the programming period 2014-2020, on average 35% of expenditure will be claimed under the SCO, some Member States (Italy, the Netherlands, Spain and Sweden) will be significantly above, other Member States (Bulgaria, Hungary, Latvia and Slovakia) will be significantly below; supports DG EMPL’s efforts to promote the use of SCO by Member States and urges the Member States to fully embrace the potential of SCO;

237. Appreciates, in this context, that the Commission has created a high-level group on simplification for beneficiaries of ESIFs; wishes to receive copies of the reports which the group will publish as of February 2016;

238. Welcomes the Commission’s effort in encouraging Member States to take over the IT tool Arachne for data mining, with the view to preventing fraudulent act