OPINION 4. We have audited: (a) the accounts of the Institute which comprise the financial statements (5) and the reports on the implementation of the budget (6) for the financial year ended 31 December 2016; and (b) the legality and regularity of the transactions underlying those accounts; as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). Reliability of the accounts Opinion on the reliability of the accounts 5. In our opinion, the accounts of the Institute for the year ended 31 December 2016 present fairly, in all material respects, the financial position of the Institute at 31 December 2016, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with its Financial Regulation and with accounting rules adopted by the Commission’s accounting officer. These are based on internationally accepted accounting standards for the public sector. Legality and regularity of the transactions underlying the accounts Revenue Opinion on the legality and regularity of revenue underlying the accounts 6. In our opinion, revenue underlying the accounts for the year ended 31 December 2016 is legal and regular in all material respects. Payments Opinion on the legality and regularity of the payments underlying the accounts 7. In our opinion, payments underlying the accounts for the year ended 31 December 2016 are legal and regular in all material respects. Responsibilities of management and those charged with governance 8. In accordance with Articles 310 to 325 of the TFEU and the Institute’s Financial Regulation, management is responsible for the preparation and presentation of the accounts on the basis of internationally accepted accounting standards for the public sector and for the legality and regularity of the transactions underlying them. This responsibility includes the design, implementation and maintenance of internal controls relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Institute’s management bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts. 9. In preparing the accounts, management is responsible for assessing the Institute’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. 10. Those charged with governance are responsible for overseeing the entity’s financial reporting process. Auditor’s responsibilities for the audit of the accounts and underlying transactions 11. Our objectives are to obtain reasonable assurance about whether the accounts of the Institute are free from material misstatement and the transactions underlying them are legal and regular and to provide, on the basis of our audit, the European Parliament and the Council or other respective discharge authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the transactions underlying them. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit will always detect a material misstatement or non-compliance when it exists. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these accounts. 12. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and the regularity of the transactions underlying them. The procedures selected depend on the auditor’s judgment, including an assessment of the risks of material misstatement of the accounts and of material non-compliance of the underlying transactions with the requirements of the legal framework of the European Union, whether due to fraud or error. In making those risk assessments, internal controls relevant to the preparation and fair presentation of the accounts and legality and regularity of underlying transactions, are considered in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the accounts. 13. For revenue, we verify the subsidy received from the Commission and assess the Institute’s procedures for collecting fees and other income, if any. 14. For expenditure, we examine payment transactions when expenditure has been incurred, recorded and accepted. Advance payments are examined when the recipient of funds provides justification for their proper use and the Institute accepts the justification by clearing the advance payment, whether in the same year or later. 15. In preparing this report and Statement of Assurance, we considered the audit work of the independent external auditor performed on the Institute’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (7). Other matter Significant shortcomings of KIC Legal Entities (KIC LEs) procurement procedures 16. The coordination and representation of the KICs is carried out by KIC LEs which are almost fully financed by the Institute. The Court in its audit gave particular attention to the procurement procedures carried out by these entities which it considers to be a high-risk area. 17. Under the 2015 Grant Agreements (GA) KIC LEs and/or KIC Partners must ensure that any procurement achieves best value for money or, where appropriate, is made at the lowest possible price. For all contracts exceeding 60 000 euro, the GA stipulates that KIC LEs and/or KIC Partners have to invite at least three economic operators for tender and to document the procurement procedure demonstrating its transparency. The Court audited a sample of procurement procedures for a value of some 7 million euros carried out by KIC LEs which were fully financed by the EIT. The audit showed significant weaknesses such as direct award of contracts, absence of essential elements in tenders, significant extensions of initial contracts in time and/or volume, contracts unlimited in time and/or volume or quality/price weightings neutralising competition on price. The 2016 payments related to these irregular procurement procedures amounted to 2,2 million euro. The Institute had also identified the procurement weaknesses for one KIC LE and put in place an action plan to improve all KIC LEs’ future procurement procedures. 18. There is currently legal uncertainty as to whether KIC LEs represent contracting authorities (8). If this was the case, they would be required to apply public procurement rules as laid down in the Public Procurement Directive 2004/18/EC (9) (Directive) which are stricter than those required under the GA. The Institute, together with the Commission’s services, is discussing the matter in order to achieve legal certainty for KIC LEs in the future. Capacity to deal with the expanded workload 19. Despite the large increase in the budget from 309 million euro (2008-2013) to 2,4 billion euro (2014-2020) and the rise of KICs from three to six at the end of 2016, the Institute’s authorised number of posts did not change significantly (see Table 2). The Court in its Special Report 04/2016 (10) pointed to the risk that the Institute will not have sufficient capacity to deal with the expanded workload. The Institute’s interim Director referred to this risk in the Institute’s Annual Activity Report for the year 2015.