EN Official Journal of the European Union C 6/9

REPORT

on the annual accounts of the Clean Sky Joint Undertaking for the financial year 2011, together with the replies of the Joint Undertaking

2013/C 6/02

INTRODUCTION

1. The Clean Sky Joint Undertaking, located in Brussels, was set up in December 2007 (1) for a period of ten years.

2. The objective of the Clean Sky Joint Undertaking is to accelerate the development, validation and demonstration of clean air-transport technologies in the EU for earliest possible deployment (2). The research activities coordinated by the Joint Undertaking are divided into six technological areas or ‘Integrated Technology Demonstrators’ (ITDs).

3. The Founding Members of the Joint Undertaking are the European Union, represented by the Commission, and industrial partners as the leaders of the ITDs, together with the associate members of the ITDs.

4. The maximum EU contribution to the Clean Sky Joint Undertaking to cover running costs and research activities is 800 million euro to be paid from the budget of the Seventh Framework Programme (3). Other Members of the Joint Undertaking are to contribute resources at least equal to the EU contribution, including in-kind contributions.

5. The Joint Undertaking started working autonomously on 16 November 2009.

INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE

6. The audit approach taken by the Court comprises analytical audit procedures, testing of transactions at the level of the Joint Undertaking and an assessment of key controls of the supervisory and control systems. This is supplemented by evidence provided by the work of other auditors (where relevant) and an analysis of management representations.

STATEMENT OF ASSURANCE

7. Pursuant to the provisions of Article 287(1) of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (4) of the Clean Sky Joint Undertaking, which comprise the ‘financial statements’ (5) and the ‘reports on the implementation of the budget’ (6) for the financial year ended 31 December 2011, and the legality and regularity of the transactions underlying those accounts.

8. This Statement of Assurance is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (7).

The Management's responsibility

9. As authorising officer, the Director implements the revenue and expenditure of the budget in accordance with the Joint Undertaking’s financial rules, under his own responsibility and within the limits of the authorised appropriations (8). The Director is responsible for putting in place (9) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (10) that are free from material misstatement, whether due to fraud or error and for ensuring that the transactions underlying those accounts are legal and regular.

The Auditor's responsibility

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

11. The Court conducted its audit in accordance with the IFAC and ISSAI (11) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical and professional requirements and to plan and perform the audit so as to obtain reasonable assurance as to whether the accounts are free from material misstatement and whether the underlying transactions are legal and regular.

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

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

Opinion on the reliability of the accounts

14. In the Court’s opinion, the annual accounts of the Joint Undertaking fairly present, in all material respects, its financial position as of 31 December 2011 and the results of its operations and its cash flows for the year then ended, in accordance with the provision of its financial rules.

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

15. The ex-post audit strategy of the Joint Undertaking was adopted by a Governing Board decision on 17 December 2010 and is a key control for assessing the legality and regularity of the underlying transactions (12). The ex-post audits completed as of September 2012 covered 44,3 million euro (18,8 % of all cost claims received by the Joint Undertaking in 2008, 2009 and 2010 (13). The error rate resulting from these ex-post audits was 6,16 % (14).

Qualified opinion on the legality and the regularity of the transactions underlying the accounts

16. In the Court’s opinion, except for the effects of the matters described in paragraph 15, the transactions underlying the annual accounts of the Joint Undertaking for the financial year ended 31 December 2011 are, in all material respects, legal and regular.

17. The comments which follow in paragraphs 18 to 32 do not call the Court’s opinions into question.

COMMENTS ON THE BUDGETARY AND FINANCIAL MANAGEMENT

Implementation of the budget

18. The 2011 final amending budget (15) included commitment appropriations of 175 million euro and payment appropriations of 159,8 million euro. The utilisation rate for commitment appropriations was 94 %, while the rate of payment appropriations was 64 %. The payment appropriation rate reflects delays in the implementation of the Joint Undertaking’s activities. There are significant delays between the publication of the calls for proposals and the signature of the grant agreements (16). The low implementation of the budget is also reflected in the cash balance, which stood at 51 million euro at the end of the year (32 % of the available payment appropriations in 2011) (17).

19. The Joint Undertaking, contrary to its financial rules, carried over 68 million euro of payment appropriations to 2012 without a decision by the Governing Board (18).

Presentation of the accounts

20. The Joint Undertaking experienced a significant delay in receiving the cost claims from Grant Agreements with Members for 2011. Due to the delay, the validation of a large number of claims could not be completed for the 2011 Final Accounts. The related in-kind contributions (52 million euro) were not approved by the Governing Board in due time and, as a consequence, could not be registered under net assets and had to be reflected under liabilities (‘contributions to be validated’).The Joint Undertaking therefore reported negative net assets of 18,5 million euro. The Final Accounts duly reflect this transitional situation that does not indicate any risk of solvency for the Joint Undertaking.

COMMENTS ON KEY CONTROLS OF THE JOINT UNDERTAKING’S SUPERVISORY AND CONTROL SYSTEMS

21. Despite the progress made during 2011, the Joint Undertaking has not yet fully established reliable internal control and financial information systems. In particular, further work is needed on the ex-ante control procedures applied for the validation of cost claims.

22. In 2011 the Joint Undertaking had not yet implemented the new tool (19) to manage the data relating to the cost claims submitted by the members and beneficiaries.

23. The Court examined the ex-ante control procedures applied to cost claims submitted under three grant agreements with Clean Sky Members (20). The following weaknesses were noted: — the checklists used for the ex-ante control on cost claims were not always complete (21). — in one case, the audit certificate accompanying the cost claim of an associate included exceptions affecting personnel costs and subcontracting. No adjustment to the cost claim was made as a result of these exceptions. — contrary to the manual of financial procedures (22), there is no evidence that the operational agents are also verifying the financial aspects of the implementation of the contracts. — in at least three transactions, the financial verifying and the authorising officer functions were the responsibility of the head of administration, contrary to the provisions of the manual of financial procedures and the principle of segregation of duties.

24. The Accounting Officer completed in March 2012 the validation exercise of the underlying business processes as required by the Joint Undertaking's financial rules (23). A number of recommendations were made in the Accounting Officer’s validation report, in particular the need to improve the system for the validation of cost claims and the implementation of a tool to properly report to management, on budgetary and accounting matters.

OTHER MATTERS

Internal audit function and the Commission’s Internal Audit Service

25. During 2011, and as a result of resource constraints within the organisation, the internal auditor had to work on the core processes of the Joint Undertaking, including the establishment of the 2010 and 2011 accounts and the validation of cost claims received from members.

26. In 2011 the Commission’s Internal Audit Service carried out a risk assessment exercise. Based on the results of the risk assessment, the strategic audit plan for 2012-2014 was presented to the Governing Board for adoption on 14 December 2011.

27. The mission charter of the Commission’s Internal Audit Service was adopted by the Governing Board on 31 March 2011. However, the financial rules of the Joint Undertaking have not yet been amended to include the provision of the Framework Regulation (24) referring to the powers of the Commission’s internal auditor.

Payments of members’ contributions

28. The procedure for issuing recovery orders relating to the Joint Undertaking's running costs was not properly applied. The request to the members to pay their 2011 contributions was not accompanied by the cash-flow forecast as required under the funding agreement.

Follow-up of previous observations

29. As at the end of 2011, the Joint Undertaking had not yet completed the internal procedures to be used for the supervision of the application of the provisions regarding the protection, use and dissemination of research results (25).

30. The Court in its 2011 Opinion on the Joint Undertaking’s financial rules identified a number of areas which needed to be amended (26). The financial rules have not been amended to reflect the matters raised in the Court’s Opinion.

31. During 2011 the JU set up a Business Continuity Plan and made progress on the formalisation of the IT security policies. Essential elements (27) of a Disaster Recovery Plan have been defined during 2011, but work is needed to finalise and approve it.

32. The Host State Agreement (28) between the Joint Undertaking and the Belgian authorities concerning office accommodation, privileges and immunities and other support was signed on 2 February 2012.

This Report was adopted by Chamber IV, headed by Dr Louis GALEA, Member of the Court of Auditors, in Luxembourg at its meeting of 13 November 2012. For the Court of Auditors Vítor Manuel da SILVA CALDEIRA President

(1) Council Regulation (EC) No 71/2008 of 20 December 2007 setting up the Clean Sky Joint Undertaking (OJ L 30, 4.2.2008, p. 1).

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

(3) The Seventh Framework Programme, adopted by Decision No 1982/2006/EC of the European Parliament and of the Council (OJ L 412, 30.12.2006, p. 1), brings all the research-related EU initiatives together under one roof and plays a crucial role in achieving the goals of growth, competitiveness and employment. It is also a key pillar for the European Research Area.

(4) The Court received the provisional annual accounts on 1 March 2012. These accounts are accompanied by a report on the budgetary and financial management during the year which gives inter alia an account of the rate of implementation of the appropriations.

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

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

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

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

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

(10) The rules concerning the presentation of the accounts and accounting by EU bodies are laid down in Chapters 1 and 2 of Title VII of Regulation (EC, Euratom) No 2343/2002, as last amended by Regulation (EC, Euratom) No 652/2008 (OJ L 181, 10.7.2008, p. 23), and are integrated as such in the financial rules of the Joint Undertaking.

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

(12) Article 12(4) of the Regulation setting up the Joint Undertaking states that ‘The Clean Sky Joint Undertaking shall carry out on-the-spot checks and financial audits among the recipients of the Clean Sky Joint Undertaking’s public funding’. Ex-post audits may identify ineligible expenditures claimed by the beneficiaries which are then subject to recovery procedures.

(13) The 2010 claims were paid during 2011

(14) The error rate is calculated using an average of the overdeclarations found in the different cost claims weighted by their amount.

(15) Adopted by the Governing Board on 14 December 2011.

(16) The average time between the publication of the call for proposals and the signature of the JU grant agreements was 418 days for the calls launched in 2010 and 291 days for first call launched in 2011.

(17) The cash balance at the end of 2010 amounted to 53 million euro (41 % of the available payment appropriations in 2010).

(18) Article 10(1) of the financial rules states that ‘Appropriations which have not been used at the end of the financial year for which they were entered shall be cancelled. Given the needs of the Joint Undertaking, the cancelled appropriations may be entered in the estimate of revenue and expenditure up to the following three financial years, in accordance with Article 27. However, they may, by decision of the Governing Board taken not later than 15 February, be carried over to the next financial year only, …’.

(19) The Joint Undertaking is developing a new tool to manage the data related to Members.

(20) Each Clean Sky Member claim included on average 30 cost claims of associates.

(21) Critical elements such as the signature of the operational verifying officer and the review of the completeness of the operational checklist by the financial verifying officer were not always documented.

(22) The manual of financial procedures of the Joint Undertaking states that the roles of operational and financial verification and authorising officer shall be separated across the management of operational expenditure and that:

— ‘the operational verifying agent shall verify that the operational aspects (technical and financial) of the file are in compliance with the agreed parameters,

— the verifying agent (head of administration) shall verify the compliance of the operational aspects with the existing rules and the overall regularity of the operation,

— the executive director shall perform the overall financial and operational check of the entire file.’

(23) Article 43 of the JU’s financial rules stipulates that the accounting officer shall be responsible for ‘laying down and validating the accounting systems, and, where appropriate, validating systems laid down by the authorising officer to supply or justify accounting information’.

(24) Regulation (EC, Euratom) No 2343/2002.

(25) Paragraph 23 of the Court of Auditors’ report on the 2010 annual accounts of the Clean Sky Joint Undertaking (OJ C 368, 16.12.2011, p. 8).

(26) Court of Auditors’ Opinion No 2/2011 on the Clean Sky Joint Undertaking’s Financial Rules (http://eca.europa.eu).

(27) (a) financial circuits in case of disaster; (b) back-up procedure for securing the databases by regular and frequent backup and off-site storage; (c) initial agreement to use the EC installations to access the financial systems (ABAC, SAP) and the internet.

(28) Paragraph 25 of the Court of Auditors’ report on the 2010 annual accounts of the Clean Sky Joint Undertaking.

ANNEX Clean Sky Joint Undertaking (Brussels) Competences and activities Areas of Union competence deriving from the Treaty (Extracts from Articles 187 and 188 of the Treaty on the Functioning of the European Union) Decision No 1982/2006/EC of the European Parliament and of the Council of 18 December 2006 concerning the Seventh Framework Programme provides for a Community contribution to the establishment of long-term public-private partnerships in the form of Joint Technology Initiatives which could be implemented through Joint Undertakings within the meaning of Article 187 of the Treaty. Council Regulation (EC) No 71/2008 of 20 December 2007 setting up the Clean Sky Joint Undertaking (OJ L 30, 4.2.2008, p. 1) Competences of the Joint Undertaking (Council Regulation (EC) No 71/2008) Objectives — The Clean Sky Joint Undertaking shall contribute to the implementation of the Seventh Framework Programme and in particular Theme 7, Transport (including Aeronautics) of the Specific Programme Cooperation. — accelerating in the EU the development, validation and demonstration of clean Air Transport technologies for earliest possible deployment; — ensuring coherent implementation of European research efforts aiming at environmental improvements in the field of Air Transport; — creating a radically innovative Air Transport System based on the integration of advanced technologies and full scale demonstrators (ITDs), with the target of reducing the environmental impact of air transport through significant reduction of noise and gaseous emissions, and improvement of the fuel economy of aircrafts; — accelerating the generation of new knowledge, innovation and the uptake of research proving the relevant technologies and fully integrated system of systems, in the appropriate operational environment, leading to strengthened industrial competitiveness. Governance — The governing body of the JU is the Governing Board. The Executive team is led by an Executive Director. Industry is represented through various means such as ITD steering committees and National States representative group. Resources available to the Joint Undertaking in 2011 Budget 192 350 991 euro Staff at 31 December 2011 24 posts provided for in the establishment plan (18 temporary staff and 6 contract staff) of which 23 posts were occupied; these were allocated to: Operational activities: 9; Administrative tasks: 14; Mixed tasks: 5 Activities and services provided in 2011 See Annual Activity Report 2011 of the Clean Sky Joint Undertaking at www.cleansky.eu Source: Information supplied by the Clean Sky Joint Undertaking.