Special Report No 22/2000 on evaluation of the reformed clearance of accounts procedure, together with the Commission's replies
Date: 2000-11-29
Institutions: European Court of Auditors
Subjects: EU Member State, budgetary control, closing of accounts, common agricultural policy

2.3.2001

EN

Official Journal of the European Communities

C 69/1

I

(Information)

COURT OF AUDITORS

on evaluation of the reformed clearance of accounts procedure, together with the Commission’s
replies

SPECIAL REPORT No 22/2000

(pursuant to Article 248(4), second subparagraph, EC)

(2001/C 69/01)

CONTENTS

Paragraph

Page

LIST OF ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A brief history of the clearance of accounts procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ACCREDITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number and nature of paying agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-8

1

2-8

9-23

9-12

Failure to meet the accreditation criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13-23

The criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Internal control

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Delegation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE CERTIFYING BODIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Auditing standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sample size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Error evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Local offices and on-the-spot controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualification of accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

14-16

17-18

19-22

23

24-52

24-27

28-30

31-32

33-47

33-35

36

37-39

40-41

42-47

48-50

51-52

3

4

5

5

6

6

6

9

9

9

9

9

10

12

12

13

13

13

13

15

15

15

15

16

17

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Paragraph

Page

CONFORMITY DECISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE CONCILIATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Role of the Conciliation Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Performance measurement of the Conciliation Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The four-month deadline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Why corrections are contested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The European Court of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CLEARANCE DECISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corrections as a performance indicator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Disjunctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Late payments to beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53-54

55-73

55-59

60-61

62-68

63-64

65-68

69-70

71-73

74-86

74-80

81

82-84

85-86

87-91

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

19

19

19

19

19

20

20

21

21

21

23

23

23

23

25

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LIST OF ABBREVIATIONS

Azienda di Stato per gli Inteventi nel Mercato Agricolo

Agrarmarkt Austria

Common agricultural policy

Centre National pour l’Aménagement des Structures des Exploitations Agricoles

Direzione Compartimentale delle Contabilitá Centralizzate

Direction départementale de l’agriculture et de la forêt

Directorate-General

Department of Marine and Natural Resources

European Agricultural Guidance and Guarantee Fund

Electronic data processing

Ente Nazionale Risi

Fondo Español de Garantia Agraria

Fonds d’intervention et de régularisation du marché du sucre

AIMA

AMA

CAP

Cnasea

DCCC

DDAF

DG

DMNR

EAGGF

EDP

ENR

FEGA

FIRS

Gedidagep

Directorate-General for the Administration of Purchases of Agricultural Produce

IACS

IAS

IFAC

Ifadap

INGA

ISA

LASER

MLE

MUS

Ofival

OLAF

RRV

SDE

UEL

Integrated administrative control system

International Audit Standards

International Federation of Accountants

Instituto do Financiamento e Apoio ao Desenvolvimento da Agricultura e Pescas

Instituto Nacional de Intervenção e Garantia Agricola

International Standards on Auditing

Dienst Landelijke Service Regelingen

Most likely error

Monetary unit sampling

Office national interprofessionnel des viandes, de l’elevage et de l’aviculture

European Anti-fraud Office

Riksrevisionverket

Services déconcentrés de l’Etat

Upper error limit

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SUMMARY

Context

The purpose of this Report is to evaluate the operation of the
reformed clearance of accounts system that was introduced in
1996 to overcome the problem of long delays between the clo-
sure of the accounts, their clearance by the Commission and the
discharge given by the budgetary authorities. The main features of
this reformed system are the accreditation of paying agencies by
the Member States and an annual certification of their accounts
by a body appointed by the Member States resulting in a financial
clearance decision taken in April of the following year. The cer-
tificate must state whether the Certifying Body has gained reason-
able assurance that the paying agency’s accounts are true, com-
plete and accurate. Compliance of payments with Community
rules is only covered as regards the capability of the paying agen-
cy’s administrative structure to ensure that such compliance has
been checked before a payment is made. Corrections based upon
the Commission’s own examination of compliance aspects are
included in later conformity decisions. Member States have the
opportunity to contest the corrections proposed by the Commis-
sion before the Conciliation Body and, whether or not they choose
to do so, have the right to appeal to the European Court of Justice.

within the deadlines laid down. The quality of these reports has
improved considerably since 1996 and accounts have been quali-
fied where necessary. Whilst the number of accounts qualified has
diminished over the period, for 1998 almost one third of the total
expenditure was declared by paying agencies whose accounts were
qualified (see paragraph 51).

The conciliation procedure

Recourse to the Conciliation Body has given Member States the
opportunity to contest proposed corrections. This has led to an
overall reduction in corrections of some 275 million euro (see
paragraph 65). Nevertheless, the Conciliation Body has largely
failed to conciliate the opposing views of the Commission and the
Member States (see paragraph 65). The Conciliation Body should
take a clear position on all cases presented to it and come up with
concrete suggestions with regard to the level of correction that
should be applied. The Commission should accept these sugges-
tions unless it can clearly demonstrate that the Conciliation Body
is mistaken. This might result in more final settlements and fewer
cases before the European Court of Justice (see paragraph 71).

Accreditation

Clearance decisions

There are still too many paying agencies (91 in 1998 reduced to
86 in September 2000) and the number is likely to increase as a
result of regionalisation in Italy (see paragraph 10). Some paying
agencies are not distinct (see paragraph 9) and too many fail to
meet all of the accreditation criteria (see paragraphs 14 to 22).
Despite this, Member States have not withdrawn their accredita-
tion and the Commission has resorted to the application of sanc-
tions for Portugal and Greece (see paragraph 23).

The total amount of corrections for a given year is lower under
the reformed system than it was under the old (see paragraph 74).
This is partly due to the fact that the data are still not complete.
Other reasons are: the impact of better pre-payment controls
(IACS); the 24-month rule; errors found by the Certifying Bodies
are not used as the basis for corrections if the Member States have
taken appropriate action; the effect of the Conciliation Body.

The Certifying Bodies

Although at least four Certifying Bodies had failed to comply with
the independence requirement (see paragraph 29), this problem
was subsequently resolved by the Commission. In many cases the
audit documentation held by the Certifying Bodies has not met
internationally accepted auditing standards (see paragraphs 31
and 32). The information concerning sampling provided by the
Certifying Bodies was particularly deficient in this respect. Error
definition and classification has not been uniform, extrapolation
was either not performed at all or was often wrongly calculated
(see paragraphs 33 to 47). Inappropriate use has also been made
of paying agencies’ internal audit resources for certification work.

Despite these shortcomings, the Certifying Bodies have generally
succeeded in their task of producing reports and certificates

It has not been possible for the Commission to clear all paying
agency accounts in the April financial decision. Significant
amounts had to be disjoined in 1996 (see paragraph 81). For the
first year of the reformed system (1996) more than three years
have passed and the final conformity decision has yet to be taken.

Conclusion

There is no evidence that the reformed clearance procedure has
accelerated the overall timescale for clearing the expenditure in
both financial and conformity terms for a given EAGGF year. Nev-
ertheless, the reform of the clearance procedure has resulted in
improved accountability at Member State level and should be
regarded as a considerable achievement (see paragraph 90).

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INTRODUCTION

Objectives

1. The purpose of this Report is to evaluate the operation of the
reformed clearance of accounts (1) system generally, with particu-

lar emphasis on the work of the Certifying Bodies and the concili-
ation procedure. The Court has previously examined certain fea-
tures of this system, in particular the accreditation of paying agen-
cies in the context of the 1996 clearance of accounts (2). The
period covered relates to EAGGF years 1991 to 1998 inclusive but
does not analyse the clearance decisions per se since the Court’s
findings in this respect are included in its annual reports and
other publications Table 1).

Clearance decisions and delays in respect of EAGGF years 1991 to 1998

Table 1

Financial year

Decision (1)

OJ

Delay (2)

Court Reports/
Opinions

OJ

1991

1992

1993

94/281/EC
94/871/EC

96/311/EC
96/701/EC

96/311/EC
97/333/EC
97/608/EC

1994

98/358/EC

1995

1996

1999/187/EC
1999/596/EC
2000/197/EC

F1 97/316/EC
F2 97/609/EC
C1 1999/186/EC
C2 1999/350/EC
C3 1999/603/EC
C4 2000/216/EC

29.4.1994
21.12.1994

10.4.1996
20.11.1996

10.4.1996
23.4.1997
30.7.1997

6.5.1998

3.2.1999
28.7.1999
1.3.2000

5.5.1997
30.7.1997
3.2.1999
4.5.1999
28.7.1999
1.3.2000

L 120, 11.5.1994, p. 59
L 352, 31.12.1994, p. 82

L 117, 14.5.1996, p. 19
L 323, 13.12.1996, p. 26

L 117, 14.5.1996, p. 19
L 139, 30.5.1997, p. 30
L 245, 9.9.1997, p. 20

3 years

Opinion No 6/95 C 338, 11.11.1996

4 years

SR No 1/97

C 52, 21.2.1997

3,5 years

SR No 1/97
SR No 2/98
SR No 2/98

C 52, 21.2.1997
C 121, 20.4.1998

L 163, 6.6.1998, p. 28

3,5 years

AR 1998

C 349, 3.12.1999, para-
graphs 2.63 to 2.77

L 61, 10.3.1999, p. 37
L 226, 27.8.1999, p. 26
L 61, 8.3.2000, p. 15

L 138, 29.5.1997, p. 24
L 245, 9.9.1997, p. 25
L 61, 10.3.1999, p. 34
L 133, 28.5.1999, p. 60
L 234, 4.9.1999, p. 6
L 67, 15.3.2000, p. 37

4 years

6 months
3 months

AR 1999
AR 1999
AR 2000

SR No 21/98

C 389, 14.12.1998

more than 3 years AR 1999
AR 1999
AR 1999
AR 2000

1997

F1 98/324/EC

29.4.1998

L 141, 13.5.1998, p. 38

6 months

AR 1998

F2 1999/151/EC
C1 1999/186/EC
C2 1999/350/EC
C3 1999/603/EC
C4 2000/216/EC

10.2.1999
3.2.1999
4.5.1999
28.7.1999
1.3.2000

L 49, 25.2.1999, p. 42
L 61, 10.3.1999, p. 34
L 133, 28.5.1999, p. 60
L 234, 4.9.1999, p. 6
L 67, 15.3.2000, p. 37

10 months

more than 2 years AR 1999
AR 1999
AR 1999
AR 2000

1998

F1 1999/327/EC

30.4.1999

L 124, 18.5.1999, p. 28

6 months

AR 1998

F2 2000/179/EC
C2 1999/350/EC
C3 1999/603/EC
C4 2000/216/EC

14.2.2000
4.5.1999
28.7.1999
1.3.2000

L 57, 2.3.2000, p. 31
L 133, 28.5.1999, p. 60
L 234, 4.9.1999, p. 6
L 67, 15.3.2000, p. 37

10 months

AR 1999
AR 1999
AR 1999
AR 2000

C 349, 3.12.1999, para-
graphs 2.78 to 2.102

C 349, 3.12.1999, para-
graphs 2.54 and 2.55

(1) F: financial decision.

C: conformity decision.

(2) Till 1995 included, from year end (15.10.xxxx) to final decision date;

from 1996 on, from year end (15.10.xxxx) to the date of the first financial decision, then delay between the first and the second financial decisions and from year end
(15.10.xxxx) to the date of the last conformity decision regarding that EAGGF financial year.

(1) Under the common agricultural policy, it is the task of the Member
States to ensure that payments are correctly made under suitably tight
control mechanisms. Under this regime, virtually 100 % of expendi-
ture is in the hands of the Member States, with the Commission hav-
ing to fill the role of an honest and impartial quality assurer. In the
event that the Commission finds that incorrect payments have been
made, it requests the recovery of excess sums under a procedure
called the ‘clearance decision’. The Member State concerned can either
accept this decision or challenge it bilaterally, with the Conciliation
Body or if this fails before the European Court of Justice, which acts
as a final arbiter (PE 285.788/A).

(2) Special Report No 21/98 concerning the accreditation and certifica-
tion procedure as applied to the 1996 clearance of accounts for
EAGGF-Guarantee expenditure (OJ C 389, 14.12.1998).

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A brief history of the clearance of accounts procedure

ments with Community rules is only covered as regards the capa-
bility of the paying agencies’ administrative structure to ensure
that such compliance has been checked before a payment is made.

2. Prior to 1996, the clearance of accounts decision was based
mainly on audits done by a specific unit within the Commission’s
Directorate-General for Agriculture, focused on the implementa-
tion of measures in the Member States. Although there were no
audits of the paying agencies as such and their accounts were not
subject to certification, these audits could lead to corrections of
the expenditure declared by the Member States. When all the cor-
rections for a given EAGGF year were known they were included
in a single clearance of accounts decision taken by the Commis-
sion. These procedures led to long delays in making clearance
decisions.

3.
In April 1991, the Commission set up a working party to sug-
gest how the clearance of accounts system might be reformed.
The working party report of October 1992 (referred to as the
‘Belle’ report, after its chairman) paved the way for the introduc-
tion of two fundamental changes: separate financial and confor-
mity decisions and the introduction of a conciliation procedure.
It advocated a prevention rather than punishment philosophy and
greater cooperation and partnership between the Member States
and the Commission. It was the intention that this reformed pro-
cedure would come into operation with reference to the 1992
EAGGF year but with the exception of the conciliation procedure,
its introduction was delayed until 1996.

4. The reforms were contained in an amendment to Council
Regulation (EEC) No 729/70 (1) concerning the financing of the
CAP. In its opinion of December 1994 on the proposed amend-
ments (2), the Court expressed its commitment to the principle of
a single, annual clearance decision whilst at the same time recog-
nising the problems associated with the extant system, namely
long delays in the clearance decision and weaknesses in internal
control. The Court considered that the new split decision system
was a compromise rather than a solution to the clearance prob-
lems. It recommended a degree of prudence and suggested that it
should be trialled and subjected to a full evaluation by the Com-
mission before 31 December 1998.

6. The Belle report recommended that the Commission should
be responsible for the accreditation of the paying agencies and the
approval of the appointment of the Certifying Bodies but the
Council did not accept the Commission’s proposal.

7. Detailed rules for the application of the reformed clearance
procedures were laid down in Commission Regulation (EC)
No 1663/95 (4). This Regulation provides a guideline, in the form
of an Annex, for the criteria that should be taken into account by
Member States when accrediting a paying agency and the nature
and tasks of the Certifying Body. The Certifying Body must pro-
duce a report and a certificate for each paying agency by 31 Janu-
ary of the following year. The certificate, report and accounts
must be submitted to the Commission by 10 February. The Com-
mission has until 31 March to verify this information and inform
the Member States of its position.

8. On the basis of this information the Commission must take a
financial clearance decision no later than 30 April. Article 5(2)(b)
of Regulation (EEC) No 729/70 (5) states that the financial deci-
sion shall cover the ‘integrality, exactitude and veracity of the
accounts submitted’. Article 5(2)(c) empowers the Commission to
decide on expenditure that is to be excluded from Community
financing because it does not comply with Community rules.
Such conformity (also known as compliance) decisions are not
subject to any deadline but the corrections can only be applied
retrospectively for a maximum of two years (6) preceding written
notification to the Member State concerned.

ACCREDITATION

Number and nature of paying agencies

5. The proposal became Council Regulation (EC) No 1287/95 (3).
The Court’s suggestion of a trial period and consequent need for
an evaluation was not adopted. The main changes were the
accreditation of paying agencies by the competent authorities in
the Member States and the annual certification of paying agency
accounts, which forms the basis for the Commission’s financial
clearance decision. The certificate must state whether the Certify-
ing Body has gained reasonable assurance that the paying agen-
cy’s accounts are true, complete and accurate. Compliance of pay-

9. Article 4 of Regulation (EEC) No 729/70 states in general
terms what is required for a paying agency to be accredited but
does not specify what form paying agencies should take, merely
that they be ‘authorities and bodies of the Member States’
(Article 4(1) of Regulation (EEC) No 729/70). Only the Member
States can accredit paying agencies. For the most part, paying
agencies are independent structures organised along market lines
(France, Netherlands) or on a geographical basis (Germany, Spain,
Austria). In some Member States there is only one paying agency

(1) Council Regulation (EEC) No 729/70 of 21 April 1970 on the financ-

(4) Commission Regulation (EC) No 1663/95 of 7 July 1995 (OJ L 158,

ing of the CAP (OJ L 94, 28.4.1970, p. 13).
(2) Opinion No 5/94 (OJ C 383, 31.12.1994).
(3) Council Regulation (EC) No 1287/95 of 22 May 1995 (OJ L 125,

8.6.1995, p. 1).

8.7.1995, p. 6).

(5) Council Regulation (EEC) No 729/70 of 21 April 1970 as amended

by Regulation (EC) No 1287/95 (see footnote 3).

(6) Fraud cases are not subject to this time limit.

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(Denmark, Greece, Sweden) or one general agency with a few
much smaller specialised agencies (Belgium, Italy, Portugal). In
some cases the paying agency is amorphous in that it consists of
an entire ministry (Ireland, Luxembourg, Finland, United King-
dom). This can lead to problems in determining whether or not
local offices should be treated as delegated bodies. In Germany
(Bavaria, Baden-Württemberg), the paying agency is a specific
unit or a number of specific units (Bavaria) but the accreditation
concerns the Ministries as a whole and has implications for the
independence of the Certifying Body.

10. The same article requires the Member States to limit the
number of paying agencies to the minimum necessary. The Court
has previously expressed its concern over the increasing number
of paying agencies and the scope for rationalisation (Special
Report No 21/98 (1) and more recently Annual Report 1998 (2)).
Austria has closed three small paying agencies but in other Mem-
ber States, 16 paying agencies declared less than 10 million euro
in 1998. In 1998, there were 91 paying agencies (Table 2). This

number has decreased to 86 in 2000, but Italy has declared that
it intends to establish (up to 20) regional paying agencies. Given
the already difficult task of the clearance of accounts unit, which
is required to examine and assess 90 reports in the space of six
weeks (mid February until the end of March), further prolifera-
tion will require the Commission either to dedicate more resources
to this task or risk diluting its coverage and/or delaying its finan-
cial clearance decision beyond the regulatory deadline.

11. Although the regulations do not explicitly say so, accredita-
tion is, by its nature, non-transferable. The Commission should
therefore insist that when the new paying agencies take over from
AIMA in Italy and Gedidagep in Greece (3), all are subject to the
accreditation procedure.

12.
In Ireland a new paying agency, DMNR, made payments of
33 million euro during 1998 but was not accredited until Decem-
ber of that year.

(1) See footnote 2 on page 5.
(2) OJ C 349, 3.12.1999.

(3) Greece has undertaken to completely reform its paying agency.
Amongst other changes, the olive oil agency and the various Boards
(cotton, tobacco and milk) will be abolished. A revamped and con-
siderably reinforced paying agency (1 700 staff) will replace Gedid-
agep and a public Certifying Body will be created (50 staff).

C 69/8

EN

Official Journal of the European Communities

2.3.2001

Table 2

Paying agencies and their Certifying Bodies

Number

Member State

Paying agency

Certifying Body

1
2
3
4
5
6
7
8
9

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91

F
I
EL
UK
E
IRL
F
DK
UK

D
A
E
F
D
S
F
F
E
E
F
D
B
S
D
P

UK
NL
E
I
NL
D
E
NL
D
F
D
D
D
B
E
UK
D
D
UK
D
D
F
NL
E
F
E
D
F
P
E
D
F
E
I
A
NL
E
E
E
IRL
E
E
L
E
E
UK
D
D
F
D
NL
D
UK
D
D
NL
D
D
B
A
A
B
E
NL
NL
A

ONIC
AIMA
Gedidagep
MAFF
Andalucía
DAF
SIDO
EU-Direktoratet
IBEA

BLE
AMA
FEGA
Onilait
Bayern StMELF
SJV
Ofival
Services déconcentrés du Trésor
Castilla-La Mancha
Castilla y León
FIRS
Hamburg-Jonas
BIRB
MMM
Niedersachsen MELF
INGA

SOAEFD
PZ
Extremadura
DCCC
HPA
Mecklenburg-Vorpommern LM
Aragón
LASER
Sachsen-Anhalt ML
Oniflhor
Brandenburg MELF
Baden-Württemberg MLR
Sachsen
Ministerie van Landbouw (DG3)
Cataluña
WOAD
Nordrhein-Westfalen Westfalen
Schleswig-Holstein MELFF
DANI
Thüringen TLVwA
Hessen HMILFN
Cnasea
PVE
Canarias
SAV
Valencia
Rheinland-Pfalz MWVLW
Odeadom
Ifadap
Navarra
Nordrhein-Westfalen Rheinland
Onivins
Galicia
ENR
ZA Salzburg
PT
Murcia
Madrid
Asturias
DMNR
País Vasco
La Rioja
Ministère de l’agriculture
Cantabria
Baleares
FC
Saarland MUEV
NordrheinWestfalen LfBJ
FIOM
Bayern StMLU
DLG
Hamburg WB
CCW
Berlin SenWiTech
Nordrhein-Westfalen LfA
STOAS
Schleswig-Holstein MNU
Bremen
Organisme payeur de la Région wallone
BMLF Abt VI. B.8 (Wien)
Landesamt Tirol
Vlaamse Gemeenschap
FROM
PVis
MVO
Landesamt Vorarlberg

Total

CCCOP (2)
Reconta Ernst & Young (2)
DRM Stylianou SA (2)
NAO (2)
IG de Consejería de Economía y Hacienda /PWC
Arthur Andersen (2)
CCCOP
Internal Audit Unit
NAO

Bescheinigende Stelle/Innenrevision
BMLF revision (2)
Interventor Delegada del Ministério de Economía
CCCOP
Bescheinigende Stelle/Innenrevision (2)
RRV (2)
CCCOP
CCCOP (2)
IG de Consejería de Economía y Hacienda /PWC (2)
IG de Consejería de Economía y Hacienda (2)
CCCOP (2)
Bescheinigende Stelle
Ernst & Young
Coopers & Lybrand
Bescheinigende Stelle/Innenrevision
IGF(+Auditoria internado INGA+Auditoria do
Ministério da Agricultura) (2)
NAO
Accountantsdienst (AD) (2)
IG de Consejería de Economía y Hacienda
Ragioneria Provinciale dello Stato (2)
Accountantsdienst (AD) (2)
Bescheinigende Stelle/Innenrevision
IG de Diputación General de Aragón
Accountantsdienst (AD) (2)
Bescheinigende Stelle/Innenrevision
CCCOP (2)
Bescheinigende Stelle/Innenrevision
Bescheinigende Stelle/Innenrevision (2)
Bescheinigende Stelle/Innenrevision
Ernst & Young
IG de Consejería de Economía y Hacienda /DT (2)
NAO
Bescheinigende Stelle/Innenrevision
Bescheinigende Stelle/Innenrevision
NAO
Bescheinigende Stelle/Innenrevision (2)
Bescheinigende Stelle/Innenrevision
CCCOP (2)
Accountantsdienst (AD) (2)
IG de Consejería de Economía y Hacienda
CCCOP
IG de Consejería de Economía y Hacienda
Bescheinigende Stelle/Innenrevision
CCCOP
IGF+ Auditoria interna
IG de Consejería de Economía y Hacienda
Bescheinigende Stelle/Innenrevision
CCCOP
IG de Consejería de Economía y Hacienda /PWC
Coopers & Lybrand (2)
Team from Ministry of Finance (2)
Accountantsdienst (AD)
IG de Consejería de Economía y Hacienda
IG de Consejería de Economía y Hacienda /DT
IG de Consejería de Economía
Arthur Andersen
IG de Consejería de Economía y Hacienda
IG de Consejería de Economía y Hacienda
Deloitte & Touche
IG de Consejería de Economía y Hacienda
IG de Consejería de Economía
NAO
Bescheinigende Stelle/Innenrevision
Bescheinigende Stelle/Innenrevision
CCCOP
Bescheinigende Stelle/Innenrevision
Accountantsdienst (AD)
Bescheinigende Stelle/Innenrevision
NAO
Bescheinigende Stelle/Innenrevision
Bescheinigende Stelle/Innenrevision
Accountantsdienst (AD)
Bescheinigende Stelle/Innenrevision
Bescheinigende Stelle/Innenrevision
Direction budgétaire
BMLF revision
Prüfdienst des Buchhaltung des Amtes
Afd. Accounting
Interventor Delegada del Ministério de Economía
Accountantsdienst (AD)
Accountantsdienst (AD)
Abteilung Gebarungskontrolle des Amtes

(1) BP B1-3 7 0 adjustments not included for the Member States which do not deduct them automatically.
(2) Certifying Bodies’ work examined by the Court.

Type

Public
Private
Private
NA body
Mixed
Private
Public
Public
NAbody

Public
Public
Public
Public
Public
NA body
Public
Public
Mixed
Public
Public
Public
Private
Private
Public
Public

NA body
Public
Mixed
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Private
Mixed
NA body
Public
Public
NA body
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Mixed
Private
Public
Public
Mixed
Mixed
Public
Private
Public
Public
Private
Public
Public
NA body
Public
Public
Public
Public
Public
Public
NA body
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public
Public

Fees

Free
Paid
Paid
Paid

Paid
Free
Free
Paid

Free
Free
Free
Free
Free
Free
Free
Free

Free
Free
Free
Paid
Paid
Free
Free

Paid
Free

Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Paid

Paid
Free
Free
Paid
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free

Paid
Free
Free

Free
Paid
Free
Free
Paid
Free
Free
Paid
Free
Free
Free
Free
Free
Free
Paid
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free
Free

Amounts declared
in mio EUR (1)

% of total

4 183,05
3 965,74
2 525,45
2 212,10
1 650,21
1 585,69
1 424,00
1 163,52
1 059,40
19 769,16
939,04
784,72
782,93
773,47
764,27
747,06
714,27
710,48
673,79
664,15
597,11
591,10
580,52
577,61
555,42
550,28

534,30
450,01
438,34
388,24
385,04
380,86
368,30
362,57
338,91
311,40
308,17
303,26
283,98
277,04
263,75
260,82
253,26
244,19
240,54
239,37
172,47
146,70
131,66
126,81
122,06
121,71
121,64
111,18
99,63
94,49
86,73
76,53
67,94
65,67
62,18
52,65
45,79
38,72
36,62
33,25
31,46
22,68
17,61
17,01
16,69
14,63
13,23
10,21
7,07
6,07
5,50
3,21
2,25
1,88
1,72
1,51
1,31
1,23
0,85
0,59
0,54
0,38
0,18
0,13
0,03
0,01

10,62
10,07
6,41
5,61
4,19
4,02
3,61
2,95
2,69
50,18
2,38
1,99
1,99
1,96
1,94
1,90
1,81
1,80
1,71
1,69
1,52
1,50
1,47
1,47
1,41
1,40

1,36
1,14
1,11
0,99
0,98
0,97
0,93
0,92
0,86
0,79
0,78
0,77
0,72
0,70
0,67
0,66
0,64
0,62
0,61
0,61
0,44
0,37
0,33
0,32
0,31
0,31
0,31
0,28
0,25
0,24
0,22
0,19
0,17
0,17
0,16
0,13
0,12
0,10
0,09
0,08
0,08
0,06
0,04
0,04
0,04
0,04
0,03
0,03
0,02
0,02
0,01
0,01
0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01
< 0,01

39 400,18

100,00

2.3.2001

EN

Official Journal of the European Communities

C 69/9

Failure to meet the accreditation criteria

The criteria

13. Guidelines for accreditation criteria are set out in the Annex
to Regulation (EC) No 1663/95. The Court commented on a
number of weaknesses affecting accreditation in the context of
the 1996 accounts (1): poor internal controls, lack of EDP security,
inadequate monitoring of delegated services and accounting prob-
lems. In its 1998 Annual Report, the Court placed particular
emphasis on the continuing problem with the delegation of func-
tions and the protection of the Community’s financial interests.
Whilst some improvements have since been made, important
weaknesses were found to persist and are discussed below.

Debtors

14. Point 2 of the Annex to Regulation (EC) No 1663/95 also
refers to the need to properly record debtors in the books of
account. The situation with regard to debtors remained unsatis-
factory during 1998 when the total outstanding debt reported by
the paying agencies stood at around 1 000 million euro (Annual
Report 1998, paragraph 2.94). The Commission consequently
released a new version of its guideline (No 5) in July 1998 and the
clearance of accounts unit has undertaken a series of visits to nine
of the paying agencies with the highest recorded debt. The Com-
mission concluded that there have been improvements in the
management of the debts since the reform of the clearance of
accounts procedure but that the debtors ledgers are still not com-
plete, that a large amount of debt will never be recovered and that
most of the large value debts relate to cases reported to the Euro-
pean Anti-fraud Office (OLAF) under Article 3 of Council Regu-
lation (EEC) No 595/91 (2).

15. OLAF is responsible for following up the recovery of debts
the Member States have declared. Based on the information
received from the Member States, when the debts are considered
to be irrecoverable, OLAF proposes to the Commission to charge
them to the Community budget or to the Member State. Member
States are only charged if they are deemed to have been negligent
in pursuing the debtors concerned. They are notified of the cor-
rection, which then follows normal clearance procedures (concili-
ation and formal decision etc.).

16. The most recent corrections based on OLAF notifications
relate to 1994 (taken in May 1998) and 1995 (taken in February

and July 1999 and March 2000). These corrections amount to
just 1 million euro whereas, according to OLAF 1 700 million
euro is outstanding. During 1999 OLAF undertook a review of all
the cases notified before 1995 and still pending (1 000 million
euro in value) in order to charge them either to the Community
or the Member States. Lists of debts and proposals regarding
which to charge to whom have been sent to six Member States (3)
(2,6 million euro Community, 57,2 million euro Member States
(of which 90 % relates to Spain) and 2,6 million euro requiring
further clarification). Lists in respect of other Member States
including the two largest debtors (Italy and Germany which
account for 75 % and 6 % respectively of all pre-1995 debt) have
yet to be communicated. Decisions on the corrections ultimately
applied will not be taken until 2001.

Internal control

17. Point 3 of the Annex to Regulation (EC) No 1663/95 states
that the paying agency should have an internal audit service to
ensure that internal controls are operating effectively and a tech-
nical service to verify the facts on which payments to claimants
are based.

18. Several French paying agencies (Ofival, FIRS, Cnasea) do not
have sufficient internal audit resources to meet the accreditation
criteria. The SDE is an amalgam of the 93 DDAFs (under the
authority of the Ministry of Agriculture) and the Trésor public
(part of the Ministry of Finance) over which there is inadequate
internal audit and external control. This situation is exacerbated
by the fact that the DDAFs are also responsible for the administra-
tion and on site inspection for a large number of EAGGF schemes
(mainly IACS and amounting to 72 % of declared expenditure in
1998) on behalf of other paying agencies.

Delegation

19. Point 2 of the Annex requires the paying agency to execute
and account for payments. However, in Denmark, the paying
agency had delegated these functions for accompanying measures
to Strukturdirektoratet and, for forestry measures, to Skov-og
Naturstyrelsen. In Greece, the paying agency has delegated the
payment function to the cooperatives and amounts are often paid
in cash to the final beneficiaries. It is clear that these delegations
go beyond the limits specified in the Annex to the Regulation.

20. Point 4 of the Annex foresees the delegation of the authori-
sation function and/or the technical service, provided that the
responsibilities are clearly defined and that the delegated bodies

(1) See footnote 2 on page 5.
(2) Council Regulation (EEC) No 595/91 of 4 March 1991 concerning
irregularities and the recovery of sums wrongly paid (OJ L 67,
14.3.1991, p. 11).

(3) Belgium, Greece, Spain, Ireland, the Netherlands, Portugal.

C 69/10

EN

Official Journal of the European Communities

2.3.2001

have effective systems for ensuring that they fulfil their responsi-
bilities. The results of pre-payment technical controls must be
communicated to the paying agency on a regular basis. For the
most part, these controls are carried out under IACS or in respect
of export refunds.

21.
In France, the access to the DDAFs by the paying agencies
should be improved so as to enable the Certifying Body to ensure
that the paying agencies’ procedures ‘are such as to give reason-
able assurance that the operations charged to the fund (EAGGF)
comply with the Community rules’. The United Kingdom consid-
ers regional offices of paying agencies to be an integral part of the
paying agency rather than delegated bodies and this has been
accepted by the Commission, given that the Certifying Body has
full access to them.

22. Physical inspection of goods exported with refunds is car-
ried out by the national Customs Authority. These authorities are
independent organisations responsible for a wide range of con-
trols over exports, including those relating to CAP products. As
such they are not delegated bodies and are not formally required
to provide details of the controls they have carried out to the pay-
ing agencies. Nevertheless, it is clear that the paying agencies need
such information in order to ensure that the pre-payment checks
on export refunds have been carried out (1). The information flow
between the Customs Authorities and the paying agencies has

generally been inadequate for this purpose and the Commission
has insisted that this problem be addressed in the form of a pro-
tocol between the two parties. Whilst the protocols have been
introduced, the quality and or number of physical inspections by
customs services continues to be a cause for concern in some
Member States (Germany, Italy, Sweden) and the data supplied are
not yet sufficient (Greece, France) for the paying agencies to ensure
that export refund payments are in conformity with Community
legislation.

Sanctions

23. Member States, not the Commission, have the authority to
withdraw accreditation under Article 4 of Regulation (EEC)
No 729/70. As can be seen from Table 3, the accounts from some
paying agencies have been qualified in respect of more than one
year. Member States have tended to work on the specific problems
rather than withdraw their accreditation, the consequences of
which could be extremely severe where the paying agency con-
cerned is a very important one or perhaps the only one. If the
Commission considers that a Member State is not doing enough
to improve the situation it can reduce the monthly advances under
Article 13 of Council Decision 94/729/EC (2). This sanction has
only been applied to Portugal, 5,3 million euro (IACS weaknesses,
1999) and Greece, 105,7 million euro (IACS weaknesses and non-
application of other accreditation criteria, 1999).

(1) The Annex (point 4(iv)) to Commission Regulation No 1663/95
requires that the paying agency be informed ‘on a regular and timely
basis of the results of controls effected, so that the sufficiency of these
controls may always be taken into account before a claim is settled’.

(2) Council Decision 94/729/EC of 31 October 1994 (OJ L 293,

12.11.1994, p. 14).

2.3.2001

EN

Official Journal of the European Communities

C 69/11

Certifying Bodies qualifications of paying agencies accounts since 1996

Table 3

Number

Member
State

Paying agency

1998 Amounts declared
(in mio EUR)

% of total

QUAL.
1996

QUAL. 1997

QUAL. 1998

1
2
3
4
6
7
8
9
12
16
17
20
21
22
24
25
26
30
33
34
35
37
40
45
47
48
53
54

57
61
64
66
76
80
85
87
88
89

F
I
EL
UK
IRL
F
DK
UK
E
F
F
F
D
B
D
P
UK
NL
NL
D
F
D
E
D
F
NL
F
P
I
F
NL
E
E
NL
D
A
B
E
NL

ONIC
AIMA
Gedidagep
MAFF
DAF
SIDO
EU-Direktoratet
IBEA
FEGA
Ofival
Services déconcentrés du Trésor
FIRS
Hamburg-Jonas
BIRB
Niedersachsen MELF
INGA
SOAEFD
HPA
LASER
Sachsen-Anhalt ML
Oniflhor
Baden-Württemberg MLR
Cataluna
Thüringen TLVwA
Cnasea
PVE
Odeadom
Ifadap
IGFOR (1)
Onivins
PT
Asturias
Pais Vasco
DLG
Nordrhein-Westfalen LfA
BMLF Abt VI. B.8 (Wien)
Vlaamse Gemeenschap
FROM
PVis

Total number of qualified paying agencies

4 183,05
3 965,74
2 525,45
2 212,10
1 585,69
1 424,00
1 163,52
1 059,40
782,93
714,27
710,48
597,11
591,10
580,52
555,42
550,28
534,30
385,04
362,57
338,91
311,40
303,26
263,75
239,37
146,70
131,66
111,18
99,63

76,53
52,65
36,62
31,46
5,50
1,72
0,59
0,38
0,18
0,13

10,62
10,07
6,41
5,61
4,02
3,61
2,95
2,69
1,99
1,81
1,80
1,52
1,50
1,47
1,41
1,40
1,36
0,98
0,92
0,86
0,79
0,77
0,67
0,61
0,37
0,33
0,28
0,25

0,19
0,13
0,09
0,08
0,01
0,00
0,00
0,00
0,00
0,00

X

X
X
X

X
X

X
X

X
X
X
X

X

X

X
X
X
X

X

X
X

21

X

X

X

X
X
X

X

X
X
X

X

X

X

X
X

X
X

X

X

X

X

X

X

X
X

X
X

X
X

X

17

13

Total of the expenses declared by the qualified paying agencies

18 545,9

13 502,0

11 737,5

% of the total amount of expenses declared

46,32

32,77

29,79

(1) IGFOR was closed in 1997.

C 69/12

EN

Official Journal of the European Communities

2.3.2001

THE CERTIFYING BODIES

Requirements

24. Article 3 of Regulation (EC) No 1663/95 requires the Certi-
fying Body to be operationally independent of the paying agency.
It must base its certificate on an examination of procedures and
on a sample of transactions. The certificate must state whether
the accounts are true, complete and accurate and whether the
internal control procedures have operated satisfactorily. The cer-
tificate must be supported by a report on the Certifying Body’s
findings. However, compliance aspects are limited to ensuring
that the paying agency itself is able to demonstrate that it has the
necessary administrative structures to ensure that claims are
checked for compliance before they are paid. The Certifying Body
should conduct its examination according to internationally
accepted auditing standards.

25. The clearance unit has reviewed the work of the Certifying
Bodies by examining and analysing their reports and discussing
any key findings and/or apparent shortcomings in the reports
during visits to a number of paying agencies and Certifying

Bodies. While it has examined the Certifying Bodies methodolo-
gies for sampling and error evaluation or respect of international
audit standards this has not been a systematic part of its work.

In previous years, DG ‘Financial Control’ (now DG ‘Audit’)
26.
accompanied the clearance teams during a number of their visits
to the Certifying Bodies/paying agencies. In some cases, DG ‘Agri-
culture’ and DG ‘Audit’ shared the accreditation/certification work-
load. In the Court’s opinion DG ‘Audit’ should not perform work
more properly carried out by DG ‘Agriculture’, but should assess
it.

27. During 1999, the Court visited 18 Certifying Bodies (see
Table 2) to examine in detail the work performed by them in
respect of the 1998 accounts and to examine whether it was per-
formed to internationally accepted auditing standards. Together
these Certifying Bodies were responsible for certifying the accounts
of 48 paying agencies that accounted for some 70 % of the total
expenditure declared in 1998. The Court’s examination suggests
that the quality of the work of 11 Certifying Bodies both meets
the Commission’s requirements, and would enable the Court to
rely upon them (Table 4).It should be noted that there has been an
improvement in the overall quality of the reports produced by the
Certifying Bodies for the years 1996 to 1998.

Result of the Court’s evaluation of Certifying Bodies’ 1998 Reports

Table 4

Member State

Certifying Body

Satisfactory

% of total expenditures
declared (1998)

F
UK
I
EL
IRL
NL
A
D
S
E
E
P
I
D
E
D
I
A

CCCOP
NAO
Reconta Ernst & Young
DRM Stylianou SA
Arthur Andersen
Accountantsdienst (AD)
BMLF revision
Bescheimigende Stelle/Innenrevision von Bayern
RRV (NAI)
IG de Consejería de Economía y Hacienda de Castilla-La Mancha
IG de Consejería de Economía y Hacienda de Castilla y León
IGF+IA
Ragioneria Provinciale dello Stato
Bescheimigende Stelle/Innenrevision von Baden-Württemberg
IG de Consejería de Economía y Hacienda de Cataluña
Bescheimigende Stelle/Innenrevision von Thüringen
Coopers & Lybrand
Team From Finance Ministry

Yes
Yes
Yes

Yes
Yes

Yes
Yes
Yes
Yes

Yes

Yes

23,29
10,97
10,07
6,41
4,11
3,53
1,99
1,94
1,90
1,71
1,69
1,65
0,99
0,77
0,67
0,61
0,17
0,16

72,45

2.3.2001

EN

Official Journal of the European Communities

C 69/13

Independence

Standards on Auditing (ISA), set out by the International Federa-
tion of Accountants (IFAC).

28. Sixty Certifying Bodies were responsible for certifying the
1998 accounts of the 91 paying agencies: given their federal struc-
ture Germany and Spain have 41 Certifying Bodies between them.
Broadly speaking, Certifying Bodies are either private firms or
public bodies (see Table 2). Private firms were directly responsible
for the certification of 9 610 million euro (25 % of the total
expenditure claimed). Member States are responsible for the
appointment and any remuneration of the Certifying Bodies. The
private firms have been appointed either by open tender or direct
contracting.

29.
In Denmark, until 1998, the internal audit unit of the pay-
ing agency was used as the Certifying Body and was not indepen-
dent. In Germany (Bavaria, Baden-Württemberg), internal audit
and the Certifying Body constitute the same ‘combined’ unit under
the Ministry of Agriculture (1). In Austria (Zollamt Salzburg), the
independence of the Certifying Body was at risk because there
was a conflict of interest for one of the two auditors, who also
had duties within ‘Finanzlandesamt Salzburg’, which is respon-
sible for the paying agency itself. Since the audit these problems
have been resolved by the Commission.

30. Some Certifying Bodies have used the services responsible
for the internal audit of the paying agencies to carry out substan-
tive testing of a sample of payments. This varies from 10 % of the
work (Sweden) to more than 50 % (Italy (ENR), Netherlands
(LASER), Portugal (INGA, Ifadap)). While it may be appropriate
for Certifying Bodies to place reliance on the work of these units
when assessing internal controls, internal audit resources should
not be used to perform certification work to the extent that the
units concerned are no longer able to fulfil their other tasks,
thereby prejudicing the ability of paying agencies to meet the
accreditation criteria.

Auditing standards

31. The Commission guideline on ‘Principles for the certification
of the accounts of a paying agency’ (July 1997) makes clear that
the certification must be carried out broadly in accordance with
the International Audit Standards (IAS), now called International

32. The IFAC’s handbook states that the audit documentation
should ‘provide another auditor who has no previous experience
with the audit with an understanding of the work performed and
the basis of the principal decisions taken’. The Court’s examina-
tion of the audit working papers retained by the Certifying Bod-
ies to support their reports has shown that their extent and qual-
ity varies from unsatisfactory (Ireland) to comprehensive (Greece,
Spain, Netherlands, Portugal). In many cases the Certifying Body
has failed to properly file the documentation, to indicate on the
working papers who completed them and when or to evidence
management review (France, Austria, Sweden, United Kingdom).
A particular weakness concerns the documentation relating to
sampling.

Sampling

Method

33. The Commission’s guideline No 3 on the ‘Principles for the
certification of the accounts of a paying agency’ (July 1997) states
that the Certifying Body should aim to achieve an assurance level
of 95 % that the accounts are correct. This degree of assurance
may be obtained from examining the internal control system and
from a test of a sample of transactions. For sampling purposes,
MUS is recommended.

34. The approach applied by most Certifying Bodies was MUS
(Table 5). Among the Certifying Bodies which did not use MUS for
1998, some stated that they would apply MUS for 1999 (Italy
(AIMA), Austria (AMA)). Although MUS was used to determine
the sample size, it was not always used to select the transactions
(Greece, Italy (DCCC)).

35. Some Certifying Bodies have relied on the coordinating
body/paying agencies to perform the sampling on their behalf
(France, Austria (AMA)), but have since performed this task them-
selves. In Spain, the Certifying Body for four autonomous com-
munities contracted out the sampling to a university and was not
able to provide adequate supporting documentation for this.

(1) A private audit firm was appointed as the Certifying Body for 1999
for Denmark. For Germany the situation is likely to be resolved in
time for certification of the 2000 accounts.

Member State

Paying agency

Certificate

No of popula-
tions

Method

Assurance from
sampling

Expected error

Samples (No)

Most likely error

Upper Error Limit

Sample increase

New error evaluation

Substantive testing

Commission requirements after review

Table 5

Sampling criteria for 1998

Denmark
Germany
Germany
Germany
Greece
Spain
Spain
Spain
Spain
France
France
France
France
France
France
France
Ireland
Ireland
Italy
Italy
Italy
Netherlands
Netherlands
Netherlands
Netherlands
Austria
Austria
Portugal
Portugal
Sweden
United Kingdom
United Kingdom
United Kingdom
United Kingdom

EU-Direktoratet
Baden-Württemberg MLR
Bayern StMELF
Thüringen TLVwA
Gedidagep
Andalucía
Castilla-La Mancha
Castilla y León
Cataluna
SIDO
FIRS
Ofival
Cnasea
Services déconcentrés du Trésor
ONIC
Oniflhor
DAF
DMNR
AIMA
DCCC
ENR
HPA
LASER
PVE
PZ
AMA
ZA Salzburg
INGA
Ifadap
SJV
IBEA
Soaefd
DANI
MAFF

Qualified
Unqualified
Unqualified
Unqualified
Qualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Qualified
Qualified
Qualified
Qualified
Qualified
Unqualified
Unqualified
Qualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified
Unqualified

2 (1)
1 (1) (2)
1 (1) (2)
1 (1) (2)
7
4
2
3
2 (1)
7
2 (1)
3 (1)
1 (9)
1
6 (1)
7 (1)
3 (16)
2
1 (2)
1 (6)
2
1 (22)
4 (1)
1 (1)
1 (1)
1 (1)
1
1 (17)
1
1 (2)
3 (1) (16)
1 (1)
1 (2)
1

Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
Manual selection
Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
MUS+ Manual selection
Monetary Unit Sampling
Monetary Unit Sampling
MUS+ Manual selection
Monetary Unit Sampling
MUS+ Manual selection
Monetary Unit Sampling
Monetary Unit Sampling
Variable sampling
Risk-based selection
MUS+Manual selection
MUS+ Manual selection
MUS+ Manual selection
Monetary Unit Sampling
Monetary Unit Sampling
RSW + Manual selection
Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
Monetary Unit Sampling
Manual selection
Manual selection
Manual selection
Manual selection

90 %, 80 %
95 %
95 %
95 %
90 %, 95 %
95 %
95 %
92 %, 93 %
95 %
95 %
95 %
95 %
95 %
95 %
95 %
95 %
75 %, 85 %
75 %
85 %
85 %
80 %
95 %
95 %
90 %
95 %
95 %
85 %
90 %
85 %
95 %
63 %
70 %
63 %
74 %

15 %, 20 %
No
No
No
No
50 %
50 %
15 %
10 %
10 %
10 %
10 %
10 %
10 %
10 %
10 %
No
No
No
10 %
10 %
10 %
10 %
20 %
20 %
10 %
10 %
10 %
10 %
10 %
No
No
No
No

727
360
352
356
131
593
600
908 (4)
701
194 (15)
110
899 (13)
357 (10)
421
824 (15)
304

not clear (24)
not clear (24)

915
227
397
646
1 177
345
223
594
227
277
238
777
300
120
100
135

Not calculated (14) (18)
Not applicable

7 858 756 (8)
2 153 305 (3)
4 361 691 (3)
24 760 (3)
Not calculated

0
0
141 975
76 192 (5)
0
0
7 281 813 (12)
0
0

0 (24)
0 (24)
0
Erroneous (7)
0

163 709 (20) (21)
617 101 (21)
0
0
886 609 (19)
3 179 (19)
5 222 414
867 908
35 690 (26)

0 (25) (27)

1 500 (23)
0
486 121

Not calculated
Not calculated
Not calculated
Not calculated
Not calculated
Not applicable
Not applicable
560 293 237
373 907 312

Not applicable
Not calculated

Not applicable
Not calculated
Not applicable
Not calculated
Not calculated
Not applicable
Not calculated
Not applicable
Not calculated
Not calculated
Not calculated
Not applicable
Not calculated
Not calculated
Not calculated
Not calculated
Not calculated
Not calculated
Not calculated
Not calculated
Not calculated

No
No
No
No
No
No
No
No
No
No
No
No
357 (11)
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Not applicable
Not applicable
No
No
No
No
No

No
Yes
Yes
No
No
No
No
No
No
No
No
No
Yes
No
No
No
No
No
No
No
No
No
No
No
No
No
No

No
No
No
No
No

(1) Small measures were excluded from the population and selected manually.
(2) There were two drawings on expenditures effected during two separate time intervals.
(3) Error evaluation not in accordance with MUS practice.
(4) In addition to MUS, there were also transactions selected because of high monetary value.
(5) This figure represents the total error. An error evaluation was carried out for each of the populations.
(6) One population, but where the transactions in high-risk areas are more likely to be audited.
(7) No extrapolation carried out; error evaluation carried out on the basis of the number of errors found (and not on the monetary value).
(8) Statistical data here presented for the two populations together; the Certifying Body correctly treated them separately.
(9) For the other populations, there were only conformity tests and no sampling for substantive tests.
(10) Only 63 of the files were available at the time of the audit from the Certifying Body.
(11) Not an increase of sample but a new sample on the PMSEE expenses that could not be checked in the first instance, see note 10 of the table.
(12) CCCOP qualified the accounts but finally no correction was made by the Commission (after a further mission there).
(13) In the third population, the criteria were 80 % level of confidence and 1 % level of materiality, but only 19 transactions were tested out of 185 because already five errors had been found and an extrapolation was made.
(14) For one population, no substantive testing was made because the conformity testing showed a lot of failures; CCCOP decided to qualify that budget line.
(15) The sampling and selection of transactions for per hectare aid were common to ONIC and SIDO.
(16) The population included national funds as well.
(17) Public storage was not included in the MUS sample.
(18) CCCOP found out that for small maize producers, a wrong ratio of production was applied but they were not able to quantify it; it was one of the reasons for qualifying the ONIC’s accounts, and there have also been corrections in clearance 1994 and 1995.
(19) The extrapolated error was under the 1 % materiality in both paying agencies.
(20) In fact, here it is the total error because, after finding the systematic error, all the transactions were checked.
(21) Most likely error.
(22) Mixture of MUS and manual as the first sample was not representative (file from which it was extracted was not the right one).
(23) Some known errors are not quantified. This should have been done and would then maybe have led to the qualification of the accounts.
(24) We have asked for information about the sample size and the error evaluation during the mission and in the sector letter but we have not received any response yet (the CB does not keep working papers at all).
(25) Error excluded from error evaluation and later charged to national budget.
(26) Not clear from the report about the error extrapolation. Will be followed up during EAGGF 1A mission in February.
(27) The errors and error extrapolation is not clear from the report. Three populations were identified and a sample size of 100 each was determined.

C
6
9
/
1
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

.

.

2
3
2
0
0
1

2.3.2001

EN

Official Journal of the European Communities

C 69/15

Populations

It is essential to establish that the population from which the
36.
sample is to be taken is complete. This means that the Certifying
Body should reconcile the population data to the accounts. The
Certifying Bodies for some paying agencies have not evidenced
this aspect of their work (Ireland, Italy, United Kingdom) others
have not been able to reconcile the data (SDE (France)). In some
cases, the population incorrectly contained non-EAGGF payments
and/or the national element of co-financed measures (Ireland,
United Kingdom) which may affect the conclusions drawn from
the results of testing.

Parameters

37. Sampling is used to determine if errors in the accounts are,
taken as a whole, material (i.e. unacceptably high). This is done by
extrapolating errors found in the sample and comparing the
resulting most likely error and upper error limit (1) with a pre-set
materiality threshold. If the upper error limit is lower than the
materiality threshold, the accounts can be considered as accept-
able. All the Certifying Bodies visited have used 1 % materiality.

the first time in 1998 and, consequently, neither the Certifying
Body nor internal audit had any experience of auditing such a
scheme. In Ireland, the Certifying Body sought to obtain 75 % of
its assurance from the sample for most of the schemes audited.
The United Kingdom has obtained between 63 % and 74 % of its
assurance from substantive testing the balance coming from its
evaluation of inherent and control risks. These reduced assurance
levels are acceptable where the Certifying Body can demonstrate
that it can obtain the additional assurance required from other
sources.

Sample size

40. The guidelines on ‘Sampling and error evaluation’ issued by
the Commission in July 1998 suggest that at least 85 % of the
assurance should be obtained from substantive testing. This
implies a minimum sample size of 223 transactions, rising to 406
where all of the assurance has to be obtained from substantive
testing. Although this guideline was issued too late to affect the
sampling carried out by the Certifying Bodies for 1998 certifica-
tion, most Certifying Bodies did in fact take samples within this
range. Some tested far more transactions than the strict applica-
tion of MUS required. For example, RRV (Sweden) tested twice as
many.

38. Whilst it is a requirement that Certifying Bodies obtain 95 %
overall assurance from their audits, not all of this needs to be
obtained from substantive tests on sample items. Auditing stan-
dards also allow part of the assurance to be obtained from an
assessment of inherent and control risks, thus reducing the assur-
ance required from substantive tests and, consequently, sample
sizes. However, assurance from the assessment of control risk
requires the auditor to evaluate and test the operation of the inter-
nal control system and conclude that it operating to a high stan-
dard.

41. For 1998, the Certifying Bodies tested some 32 000 pay-
ments. At national level the differences between the numbers of
transactions tested is particularly noticeable, ranging from 131 for
Greece to over 11 000 for Spain. Much of the explanation lies in
the number and nature of the paying agencies themselves but also
important is the discretion given to Certifying Bodies to deter-
mine the number of populations for audit purposes.

39. Two thirds of the Certifying Bodies sought to obtain all the
required assurance (95 % recommended by the Commission) from
substantive tests on sample items (see Table 5). Some Certifying
Bodies relied on earlier experience and good internal control in
order to reduce the level of assurance obtained from sample test-
ing, thereby reducing the sample size (see Table 5). Denmark
assessed the risk for each population and set its sample so as to
obtain 80 % of its assurance from sample testing for arable crops
and 90 % for export refunds. The Certifying Body for ENR (Italy)
sought to obtain 80 % of its assurance from the sample, relying,
for the remainder, on its evaluation of the internal control proce-
dures and in particular the work performed by the internal audit
unit, despite the fact that the area aid measure was introduced for

Error evaluation

42. The Commission guideline cites IAS 19 (superseded by ISA
530):
‘The auditor should analyse any errors detected in the
sample and project the errors found in the sample to the popula-
tion. The auditor must compare the projected population error to
the tolerable error’. For this purpose the Certifying Body should
calculate the MLE and the UEL (2). Strictly speaking, only if the
UEL is below the preset materiality threshold will the auditor be
95 % sure that there is not a material incidence of error.

(1) The most likely error is an extrapolation of the errors found in the
sample to project them across the population. The upper error limit
is the most likely error plus a statistical allowance to take account of
the risk that the sample may not be representative of the population.

(2) MLE = sum of taintings*ASI (average sampling interval).

UEL = basic precision + sum of taintings*ASI*PC (Poisson coefficient)
+ known (systematic) errors.

C 69/16

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Official Journal of the European Communities

2.3.2001

43. Errors may be divided into two main types, substantive and
formal. Substantive errors are errors with some sort of financial
impact, implying that the wrong amount has been paid to the
beneficiary and subsequently erroneously reimbursed by the Com-
mission. Formal errors are errors in the handling of a specific
transaction, but where the correct amount was paid to the ben-
eficiary and declared to the Commission. In terms of the certifica-
tion of accounts, the Commission is only concerned with sub-
stantive errors. Within this category, it distinguishes between
systematic and random (one-off) errors. Systematic errors should
be investigated to determine the actual extent of the error in the
population and should not be extrapolated. Random errors found
in the sample should be extrapolated.

ing agencies’ accounts. Subsequently, two of the Certifying Bod-
ies (Bavaria and Baden-Württemberg), by reclassifying some ran-
dom errors as systematic errors convinced the Commission that
their accounts were correct. Similarly, in Sweden the Certifying
Body found two errors which should have led it to qualify the
accounts but decided to classify the larger of the two errors as
systematic and carry out further work. This option is foreseen
under the new guideline issued in July 1998 and effectively allows
the Member States to avoid qualification by investing in extra
audit work. In the Court’s view, this is only acceptable if carried
out before the submission of the certificate.

44. The Court considers that the error evaluations, as presented
in the Certifying Bodies’ reports, are, in some cases incomplete or
inconsistent. More specifically:

(a) whereas some Member States have included all errors found,
regardless of their value (Germany), others have a built-in tol-
erance level, whereby minor errors were not included in the
extrapolation (Italy);

47. The Certifying Bodies visited do not follow up errors detected
in the course of their work on the previous year’s certification.
Moreover, the Commission does not monitor error rates. In order
to determine whether the situation is improving or deteriorating
at a particular paying agency, or to identify any apparent anoma-
lies amongst the error rates reported by the Certifying Bodies for
different paying agencies within the same Member State the Com-
mission should start to compile a database.

(b) the Certifying Body has not treated national deductions from

payments to beneficiaries as errors (Greece);

Local offices and on-the-spot controls

(c) systematic errors, although described in the report of the Cer-
tifying Body, were not quantified and were not included in the
error evaluation summary and were charged to the national
budget (United Kingdom);

(d) errors have been reclassified from random to systematic and
are thereby not extrapolated (Germany, Sweden) and, in Italy,
an irregular payment found in the sample examined by the
Certifying Body was not treated as an error on the grounds
that recovery action had been taken, but this occurred after
the closure of the accounts.

45. For the 37 paying agencies (covering 36 % of expenditure),
for which the Certifying Bodies calculated the MLE, the total error
amounts to 43,4 million euro equivalent to an error rate of 0,2 %.
For 17 other paying agencies (covering 33 % of expenditure), the
Certifying Body’s reports explicitly state that no errors were found.
For the remaining 37 paying agencies (31 % of expenditure) it is
either not clear whether errors were found or they were not
extrapolated.

48. Some Certifying Bodies have not adequately covered local
offices. In Spain for example, within the autonomous communi-
ties there are a number of regional offices and a far larger number
of local offices involved in the handling of claims, but few are vis-
ited by the Certifying Body (1).

49. Regulation (EC) No 1663/95 does not preclude the Certify-
ing Bodies from carrying out on the spot visits at final beneficiary
level. They are required to certify that the paying agency is able to
ensure that claims comply with Community rules before they are
paid (see paragraph 5). In practice, for most schemes, this means
whether the IACS has been properly implemented and the required
level of on farm inspection has been carried out. Most Certifying
Bodies have limited their scope to confirmation that the required
number of inspections has been carried out and have neither
re-performed nor accompanied IACS inspections. With regard to
the error rates and penalties applied in the context of IACS, the
Certifying Bodies do not generally have or make use of this infor-
mation when certifying compliance with Community rules. The
Commission’s failure to require the paying agencies to clearly
present their findings in terms of random and risk-based samples

46. When the Commission recalculated the error evaluations for
Germany three Certifying Bodies, (Bavaria, Baden-Württemberg,
Lower Saxony), were found to have incorrectly approved the pay-

(1) For the three autonomous communities visited by the Court, seven of
the 18 regional offices and three of the 169 local offices were con-
trolled by the Certifying Bodies.

2.3.2001

EN

Official Journal of the European Communities

C 69/17

and to quantify the sanctions applied means that a fundamental
measurement of the actual value of error in the IACS population
is not calculated. The Commission should insist that this data is
provided and is verified by the Certifying Body.

with or without corrections. Some qualified accounts are accepted
by the Commission because the qualification has no financial
importance to the year in question.

50.
In Sweden, the Certifying Body does not have the legal right
to carry out on-the-spot visits at final beneficiary level. The situ-
ation in other Member States is more flexible. For example, in
Austria, the Certifying Body has accompanied IACS inspectors on
29 visits. In Spain, in one of the three autonomous communities
visited by the Court,
the Certifying Body attended three
re-inspections out of the 10 performed by the paying agency’s
technical services. In the Netherlands, the Certifying Body did not
attend any inspections. In the Court’s opinion the Certifying Bod-
ies should give greater emphasis to their assessment of the effec-
tiveness of IACS and should obtain first-hand knowledge by
accompanying inspectors on both standard and reperformance
inspections. The same is true of customs controls.

Qualification of accounts

51. Table 3 shows that the number of accounts qualified by the
Certifying Bodies has decreased by 40 % (21 to 13) over the 1996
to 1998 period. However, the expenditure included in the accounts
that have been qualified in 1998 remains unacceptably high at
11 700 million euro (30 %). Seven paying agencies had their
accounts qualified for 1996 and 1997 but have subsequently been
given clear certificates. Three paying agencies give continuing
cause for concern because they were qualified in 1997 and 1998,
and among them is Greece, which is the third largest paying
agency. Only the accounts for FEGA (Spain) have been qualified
for three consecutive years. The common reasons for qualifica-
tion are scope limitation (the Certifying Body was not able to
obtain all the information it required) and the failure to meet
accreditation criteria — accounting for stocks and debtors, con-
trol over delegated bodies, performance of technical services
(IACS), accounting and internal control systems.

52. A qualified account may result in the expenditure declared
by the paying agency being disjoined from the April financial
decision pending further clarification/enquiries. The account is
subsequently cleared by the Commission in a second decision,

CONFORMITY DECISIONS

53. The financial clearance decision taken in respect of a given
EAGGF year does not prevent the Commission from later disal-
lowing expenditure that it considers has not been effected in
accordance with Community rules. Whilst the Certifying Bodies
are not required to certify the legality and regularity of the expen-
diture declared by the paying agencies, their reports often contain
observations of this nature. The reports thus provide an input to
the work of the unit in DG ‘Agriculture’ which is responsible for
conformity investigations. This unit has a substantial ongoing
programme to check that the Community provisions have been
properly implemented and that the payments to final beneficiaries
were correct. Where these inspections show that the operation of
agricultural subsidies has been unsatisfactory, the Commission
can impose corrections, either on a flat-rate basis (2 %, 5 %, 10 %,
25 %) of the expenditure in question, or where possible, on the
basis of specific quantifications of erroneous payments to benefi-
ciaries. Any such corrections proposed by the Commission, either
as a result of investigating such observations, or stemming from
its own enquiries, must be notified to the Member States who
have the right to invoke the conciliation procedure. Only when
this procedure has run its course is the Commission in a position
to take a conformity decision. Retrospection cannot extend more
than two years before the date of notification of the audit find-
ings.

54. The first conformity decision was not taken until Febru-
ary 1999 (see Table 1) and consisted for the most part of correc-
tions for repeated weaknesses. The second related to weaknesses
in the application of the Over Thirty Months Scheme in the United
Kingdom (1) and the third conformity decision concerned late
payments and other bookkeeping adjustments. The combined
value of these three conformity decisions taken during 1999 is
relatively modest (207 million euro) and they cover the 1996 to
1998 EAGGF years (Table 6). Since later conformity decisions may
also cover 1996 expenditure it is too early to draw conclusions
concerning the total value of corrections for even the first year
(1996) under the reformed clearance system.

(1) See Special Report No 19/98 concerning the Community financing of
certain measures taken as a result of the BSE crisis (OJ C 383,
9.12.1998).

C 69/18

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Official Journal of the European Communities

2.3.2001

Table 6

Clearance of accounts corrections (1991-1998)

Amounts (in mio ECU or EUR)

1991

1992

1993

1994

1995

1996

1997

1998

Expenses declared (inluding B1-3 7 0)
Expenses initially disjoined (p.m.)
Expenses disjoined
Expenses disjoined during the previous finan-
cial year and cleared

a
(1)
b

c

31 255,9 30 480,2 34 008,0 33 592,8 35 654,4 39 062,5 40 884,3
107,8
0,0

25 986,7
0,0

1 566,7

1 876,2

40,3

30,0

41,5

38 857,4
2 453,5
0,0

1,2

28,6

41,2

1 565,8

1 876,6

Expenses cleared

d=a-b+c

31 227,1

30 467,3 32 482,5 33 282,4 37 490,7 39 062,5 40 884,3

38 857,4

Main clearance decision
First complementary clearance decision
Second complementary clearance decision
Total clearance decisions

1 494,3
9,8

718,3
69,9

(2)

1 504,1

788,2

539,9
107,7
107,1
754,7

307,8

307,8

429,1
123,8
39,0
591,9

Corrections in the first financial decision
Corrections in the second financial decision
Total amount of corrections in the finan-
cial decisions

First conformity decision
Second conformity decision
Third conformity decision
Fourth conformity decision
Total amount of corrections in the confor-
mity decisions as of today

Total amount of corrections

Corrections for late payments
Milk super levies

Total amount of corrections net of late
payments and milk super levies

Percentage of corrections in the expenses
cleared

(3)

(4)

1,1
9,9

11,0

82,5
12,7
68,8
81,2

– 1,0
– 0,1

– 1,1

7,1
17,4
33,1
83,9

245,2

141,5

1 504,1

788,2

754,7

307,8

591,9

256,2

140,4

10,6
979,2

5,6
419,7

20,4
265,4

21,1
0

14,8
31,4

25,2
0

25,5
0

0,9
2,6

3,5

0,0
2,6
0,0
64,1

66,7

70,2

6,9
0

514,3

362,9

468,9

286,7

545,7

231,0

114,9

63,3

1,6

1,2

1,4

0,9

1,5

0,6

0,3

0,2

(1) In the new clearance procedure, the expenses initially disjoined through the financial decision correspond to the expenses of paying agencies whose accounts cannot be

cleared in the first instance after the conclusion of the certification report or due to the insufficient work of the certification body.
These expenses are cleared during a second financial decision after more work is done on the accounts of the paying agencies.

(2) In 1991, most of the corrections were related to milk super levies in Spain, 452,4 mio ECU, and Italy, 526,8 mio ECU (total of 979,2 mio Ecu).
(3) From 1996 on, the total amount of corrections is provisory, there are still conformity decisions to be taken.
(4) Automatic amount for late payments (in mio ECU / EUR):

— 1994: 661,3
— 1995: 391,7
— 1996: 271,7
— 1997: 129,1
— 1998: 70,4

NB: The amounts in italics are provisory.

Exchange rates:
1991: exchange rate used in the 24th financial report in Annex 23 ‘Financial results of 1991 clearance of accounts decision’.
1992 and 1993: exchange rates used for the Court of Auditors Special Reports No 1/97 and No 2/98 for corrections and disjunctions as well as the expenses declared.
From 1994 on: exchange rates used by the Commission in its summary reports.

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THE CONCILIATION PROCEDURE

Background

ferences are set out in the following paragraphs and are based on
an examination of a sample of 50 of the opinions given by the
Conciliation Body.

55. The conciliation procedure begins after the Commission has
sent its observations to the Member State. As a general rule, the
letter states that corrections are being considered but the amount
is not specified. Member States must reply in writing and then
have an opportunity to discuss the proposed correction during
bilateral meetings with the Commission. After such meetings the
Commission communicates to the Member State the value of the
correction it intends to apply. The Member State has 30 days in
which to decide whether to take its case to the Conciliation Body.
A period of four months is foreseen for conciliation, without
prejudice to the Member State’s right to appeal to the European
Court of Justice. Member States may go straight to the European
Court of Justice rather than take their case to the Conciliation
Body.

56. The Conciliation Body was established in 1994 (1) (opera-
tional from September 1994) as part of the Belle reform and is an
integral part of the clearance procedure. The opinions of the Body
are not binding on the Commission’s final decision on the clear-
ance of accounts. The Conciliation Body is composed of five
Members who are nominated by the Commission after consult-
ing the EAGGF Committee.

57. The procedure was applied for the first time with regard to
the 1992 clearance of accounts, and as such it pre-dated the intro-
duction of the separate financial clearance decision in 1996. In
fact, most of the 120 opinions given by the end of 1999 relate to
the period 1992 to 1995.

58. The Court has previously commented on the work of the
Conciliation Body in its special reports relating to the clearance
of accounts for 1992 and 1993 (2) but has not previously under-
taken a comprehensive review. An evaluation was carried out by
the DG ‘Agriculture’ clearance unit in conjunction with the Con-
ciliation Body’s secretariat’s in 1999. This evaluation should have
been carried out by a more independent service, such as DG
‘Financial Control’.

59. The evaluation report describes the work and problems faced
by the Conciliation Body. The main problems that the Concilia-
tion Body has to contend with are getting the different Commis-
sion services to agree, within the four-month deadline (3), and
dealing with ‘new’ information that is submitted by the Member
States at the time of conciliation and not before. The Court agrees
with many of the points made in the report but draws different
conclusions from the data it contains. The reasons for these dif-

(1) Commission Decision 94/442/EC of 1 July 1994 (OJ L 182, 16.7.1994,

p. 45).

(2) Special Report No 1/97 (OJ C 52, 12.2.1997) and Special Report

No 2/98 (OJ C 121, 20.4.1998).

(3) A point previously made by the President of the Conciliation Body in
his report (December 1995) on the first year of operation of the pro-
cedure.

Role of the Conciliation Body

60. The Belle group recommended a mandatory mechanism in
the form of an independent consultative body to enable the Com-
mission and the Member States to settle out of court by negotia-
tion. What was actually established under Commission Decision
94/442/EC (4) was a Conciliation Body whose remit is ‘to try to
reconcile the divergent positions of the Commission and the
Member State concerned’ with regard to corrections proposed by
the Commission in the context of the clearance of accounts pro-
cedure.

61.
In December 1995, the President of the Conciliation Body
produced a report on the first year of its operation. It had already
become clear that the Body had failed to bring about definitive
settlements. This report provided input for the Commission’s
reflections paper (5), which recognised that conciliation was essen-
tially unrealistic but rejected any thought of the idea of arbitra-
tion, which would imply that the opinions of the Conciliation
Body would be binding. Instead it proposed that the Conciliation
Body concentrate on the arguments put forward by both sides,
evaluate their validity and recommend what it considers to be an
appropriate correction. The reflections paper included a proposal
to modify the Decision setting up the Conciliation Body in order
to give greater emphasis to Article 1(c), which requires the Con-
ciliation Body to draw up a report and explain any points of dis-
pute unresolved. The proposal was not adopted. Whilst the Con-
ciliation Body has commented on what it considers to be excessive
corrections, it has never openly stated that the corrections should
have been higher, although it is not precluded from doing so
under Article 1(c).

Performance measurement of the Conciliation Body

62. A number of criteria have been mentioned in the evaluation
report in an attempt to measure the added value and effectiveness
of the Conciliation Body: meeting the four-month deadline, out-
come, impact on the number of cases submitted to the European
Court of Justice and financial impact. The Court has carried out
its own analysis of these issues.

The four-month deadline

63. As a general rule, the Conciliation Body should issue its
report within the four-month deadline. However, 25 of the 120
cases have been granted an extension of one or two months (in
one case, four months) when the Commission has agreed to such

(4) See footnote 1.
(5) FR/06/95/50800000. P00.

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a request from the Member States in order to allow them more
time to submit their evidence. Even at the end of this extended
period only 20 % of the 25 cases concerned result in an effective
conclusion.

In 10 % of cases the Body cannot reach a conclusion because
68.
it is not competent in legal matters or there is insufficient infor-
mation to enable it to do so. Again, most of these corrections
become the subject of Court cases.

64.
It takes on average a further five months for the Commis-
sion to take a conformity decision formalising the corrections
that have been considered by the Conciliation Body. Due to peaks
in the workload of the Conciliation Body, cases may be delayed
and cannot be included as foreseen in the submission for a con-
formity decision. For example, 18 conciliation cases (277 million
euro) had to be excluded from the fourth conformity decision (1)
because they were still being dealt with by the Conciliation Body.
The accounts themselves are adjusted, on average, two months
after the date of the conformity decision. The typical correction
therefore takes a year from the time it is submitted for concilia-
tion until it is charged to the Member State. The Court has found
no evidence to support the claim made in the evaluation report
that conciliation has enabled the Commission to reach decisions
within a reduced timescale.

Outcome

65. The total value of all 279 corrections proposed for the period
under review shown in the evaluation report is 2 436,2 million
euro of which 125 corrections corresponding to 1 636,2 million
euro (two thirds) were submitted for conciliation. During the con-
ciliation process this total was reduced by 275 million euro (17 %).

66. The evaluation report claims that 17 % of the 120 cases have
been successfully reconciled in so far as the Member State accepted
the proposed corrections or the Commission reduced or with-
drew them. Four corrections were nevertheless subsequently taken
to the European Court of Justice (2) and several were dropped
because the Commission reduced the proposed correction before
a conciliation hearing took place. If these cases were discounted
the true ‘success’ rate would fall to 10 % by number.

67.
In 26 % of cases the Body agrees with the correction pro-
posed by the Commission, and for 50 % of the cases, agrees that
a correction is warranted at a lower level than the one proposed,
but the Commission maintains its position. Many of these cases
are also taken to the European Court of Justice.

Why corrections are contested

69. Four Member States (Greece, Spain, France and Italy) account
for 70 % of all cases submitted to the Conciliation Body (80 % by
value). This is also in line with their share of the total corrections
imposed (Graph 1). The benefits in terms of reduced corrections
are proportional, some 200 million euro (75 %) of the total reduc-
tion.

70. Most of the corrections submitted for conciliation were
based on flat rates — for the period 1992 to 1995, 60 % by num-
ber and 70 % by value. There are a number of reasons why Mem-
ber States go to conciliation over flat rates (3) :

(a)

increases in the corrections initially proposed by the Commis-
sion;

(b) regional weaknesses: ‘centralised’ Member States (as opposed
to those with a regional network of controls and paying agen-
cies) are particularly vulnerable as regards the application of
flat rate corrections because findings related to a particular
region are extrapolated nationally;

(c) post-audit improvements: before the introduction of the
reformed clearance of accounts system the Commission gave
Member States a chance to prove that the situation upon
which the proposed correction had been based had since
improved and that in recognition of this the Commission
would reduce the penalty even though the weaknesses were
clearly applicable throughout the period to which the correc-
tion related. Following criticism by the European Court of
Auditors and the European Parliament, this approach was
abandoned. More recent cases demonstrate that unless
improvements have had the desired effect, corrections for
weaknesses may be repeated from one year to the next.

(1) Commission Decision 2000/216/EC of 1 March 2000 (OJ L 67,

15.3.2000, p. 37).

(2) Greece 28, 48, 65 and Italy 94.

(3) The flat rates are 2 %, 5 %, 10 % and 25 %.

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Total amount of corrections in the decisions and value of the cases submitted to the Conciliation Body, per
Member State (1992-1995)

Graph 1

Total amount of corrections in the decisions from 1992 to 1995

Total amount of cases submitted to the Conciliation Body

Mio ECU/EUR
1 000

900

800

700

600

500

400

300

200

100

0

I

E

F

EL

UK

IRL
Member States

D

NL

P

B

DK

L

The European Court of Justice

State, it is for that State to show that the conditions for obtaining
the financing refused by the Commission are fulfilled’.

71. One of the expected benefits of the introduction of the con-
ciliation procedure was a reduction in the number of cases referred
to the European Court of Justice, but this has remained the same
(on average five or six cases per year). During the period under
review (EAGGF years 1992 to 1995) 25 cases were submitted cov-
ering 54 corrections (979 million euro, equivalent to 60 % of the
total submitted for conciliation). As at November 1999, judge-
ments had been given in respect of 10 cases covering 21 correc-
tions (283 million euro) — all in favour of the Commission (1).

72. Case 347/85 (2) established that where the Commission has
made a calculation of the financial impact of the infringement,
‘the burden of proving that those calculations are not correct rests
on the Member State’. More generally, this judgment also cited
Case 49/83:
‘When the Commission refuses to charge certain
expenditure to the EAGGF on the ground that it was incurred as
a result of breaches in Community rules imputable to a Member

(1) A further two cases (C-245/97 and C-129/99) were submitted directly
to the European Court of Justice, the former has not yet been judged
and the latter has been withdrawn.

(2) United Kingdom of Great Britain and Northern Ireland v Commission

[1988] ECR 1749. Clearance of EAGGF accounts.

73. The European Court of Justice can only decide whether to
uphold or annul. It cannot recommend a change to the actual
amount of the correction although in one case (C-253/97 con-
cerning 96/IT/044 (olive oil)), it has stated that a higher correc-
tion could have been justified.

CLEARANCE DECISIONS

Corrections as a performance indicator

74. Under the reformed system the corrections have until now
been considerably lower than they were under the old system
(Graph 2). The European Parliament and the Committee of Inde-
pendent Experts have expressed concern at the falling level of cor-
rections. They read this as a sign that the Commission’s clearance
of accounts unit may not be as effective as it was as a result of a
decrease in coverage and/or quality of controls. There is little evi-
dence to support such a theory. Indeed, all the signs point the
other way — the clearance unit has been considerably reinforced
over the years and the reports produced are, for the most part,
comprehensive and incisive.

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Graph 2

Clearance of accounts corrections (1991-1998)

Total amount of corrections in the
conformity decisions as at 1.3.2000

Total amount of corrections in the financial decisions

Total amount of corrections in the clearance decisions

Mio ECU/EUR
600

550

500

450

400

350

300

250

200

150

100

50

0

1991

1992

1993

1994

1995

1996

1997

1998

Financial Year

75. The published financial clearance decisions are not easily
understood. Although the presentation is consistent it is also
complicated. The key information that does not appear in the
published decisions is the value of corrections, which can only be
found in the unpublished summary document whereas the con-
formity decisions clearly show the value of corrections. The total
value of corrections excluding late payments and other ‘auto-
matic’ corrections, (since they are not measures of the effective-
ness of the clearance unit) should be the starting point for any
comparisons. Table 6 presents these amounts for the years 1991
to 1998. Only years 1991 to 1995 are closed, the last corrections
affecting the 1996 financial year may not be decided until the end
of 2000. A number of other factors also explain the apparent fall
in the yearly value of corrections.

76. The very limited data available suggests that corrections
made in the context of the financial decisions represent a very
small part of the total corrections for a given year (see Graph 2).
The Commission has stated in a document produced in response
to questions put to it by the Committee of Independent Experts
that the financial clearance corrections concern ‘modest book-
keeping adjustments and other errors’ and that ‘the reformed pro-
cedure necessarily leads to long delays in making final conformity
corrections in respect of a given year’. The expenditure is cleared
in the financial decisions without prejudice to subsequent confor-
mity decisions which usually cover two or three years and are
taken at irregular intervals as and when the conciliation proce-
dure has run its course.

77. The annual certification of the paying agencies’ accounts has
improved the general level of financial accountability. The need to
meet accreditation criteria, in particular regarding internal con-
trol, has increased/instilled a greater sense of responsibility for the
protection of the Community’s financial interests.

78. There can be no doubt that the implementation of the inte-
grated administration and control system (IACS) has had a major
impact on the prevention of irregular payments. The ex ante
physical inspections on farm (5 % of area-based claims and 10 %
of headage premium claims) lead to a large number of claims
being penalised or rejected by the Member State before payment.
The use of techniques such as satellite remote-sensing, aerial pho-
tography, risk analysis and random sampling have a strong deter-
rent effect. The ability to cross-check claims further increases the
likelihood of detection of false claims.

79. The Commission has undertaken only to make corrections
if the Member States themselves fail to take timely corrective
action for errors detected by the Certifying Bodies. Moreover, con-
formity corrections have a maximum incidence of two years pre-
ceding notification.

80. Significant corrections may be made over the next two years
(2000 and 2001) as a result of the work on long outstanding

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debts by OLAF (see paragraph 16). Other corrections resulting
from the clearance unit’s conformity audits are also likely to
increase the total value of corrections in the short term. In the
medium term the value of corrections should decrease as the
effectiveness and scope of IACS increases.

Disjunctions

81. There are two reasons for disjoining expenditure from the
financial clearance decision that must be taken by 30 April: the
Certifying Body has issued a qualified certificate with serious
weaknesses and/or the work of the Certifying Body is not
satisfactory/sufficient (the Commission needs more information
on some points and asks for complementary work to be carried
out). Once satisfied, a second financial clearance decision must be
taken. For each of the years 1996 to 1998 there have been sig-
nificant disjunctions (28 500 million euro in total). The huge
amounts involved are due to the fact that all the expenditure
declared by the paying agency is disjoined, even though only part
of it is called into question. The time taken to clear the expendi-
ture disjoined under the April financial decision has increased
from three to 10 months (see Table 1).

Late payments to beneficiaries

82. Commission Regulation (EC) No 296/96 (1) explains how
payments to Member States must be reduced when they have
failed to make the payments by the deadlines set by the Commis-
sion (a 4 % tolerance is allowed under the Regulation). Adjust-
ments for late payments are shown in Table 6. For the period 1994
to 1998, they represent just 8 % of the total value initially deter-
mined by the system. Member States have put forward many rea-
sons why they should not be penalised for making late payments
and these have been accepted by the Commission.

83. For example, in 1996, of the 271,7 million euro initially cal-
culated, only 25,2 million euro was retained by the Commission
in its third conformity decision. Reductions were decided on an
‘ad-hoc’ basis, given the information sent by the Member States
which was accepted by the Commission after many discussions
and review of the supporting documents. The reductions relate to
bookkeeping errors (53 million euro for Greece); an extension
granted to Italy to carry out supplementary controls asked for by
the Commission (154 million euro); and an increase in delays in

respect of problems encountered when changing the payments
system for the United Kingdom.

It is the Commission’s task to assess the justifications for late
84.
payments put forward by the Member States. However, this aspect
of the work is considered to be low risk by the Commission and
consequently is not given priority. Despite the fact that since 1996
the sums initially determined by the system are far greater than
the total value of the corrections made, this aspect has received
little attention.

Discharge

85. One of the major criticisms of the old system was the time
it took to clear the accounts and consequently to grant discharge.
Table 1 shows that the introduction of the reformed system has
not yet had an impact on the time taken to clear the accounts.

86.
It is too early to say what impact, if any, the reformed clear-
ance procedure will have on the discharge. The discharge for the
EAGGF 1993 to 1995 was granted by the Parliament in July 2000.
1996 has yet to be considered by the discharge authority despite
the fact that the financial clearance was completed in July 1997.

CONCLUSIONS

87. There are still too many paying agencies and the number is
likely to increase. The Commission should encourage Member
States to rationalise their paying agency structure. Some paying
agencies are poorly defined and too many fail to meet all of the
accreditation criteria (see paragraphs 9 to 12). The latter is of par-
ticular concern where these are amongst the largest in expendi-
ture terms (see paragraphs 13 to 25). Delegation of tasks and
obtaining the necessary assurance that customs controls have
been satisfactorily performed continue to cause major problems
(see paragraphs 20 to 22).

88. The Court considers that the conciliation procedure has been
insufficiently effective and that the Conciliation Body should take
a clear position on all cases presented to it and come up with con-
crete suggestions with regard to the level of correction that should
be applied.

(1) Commission Regulation (EC) No 296/96 of 16 February 1996, on
data to be forwarded by the Member States and the monthly booking
of expenditure financed under the Guarantee Section of EAGGF and
repealing Regulation (EEC) No 2776/88 (OJ L 39, 17.2.1996, p. 5).

89. The total amount of corrections for a given year has so far
been lower under the reformed system than it was under the old
(see paragraph 74). This is partly due to the fact that not all of the
conformity decisions affecting 1996 have yet been taken. Other
factors that may also have an impact are: better pre-payment

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controls (IACS) (see paragraph 78); the 24-month rule; the fact
that errors found by the Certifying Bodies are not used as the
basis for corrections if the Member States take appropriate action;
the effect of the Conciliation Body. It is therefore inappropriate to
draw a negative conclusion from the lower level of corrections.

90. There is no evidence that the reformed clearance procedure
has accelerated the timescale for clearing overall expenditure for
a given year in terms of financial correctness and conformity deci-
sions. More than three years have passed since the first year of the
reformed system (1996) and the final conformity decision has yet
to be taken. The accreditation and certification (see paragraph 77)
requirements have greatly improved Member State accountability

for EAGGF funds although there is scope for improvement on
both fronts.

91. There has been an improvement in the overall quality of the
reports produced by the Certifying Bodies for the years 1996 to
1998. This is partly attributable to greater and more precise guid-
ance from the Commission and also to experience gained by the
Certifying Bodies during the course of their work. However, there
is scope for further improvement and harmonisation, in particu-
lar with regard to the application of sampling techniques and
error identification, classification and evaluation (see para-
graphs 33 to 46). Despite these weaknesses, the reform of the
clearance of accounts procedure has been a success.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 29 and 30 November 2000.

For the Court of Auditors

Jan O. KARLSSON

President

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THE COMMISSION’S REPLIES

SUMMARY

Context

The reform of the clearance of accounts process has been a major
undertaking for the Commission and for the Member States. In
many cases it required considerable changes by the Member States.

The Commission agrees with the Court that there have been major
improvements in accountability, transparency and performance.
But further improvements still have to be made. It is, however,
extremely difficult to take a photograph of the position at any
time as improvements and developments are continually ongo-
ing.

The Commission services will continue to review the respect of
the accreditation criteria, through its own efforts and via the
annual examination of the Certifying Bodies’ reports. These con-
tinue to improve in quality. A new reporting standard for 1999
has standardised and improved reporting, particularly on sam-
pling and error evaluation.

The examination of the Court was in many ways complementary
to the ongoing work of the Commission. The Court concentrated
on the detailed operation of Certifying Bodies, while the Commis-
sion has spent more time on examining the operation of the pay-
ing agencies. The Court’s observations have been taken into
account in the examination of the 1999 reports. The Commis-
sion would like to thank the Court for its assistance in this respect.

Accreditation

The legislative authority decided that the number of paying agen-
cies should be decided by the Member States. While the Commis-
sion would welcome a reduction in the number of paying agen-
cies its influence is limited. The Commission has, however,
encouraged the Member States to reduce this number and some
have done so.

The Certifying Bodies

The Court states that four Certifying Bodies failed to comply with
the independence requirement. The Commission does not think
that the use by the Certifying Bodies of the internal audits con-
ducted by the paying agencies is inappropriate; however, the cer-

tification can be improved in order to comply more closely with
international audit standards and to provide appropriate docu-
mentary back-up. The Court notes (paragraph 29) that the Com-
mission has now resolved the problem.

The Commission believes that it is far too simplistic to take the
amount of expenditure declared by paying agencies with quali-
fied accounts and use this as a performance measure. It is impor-
tant to examine each qualification individually before making
judgements on this point.

The conciliation procedure

In the clearance of accounts procedure the Commission has very
substantial powers. Firstly it is responsible for auditing and evalu-
ating the Member States’ management of EAGGF Guarantee expen-
diture, and, secondly, it is the institution which unilaterally decides
on the amounts to refuse for financing.

In a system of this kind, as in any auditing system, it is important
that the auditee has the right to have his views heard and also to
question the strength of the arguments of the auditors.

This is in part guaranteed through an exchange of views and
information in the bilateral procedure between the Member State
and the Commission. The examination of the strength of the
arguments advanced by the Commission is further ensured by the
existence of the Conciliation Body, which also functions as a kind
of external quality control on the work performed by the Com-
mission auditors. The conciliation procedure is thus, in the view
of the Commission, an important and necessary part of the clear-
ance of accounts.

The assessment that the Conciliation Body has largely failed to
reconcile the opposing views can be considered too negative. In
view of the large financial amounts in question, it is understand-
able that an agreement between the Commission and the Member
State is rarely reached. The Commission is legally obliged to
exclude expenditure from Community financing where that expen-
diture has not been effected in compliance with Community rules
and therefore cannot accept compromises on the calculation of
corrections that would not be compatible with this obligation. On
the other hand, the national authorities will not accept any limits
on their right to approach the Court of Justice, which does open
an additional possibility to cancel or to reduce the correction.

It should be underlined that the conclusions of the Conciliation
Body are always supported by detailed reports, and often con-
clude that the Commission should take into consideration certain
arguments or elements of fact which have an impact on the level
of the correction. However, the Conciliation Body is not always
in a position to calculate precisely the amount of the modified
correction.

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In cases where the Commission services do not agree with the
Conciliation Body’s conclusion, this is justified in the Summary
Report and the Member States have the possibility to discuss it in
the EAGGF Committee.

Clearance decisions

The amount of time available to examine the accounts and cer-
tificates is limited. If there are uncertainties or outstanding ques-
tions then the Commission considers that it is prudent to disjoin
accounts.

euro declared by this paying agency in 1998 was subject to a full
and comprehensive certification.

The Commission was therefore satisfied that this expenditure had
been properly incurred.

Full accreditation was given in December 1998 after all the neces-
sary conditions had been met.

Failure to meet the accreditation criteria

Conclusion

Debtors

Concerning the overall timescale for the conformity procedure,
the Commission accepts that the last corrections for the 1996
year will not be made any quicker than under the old procedure.
However, the new procedure has resulted in considerable amounts
of corrections being imposed at a much earlier stage than in the
past (see paragraphs 54 and 55).

14 to 16. The Commission shares the concern of the Court about
the management and recovery of EAGGF debt. This issue has
received increased attention from the clearance unit since the
establishment of the accreditation criteria, culminating in the
enquiry undertaken in 1999.

1996 was the first year of the reformed procedures for the clear-
ance of accounts; the Commission expects the final corrections
for later years to be introduced considerably earlier than would
have been the case under the old system. The full effects of the
reform have not yet been seen. In this context, the Commission
considers that the conciliation procedure has contributed to this
general improvement.

Internal control

18. Following recommendations from the Commission and the
Certifying Body there have been several improvements in the
internal audit and inspection arrangements for the French paying
agencies and for the ‘départements’.

The Commission welcomes the Court of Auditor’s conclusion
that the reform of the clearance of accounts process has resulted
in improved accountability and is a considerable achievement (see
also reply to paragraph 91).

Delegation

ACCREDITATION

Number and nature of paying agencies

In certain Member States small amounts of expenditure,
19.
relating to the accompanying measures, have been paid by organi-
sations outside the paying agencies. This has been authorised by
the Commission only where adequate safeguards have existed. It
is in line with declarations made to the Council while establish-
ing the Regulation. The amount of money involved is extremely
low.

10. Concerning Italy, the Commission has not yet been formally
notified of any new paying agencies (although this remains a pos-
sibility).

‘Strukturdirektoratet’ has now become an integral part of the
Danish paying agency so this problem no longer exists.

12. The responsibility for the payment of certain accompanying
and fisheries measures was transferred to the Department of
Marine and Natural Resources on 1 January 1998. A review of the
respect of the accreditation criteria was carried out, and a com-
prehensive report produced on 13 March 1998. This proposed
provisional accreditation and set out a list of necessary improve-
ments.

Provisional accreditation was granted on 15 June 1998. The clear-
ance of accounts unit visited the new paying agency in June 1998
to confirm that accreditation was appropriate. The 33 million

The delegation of final payments to the beneficiary to coopera-
tives in Greece has never been considered acceptable by the Com-
mission. However, as it is currently the only way to ensure that
farmers receive their subsidy payments the Commission has been
forced to tolerate this system.

The Greek paying agency is developing the information technol-
ogy systems to allow direct payment to the beneficiary but this is
going rather slowly. After the identification of other problems in
the Greek payment system the Commission will insist that this
process be speeded up.

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22. The Commission is aware of the problems identified by the
Court and has, as indicated by the Court, insisted that the infor-
mation flow between the customs’ authorities and the paying
agencies be formalised through the establishment of Protocols
between the two parties.

The Commission regularly reviews the conformity of export
refunds with the Community legislation.

THE CERTIFYING BODIES

Requirements

25.
It is correct that the examination of sampling and error
evaluation by the Certifying Bodies has not been a systematic part
of the work of the clearance of accounts unit. This unit has tended
to concentrate more on the performance of the paying agencies.
The Commission therefore welcomed the decision of the Court to
examine this aspect in detail. The findings of the Court have been
taken into account and improvements made for the 1999 exer-
cise.

26. Under the terms of the Financial Regulation, Financial Con-
trol has the right to examine any aspect of the certification that it
so chooses. This includes visits to the national paying agencies
and Certifying Bodies, if need be following consultation with the
Directorate-General for Agriculture. As the Court points out, the
Commission proposes, as part of the recasting of the regulation,
to step up audit work, including in connection with the clearance
of the EAGGF Guarantee accounts.

Independence

30. The Commission shares the Court’s reservations about the
use of internal audit services in the certification. During the
experts’ group of July 2000 the Commission services insisted
that, if Certifying Bodies wish to rely on the work of internal
audit, the relevant international audit standards must be complied
with. This point will be carefully verified by the Commission ser-
vices. It is clear that, should internal audit services be involved in
certification, they must also be able to perform their own tasks.

Auditing standards

32. Regarding Ireland, the Commission would point out that
notwithstanding the weaknesses identified it has been very satis-
fied with the overall quality of the work produced by the Certify-
ing Body.

Sampling

Sample size

development of a new standard report. Specific attention was
paid to this subject during the 1999 clearance and weaknesses
that have been identified should now have been corrected.

41. The discretion given to Certifying Bodies in the performance
of their work is a deliberate policy of the Commission.

Given the wide diversity of paying agencies the Commission
believes that the Certifying Bodies are in the best position to
decide how to carry out their work, based on international audit
standards.

Error Evaluation

44. The Commission has made great efforts to improve report-
ing on error evaluations, including the development of a new
standard report. Specific attention was paid to this subject during
the 1999 clearance and weaknesses that have been identified
should now have been corrected.

44(b) The Commission considers that deductions from subsidies
in Greece for IACS schemes are irregular and has made financial
corrections equivalent to any deductions made. The Greek authori-
ties dispute this judgement and the case is currently before the
Court of Justice of the European Communities.

For non-IACS measures, new legislation, applicable from 1 Janu-
ary 2000, clearly stated that all aids should be paid in full to the
beneficiary. Before this date there was no formal requirement in
the Community legislation to pay the beneficiary in full without
deductions. The Commission does not therefore believe that these
deductions could be treated as errors. The Greek Certifying Body
has clearly noted all deductions from payments in the audit report.

47. With just one exception, every Certifying Body has reported
a total error rate of under 1 %. The Commission agrees to exam-
ine the Court’s proposal to compile a database of error rates.

International audit standards do not require auditors to follow up
errors detected in previous years. The Commission services have,
however, encouraged Certifying Bodies to go beyond international
audit standards in this respect.

Local offices and on-the-spot controls

40 to 47. The Commission has made great efforts to improve
reporting on the technical parameters for sampling, including the

48 to 50. The Commission services have encouraged Certifying
Bodies to carry out work on the spot, for example by accompany-
ing controllers. Many Certifying Bodies have taken this approach.

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Qualification of accounts

Finally, the Commission considers that 1996 is the first year of
the reformed process and is confident that corrections for future
years will be completed more quickly.

51 and 52. Every qualification is examined carefully by the
Commission. Where necessary further enquiries are undertaken,
including visits to the paying agency and/or Certifying Body. The
Commission then makes a judgement on the action to take in
each case, which may include financial correction, disjunction,
passing to the conformity teams of the clearance unit for follow-up
or noting for later follow-up.

THE CONCILIATION PROCEDURE

Background

In many cases the Certifying Body casts doubt on a certain part
of the expenditure of the paying agency but cannot quantify any
error that may have occurred. Often this is best treated in the con-
formity process, and financial corrections may be proposed. In
other cases the Commission services consider that they need more
information before accepting the accounts; accounts are then dis-
joined.

Failure to meet one or more of the accreditation criteria does not
necessarily have any impact on the correctness of the accounts.
Accounts are not disjoined on this basis, but the weaknesses iden-
tified will be followed up in conformity or accreditation missions.

Some qualified accounts are accepted by the Commission because,
after examination, it considers that the qualification, although rel-
evant to the operation of the paying agency as a whole, is not
relevant to the expenditure of a particular year.

CONFORMITY DECISIONS

54. The Court reports on the first three conformity decisions.
Since then two further decisions have been taken. In March 2000
a total of EUR 229 million, covering the period 1996 to 1998,
was corrected (1). In July 2000 a total of EUR 351 million, cover-
ing the period 1996 to 1999, was corrected (2).

The Commission accepts that the last corrections for 1996 will
not be made any quicker under the new system than under the
old. However, under the old system, all corrections for 1996
would have been made in 2000, corrections for 1997 in 2001,
and so on. The reform has therefore considerably speeded up the
correction process. Several hundred million euro has been recov-
ered for the Community more quickly than would have been the
case under the old system.

(1) Decision 2000/216/EC (OJ L 67, 15.3.2000, p. 37).
(2) Decision 2000/449/EC (OJ L 180, 19.7.2000, p. 49).

58. The evaluation report on the conciliation procedure was
drawn up by the Directorate-General for Agriculture.

Role of the Conciliation Body

60. The Commission is legally obliged to exclude expenditure
from Community financing where that expenditure has not been
effected in compliance with Community rules, and therefore, can-
not accept compromises on the calculation of corrections that
would not be compatible with this obligation. The proposal to
settle cases on a ‘transaction’ basis was therefore not acceptable.

61. The Commission attaches importance to the role that the
Conciliation Body plays in ensuring quality control. Nevertheless
the Commission can accept the Conciliation Body’s conclusion
only where it appears that, on the basis of the facts and argu-
ments exchanged, this conclusion is more appropriate than the
initial proposal of its services.

To stress this aspect of the role of the Conciliation Body, the Com-
mission has, by Decision 2000/649/EC (OJ L 272, 25.10.2000,
p. 41), amended Decision 94/442/EC in order to facilitate the
appointment of members specialised in modern audit techniques,
in addition to members highly qualified in matters relating to the
EAGGF, as it is currently the case.

As regards the possibility for the Conciliation Body to propose
increases of corrections this is basically incompatible with the
idea of conciliation.

Performance measurement of the Conciliation Body

The four-month deadline

64. The Court considers that the conciliation process has not
speeded up the clearance process. The Commission notes that the
problems raised essentially concern the old clearance of accounts
method which involved taking a decision for each financial year.
In the new system the possibility exists of adopting a number of
clearance decisions in one calendar year.

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The speeding up of the clearance procedure is the result of the
reform in general, from which the conciliation procedure cannot
be separated.

Disjunctions

Outcome

66 to 68. The percentages in the evaluation report of the Con-
ciliation Body must be kept as they serve only to give an indica-
tion of its success in bringing the positions of the Commission
and the Member States closer together. They do not themselves
prejudge the final outcome of the disputed cases, in particular
because the right to bring an action before the Court of Justice
belongs to the Member State concerned and this right is not
affected by the conciliation procedure.

81. No accounts were disjoined in 1999. However, the Commis-
sion will continue to disjoin the accounts if there are material
uncertainties existing by the end of the certification process. Given
the limited time available to clear the accounts it is naturally pru-
dent to disjoin accounts if more information is needed. The time
taken to make the second decision depends on several factors. It
will increase or decrease depending on the difficulties identified.
It is too early for a pattern to be identified.

Late payments to beneficiaries

The Court of Justice of the European Communities

82 to 84. The Commission may apply the discretionary powers
allowed for in Regulation (EC) No 296/96. This discretion was
particularly used in the first years of the application of direct aids.

71. The Commission naturally hoped that the introduction of
conciliation would reduce the number of cases referred to the
Court of Justice, but this was never a formal objective of the sys-
tem as it is outside the control of the Commission. The Concili-
ation Body was in fact set up to strengthen the Member States’
rights of defence and to make for greater transparency in matters
which might ultimately result in financial corrections.

The Commission would point out that the Treaty gives Member
States the right to bring actions before the Court of Justice. The
Commission is not in a position to affect the actions of the Mem-
ber States in this regard.

CLEARANCE DECISIONS

Corrections as a performance indicator

74. The Commission notes that the objective of the clearance of
accounts process is not to propose financial corrections. The main
objective is to verify whether payments have been made in con-
formity with the rules. The Commission believes that conformity
with the rules has improved, through the development of better
and clearer rules and through improvements in control systems
(such as IACS).

The Commission works with the Member States to constantly
improve the implementation of the CAP legislation. The aim is,
over time, to reduce the level of corrections, ideally to arrive at a
situation where no corrections are required.

The clearance unit is obliged to carry out its work based on risk
analysis, and has been encouraged to do so by the Court of Audi-
tors and the Parliament. It is thus inevitable that some areas will
not be examined in any given period. Various studies have been
made of this question.

The Commission stresses that these payments were not incorrect
or irregular payments to the final beneficiary. They relate to pay-
ments made by the Member States to the final beneficiary after
the regulatory deadline.

This system for promoting the payment of aids within deadlines
was introduced in 1996. It affected all Member States and all
schemes. In the first years of the scheme many Member States
found it difficult to complete the administrative work necessary
within the deadline.

The Commission did not want, in the first years, to punish Mem-
ber States that were acting to protect the financial interests of the
Community. Imposing too high penalties may have encouraged
Member States to pay aids within the deadlines, whether or not
all checks had been completed, and the Commission wanted to
avoid this risk. It has therefore applied the discretionary powers
allowed for in Regulation (EC) No 296/1996. Cases where this
discretionary power has been used are set down in working docu-
ments distributed to the Member States to demonstrate that all
cases are treated equally.

75. The Commission accepts the comment of the Court that the
published financial clearance decision is not easily understood. It
will examine the possibility of publishing a clearer decision.

The level of corrections for late payments is falling, even though,
as part of its commitment to budgetary discipline, deadlines are
being set for more and more measures.

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CONCLUSIONS

87. The Commission notes the Court’s comment that there still
too many paying agencies. However, it is for the Member States
to decide how many paying agencies are established. The Com-
mission has encouraged Member States to rationalise their struc-
tures and several have already done so.

88. Bringing an action before the Court of Justice is a right which
Member States enjoy under the Treaty. The Commission is not in
a position to affect the actions of the Member States in this regard.
For a Member State, a Court case can only lead to the mainte-
nance or reduction of the financial correction imposed by the
Commission.

The Commission believes that the conciliation procedure is an
integral part of the reform of the clearance of accounts and can-
not easily be separated from all the other aspects introduced in
the reform. It believes that the conciliation procedure has con-
tributed to the overall improvement in the clearance of accounts
that the Court has identified.

90. The Commission accepts that the last corrections for the
1996 year will not be made any more quickly than under the old
procedure. However, the new procedure has resulted in consider-
able amounts of corrections being imposed at a much earlier
stage than in the past (see paragraphs 54 and 55).

1996 was the first year of the new procedure; the Commission
expects the final corrections for later years to be introduced con-
siderably earlier that would have been the case under the old sys-
tem.

A new reporting format introduced for the 1999 clearance con-
siderably improved the reporting of information on sampling and
error evaluation. The clearance of accounts unit will continue to
work to make improvements in both accreditation and certifica-
tion of paying agencies.

89. The Court concludes that it is inappropriate to draw a nega-
tive conclusion from the lower level of corrections. The Commis-
sion notes and shares the conclusions of the Court in this regard.

91. The Commission notes and welcomes the Court of Auditors’
assessment that the reform of the clearance of accounts proce-
dure has been a success.