TABLE OF CONTENTS

INTRODUCTION..................................................................................................................... 4

European Parliament resolutions on 2012 discharge................................................................... 5

Agricultural and Regional Policy: Deficiencies in the Commission’s and Member States’ management 6

Commission’s Reservations, reasons for binding commitments...................................... 11

Binding commitments to be made................................................................................... 18

The Court of Auditors' Statement of Assurance............................................................. 35

Revenue............................................................................................................................... 41

Agriculture....................................................................................................................... 44

Regional Policy, Energy and Transport........................................................................... 55

Commission Task Force for Greece................................................................................. 63

Employment and social affairs........................................................................................ 64

External relations............................................................................................................. 70

Research and other internal policies................................................................................ 73

OLAF.. ........................................................................................................................... 75

Tobacco smuggling.......................................................................................................... 81

Absence of progress in Bulgaria...................................................................................... 83

Roma.... ........................................................................................................................... 84

IT policies........................................................................................................................ 86

Studies and advice/consultation from external providers............................................... 88

Getting results from the EU budget................................................................................ 89

SR 8/2012 Targeting of aid for the modernisation of agricultural holdings................... 90

SR 11/2012 Suckler cow and ewe and goat direct aids under partial implementation of SPS arrangements 92

SR 13/2012 European Union development assistance for drinking water supply and basic sanitation in sub-Saharan countries............................................................................................... 94

SR 14/2012 Implementation of EU hygiene legislation in slaughterhouses of countries that joined the EU since 2004................................................................................................................... 95

SR 15/2012 Management of conflict of interest in selected EU agencies...................... 96

SR 16/2012 The effectiveness of the Single Area Payment Scheme as a transitional system for supporting farmers in the new Member States.................................................................... 98

SR 17/2012 The European Development Fund (EDF) contribution to a sustainable road network in sub-Saharan Africa................................................................................................. 100

SR 18/2012 European Union Assistance to Kosovo related to the rule of law............ 102

SR 20/2012 Is Structural measures funding for municipal waste management infrastructure projects effective in helping Member States achieve EU waste policy objectives?..................... 103

SR 21/2012 Cost-effectiveness of Cohesion Policy Investments in Energy................. 105

SR 22/2012 Do the European Integration Fund and European Refugee Fund contribute effectively to the integration of third-country nationals?............................................................ 106

SR 23/2012 Have EU Structural Measures successfully supported the regeneration of industrial and military brownfield sites?............................................................................................. 108

SR 24/2012 The European Union Solidarity Fund’s response to the 2009 Abruzzi earthquake: The relevance and cost of operations..................................................................................... 109

SR 25/2012 Are tools in place to monitor the effectiveness of European Social Fund spending on older workers?.......................................................................................................... 110

SR 1/2013 Has the EU support to the food-processing industry been effective and efficient in adding value to agricultural products?...................................................................................... 111

SR 2/2013 Has the Commission ensured efficient implementation of the Seventh Framework Programme for Research?......................................................................................................... 114

SR 3/2013 Have the Marco Polo programmes been effective in shifting traffic off the road? 116

SR 4/2013 EU Cooperation with Egypt in the Field of Governance............................ 120

SR 5/2013 Are EU Cohesion Policy funds well spent on roads?................................. 121

SR 6/2013 Have the Member States and the Commission achieved value for money with the measures for diversifying the rural economy?...................................................................... 123

SR 7/2013 Has the European Globalisation Adjustment Fund delivered EU added value in re-integrating redundant workers?......................................................................................... 127

SR 8/2013 Support for the Improvement of the economic value of forests from the European Agricultural Fund for Rural Development.......................................................................... 129

SR 9/2013 EU support for governance in the Democratic Republic of the Congo...... 131

SR 10/2013 Common Agricultural Policy: Is the specific support provided under Article 68 of Council Regulation (EC) No 73/2009 well designed and implemented?..................... 136

SR 12/2013 Can the Commission and Member States show that the EU budget allocated to the rural development policy is well spent?................................................................... 139

SR 14/2013 European Union direct financial support to the Palestinian Authority..... 143

Eighth, ninth and tenth European Development Funds................................................ 148

Performance, financial management and control of EU agencies................................. 162

Bodies set up under the TFEU and the Euratom Treaty............................................... 168

INTRODUCTION

This Commission Staff Working Paper completes the Report from the Commission to the European Parliament and the Council on the Follow-up to the 2012 Discharge. It presents in detail the answers to 353 specific requests made by the European Parliament in its Resolutions forming an integral part of its Decisions on the 2012 Discharge[1].

European Parliament resolutions on 2012 discharge

Agricultural and Regional Policy: Deficiencies in the Commission’s and Member States’ management

1. (§1 - 2012/PAR/0298) The Parliament calls on the Commission, in light of repeated error concentration in a few Member States, to assume greater and more substantial responsibility for safeguarding the Union budget against financial losses.

Commission's response:

In his letter to the Discharge Rapporteur, Mr Pieper, and the Chairman of CONT, Mr Theurer, on 10 March 2014 (ARES(2014)s:443707), Commissioner Semeta has outlined the salient points of the measures to assume greater and more substantial responsibility for safeguarding the Union budget against financial losses:

1) the adoption and implementation of delegated acts governing areas under shared management in which the systematic application of net financial corrections will be further strengthened;

2) the clear identification of Member States with serious system deficiencies and the implementation of the Commission's multi-annual audit strategy through on-the-spot re-performance work of national audit authorities controls, including at the level of beneficiaries and the direct audit of programmes or authorities assessed by the EC as not sufficiently addressing the high risks identified;

3) addressing the detected problems through action plans and extensive reservations in the DGs' Annual Activity Reports;

4) reinforced supervision and controls of Member States through intensified quality checks of national control and audit reports, audits of national authorities and final recipients, effective and timely interruptions and suspensions of payments as immediate response to detected weaknesses and effective procedures for net financial corrections.

The EC commits itself to regularly reporting on the implementation of these measures.

Furthermore, new additional protective instruments will be introduced during the coming 2014-2020 programming period. The Commission is actively promoting the use of simplified cost options:

- Simplified cost options reduce the administrative burden for the public administration and for beneficiaries.

- The European Court of Auditors did not for the DAS 2012 find any error in the 26% of ESF operations using these simplified options, whilst for the rest, the frequency of errors (big or small) was about 40%.

- Projects using simplified cost options place a greater focus on results and performance, as opposed to inputs.

The formal certification of annual accounts once all national controls have been done, combined with the 10% retention mechanism on interim payments, net corrections when serious irregularities are detected once accounts have been accepted and the requirement of annual management declarations by managing authorities are meant to offset the risk that expenditure claimed are not legal and regular and to improve accountability at national level.

2. (§3 - 2012/PAR/0299) The Parliament calls, therefore [in the 2012 financial year the error rate rose for the third time in succession], on the Commission to apply Article 32(5) of the Financial Regulation (EU, Euratom) No 966/2012 more strictly in case of a persistently high level of error, and consequently to identify the weaknesses in the control systems and take or propose appropriate action in terms of the possible simplification, the further strengthening of control systems and the redesign of programmes or delivery systems

Commission's response:

See reply to § 2012/PAR/0298.

Moreover, the Commission services have maintained in the Cohesion area their vigilance, since interruptions and suspensions of payments are a useful preventive tool for the proper spending of the EU funds. In 2013, the Commission opened 265 interruption cases (2012: 116) with a value of almost EUR 5 billion.

3. (§4 - 2012/PAR/0300) The Parliament urges all relevant actors involved in Union decision-making to simplify further, notably by drafting eligibility rules that are simple and verifiable, cutting red tape and devising appropriate and effective controls.

Commission's response:

The Commission notes that under shared management, Member States draft the eligibility rules for programmes, within the limits set out in the Fund-specific Regulations.

As far as the Commission's competence is concerned, it has taken the recommended action. Key elements of the 2014-2020 reform emphasize on simplification, particularly for Member States.

The 2014-2020 framework contributes to cutting red tape and simplifying the use of EU Funds. A common set of rules for all European Structural and Investment Funds (ESIF) simplifies management particularly for beneficiaries who implement operations under more than one Fund. Synergies with other EU policies rules (e.g. research) are also foreseen.

From 2014 onwards, audit and control in the ERDF, ESF and the Cohesion Fund will be more proportionate to both the amount of funds that are actually received and also to the possible level of risk that investment could be misused or incorrectly spent. Commission audit work will be focused on the more risk-prone areas. In the case of well performing audit authorities, the Commission will limit its audits where national delivery systems work well. Proportional control rules will exclude repetition of audits by EU and national audit bodies to the same operations, except for the purpose of commission re-performance to test the work of audit authorities.

The wider use of simplified costs options within ESIF is encouraged, which enables to simplify financial management of operations while shifting the focus of beneficiaries on the delivery of quality outputs and results.

With simpler and clearer rules, legal certainly for beneficiaries will be reinforced, and with increased proportionality for small programmes and operations, their administrative burden will be adjusted to a lower level of risk. More targeted reporting requirements are defined, as reporting is focused on key indicators and hard data on progress made on the ground, and a requirement for electronic information exchange with beneficiaries by the end of 2015 under cohesion policy (“e-cohesion”) has been set.

Furthermore, proportionality and reduction of the administrative burden are amongst the general principles regulating the intervention of the ESIF under the 2014-2020 programming period as set out in Article 4 of the Common Provisions Regulation.

The main tool to simplify and to streamline national eligibility rules is the use of Simplified Cost options (SCOs). In November 2013 the Commission produced a report on "Simplification and gold-plating in the ESF" identifying the main sources of error due to unnecessary complicated national eligibility rules and addressing some recommendations to the Member States, based in particular on the use of SCOs.

The use of SCOs is particularly suitable for the type of expenditures reimbursed in ESF projects. The Commission actively promoted their use through seminars which were held by DG EMPL in all MS and also by introducing provisions in the 2014-2020 Structural Funds Regulation which will strengthen and encourage their use. This will enable simplifying financial management of operations while shifting the focus of beneficiaries to the delivery of quality outputs and results. The Commission also regularly invites the managing authorities to address guidance to beneficiaries on eligibility issues. The Commission fixed as a target the use of SCOs to go up to +- 50% of ESF transactions by 2017.

Under the EAFRD, the new obligation to conduct an ex-ante assessment of the verifiability and controllability of rural development measures will further support the establishment of simpler and better targeted programmes, which are easier to control and implement.

With regards to the EAGF, the CAP reform 2014-2020 provides a framework for setting up direct payment schemes which are both effective and controllable. The reform package also includes delegated and implementing legislation related to the Integrated Administration and Control System (IACS). Although under the shared management system it is up to MS to set up appropriate administration and control structures to ensure that funds are correctly spent and to define clear rules and procedures for beneficiaries, the Commission actively supports MS in the implementation of direct payments also by providing detailed guidance documents, dissemination of best practices among MS, organisation of expert seminars and other means.

4. (§5 - 2012/PAR/0301) The Parliament urges the Commission therefore [eight Member States are responsible for 90 % of the financial corrections in the fields under shared management] to direct its particular attention to those countries.

Commission's response:

The Commission has taken the recommended action. In the area of Regional and urban policy, in addition to the enquiry to review the audit authorities’ work, in some cases the Commission may identify that certain deficiencies could remain undetected or not timely detected, which could jeopardise the assurance process (assurance gap). The scope of such audits is to "Bridge the assurance gap" and to cover high risk operational programmes and part of operational programmes. Audits are mainly focused on the reliability of management verifications at the level of the managing authorities/intermediary bodies (59% of these risk-based audits), and to a lesser extent on selection of operations, corrective capacity of the managing authority, certification of expenditure by the certifying authority, and on the audit of high risk operations not yet audited by the national audit authority. A total of 77 audit missions have been carried out since 2010 covering 15 Members States and 70 operational programmes, including at the level of beneficiaries (see DG REGIO Annual Activity Report 2013, page 41 and Annex 8).

As a result of the 77 audits carried out, the impact on payments has been that for 58 programmes, payments have been interrupted or (pre)suspended or warning letters have been sent to prevent declaration of irregular expenditure. This demonstrates that the enquiry has enabled DG REGIO to effectively address previous years' discharge request that it should systematically interrupt and suspend payments to the programmes when serious deficiencies are identified in management verifications. In such cases, as recommended by the Discharge authority, payments have been resumed in 2013 only where there was sufficient and reliable evidence that weaknesses had been remedied. The audit enquiry "Bridging the assurance gap" has proven to be a pro-active response to increase the assurance.

The implementation of preventive and corrective measures such as remedial actions plans, interruptions and financial corrections has led to improvements in the systems of programmes put under reservation, ensuring that past and future expenditure declared to the Commission is legal and regular. The same approach will be implemented to address and follow-up the reservations in the 2013 Annual Activity report of the Directorate General for Regional and Urban Policy.

In the area of Employment and Social affairs DG EMPL's audit strategy aims to provide reasonable assurance that the management and control systems established by Member States comply with the requirements of the regulations and are functioning effectively.

In 2013, 70 missions have been performed by EMPL auditors for the ESF 2007-2013 programming period focusing on three main issues:

- the enquiry related to the ACR re-performance, which is the key element to give the assurance to DG EMPL that the results of the ACRs from the AAs are reliable;

- audit of programmes put in reservation in the 2012 AAR; In 2013, for 24 out 27, programmes in reservation an audit mission was planned; Depending on the issues linked to each programme, the missions were a fact-finding, a follow-up, a system and projects audit or a review of the AA;

- a thematic audit on management verifications, following the European Court of Auditors annual report’s findings that in the area of Employment and Social Affairs 76 % and 67 % of the errors detected in 2011 and in 2012 respectively, should have been detected by the Managing Authorities, through their first level checks ; DG EMPL audit plan in 2013 included 8 missions for this specific thematic audit on Management Verifications; A report on the results of these audits including recommendations addressed to Member States to improve their management verifications, was sent to the EP in November 2013.

On the preventive side, as recognized by the ECA in its 2012 Annual report, the main tool to simplify and to streamline national eligibility rules is the use of Simplified Cost options (SCOs). In its audits on ESF the Court did not detect any error related to the use of SCOs (6.23) and concluded that more extensive use of SCOs would have a positive impact on the error rate.

In November 2013 the Commission produced a report on "Simplification and gold-plating in the ESF" identifying the main sources of error due to unnecessary complicated national eligibility rules and addressing some recommendations to the Member States, based in particular on the use of SCOs.

The use of SCOs is particularly suitable for the type of expenditures reimbursed in ESF projects. The Commission actively promoted their use through seminars which were held by DG EMPL in all MS and also by introducing provisions in the 2014-2020 Structural Funds Regulation which will strengthen and encourage their use. This will enable simplifying financial management of operations while shifting the focus of beneficiaries on the delivery of quality outputs and results. The Commission also regularly invites the managing authorities to address guidance to beneficiaries on eligibility issues. The Commission fixed as a target the use of SCOs to go up to +-50% of ESF transactions by 2017.

DG AGRI audit activities are driven by a central risk analysis covering all CAP expenditure in all MS. Any predefined special focus on specific paying agencies would reduce the scope of the Commission's audit work.

5. (§8 - 2012/PAR/0302) The Parliament calls for a more detailed annual assessment of the situation [the situation regarding financial adjustments in the individual Member States] in each of them, indicating how much money could actually be channelled back into the Union budget.

Commission's response:

This will be included in the communication on the protection of the Union budget in September 2014.

6. (§15 - 2012/PAR/0303) The Parliament asks the Commission to submit without delay a proposal on limiting if not banning replacement projects all together.

Commission's response:

The regulatory framework for the 2014-2020 period, recently adopted in December 2013 provides for rules for net financial corrections. Legislative proposals for the 2021-2028 period will only be drafted after 2017.

.

Commission’s Reservations, reasons for binding commitments

7. (§19 - 2012/PAR/0304) The Parliament urges all relevant actors involved in Union decision making to increase efficiency, notably by drafting eligibility rules that are simple and verifiable, by establishing clear rules and procedures for accessing the Union funds, by cutting red tape and by devising appropriate and cost effective controls.

Commission's response:

See reply §4 – 2012/PAR/300

8. (§21 - 2012/PAR/0305) The Parliament expects significant improvements in this regard [for years the majority of the errors identified by the Court of Auditors ought to be have been identified by the Member States themselves] in the funding period 2014-2020.

Commission's response:

The Commission has taken the recommended action and refers to the design of the delivery system for 2014-2020 programming period.

The key elements of the 2014-2020 reform are related to ensuring better spending and better programme governance to ensure a more error-safe environment. This will include increased result orientation and performance, ex-ante conditionalities to be fulfilled at the start of implementation for each programme, simplification, particularly for beneficiaries and harmonised and simplified eligibility rules.

The Common Provisions Regulation for the 2014-2020 programming period also contains reinforced control provisions and requirements compared to the 2007-2013 period that will improve the Member States’ accountability so as to better address errors and ensure legality and regularity of co-financed expenditure each year before certifying the programme accounts to the Commission.

As regards the assessment of the first-level checks for 2007-2013 the Commission considers it is already carrying out such assessment since 2010 through targeted audits on high risk programmes in the frame of its audit enquiry "Bridging the assurance gap". Results of these risk-based audits by end 2013 were submitted to the European Parliament in the context of the 2012 Discharge and are presented in the AAR of DG Regional and Urban Policy (see page 41 and Annexe 8).

As regards agriculture, DG AGRI is currently implementing the requirement in the new Financial Regulation that the Certifying bodies have to issue an opinion on the legality and regularity of MS transactions. If correctly done, this new assurance model will reinforce the work of the Certifying bodies and provide the Commission with a much more reliable picture of the quality of MS control systems, including reported control statistics and error rates. In the meantime and as recommended by ECA, DG AGRI applies a new approach to estimate the residual error rates that takes into account all available information, notably audits from both DG AGRI and ECA in the last 3 years. The potential impact of the identified deficiencies on the error rate is estimated and added as a top-up to the error rate reported by the Member State concerned at the level of each paying agency, resulting in a more realistic and more precise estimate of the residual error rate. Applied to direct payments for the AAR 2012, the methodology has been further developed and extended to the whole CAP expenditure in the AAR 2013.

9. (§25 - 2012/PAR/0306) The Parliament deems it a priority that the Commission proves to Parliament in the case of reservations in which way convincing remedial measures have been taken to overcome the latter's concerns [reservation in areas for which it has not received adequate assurance from the Commission and/or the Court of Auditors to refute its concerns].

Commission's response:

The Commission services have maintained in the Cohesion area their vigilance, since interruptions and suspensions of payments are a useful preventive tool for the proper spending of the EU funds. In 2013, the Commission opened 265 interruption cases (2012: 116) with a value of almost EUR 5 billion.

For the ESF in 2013 alone 25 payment claims have been interrupted and 13 suspension cases handled.

Regarding the Regional and Cohesion Funds, cumulative financial corrections for the programming period 2000-2006, which is now in the closure phase, total about 7,2 billion euro. This corresponds to 3,7 % of the total contribution (197 billion euro).

For 2013 the total amount of financial corrections and recoveries implemented is 3.4 billion euro, which corresponds to 2,4 % of the payments made.

The average amount of financial corrections and recoveries implemented per year by the Commission during the period 2009 to 2012 was EUR 2.6 billion or 2% of the average amount of payments from the EU budget of EUR 127.2 billion.

For the CAP, a reservation is lifted only once the Commission has obtained reliable evidence that the weaknesses have been remedied through the implementation of appropriate actions by the MS, and assurance that the irregular expenditure declared in the past are or will be corrected (net financial corrections) under the conformity clearance procedure,. A reservation always goes hand in hand with a clear action plan to tackle the problem identified in the management of EU funds. The Commission follows up these reservations and the corresponding action plans by monitoring the progress of the underlying work to implement them.

In 2013 the Commission adopted 4 conformity clearance decisions in Agricultural area, covering 147 individual net financial corrections for a total amount of 1,1 billion EUR (2 % of the CAP expenditure budgeted for 2013). To be noted that the average amount of net financial corrections executed over the past three years for direct aid amount to 332 million EUR and for Rural Development to around 109 million EUR. Where undue payments are or can be identified as a result of conformity clearance procedures, MS are required to follow them up by recovery actions against the final beneficiaries. However, even where this is not possible, net financial corrections are an important means to induce Member States to improve their management and control systems and, thus, to prevent or detect and recover irregular payments from final beneficiaries. In 2013, the amounts recovered from beneficiaries amounted to 94 million EUR for direct aid and 98 million EUR for Rural Development.

10. (§29 - 2012/PAR/0307) The Parliament supports the Commission in its approach [concerning financial corrections], and calls for the systems to be improved in any way possible, including the provision of training to staff, in order to enhance their effectiveness and rapidity.

Commission's response:

The requested actions have been taken. The rules governing the conformity procedure, established in an implementing act were adopted on August 2014.

Under the Common Agricultural Policy (CAP) legal framework, net corrections have been applied since the first clearance of accounts decision in 1976 and will continue being applied for both European Agricultural Guarantee Fund (EAGF) and European Agricultural Fund for Rural Development (EAFRD).

Any identified irregular expenditure or deficiency in the primary controls carried out by a Member State systematically triggers the opening of a conformity procedure that results, after a contradictory and a conciliation phase, in a proportionate and net financial correction that protects the EU budget against the identified risk. Every year the Commission adopts between 2 and 4 conformity clearance decisions on a package of individual financial corrections. In 2013 the Commission adopted 4 such decisions, covering 147 individual net financial corrections for a total amount of 1,1 billion EUR (2 % of the CAP expenditure budgeted for 2013).

The Commission continues its efforts to streamline the procedure for financial corrections.

Firstly, the new CAP Horizontal Regulation Reg. 1306/2013 (which was adopted by the European Parliament and the Council on 17 December 2013) describes more clearly the nature, scope and sequence of the successive steps. For instance, it establishes a clear demarcation between the contradictory phase, during which the Member State is responsible for providing all information (facts and arguments) that may contradict the initial findings of the Commission, and the conciliation phase during which only information made available in the previous steps of the conformity procedure may be considered. It also describes the three different types of financial corrections and the conditions for using them. For instance, flat rate corrections shall be applied in cases where the Member State has not provided to the Commission the information that would be necessary for to identify more precisely the financial damage to the Union.

Secondly, provisions in the delegated act set out more precisely the method and criteria for calculating the financial correction in due proportion to the risk of irregular expenditures. For instance more stringent rules and higher net financial corrections will apply where there are three or more different deficiencies in a control system. Commission guidelines will further detail the more technical elements.

Thirdly, the rules governing the conformity procedure, established in an implementing act to be formally adopted in July 2014, provide for mandatory deadlines for both the Commission and the Member States at each step of the conformity procedure. DG AGRI already implements a closer monitoring of the management of the procedural delays.

Finally, in order to enhance the effectiveness of the audit work carried out by DG AGRI an audit training program was incorporated in the DG AGRI's strategic training framework from 2013. This program includes, notably, actual certification of all auditors.

11. (§30 - 2012/PAR/0308) The Parliament would like to be informed on the total amount of the Union's subsidies, grants and other financial instruments that were spent in setting up and improving the LPIS system since the decision was taken, if possible divided by Member-State.

Commission's response:

This request would require doing an analysis of relevant EU expenditure going back to 1992 when IACS was put in place. The resources that would have to be deployed to obtain this figure would be disproportionate to the potential insights that could be gained from it.

However, what can be noted is that, since 2007, the amounts financed by the EAGF for the acquisition of satellite imagery for checks, which is also used for the Land Parcel Identification System (LPIS), are on average around EUR 6.5 million per year.

12. (§31 - 2012/PAR/0309) The Parliament calls on the Commission to offset the entire financial risk of such errors [errors detected in 2006 by the Court of Auditors in France and Portugal and confirmed by the Commission in 2008] in the Union budget through net corrections.

Commission's response:

The Commission is taking the requested actions, but it would like to emphasize that their accomplishment depends to a large extent on the progress made by the MS in addressing the deficiencies (for example through action plans).

The Court confirmed in its Annual Report 2008 that EAGF expenditure was free from material error (cf. paragraph 5.62). As regards the IACS, the Court reiterated that it "generally is an effective and control system for limiting the risk of irregular expenditure" (cf. paragraph 5.64).

The Commission has taken the following measures to address the deficiencies in the functioning of the national system in Portugal and France:

In Portugal: an action plan was launched in 2010 and reinforced in 2011. Audit missions carried out in 2013 confirmed that the action plan had been implemented and that the LPIS deficiencies had been addressed for claim year 2013. The results, in respect of the error rate, will be measurable by mid-2014 i.e. final payments for claim year 2013. While the deficiencies identified persevered for several years, the EU budget was protected via the conformity clearance procedures which ensured the claw back of over 100 million EUR in net financial corrections for the claim years 2006 to 2008. For the subsequent claim years, conformity clearance procedures are on-going in order to ensure that any undue expenditure is recovered:

- Claim years 2009-11: finalization of clearance procedure expected by end-2014;

- Claim year 2012: finalization of clearance procedure expected by mid-2015.

In France prior to 2008 no serious deficiencies were detected which would have merited a reservation, an action plan or significant financial corrections. As deficiencies were detected from 2008, a number of significant financial corrections have been proposed in respect of financial years 2008-2010 for which the clearance of accounts procedure is very advanced. Conformity procedures are also ongoing for the subsequent years. In addition, in the meantime (in 2013) an ambitious and thorough action plan for France has been set up to cover the weaknesses in the LPIS, the controls of cross-compliance, and the controls for non-area coupled aids. A mission carried out in February 2014 showed that while the plan is on track, some intermediate commitments have not been met. Consequently, France has been requested to tackle these issues and at the same time a more detailed reporting has been requested so as to enable a more hands-on follow-up by DG AGRI.

13. (§32 - 2012/PAR/0310) The Parliament observes that the conformity clearance procedures take far too long to protect the Union budget effectively; regrets the administrative capacities that have been frozen for years and the loss in revenue and interest to the EU budget.

Commission's response:

The Commission has taken the requested actions to shorten the conformity procedure; however, it does not agree that the existing conformity procedure led to a loss in revenues and interest to the EU budget.

The conformity procedure (indispensable before making net financial corrections) requires certain steps to be applied in sequence as established in Regulation EC No 1306/2013. The contradictory phase constitutes the core part of a standard conformity clearance procedure; it aims at making it possible for the Member State to provide the Commission with any information that would contradict its initial findings. In addition, a conciliation phase might be requested by the Member State, in cases where the Member State does not agree with the conclusions of the Commission. These two phases aim at ensuring the right of the Member State to an actual contradictory process

However, in order to ensure that the conformity clearance procedure is concluded within a reasonable period of time, it is appropriate to lay down specific time-periods for the different stages of the procedure to be respected by the Commission and the Member State concerned. This is the reason why the rules governing the conformity procedure, established in an implementing act formally adopted on 6 August 2014, provide for mandatory deadlines for both the Commission and the Member States at each step of the conformity procedure. DG AGRI already implements a closer monitoring of the management of the procedural delays.

The protection of the EU budget is hence furthermore secured through the streamlined conformity procedure.

The Commission does not share the view that the delays of the conformity procedure lead to a loss in revenue and interest to the EU budget. The Commission systematically initiates a conformity clearance procedure if an audit reveals deficiencies in the functioning of the national control systems, in view of determining whether to impose a net financial correction. Financial corrections are systematically determined on the basis of the nature and gravity of the infringement and the financial damage caused to the EU budget. Where possible, the amount is calculated on the basis of the loss actually caused or on the basis of an extrapolation. Where this is not possible, flat-rates are used which take account of the severity of the deficiencies in the national management and control systems in order to reflect the financial risk for the EU. Therefore, it cannot be concluded that delays at any step in the conformity procedure could possible trigger a loss in revenue and interest to the EU budget.

14. (§33 - 2012/PAR/0311) The Parliament expects remedial action of the Commission to ensure that the absence of sufficient controls does not lead to unfair distortion of competition between organic and conventional farmers.

Commission's response:

The Commission is making constant efforts to reinforce controls on organic production and labelling of organic products, including through legal provisions.

Commission Regulation (EU) No 392/2013 of 29 April 2013, amending Regulation (EC) No 889/2008 with the implementing rules on controls, clarifies a number of terms that had led to diverging practices across Member States, establishes as from 1 January 2014 a minimum number of samples to be taken and analysed by the control authorities or control bodies, and sets out as from the same date specific requirements for the supervision of control bodies with a view to ensuring an enhanced application of the organic control system in the Union.

The Commission considered the need for further remedial action on the management and control system for organic production and labelling of organic products in its proposal for a Regulation of the European Parliament and of the Council on organic production and labelling of organic products, amending the Official controls Regulation and repealing Regulation (EC) No 834/2007, which has been adopted on 24 March 2014.

15. (§38 - 2012/PAR/0312) The Parliament observes that the Commission does not conduct enough random sample audits of its own at national management authorities and final beneficiaries.

Commission's response:

The Commission disagrees with the observation. It carries out its own audits directly at the level of the risky managing authorities/intermediate bodies and beneficiaries. A summary report on the results of the 77 audits carried out since November 2010 until end 2013 covering 15 Members States and 7 Regions in Italy for around 70 operational programmes considered by REGIO as at risk was sent to the rapporteur in December 2013. Almost all these audits have led to action plans and payment interruptions by DG REGIO. Between 2009 and 2013, DG EMPL has carried out 87 system audits focused on riskiest OPs and in significant number of cases these have led to interruption/suspension procedures as disclosed in EMPL AAR.

See also reply to 2012/PAR/0301.

16. (§39, 2nd indent - 2012/PAR/0313) The Commission must perform more audits of final beneficiaries and authorising authorities in year ‘n’ in Member States where shortcomings have been found in administrative and audit systems in year ‘n-1’.

Commission's response:

The Commission has taken the recommended action and included in its audit strategy for cohesion policy focused and risk-based audits enquiries to tackle shortcomings at the level of managing authorities.

See reply § 5 – 2012/PAR/301

17. (§39, 3rd indent - 2012/PAR/0314) The Commission must commit itself to audit all operational programmes at least once in the course of the programming period.

Commission's response:

The request is not in line with the concepts of single audit, cost-efficiency in the use of limited audit resources and the rapporteur's request and objective to target Commission's audits to risky programmes, as we currently do. The single audit approach as proposed by the ECA since 2004 allows the Commission to have audit results and opinions for each programme every year as from the start of the programming period. The Commission has to ensure that audit authorities' work is reliable.

18. (§39, 4th indent - 2012/PAR/0315) The Commission must report in time for the 2013 discharge procedure on the operational applicability of the term “serious deficiencies” in the delegated act and on the net financial corrections it generated.

Commission's response:

The Commission has adopted delegated acts governing areas under shared management under the new Multiannual Financial Framework (MFF) 2014-2020. The delegated act based on the CPR provides detailed rules to enable the mechanism of financial corrections to work effectively by defining clearly the criteria for determining "serious deficiencies" which trigger the procedure for net financial corrections (NFC) (see Article 30 of Commission delegated regulation 480/2014 of 3 March 2014).

Binding commitments to be made

19. (§40 - 2012/PAR/0316) The Parliament calls on the Commission, in the area of agricultural policy, for conformity clearance procedures in standard cases to be completed in less than two years, as foreseen in the Commission’s internal benchmarking adopted more than 15 years ago.

Commission's response:

The Commission is, through the new legal framework of the CAP, is taking actions aiming at streamlining the whole procedure and limiting the risk of unnecessary delays. In particular, deadlines for each step of the procedure are introduced for both Member States and the Commission in the implementing act adopted on 6 August 2014.

However, while there is scope for significantly speeding up the conformity procedure so that in the simplest cases the conformity procedure can be managed in two years, there can be no guarantee that each and every single case can be managed in less than two years. For more complex cases the two phases of the conformity procedure (contradictory followed by conciliation), the respect of the Member State's right to challenge the Commission's findings and the need for the correction to be in proportion to the seriousness of the deficiency will not always make it possible to manage the procedure in less than two years.

The Commission would in this respect also like to point out that the benchmarking referred to in the Art 34 of the draft Implementing Regulation should rather be used as a parameter against which MS and Commission practice is to be assessed.

20. (§41 - 2012/PAR/0317) The Parliament calls on the Commission, in the field of agriculture, to resolve without delay the problems occurring in Paying Agencies whose residual risk of error lies above the materiality threshold of 2% as identified by the Commission; suggests to focus its efforts especially on the Paying Agencies in France, Bulgaria, Romania, Portugal and Latvia.

Commission's response:

The Commission intends to take those actions referred to below. The reason for this is that, in the framework of shared management, as set out in the Financial Regulation and the rules on the financing of the CAP, it is the Member State, which has to assume the primary responsibility for ensuring that actions financed by the budget are implemented correctly in accordance with the rules.

The role of the Commission under shared management consists rather in an overall supervision, by verifying the effective functioning of MS's management and control systems through conformity clearance procedures and applying net financial corrections to protect the EU budget.

In addition, the Commission doesn't have the resources to handle every year about 50 million transactions (over 60 billion EUR) for 8 million final beneficiaries. Therefore, DG AGRI audit activities are driven by a central risk analysis (i.e. more audits focus on MSs, measures and programmes affected by higher risks) covering all CAP expenditure in all MS. DG AGRI opens each year around 250 audits on the effectiveness of the paying agencies' management and control systems, and carries out around 120 audit missions on the compliance with the EU rules. As a result, the Commission imposes net financial corrections on the Member States which they reimburse to the EU budget any irregular spending which has been identified. In 2013 the Commission adopted 4 conformity clearance decisions, covering 147 individual net financial corrections for a total amount of 1,1 billion EUR (2 % of the CAP expenditure budgeted for 2013).

Considering the above, the Commission considers that the suggestion to focus on specific paying agencies would arbitrarily reduce the scope of the audit work to be carried out to address weaknesses.

In its 2013 AAR, for paying agencies with an adjusted residual error rate between 2% and 5%, DG AGRI assesses whether the risk is sufficiently covered by mitigating factors and thus whether a financial reservation is necessary. This includes whether there is an on-going conformity clearance procedure covering the expenditure concerned and whether the necessary remedial actions have been implemented by the MS concerned. PAs with an adjusted residual error rate above 5% were subject to a reservation. DG AGRI made 62 reservations: 11 at measure level for Market Measures, 20 (at paying agency level) for direct payments, and 31 at paying agency level for rural development.

21. (§42 - 2012/PAR/0318) The Parliament calls, in order to remedy shortcomings in LPIS systems, for action plans to be implemented promptly.

Commission's response:

The Commission is taking the requested action. The current procedure is to ask Member States to draw up an action plan when significant deficiencies have been identified in their LPIS. The state of play of implementation of these action plans is subject to a reporting in DG Agriculture and Rural development's Annual activity report (AAR). In addition, relevant information has been made available to the Rapporteur (Cf also replies to requests 2012/PAR/0320, 2012/PAR/0341, and 2012/PAR/0381).

The first course of action is nonetheless for the Member States to set up and promptly implement such action plans. In addition, all Member States have to assess, on an annual basis, the quality of their LPIS and adopt, where appropriate, remedial actions (Cf article 6-2 of Commission Regulation (EC) No 1122/2009).

22. (§42 - 2012/PAR/0319) The Parliament calls, in the event of failure to comply with the deadlines set in the action plans for proportional net financial corrections as part of the conformity clearance procedure.

Commission's response:

Any identified risk to the EU budget systematically triggers a net financial correction, to be applied proportionally to the risk to the EU budget in function of the nature and gravity of the infringement and the loss to the EU budget. Any delay in implementing the necessary remedial action prolongs the duration of the identified risks of irregular payments and therefore triggers systematically a higher net financial correction.

In addition, following the entry into force of the CAP Horizontal Regulation No 1306/2013 a new legal framework provides for the possibility to, as an additional preventive measure, suspend payments where the Commission concludes that the MS concerned is not in a position to implement the necessary remedial measures in accordance with an action plan based on clear progress indicators. This represents a further incentive for the MS to speed up the implementation of the action plans and to abide by the agreed deadlines for accomplishing the corrective actions.

The combination of preventive actions (interruption for EAFRD and suspensions for both Funds) and net financial corrections where expenditure is paid in non-respect of EU rules allows the Commission to act promptly and efficiently to protect the EU budget.

23. (§43 - 2012/PAR/0320) The Parliament calls on the Commission to report on the state of play of the implementation of the action plans for France and Portugal by 30 June 2014.

Commission's response:

The requested action has been taken. DG AGRI has reported on the implementation of the action plans for Portugal and France in its Annual Activity Report 2013, which will be published in mid-June 2014. The relevant information has already been made available to the rapporteur.

For Portugal, the action plan was implemented in 2013. For France, the plan is expected to be completed for claim year 2016. In the meantime, it is closely monitored by the Commission services and the financial risk is fully covered by the ongoing conformity clearance procedures.

24. (§44 - 2012/PAR/0321) The Parliament takes the view that recurrent land parcel identification shortcomings must be met by progressively increasing corrective penalties well beyond existing net and flat-rate corrections; calls for a Commission proposal along these lines.

Commission's response:

The Commission will not be taking the requested action because it would require reopening a regulation that has just been adopted by the two co-legislators in the framework of the CAP reform. However, the increase in financial corrections for recurrent violations of EU rules is already provided for and is applied in all cases where there is enough evidence that the persistence of the deficiencies is increasing the financial risk to the EU budget.

25. (§45 - 2012/PAR/0322) The Parliament calls on DG AGRI to develop and formalise its control strategy, re-engineer its risk assessments according to the targets established, and ensure proper monitoring through better quantitative and qualitative key performance indicators whose disclosure in the Annual Activity Report should be improved.

Commission's response:

DG AGRI adopted a new multi-annual audit strategy in March 2014.

This audit strategy confirms the risk and system based approach, notably to achieve a better audit coverage. A rolling three-year audit programme will apply from July 2014. It will be reviewed periodically to take into account the implementation of the CAP reform (e.g. new greening payments and associated risk) and also the additional evidence that will be available from 2016 as a result of the new work of the certification bodies on legality and regularity. Key performance indicators on geographical coverage, expenditure coverage and risk coverage are included in the strategy. They will be monitored and reported upon in future AARs from AAR 2014.

26. (§46 - 2012/PAR/0323) The Parliament calls, in the field of regional policy, following the Commission's and the Court of Auditors' recommendations, for the Member States to drastically step up their first-level checks and render them more stringent.

Commission's response:

The Commission has taken the recommended action and included in its audit strategy for cohesion policy focused and risk-based audits enquiries to tackle shortcomings at the level of managing authorities.

See reply § 5 – 2012/PAR/301

27. (§47 - 2012/PAR/0324) The Parliament calls on the Commission, in the activity reports of the directorates-general, to report the extent to which Member States' control statistics or audit reports have been examined, verified and validated and the depth in which this has been done.

Commission's response:

The Commission has taken the recommended action and reported about its controls in the AARs of the Directorates-General concerned.

28. (§48 - 2012/PAR/0325) The Parliament calls on the Commission, in its annual activity reports, to indicate how its own risk analyses have influenced the use of its own audit capacities, which countries were concerned and whether the shortcomings were remedied; calls for more direct audits of random samples taken from national granting authorities and final beneficiaries.

Commission's response:

The term "random samples" is misleading in this context, since the EP seems to ask for risk based audits. The Commission is sampling on a risk base.

The Commission has taken the requested action and reported in the AARs of the Directorates-General concerned on the audits carried out. In the area of cohesion, audit resources are annually deployed on the basis of a comprehensive risk analysis. The audit work is generally focused on two main areas, i.e. (i) the re-performance of Audit Authorities' work and, (ii) system related audit work (generally verification of management verifications). Both types always include the audit of a sample of beneficiaries and operations. The audits which lead to a negative assessment of the systems systematically give rise to interruption or suspension procedures.

Concerning the request to increase the audits on managing authorities, please see reply to 2012/PAR/0323.

As regards Agriculture, each year the Commission opens around 250 audits on the effectiveness of the paying agencies' management and control systems, and carries out around 120 audit missions on the compliance with the EU rules. These audit activities are driven by a central risk analysis (i.e. more audits focus on MSs, measures and programmes affected by higher risks) covering all CAP expenditure in all MS. The additional staff required for carrying out direct audits based on a random sample on a scale that would allow an extrapolation of the results would far exceed the staff that could be redeployed and/or freed by reducing the number of audits in MS with low error rates. See also reply to 2012/PAR/0333.

29. (§49 - 2012/PAR/0326) The Parliament stresses that the guidelines for audits by the Commission itself ought to constitute a self-imposed obligation on the Commission; calls on the Commission already to present them as part of the 2013 discharge procedure; calls for clear indications, to this end, of the extent to which Member States and programmes which have attracted attention in the past have been subjected to a special audit approach and the extent to which net financial corrections can be accelerated.

Commission's response:

The Commission has taken the requested action.

As regards Cohesion, The "guidelines for audits" is understood as the Commission audit strategy for the 2014-2020 period, which was drafted as a single audit strategy for ERDF, ESF, CF and EMFF for the years 2014/2015 and finalised on 15/04/2014 (Ares(2014)1192851), i.e. in time for the 2013 discharge.

The "special audit approach" is understood as a risk based audit approach and in embedded in the above mentioned audit strategy. Please see reply to 2012/PAR/0323.

The request to indicate "the extent to which net financial corrections can be accelerated" is unclear. The Commission has committed itself in the 2008 Action Plan that contradictory procedures related to financial corrections have to be finalised within 24 months after the audit. The Commission is meeting this objective.

In the area of agriculture, from the beginning of 2016 (in respect of financial year 2015), Certifying Bodies (CB) will report on the legality and regularity of the expenditure for which reimbursement was requested from the Commission to a much greater extent than has been the case under the previous and current regulatory frameworks. In practice, this means that CBs will be required to verify the results of on-the-spot checks carried out by the PAs. Detailed guidelines on the audit methodology for the CB have been prepared with the MS and were made available on 15/01/2014. DG AGRI's audit strategy provides for a specific audit work from 2015 in order to check the reliability of the opinion delivered by the CBs.

In addition, the Commission is taking actions aiming at streamlining the whole procedure and limiting the risk of unnecessary delays through the new legal framework of the CAP. In particular, some steps of the existing contradictory procedure will be merged, deadlines for each step of the procedure are introduced for both Commission and Member States, and if a Member State does not send the required information in time the Commission will be able to proceed to the next step on the basis of the information available. The Commission will endeavour to limit the maximum duration of the whole conformity clearance procedure to the strict minimum necessary, while respecting the different stages of the conformity procedure (i.e. contradictory and conciliation) required by the relevant regulations; for standard cases the procedure will be accomplished in maximum two years.

30. (§50 - 2012/PAR/0327) The Parliament expects that the Commission improves its own checks on the audit authorities' annual control reports, to ensure that auditors are able to reach conclusions on the impact of the reliability of error rates from Member States' audits and to strengthen its assurance process.

Commission's response:

The Commission has taken the requested action. The Commission reviews the work of audit authorities, including through re-performance of audits of operations already audited by the audit authorities. In the context of the analysis of the ACRs, the Commission requests from audit authorities specific underlying or complementary information, including in the context of its on-the-spot fact-finding missions, when necessary for the assessment of reported error rates, and in case of specific risks.

The Commission's assessment of the reported error rates is to be seen in the context of the assurance it has obtained since 2009 through its review of the work of audit authorities, which includes re-performance of audits of operations already audited by the audit authorities.

In addition, further guidance on the treatment of errors has been provided to the Audit Authorities in 2012-2013 and numerous technical meetings and seminars have been organised by the Commission with all audit authorities in 2012-2013 in order to further improve the audit sampling methodology used in preparation of the ACRs.

In the Agricultural area, the Commission is already verifying the quality of the certification reports and opinions issued by the Certifying Bodies during the annual financial clearance of accounts. Verifying the quality of the certification reports is reinforced by the new strategic audit plan and annual work programme. The reliability of the certification work remains for the financing period 2014-2020 of a particular interest for DG AGRI, considering that those results feed in the Central Risk Analysis (CRA) and constitute the ground for calculating the residual error rates to be reported in the AAR and to be used for DAS purposes.

31. (§51 - 2012/PAR/0328) The Parliament calls on the Commission to do everything in its power to shorten the adversarial procedures preceding the imposition of net corrections or interruptions of payments; calls on the Commission to submit a report and a proposal on the subject.

Commission's response:

The Commission has taken the requested action. On the shortening of contradictory procedures for financial corrections in the area of Cohesion policy, the Commission has committed itself in the 2008 Action Plan that contradictory procedures related to financial corrections have to be finalised within 24 months after the audit. The Commission is meeting this objective.

Concerning "the adversarial procedures preceding the […] interruptions of payments", the Commission points out that there is no adversarial procedure to interrupt payment deadlines. An interruption is an administrative act that takes place without such a procedure.

The submitting of a proposal is understood as preparing the delegated acts. The Commission has adopted delegated acts governing areas under shared management under the new Multiannual Financial Framework (MFF) 2014-2020. The delegated act based on the CPR provides detailed rules to enable the mechanism of financial corrections to work effectively by defining clearly the criteria for determining "serious deficiencies" which trigger the procedure for net financial corrections (NFC) (see Article 30 of Commission delegated regulation 480/2014 of 3 March 2014).

In the area of agriculture, the Commission is taking actions aiming at streamlining the whole procedure and limiting the risk of unnecessary delays through the new legal framework of the CAP (notably, Article 34 of the draft Implementing Regulation). In particular, some steps of the existing contradictory procedure will be merged, deadlines for each step of the procedure are introduced for both Commission and Member States, and if a Member State does not send the required information in time the Commission will be able to proceed to the next step on the basis of the information available. The Commission will endeavour to limit the maximum duration of the whole conformity clearance procedure to the strict minimum necessary, while respecting the different stages of the conformity procedure (i.e. contradictory and conciliation) required by the relevant regulations; for standard cases the procedure will be accomplished in maximum two years.

32. (§52 - 2012/PAR/0329) The Parliament calls on the Commission to insert in the annual report on the protection of the Union budget a chapter on net financial corrections per Member State.

Commission's response:

The Communication on the protection of the Union budget will provide information on interruptions, suspensions, financial correctors and recoveries. In addition, the Commission will include data on net financial corrections which lead to assigned revenue for the EU budget and the results of Member States’ corrective work.

33. (§53 - 2012/PAR/0330) The Parliament calls on the Commission to identify in the Communication on shared fund management the three Member States with the highest error rates and financial corrections, which will subsequently receive a hearing from the discharge authority as part of the discharge procedure.

Commission's response:

The Commission has taken the requested action. The "Communication on shared fund management" is understood as the communication on the protection of the EU budget, adopted in September each year. There, financial corrections are reported but no error rates. Error rates by Member States are reported in the AARs of the Directorates-General concerned. Both documents, the AAR and the report on the protection of the EU budged, contain information by Member State. The request concerning the hearing is addressed to the discharge authority.

34. (§56, 1st indent - 2012/PAR/0331) The Parliament asks that the DGs concerned should build up a new and reinforced audit strategy to counter weaknesses found in in some Member States as referred to in paragraphs 47, 48 and 49.

Commission's response:

The Commission has taken the requested action and put in place a new and reinforced audit strategy for Agriculture (in May 2014) and a single audit strategy for the 2014-2020 period for ERDF, ESF, CF and EMFF for the years 2014/2015 (Ares(2014)1192851) that cover the requests raised by the EP.

35. (§56, 2nd indent - 2012/PAR/0332) The Parliament asks for intensification of quality checks on Member-States audit and control reports as referred to in paragraphs 47 and 48.

Commission's response:

The European Court of Auditors (ECA) has for a number of years expressed concern that Member States' statistics were understated and that the work requested of the certification bodies was not sufficient to deliver a valid audit opinion on the legality and regularity of the underlying transactions. In this context, it is important to highlight the changes brought about by the new Horizontal Regulation, No 1306/2013 insofar as the work of the Certification Bodies (CB) is concerned (Art 9), and which amongst other things, are aimed at addressing the Court of Auditors concerns.

From the beginning of 2016 (in respect of financial year 2015), CBs will report on the legality and regularity of the expenditure for which reimbursement was requested from the Commission to a much greater extent than has been the case under the previous and current regulatory frameworks. In practice, this means that CBs will be required to verify the results of on-the-spot checks carried out by the PAs.

Detailed guidelines on the audit methodology for the CB have been prepared with the MS and were made available on 15/01/2014. DG AGRI's audit strategy provides for a specific audit work from 2015 in order to check the reliability of the opinion delivered by the CBs. If correctly done the opinion of the CBs on legality and regularity will reinforce the overall assurance that can be drawn by DG AGRI on the reliability of MS control systems including reported control statistics and error rates.

In the meantime and as recommended by ECA, DG AGRI applies a new approach to estimate the residual error rates that takes into account all available information, notably audits from both DG AGRI and ECA in the last 3 years. The potential impact of the identified deficiencies on the error rate is estimated and added as a top-up to the error rate reported by the Member State concerned at the level of each paying agency, resulting in a more realistic and more precise estimate of the residual error rate. Applied to direct payments for the AAR 2012, the methodology has been further developed and extended to the whole CAP expenditure in the AAR 2013.

36. (§56, 3rd indent - 2012/PAR/0333) The Parliament asks for an increase in the random sampling based audits by the Commission in the spot and the more systematic use of net financial corrections as referred to in paragraph 13.

Commission's response:

The term "random samples" is misleading in this context, since the EP seems to ask for risk based audits (see request 2012/PAR/0325). The Commission is sampling on a risk base.

Concerning the request to increase the audits on managing authorities, please see reply to 2012/PAR/0323.

If "random samples" is understood as statistical sampling, the requested action is not being taken. The additional staff required for carrying out direct audits based on a statistical sample on a scale that would allow an extrapolation of the results would far exceed the staff that could be redeployed and/or freed by reducing the number of audits in MS with low error rates. Moreover, MS with low error rates are already less exposed to Commission scrutiny based on the risk analysis. Reducing Commission controls further would not be in line with the principles for a sound risk analysis and could lead to financial risks to the budget.

As regards net financial corrections for cohesion policy, the Commission has taken the requested action. For the 2014-2020 programming period, under certain conditions fixed in the regulation (Article 145(7)), the Commission must adopt a decision of a net financial correction even if the Member State agrees to the correction, thus removing the possibility for the Member State to re-use the amount. There is no discretionary power for the Commission.

In the Agricultural area, the audits will continue on a risk-based system. As the risks identified may very much vary depending on the MS, measure, scheme, paying agencies or control system at stake, a purely transaction-based approach, on the basis of a fully representative and statistically valid sample, appears less relevant than system-based and risk-based audits, especially when considering also the existing audit resources and the large number of transactions that such audits would have to cover. DG AGRI's multiannual audit strategy for the 2014-2020 period maintains the risk based approach and aims to achieve a better trade-off between risks and coverage: no MS will be left out, but more risky MS will be audited more intensively.

As from the FY 2015, the results of the audit work carried out by the certification bodies on the legality and regularity of expenditure will be used in the Agricultural area, based on a representative sample of transactions at the level of final beneficiaries.

The Commission will make systematic use of net financial corrections in case of non-compliance with EU rules or inadequate control procedures, in order to mitigate the risk of irregular expenditure. The introduction of deadlines for the conformity clearance procedure in the area of agriculture (made possibly by the new legal framework for the CAP) should reduce the time needed to decide on these net financial corrections.

37. (§56, 4th indent - 2012/PAR/0334) The Parliament asks for detailed rules in the CPR delegated act to provide for definition of serious deficiencies and assessment of key requirements for management and control systems as referred to in paragraph 216.

Commission's response:

See reply § 39, 4th indent – 2012/PAR/0315

38. (§56, 5th indent - 2012/PAR/0335) The Parliament asks for the application of progressively increasing payment reductions and administrative sanctions where eligibility criteria have not been respected by the final beneficiary receiving direct payments or rural development support and recurrent LPIS shortcomings.

Commission's response:

The Commission has taken the requested action. The current regulatory framework carries forward a system of effective, dissuasive and proportionate penalties when beneficiaries have not complied with the eligibility conditions. The relevant delegated act was published on 20 June after the end of the scrutiny period (Commission Delegated Regulation (EU) No 640/2014 supplementing Regulation (EU) No 1306/2013 of the European Parliament and of the Council with regard to the integrated administration and control system and conditions for refusal or withdrawal of payments and administrative penalties applicable to direct payments, rural development support and cross compliance). These provisions should be applied by the Member States at the level of final beneficiaries, and are without prejudice to financial corrections that the Commission may impose on Member States in case deficiencies in their management and control systems, including the LPIS, are identified. Moreover, where such deficiencies are of a serious nature, the Commission may reduce or suspend monthly and interim payments to Member State on the basis of Article 41 of the new Horizontal Regulation (EU) No 1306/2013 on the financing, management and monitoring of the CAP.

39. (§56, 6th indent - 2012/PAR/0336) The Parliament asks for the suspension mechanism to be used as an ex ante instrument for protection of the Union budget as referred to in paragraph 42.

Commission's response:

The Commission will use the new mechanism for suspension established in Article 41 of Regulation No 1306/2013 of the European Parliament and of the Council on the financing, management and monitoring of the CAP, as a new ex-ante instrument to protect the EU Budget from weaknesses in the control system of the Member States.

40. (§56, 7th indent - 2012/PAR/0337) The Parliament asks that the use of interruptions, suspensions, financial corrections, and recoveries will be detailed in the next annual report on the protection of the Union budget, and specifically for structural and cohesion funds in the reports for 2016 onwards as referred to in paragraph 52.

Commission's response:

see response to request 2012/PAR/0329

41. (§56, 8th indent - 2012/PAR/0338) The Parliament asks that Annual Activity Reports (AARs) from the DGs should include information on reservations regarding risk to the Union budget and such reservations should only be lifted when the weaknesses have been addressed through Member State action and correction of irregular expenditure, and AARs also to error rate and residual risk estimates particularly when Member States have carried out corrective actions.

Commission's response:

The Commission considers that the 2013 AARs include this information and confirms the practice of lifting reservations.

Indeed, the Commission reports the serious weaknesses identified in the execution of the EU budget through reservations in the AARs of the Commission's Directors-General and discloses the resulting risk for the EU budget. A reservation always goes hand in hand with a clear action plan to tackle the problem identified in the management of EU funds and, if the regulatory conditions are met, the Commission may interrupt or suspend the respective payments. The Commission follows up these reservations and the corresponding action plans by monitoring the progress of the underlying work to implement them. A reservation will be lifted only once the Commission has obtained reliable evidence that the weaknesses have been addressed through the implementation of appropriate actions by the Member State (MS) the appropriate correction procedures have been launched, and the new system has proved its reliability in practice.

AARs also show in a transparent way how the Commission fulfils its responsibility with regard to ensuring the legality and regularity of shared management policies, at the level of individual MS and programmes (for Cohesion Policy) or paying agencies (for Agriculture). In addition, the Commission presents estimates of error rates and residual risks concerning paying agencies, measures or programmes and MS to have an indication of the actual risk after the implementation of corrective actions.

42. (§56, 9th indent - 2012/PAR/0339) The Parliament asks that a new horizontal report should be prepared on how new preventive and corrective tools are implemented under the 2014-2020 MFF, and assessing any risk from the gap between the final legislation compared to the Commission proposals.

Commission's response:

The new annual horizontal report analysing how the new preventive and corrective tools are and will be implemented under the MFF 2014-2020 can only be made available for the first time as of 2016. Before that, the timing of the adoption of the corresponding legislative acts does not allow for an adequate assessment. The ad hoc "gap assessment" report will be produced once in early 2015 and will show the main differences between the Commission's proposals and the final legislative acts as adopted by the Legislative Authority, and it will identify the potential risks that those differences may entail.

43. (§56, 10th indent - 2012/PAR/0340) The Parliament asks that contradictory and conciliation procedures should be streamlined so that the whole conformity procedure will be shortened to two years in all standard cases as referred to in paragraph 40.

Commission's response:

The Commission is, through the new legal framework of the CAP, is taking actions aiming at streamlining the whole procedure and limiting the risk of unnecessary delays. In particular, deadlines for each step of the procedure are introduced for both Member States and the Commission in the implementing act adopted on 6 August 2014.

However, while there is scope for significantly speeding up the conformity procedure so that in the simplest cases the conformity procedure can be managed in two years, there can be no guarantee that each and every single case can be managed in less than two years. For more complex cases the two phases of the conformity procedure (contradictory followed by conciliation), the respect of the Member State's right to challenge the Commission's findings and the need for the correction to be in proportion to the seriousness of the deficiency will not always make it possible to manage the procedure in less than two years.

The Commission would in this respect also like to point out that the benchmarking referred to in the Art 34 of the draft Implementing Regulation should rather be used as a parameter against which MS and Commission practice is to be assessed.

44. (§56, 11th indent - 2012/PAR/0341) The Parliament asks that, for France and Portugal, comprehensive action plans should be established in the field of agriculture in among other the updating of their LPIS systems as requested in paragraph 44.

Commission's response:

The requested action has been taken. Comprehensive action plans have already been established for both Portugal and France.

For Portugal, the action plan was implemented in 2013. For France, the plan is expected to be completed for claim year 2016. In the meantime, it is closely monitored by the Commission services and the financial risk is fully covered by the ongoing conformity clearance procedures (Cf reply to request 2012/PAR/0320).

45. (§56, 12th indent - 2012/PAR/0342) The Parliament asks for the introduction of a template and recommendations for national management declarations.

Commission's response:

The Commission actively supported the introduction of national declarations during the negotiations of the last revision of the Financial Regulation. As a result of the negotiations, the new Financial Regulation of 25.10.2012 endorsed the concept of additional declarations signed at the appropriate level, i.e. national declarations (Art. 59.5).

Following the conclusion of the legislative deliberations on the financial year 2011, a dedicated working group on national declarations was established to develop recommendations and a template for such national declarations. The group was launched on 16 December 2013 by Commissioner Šemeta, together with MEP Jan Mulder and the Council’s Lithuanian and Greek Presidencies. The documents related to its activities are published at the following URL address: http://ec.europa.eu/budget/biblio/documents/iwgnd/index_en.cfm

The Commission also reported in the ECOFIN meeting of 18 February 2014 on the results achieved by the working group so far. The working group has finalised its work by the end of June 2014 and adopted on June 26 the recommendations for the establishment and use of national declarations. Once adopted by the Commission, the recommendations and templates will be transmitted to the EP, the Council, the European Court of Auditors (ECA) and the national Parliaments.

46. (§56, 13th indent - 2012/PAR/0343) The Parliament asks for limiting the option of replacing projects affected by error with new projects before 15 February n+ 1.

Commission's response:

The regulatory framework for the 2014-2020 period, recently adopted in December 2013 provides for rules for net financial corrections. Legislative proposals for the 2021-2028 period will only be drafted after 2017.

The request calls for a review of the legislation adopted by the European Parliament and Council only in December 2013.

47. (§56, 14th indent - 2012/PAR/0344) The Parliament asks for making better use of RAL and limiting the period covered by pre-financing.

Commission's response:

This is not possible due to the current legal set-up of the various programs. This objective can only be achieved by first modifying the relevant regulations and then by amending each individual agreement. More importantly, it should be underlined that the prefinancing is a tool meant to provide our beneficiaries with a float and to enable them to run the projects they have committed to. If the period covered by prefinancing were to be shorter than the period of the project, then the beneficiary would sooner or later run out of resources and the project in question could eventually fail.

48. (§56, 15th indent - 2012/PAR/0345) The Parliament asks that the Commission should reach binding bilateral agreements with Member States which have attracted particular attention, along the lines of the European Semester.

Commission's response:

As outlined in great detail in letters from President Barroso and Commissioner Semeta regarding the Discharge 2012, the Commission has committed itself already to address weaknesses in Member States. Commissioner Semeta's letter provides a comprehensive outline of instruments and actions put in place to, inter alia, identify Member States with serious systems deficiencies, how to address the problems and how to report on the actions taken. This will be possible within the existing legal framework put in place for the spending programmes under the new financial framework. Different processes are put in place to report on Europe 2020 which is a common endeavour of Member States and the Commission.

49. (§58, §59 - 2012/PAR/0346) The Parliament calls on the Commission to establish a registry for all Union funds going to media in the Member States from the structural funds or agricultural funds including rural development; calls on the Commission to concentrate on those Member States which are vulnerable or conspicuous in this respect.

Commission's response:

The Commission considers that the request is not operational enough in order to be implemented. Under shared management in cohesion policy, the Commission does not have information at project level.

However, for agriculture and rural development, following the European Court of Justice ruling of 9.11.2010 in cases C-92/09 and C-93/09 Volker und Markus Schecke GbR and Hartmut Eifert, the EC has proposed to the European Parliament and Council new provisions on Transparency. These are included in Chapter IV of Regulation (EU) N° 1306/2013 of 17 December 2013). The purpose of the new provisions is to make information about the beneficiaries of CAP payments accessible to the public, together with details about the measures, the nature and purpose of the CAP payments. This will enhance transparency regarding the use of Union funds in the common agricultural policy and will improve the sound financial management of these funds, in particular by reinforcing public control of the money used. In order to cause the least interference with the beneficiaries’ right to respect for their private life in general and to protection of their personal data in particular, a threshold was set up as regards the amount of aid received below which the name of the beneficiary should not be published. The new rules will be applicable to payments made from financial year 2014, as from 31st May 2015.

50. (§60 - 2012/PAR/0347) The Parliament urges the Commission to establish the template for the management declaration as soon as possible; reiterates in this respect the on-going work of the interinstitutional working group on Member State Declarations which for its result is very dependent on the new content of the management declarations.

Commission's response:

The management declarations as foreseen by Art 59 of the Financial Regulation are further defined in the respective sectoral legislation.

For CAP, the template for management declarations is foreseen in Article 3 and Annex I of the "COMMISSION IMPLEMENTING REGULATION (EU) No 1306/2013 of 17 December 2013 laying down rules for the application of point (b) of Article 7(3) of Regulation (EU) No 1306/2013 of the European Parliament and of the Council on the financing, management and monitoring of the common agricultural policy with regard to paying agencies and other bodies, financial management, clearance of accounts, rules on controls, securities and transparency". This implementing act was adopted on 06/08/2014 (C/2014/5461).

For the European Structural and Investment Funds (ESI Funds) the template for a management declaration is foreseen in the "COMMISSION IMPLEMENTING REGULATION (EU) No …/..of XXX laying down additional rules pursuant to Regulation (EU) No 1303/2013 of the European Parliament and of the Council as regards the model for the progress report, the format for submission of the information on a major project, the methodology for carrying out the cost-benefit analysis, the format of the model for the joint action plan, the model for the implementation reports for the Investment for growth and jobs goal, the model for the management declaration, the models for the audit strategy, the audit opinion and the control report and pursuant to Regulation (EU) No 1299/2013 of the European Parliament and of the Council as regards the model for the implementation reports for the European territorial cooperation goal" (inter-service consultation closed in July). This implementing act is to be adopted in accordance with the advisory procedure. It is currently in discussion with the Member States and expected to be adopted in the second semester of 2014.

51. (§61 - 2012/PAR/0348) The Parliament calls on the Commission to monitor the certification process of the national audit authorities in the Member States dealing with repeatedly high error rates more frequently; encourages the Commission to present a communication and legislative proposal to this end.

Commission's response:

The Commission will not be taking the requested action. As regards Structural and Cohesion Funds, the size of error rates is not linked to the reliability of the audit authorities. High error rates can be reported by reliable as well as non-reliable audit authorities. The same holds true for low error rates. The Commission monitors all audit authorities and verifies in particular their independence (condition in the CPR) but audit authorities are not formally subject to a certification process under the CPR. The Commission sees no need for a legislative proposal.

The new reinforced audit strategy in DG AGRI aims to target the weakest links in the assurance chain: deficient management and control systems which perform ineffective first level checks at the level of the paying agencies and which produce unreliable control results at the level of certifying bodies.

52. (§62 - 2012/PAR/0349) The Parliament calls on the Commission to apply Article 32(5) of the Financial Regulation (EU, Euratom) No 966/2012 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.

Commission's response:

The Commission has taken the recommended action and refers to the design of the delivery system for 2014-2020 programming period.

The key elements of the 2014-2020 reform are related to ensuring better spending and better programme governance to ensure a more error-safe environment. This will include increased result orientation and performance, ex-ante conditionalities to be fulfilled at the start of implementation for each programme, simplification, particularly for beneficiaries and harmonised and simplified eligibility rules.

The Common Provisions Regulation for the 2014-2020 programming period also contains reinforced control provisions and requirements compared to the 2007-2013 period that will improve the Member States’ accountability so as to better address errors and ensure legality and regularity of co-financed expenditure each year before certifying the programme accounts to the Commission.

As regards the assessment of the first-level checks for 2007-2013 the Commission considers it is already carrying out such assessment since 2010 through targeted audits on high risk programmes in the frame of its audit enquiry "Bridging the assurance gap". Results of these risk-based audits by end 2013 were submitted to the European Parliament in the context of the 2012 Discharge and are presented in the AAR of DG Regional and Urban Policy (see page 41 and Annex 8).

As regards agriculture, DG AGRI is currently implementing the requirement in Article 59 of the new Financial Regulation that the Certifying bodies have to issue an opinion on the legality and regularity of MS transactions. This new assurance model will reinforce the work of the Certifying bodies and provide the Commission with a much more reliable picture of the quality of MS control activities. In addition, simplification efforts have been put forward through the new CAP for the period 2014-2020, in compliance with sound financial management principles.

53. (§63 - 2012/PAR/0350) The Parliament calls for significant reductions in those reporting requirements and control densities for Member States that operate permanently with very low error rates; encourages the Commission to present a communication including an efficient and effective control policy to this end, allowing for more resources to be made available for control measures in and for countries with high error rates.

Commission's response:

The Commission considers that the reliability of the reported error rates is as important as the reported error rate itself in order to evaluate the functioning of the systems and to decide where to focus the audit activity on. See also reply to 2012/PAR/0348. As regards the called for reduction of control densities, this option is already provided for in the area of agriculture (Art 41 of the draft Implementing Regulation, detailing the rules already enshrined in Art 59(5) of Regulation (EU) No 1306/2013, on the financial management of the CAP provides for the cumulative conditions to be met for a reduction in the number of on-the-spot-controls).

54. (§64 - 2012/PAR/0351) The Parliament urges the Commission to tackle the problem of 'frontmen' being used for the purpose of obtaining public contracts and calls for every stage of public procurement procedures to be published on Internet, ensuring maximum transparency, and identifying subcontractors also.

Commission's response:

Les mesures ont déjà été prises en ce sens: les nouvelles directives sur les marchés publics 2014/24/UE et 2014/25/UE augmentent déjà la transparence puisque:

• dès le début de la procédure, tous les documents y relatifs doivent être disponibles électroniquement;

• pour tous les services relevant des directives, il existe maintenant une obligation de publication ex-ante et ex-post;

• une fois le contrat octroyé, il existe l'obligation de communiquer les noms et adresses des sous-traitants des services et travaux qui sont fournis dans les locaux placés sous la surveillance directe des pouvoirs adjudicateurs.

Il est à noter que les directives 2014/24/UE et 2014/25/UE sont entrées en vigueur le 17 avril 2014 et que les Etats membres disposent d'un délai de 2 ans pour les transposer en droit national (au plus tard jusqu'au 18 avril 2016).

Toutefois, la Commission ne peut accepter l'exigence de la publication sur internet à chaque étape des procédures de passation de marché public, car celle-ci irait à l'encontre de la simplification administrative recherchée par les directives elles-mêmes.

With regard to the Concessions Directive 2014/23, new rules contain obligation to ensure free of charge and unrestricted access to all concessions documents on-line (since the moment of publication of concession notice or invitation to tender).

55. (§65 - 2012/PAR/0352) The Parliament calls on the Commission to examine its internal shared management arrangements and make recommendations to the European Parliament regarding the appointment of Union officials at the head of national payment, management and audit authorities in the Member States with responsibility for the disbursement of Union funds.

Commission's response:

Member States have the task to appoint the heads of national authorities. The request would violate the principles of shared management and subsidiarity and interfere with the autonomy of national public administrations. For Regional policy, a task force was already set up to help administrations in Greece and Portugal. DG REGIO also provides financial management and control training seminars on the 2014-2020 programming period to MS' authorities. Also underway are anti-fraud and anti-corruption seminars targeting certain MS in particular. Another initiative is the guidance on how to avoid the most common errors linked to public procurement.

As regards Agriculture, DG AGRI services regularly meet with representatives of the Learning Network of Directors of Paying Agencies and Coordination bodies to examine various technical aspects related to the management and control of CAP instruments. At the annual conference of the directors of the Paying Agencies, organized by DG AGRI, DG AGRI auditors inform of their own most common audit findings and present the findings of the Court of Auditors. Such presentations are also made on the occasion of similar biannual conferences organized by the Presidency. Moreover, DG AGRI's anti-fraud advisor regularly gives anti-fraud seminars at paying agencies. Moreover, as of 2014, DG AGRI has created a new unit specifically dedicated to providing MS with advice and support in the implementation of direct payment schemes.

The Court of Auditors' Statement of Assurance

56. (§70 - 2012/PAR/0353) The Parliament calls for a figure to be put on the risk of the above amount [amounts to be called from MSs for staff pensions] not being made available, in the light of the Member States’ financial positions; proposes that consideration should be given to setting up a Community pension fund in order to get these financial commitments vis-à-vis staff off the balance sheet.

Commission's response:

As replied in previous years, the accounting practice described has been used since the introduction of the accruals based accounts in the EU entities. Applying a different method would unavoidably lead to a negative DAS for the accounts because it is not in line with the International Public Sector Accounting Standards. Pension liability is a widely spread concept with international definition from which it is not for the Commission to depart. As regard the suggestion to create of an actual pension fund, it should be recalled that the Union pension scheme is based on the same actuarial principles as an actual pension fund. The possible creation of an actual pension fund has also been addressed, amongst other policy aspects, in the context of the Report from the Commission to the Council on the Pension Scheme of European Officials and Other Servants of the European Union (COM (2012) 37 final, available at this link). In particular, Section 4.7 presents several possible different implementation options, with estimates of the related budgetary implications.

57. (§94 - 2012/PAR/0354) The Parliament calls on the Commission to supply country-specific information in the appropriate depth and on the basis of meaningful time series.

Commission's response:

The communication on the protection of the EU budget will provide amounts broken down per Member States.

58. (§96 - 2012/PAR/0355) The Parliament asks the Commission to provide Parliament and the Council with precise amounts [concerning financial corrections and recoveries] and the use made thereof in this regard in the next communication on the protection of the Union budget for the financial year 2013.

Commission's response:

This will be included in the communication on the protection of the EU budget in September 2014.

59. (§100 - 2012/PAR/0356) The Parliament encourages the Commission to present information reconciling as far as possible the year in which payment is made, the year in which the related error is detected and the year in which recoveries or financial corrections are disclosed in the notes to the accounts.

Commission's response:

The EP has requested this already in the past and the Commission has explained the technical circumstances that hinder such a reporting. Due to the cumulative feature of payment applications under cohesion policy, projects expenditure can be spread over many years.

The Commission is committed to improving the information provided on the protection of the EU budget but regarding the request to link recoveries or financial corrections to the year of the original payment or detection, it has to be noted that it is seldom possible as expenditure is controlled several years after the actual year of a given payment. Additionally, in shared management, the differences in the timing of financial corrections and actual recoveries on one side, and error rates on the other, also prevent this reconciliation. This is also relevant for direct management where recovery orders are issued after the end of the – often multiannual – grant period.

In the area of Agriculture, reconciliations of payments with declared expenditure and recoveries/financial corrections are carried out by the Certifying Bodies during the annual financial clearance of accounts.

60. (§102 - 2012/PAR/0357) The Parliament calls on the Commission to develop a joint approach among the directorates-general with regard to establishing amounts at risk.

Commission's response:

The Commission has provided a definition of the concept of amount at risk in the 2013 Synthesis report COM(2014)342 final.

61. (§103 - 2012/PAR/0358) The Parliament urges the Commission to adequately protect the Union budget and finds the average level of past financial corrections and recoveries encouraging.

Commission's response:

The Commission will continue to improve the application of financial corrections and recoveries. This issue has also been addressed in the 2013 Synthesis report.

62. (§104 - 2012/PAR/0359) The Parliament considers that the comparison made by the Commission’s Synthesis Report of the total for ‘amounts at risk’ with the average level of financial corrections over the last years should be put into context.

Commission's response:

The Commission has provided information on this aspect in the 2013 Synthesis report.

63. (§105 - 2012/PAR/0360) The Parliament regrets that the Commission continues to ignore Parliament's long standing request to add the individual Commissioner's signature to the annual activity reports of his/her related Directorate-General for which he/she is responsible; notes that the synthesis report is adopted by the College of Commissioners, but deems this unsatisfactory in the light of democratic accountability principles.

Commission's response:

The AAR is established in compliance with the FR which stipulates that the Authorising Officer by Delegatio