Special Report No 4/2001 on the audit of the EAGGF-Guarantee — the implementation of the integrated administration and control system (IACS) together with the Commission's replies
Date: 2001-06-07
Institutions: European Court of Auditors
Subjects: EAGGF Guarantee Section, EU control, accounting system, audit, computer system, management information system

31.7.2001

EN

Official Journal of the European Communities

C 214/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 4/2001

on the audit of the EAGGF-Guarantee — the implementation of the integrated administration and
control system (IACS) together with the Commission’s replies

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

(2001/C 214/01)

CONTENTS

Paragraph

Page

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

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

General context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of IACS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Court’s audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DESIGN OF THE INTEGRATED SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Computerised databases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The identification system for agricultural parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The system of identification and registration of animals . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aid applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The integrated control system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Administrative controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Field inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

1-8

1-3

4-6

7-8

9-32

9-10

11-13

14-15

16-19

20-22

23-32

23-28

29-31

32

THE ROLE OF THE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33-72

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General organisational background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Agriculture Directorate-General (DG AGRI)

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

The Health and Consumer Protection Directorate-General (DG SANCO) . . . . . . . . . . . . .

33

34-36

34-35

36

Guidance by the Commission and regulatory issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37-38

Management information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evaluation of IACS and enforcing implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39

40

Main findings at Commission level

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

41-67

3

4

4

4

6

7

7

11

11

11

12

12

12

13

14

14

14

14

14

15

15

16

16

16

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Official Journal of the European Communities

31.7.2001

Paragraph

Page

General organisational background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41-42

The Agriculture Directorate-General (DG AGRI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Health and Consumer Protection Directorate-General (DG SANCO) . . . . . . . . . .

Guidance by the Commission and regulatory issues . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Guidance by the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Regulatory issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Evaluation of IACS and enforcing implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE ROLE OF THE MEMBER STATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Main findings at Member State level

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

CONCLUSION AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41

42

43-53

43-47

48-53

54-60

61-66

67

68-71

69-71

72-81

72-80

81

ANNEX: Rules for application of sanctions in 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

16

16

16

17

17

19

20

25

28

28

28

29

29

30

31

33

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SUMMARY

In order to ensure better market equilibria, the common agricultural policy (CAP) was reformed in 1992 in
I.
the direction of a system of direct aid for farmers, which significantly increased the number of beneficiaries
but also the risk of irregularity and fraud. The integrated administration and control system (IACS) was there-
fore introduced to meet those risks. The system consists of five elements — a computerised database, an iden-
tification system for agricultural land parcels, a system of identification and registration of animals, aid applica-
tions, and an integrated system for administrative controls and field inspections.

II.
In the EU all IACS aid applications (some 6 million each year) are processed and checked administratively
(some 3,2 million area aid applications and 2,8 million applications for animals). In 1999, some 25 353,6 mil-
lion euro, or 63,6 % of EAGGF-Guarantee expenditure passed through IACS, directly or indirectly. These
checks are complemented by on-the-spot controls (minimum 5 % of area aid applications and 10 % of all
animal applications falling under IACS), selected on the basis of a risk analysis. All these checks lead to sig-
nificant reductions in Community expenditure. The Court is of the opinion that IACS provides a sound basis
for controlling arable crops and animal premium expenditure and that it is an essential tool to limit and reduce
the risk to the Fund (see paragraphs 3 to 6 and 9 to 32).

III. During audit visits carried out in 1999 and 2000, the Court examined the level of implementation of IACS
in 1998, the second year after the end of the transitional period (1993 to 1996; 1997 for the three new Member
States), at the level of the Commission and in six Member States, namely Germany, Spain, France, Ireland,
Portugal and the United Kingdom. The schemes that were specifically reviewed were the area aid scheme and
bovine premiums. Where reliable information was available for later years the Court updated its findings on
the basis of this information (see paragraphs 7 and 8).

IV. The Commission’s main roles are to design the concept of IACS (co-financed between 1992 and 1997);
and to supervise, coordinate and check the implementation of IACS in all the Member States. This role is
performed by the Clearance-of-Accounts Directorate in the Agriculture Directorate-General. There are, more-
over, other Commission services that also deal with IACS (such as the market divisions of the Agriculture
Directorate-General and the Health and Consumer Protection Directorate-General, which is in charge of vet-
erinary aspects) but certain problems might have been avoided if coordination had been more effective (see
paragraph 41).

V.
IACS and the different market regulations are by their nature complicated and they are not precise enough
to explain in detail all eventualities relating to their interpretation. The Commission has therefore issued a
number of interpretations and recommendations. Despite this, practices in the Member States still differ. The
main regulations were amended 80 times between 1992 and 1999 (see paragraphs 37 and 38, and 43 to 53).

VI. The extent and quality of information provided by the Member States needs to be improved. The Com-
mission should continue its efforts to improve the quality of the information it requests and receives from the
Member States and to evaluate and use that information to improve its management of the Member States’
implementation of IACS (see paragraphs 39 and 54 to 66).

VII. The Member States are responsible for the actual implementation of IACS. Although the final deadline
for the full implementation of IACS was 1 January 1997 the Court’s audit revealed persistent weaknesses in
the Member States visited. This concerns mainly the non or partial execution of cross-checks of surface areas
and animals, the fact that the databases on surface areas and bovine animals were in some cases incomplete
and out of date and the poor quality of the field inspections (see paragraphs 68 to 71).

VIII. The Court’s main recommendations to the Commission concern the development of an efficient man-
agement information system and the simplification and harmonisation of the regulatory framework (see para-
graph 81).

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Official Journal of the European Communities

31.7.2001

INTRODUCTION

General context

1.
In order to ensure better market equilibria, the common agri-
cultural policy (CAP) was significantly reformed in 1992, in par-
ticular in the arable crops sector (cereals, oilseeds, protein seeds
and non-textile flax) and the meat sector (beef and veal, sheep and
goat). Institutional prices were reduced and direct compensatory
payments to farmers were introduced. These payments are based
on the eligible area (for arable crops) and the eligible animals (for
animal premiums) (1) declared by the farmers.

2. Before the reform, the expenditure was concentrated on inter-
vention storage and export refunds. While the changeover to a
system of direct aid for farmers (2) made the CAP more compat-
ible with GATT/WTO commitments, the number of recipients
considerably increased and the administration of the aid became
significantly more complicated. An effective and comprehensive
control system was therefore needed and so the Council decided
in 1992 to create the integrated administration and control sys-
tem (IACS) (3).

3. Some six million aid applications are processed and checked
each year by IACS (some 3,2 million area aid applications and 2,8
million aid applications for animals) (4). Each aid application typi-
cally contains details about many individual
land parcels, or
bovine animals, as well as various details supporting the applica-
tion. In order to detect and correct inaccurate claims, automatic
administrative checks are performed on all aid applications. Fur-
thermore, some 387 000 on-the-spot inspections for area aid

applications and some 333 000 on-the-spot inspections for bovine
animals are carried out annually. Without a system such as IACS
it would be impossible to carry out adequate checks to minimise
the processing of incorrect applications.

Implementation of IACS

4. Member States were obliged to establish adequate systems to
implement IACS, and in particular powerful computer systems
which would allow the management of databases containing hun-
dreds of millions of items of data.

5. The introduction of IACS commenced in 1993, and the related
payments for the new CAP started in the 1994 budget year. There
were different deadlines for the achievement of the various stages
in IACS. The deadline for final implementation was 1 January
1997 (5) (except for the three new Member States — Austria, Fin-
land and Sweden — which had an extra year).

IACS is the key tool for the control of EAGGF-Guarantee
6.
expenditure and its importance is increasing with time as progres-
sively more measures and expenditure are directly or indirectly
managed and controlled through this system (grain-legume, rice,
dried fodder, fibre flax and hemp, cotton, hops and agri-
environmental schemes): 42,6 % of EAGGF-Guarantee expendi-
ture in 1994 and 63,6 % in 1999 (see Table 1 and Illustration 1). In
the financial year 2004 more than 80 % of EAGGF-Guarantee
expenditure will be processed through IACS as the result of the
Agenda 2000 reform and the decision by the Council to include
other schemes, such as tobacco, olive oil, dried grapes, citrus
fruits and tomatoes for processing and wine from the year 2003 (6).

(1) There are detailed rules for determining both eligible area and eligible
animals. To be eligible for area aid, the land must have been used for
arable crops in 1991. There are various quotas applicable for the ani-
mal aid, and payment is also restricted by eligible forage areas.
(2) Concerning the beef and veal sector, direct aid existed before 1992.
With the reform this aid was more than tripled between 1992 and
1996 for EU-12.

(3) Council Regulation (EEC) No 3508/92 of 27 November 1992
(OJ L 355, 5.12.1992, p. 1). The detailed implementation rules were
established by Commission Regulation (EEC) No 3887/92 (OJ L 391,
31.12.1992, p. 36).

(4) Source: Area aid — Commission DG VI data for 1998; Animal premi-
ums — incomplete Commission DG VI data for 1998, with an esti-
mate based on 1994 (there is no updated information available at the
Commission service).

(5)

In the beginning, the deadline was 1 January 1996. The new deadline
was set by Council Regulation (EC) No 2466/96 of 17 December
1996 (OJ L 335, 24.12.1996, p. 1).

(6) Council Regulation (EC) No 1593/2000 of 17 July 2000 (OJ L 182,
21.7.2000, p. 4) amending Regulation (EEC) No 3508/92, stipulates
that systems for aids based on areas (such as flax and hemp, environ-
ment, forestry) and for production aids (such as tobacco, olive oil, cot-
ton, wine, tomatoes and citrus fruits) shall be compatible with IACS.

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Evolution of EAGGF Guarantee Section expenditure covered by IACS since 1994 (according to nomenclature of the 1999 budget)

Table 1

Category of expenditure

1994

1995

1996

1997

1998

1999

2000 (1)

(Mio EUR)

2001
budget

Measures fully included in IACS (2)

Per hectare aid for arable crops
Per hectare aid for arable crops (small producers)
Per hectare aid for arable crops (large-scale producers)
and durum wheat
Set-aside

1 756,4

2 313,9

2 875,6

2 850,0

2 548,6

2 364,9

2 248,3

3 874,0

7 083,5
1 712,9

8 780,5 10 660,4
2 271,4
2 412,6

11 815,6 12 350,5 12 259,0
1 283,8
1 262,6
1 903,6

10 907,4
1 858,5

11 458,0
1 564,0

Subsubtotal

10 552,8

13 507,0

15 807,4 16 569,2

16 161,7

15 907,7

15 014,2

16 896,0

Premiums for beef and veal
Suckler cow premiums
Additional premiums for suckler cows
Special premiums
Deseasonalisation premiums
Extensification premiums

841,5
40,5
656,6
31,6
389,0

1 009,1
43,2
957,1
24,5
438,1

1 468,6
44,3
1 407,2
23,0
507,3

1 465,6
56,2
1 238,5
39,5
568,6

1 589,1
63,4
1 340,8
45,1
706,4

1 594,7
63,3
1 297,3
23,7
714,2

1 565,9
62,5
1 299,3
2,6
715,5

1 736,0
102,0
1 619,0
0,0
757,0

Subsubtotal

1 959,3

2 472,0

3 450,4

3 368,4

3 744,8

3 693,2

3 645,9

4 214,0

Subtotal (expenditure covered by the audit)

12 512,1

15 979,0

19 257,8

19 937,6 19 906,5 19 600,9 18 660,1

21 110,0

Other
Production aid for grain legumes
Aid per hectare for rice
Intervention other than storage of sheepmeat and
goatmeat
Accompanying measures (former system)

70,8

70,4
40,5

70,5
82,3

68,8
124,3

72,0
129,0

1 628,1
93,4

1 780,8
73,4

1 320,8
72,0

1 066,6
50,6

1 534,9
30,6

1 891,8
17,7

1 733,7
6,9

1 620,0
15,0

Subtotal

1 721,5

1 854,2

1 392,8

1 188,0

1 676,4

2 062,3

1 933,7

1 836,0

TOTAL 14 233,6 17 833,2 20 650,6

21 125,6 21 582,9 21 663,2 20 593,8

22 946,0

Measures for which agricultural parcels have to be
cross-checked with other measures in IACS (3)
Production aid for dried fodder
Fibre flax and hemp (4)
Aid for cotton
Premiums for tobacco
Hops
Environment
Afforestation
Less-favoured areas

297,4

297,4

307,3

1 391,2
241,0

1 511,2
318,7

1 282,9
327,5

307,0
123,6
903,2

12,6
1 951,6
392,2

313,0
136,4
854,7

12,6
2 258,6
533,1
674,2

312,0
88,0
766,0
987,0
12,0
2 215,0
520,0
780,0

TOTAL

1 929,6

2 127,3

1 917,7

3 690,3

4 782,5

5 680,0

GRAND TOTAL 14 233,6 17 833,2 22 580,2 23 252,9 23 500,6 25 353,4 25 376,3

28 626,0

Total B01 EAGGF-Guarantee (excluding monetary
reserve)

33 412,3 34 502,7

39 107,8

40 674,9

38 748,1 39 854,1 40 362,5

43 197,7

% covered by IACS

42,6

51,7

57,7

57,2

60,6

63,6

62,9

66,3

% of the expenditure covered by the audit (arable crops
and beef and veal)

37,4

46,2

49,2

48,9

51,3

49,1

46,2

48,9

(1) Due to Agenda 2000 reform, the advance payment for oilseeds 2000 harvest has been paid in 2001. This explains the decrease in IACS expenditure for year 2000.
(2) According to Article 1(1) of Regulation (EEC) No 3508/92.
(3) Measures to be declared separately from the area aid applications according to Article 4(1) of Regulation (EEC) No 3887/92.
(4) In 2001, the aid for flax and hemp is part of per hectare aid for arable crops.

Source: 1994-1999: Financial Report concerning EAGGF, Guarantee Section.
2000: Commission Document AGRI/72a/2000 of 18.1.2001.
2001: General Budget 2001.

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Evolution of the percentage of EAGGF expenditure covered by IACS

Illustration 1

57,7 %

57,2 %

60,6 %

63,6 %

62,9 %

66,3 %

51,7 %

42,6 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001

NB: The decrease in 2000 is due to a change in the timing of the payment of aid for oilseeds, rather than a decrease in the coverage of IACS.

Source: Evolution of EAGGF expenditure, Commission DG AGRI (see table 1).

The Court’s audit

7.
In 1995 and 1996 the Court examined the level of implemen-
tation of some parts of IACS while analysing the area aid scheme
and the beef and veal premium scheme. The results of the audit
were published in the 1996 (1) annual report. For the current
audit the Court examined, through audit visits to the Commis-
sion and Member States in 1999 and 2000, the level of imple-
mentation of IACS in 1998 (mainly 1999 EAGGF-Guarantee
expenditure for aid applications made in 1998), the second year
when it was required to be fully implemented. The principal audit
objectives were to confirm that IACS was being fully implemented
the data collected in the data-
and was operational,

that

bases were complete and valid and were being updated on time,
and to assess the Commission’s role (until mid-2000) in the
implementation of IACS.

8. The audit was based on the Commission’s documents, includ-
ing the findings of the Commission’s inspections at the level of
the Member States. In addition central and regional/local authori-
ties dealing with the management of IACS schemes in six Member
States, namely Germany (2), Spain (3), France (4), Ireland, Portugal,
and the United Kingdom (5), were visited. These Member States
account for 76 % of IACS expenditure by the EAGGF-Guarantee
for arable crops and bovine animals (see Illustration 2).

(2) Visits were carried out at the Federal Ministry of Agriculture and in

the Länder of Lower Saxony and Bavaria.

(3) Visits were carried out at central level and in the Autonomous Com-

(1) Annual Report 1996 concerning the financial year, Chapters 3 and 4

(OJ C 348, 18.11.1997).

munities of Catalonia and Navarre.

(4) Visits were carried out at central level and at regional level in the
Departments of Bouches-du-Rhône, Haute Corse and Landes.
In the United Kingdom, visits were carried out at central level and in
Scotland and Wales.

(5)

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Illustration 2

Member States’ share of IACS related expenditure in 1999

%
2
1
3

,

%
5
0
3

,

%
8
7
2

,

Per hectare aid for arable crops

Premiums for bovine animals

Total

%
9
0
2

,

%
7
8
1

,

%
2
9

,

%
2
1
1

,

%
4
0
1

,

%
3
0
1

,

%
5
3

,

%
0
4

,

%
3
1

,

%
2
1

,

%
0
3

,

%
6
2

,

%
3
1

,

%
0
4
1

,

%
1
1
1

,

%
9
9

,

%
4
4

,

%
2
3

,

%
7
0

,

%
1
0

,

%
2
0

,

%
1
0

,

%
8
0

,

%
6
0

,

%
2
% 2
8
0

,

,

%
9
9
1

,

%
8
1
1

,

%
0
0
1

,

%
4
2

,

%
3
2

,

%
2
2

,

%
0
1

,

%
2
1

,

%
4
1

,

%
4
1

,

%
0
1

,

%
4
2

,

%
3
2

,

%
9
1

,

,

%
8
% 2
9
0

,

9
9
9
1
n

i
e
r
u
t
i
d
n
e
p
x
e
f
o
e
r
a
h
s
e
g
a
t
n
e
c
r
e
P

35 %

30 %

25 %

20 %

15 %

10 %

5 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

United Kingdom
Sweden

Source: Basic data obtained from Commission DG AGRI expenditure reports.

DESIGN OF THE INTEGRATED SYSTEM

Introduction

(c) a system of identification and registration of animals, which
enables claims to be cross-checked and controlled on the spot;

(d) aid applications for area aid, forage areas and animals;

9. The Council Regulation introducing IACS requires Member
States to establish the following five elements (1):

(e) an integrated control system for administrative controls and

field inspections.

(a) a computerised database to record the data in the aid applica-

tions for each agricultural holding;

(b) an identification system for agricultural parcels, i.e. a system
to allow areas declared to be located so they can be monitored
over time and so that computerised cross-checks and on-the-
spot checks can be organised;

10. Table 2 provides an overview of the theoretical processing of
aid applications through IACS, with its principal controls. Illustra-
tion 3 shows the number of applications received for arable crops
and the area concerned in 1998. The corresponding information
for bovine aid applications is in Illustration 4.

(1) Council Regulation (EEC) No 3508/92, Article 2.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Area aid and forage area
applications

Registration of receipt

Input of key claim data

Cross-check with standing data
e.g. address/bank account
Cross-check with other claims to
avoid duplicate applications

Processing of claim (data input)
Depending on architecture of
database: direct cross-check or
separate cross-checks after input

Cross-checks

Risk analysis for
on-the-spot controls

Selected for
on-the-spot control

If not OK: further
checks or refusal or
reduction of aid

OK

Check of base areas:
if not respected,
reductions to be
applied

Table 2

Overview of principal IACS controls

Animal premium applications

Optional formality checks
on receipt: is the claim
complete, signed, etc.

Registration of receipt

Input of key claim data

Database with
standing data of
holdings

Respect of deadlines for claims

Check of duplicates
Cross-checks with:
database on arable and forage
area parcels (size/utilisation),
database on eligible parcels,
Register of transfers of eligible
parcels,
database of parcels that are not
eligible, e.g. forests, building land,
database of anomalies identified
in previous years (administrative
controls / inspections),
specific registers (set-aside, etc.)

Cross-checks with database on
production quotas
and individual limits/ceilings

Particular cross-checks: breed of
animals, approved seeds, etc.)

Cross-checks with other aid
schemes, e.g. suckler cows/
male bovines, extensification, etc.

Database of valid claims

Processing of claim for payment
Pre-payment checks/validation

Payment of the aid

Cross-check with standing data
e.g. address/bank account
Cross-check with other claims to
avoid duplicate applications

Processing of claim (data input)
Depending on architecture of database:
direct cross-check or
separate cross-checks after input

Eligibility for
extensification:
Cross-checks with
area/forage claim

Small producer
and no extensification

Cross-checks

Animal registration database
(with animal ID numbers etc.)
Control of duplicates

Risk analysis for
on-the-spot controls

Selected for
on-the-spot control

If not OK: further
checks or refusal or
reduction of aid

OK

Check of overall
ceilings: if exceeded
reductions of aid to
be applied

NB: In case of decentralised databases there must be cross-checks at central level, for instance cross-checks of animal numbers or surfaces claimed in other regions.

Source: Court of Auditors review of relevant regulations.

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Illustration 3

Area aid applications in 1998

800 000

700 000

600 000

500 000

400 000

300 000

200 000

100 000

s
n
o
i
t
a
c
i
l
p
p
a
f
o
r
e
b
m
u
N

0

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

30 000 000

25 000 000

20 000 000

15 000 000

)
a
h
(
a
e
r
A

10 000 000

5 000 000

0

Number of applications

Area (ha)

Austria

Portugal

Finland

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

 
 
 
C 214/10

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Illustration 4
Bovine aid applications in 1998

(1) Special beef premium applications in 1998

Number of applications

Number of animals

300 000

250 000

200 000

150 000

100 000

50 000

0

s
n
o
i
t
a
c
i
l
p
p
a
f
o
r
e
b
m
u
N

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

United Kingdom
Sweden

(2) Suckler cow applications in 1998

Number of applications

Number of animals

160 000

140 000

120 000

100 000

80 000

60 000

40 000

20 000

s
n
o
i
t
a
c
i
l
p
p
a
f
o
r
e
b
m
u
N

0

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

United Kingdom
Sweden

(1+ 2) Bovine aid applications in 1998

Number of applications

Number of animals

400 000

350 000

300 000

250 000

200 000

150 000

100 000

50 000

s
n
o
i
t
a
c
i
l
p
p
a
f
o
r
e
b
m
u
N

0

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

United Kingdom
Sweden

2 500 000

2 000 000

1 500 000

1 000 000

500 000

0

4 500 000

4 000 000

3 500 000

3 000 000

2 500 000

2 000 000

1 500 000

1 000 000

500 000

0

7 000 000

6 000 000

5 000 000

4 000 000

3 000 000

2 000 000

1 000 000

0

i

s
l
a
m
n
a
f
o
r
e
b
m
u
N

i

s
l
a
m
n
a
f
o
r
e
b
m
u
N

i

s
l
a
m
n
a
f
o
r
e
b
m
u
N

 
 
 
 
 
 
 
 
 
 
 
 
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Computerised databases

11. The computerised database should record the data obtained
from the aid applications for each agricultural holding, in order
to allow direct and immediate consultation. Member States could
choose which computer system(s) to apply. They may create
decentralised databases provided they and the administrative pro-
cedures governing the recording of, and access to, the data are
homogeneous over the entire territory of the Member State and
are mutually compatible (1).

12.
In Germany, Spain and the United Kingdom, the national
authorities have opted for a decentralisation of IACS, adapted to
their administrative systems, i.e. the creation of 16, 17 and four
databases respectively. The lack of mutual compatibility between
the databases has forced the authorities responsible to set up ad
hoc procedures for national cross-checks of agricultural parcels
and animals. In Germany and Spain this procedure is implemented
by means of electronic exchange of information, which is entered
in the respective databases for processing. For agricultural parcels,
the United Kingdom has only made provision for manual process-
ing.

13. A ‘holding’ includes all the production units managed by a
farmer in the same Member State. While some Member States
already had an identification system for holdings, such systems
did not exist in other Member States when IACS was introduced
and had to be implemented. Member States were also obliged to
take the measures necessary to avoid the artificial splitting of
existing holdings or the creation of holdings after 30 June 1992,
for the purpose of circumventing the individual limits that are
imposed under the specific aid schemes.

The identification system for agricultural parcels

14. The identification system for agricultural parcels was to be
based on land registry maps, other cartographic references, aerial
photographs, satellite images, or other equivalent supporting ref-
erences. Member States could also base the system on land regis-
try parcels or production blocks. This system must enable all the
agricultural parcels to be identified unequivocally and to identify
their geographical location. This element is vital for carrying out
effective cross-checks (see paragraph 23).

(1) Council Regulation (EEC) No 3508/92, Article 3.

15. Among the Member States visited, Germany, Spain and
France chose, from the beginning, to use the land registry survey
as their system of identifying agricultural parcels. This survey is
not necessarily entirely up to date with regard to the use of the
land but is of good quality in respect of the surface area of the
parcels. Other Member States, e.g. Ireland, Portugal and, in the
United Kingdom, Scotland, opted for a system using aerial pho-
tographs and/or satellite images (geographical information sys-
tem (2)), even if another system had sometimes been applied to
begin with. The rest of the United Kingdom uses an identification
system based on the official maps of the country (produced by
the Ordnance Survey).

The system of identification and registration of animals

16. The rules for animal identification and registration are pro-
vided for in a specific Directive of 1992 (3), and in later Regula-
tions, to which IACS Regulations refer. The Directive required that
farmers had to maintain detailed herd registers, and that bovine
animals had to be eartagged with a unique identification code.
This should have been implemented at the latest by 1 July 1994.
As in the case of the parcels, this system is vital for carrying out
effective cross-checks. It must enable all the animals mentioned in
the aid applications to be identified unequivocally.

17. The BSE crisis revealed that the system in place suffered from
numerous weaknesses, which emphasised the need to introduce
more detailed rules for the identification and registration of bovine
animals. This was done in April 1997 by replacing the 1992
Directive with a new Council Regulation (4), which adapted the
rules for eartagging (5) and herd registers, and introduced

(2) Recently the Council decided that from 2005, all Member States
should have a geographical information system. According to Council
Regulation (EC) No 1593/2000 amending Regulation (EEC)
No 3508/92 establishing an integrated administration and control
system for certain Community aid schemes (Article 4), the identifica-
tion system for agricultural parcels is to be established by making use
of computerised geographical information system techniques includ-
ing, preferably, aerial or spatial orthoimagery, with a homogenous
standard guaranteeing accuracy at least equivalent to cartography at
a scale of 1:10 000.

(3) Council Directive 92/102/EEC of 27 November 1992 on the identi-
fication and registration of animals (OJ L 355, 5.12.1992, p. 32).
(4) Council Regulation (EC) No 820/97 of 21 April 1997 (OJ L 117,
7.5.1997, p. 1). This Regulation deals with the provisions directly
applicable to IACS but also with the labelling of beef and beef prod-
ucts.

(5) Eartags should be applied to each ear to identify all animals on the
holding born after 1 January 1998 or intended for intra-Community
trade after that date.

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requirements for a computerised database (1) and animal pass-
ports. A 1998 audit by the Court (2) on the BSE crisis underlined
the importance of establishing comprehensive and reliable regis-
ters of animals in Member States.

Aid applications

18. According to this new Regulation, Member States must per-
form on-the-spot inspections to check that herd owners are com-
plying with these requirements. At least 10 % of herds should be
inspected each year on the basis of risk analysis (3). If the com-
puterised database is recognised by the Commission as fully
operational, Member States need not issue passports for all bovine
animals but only for those intended for intra-Community trade,
and the annual inspection rate can be reduced from 10 % to 5 %.

20. Each year farmers may submit a single ‘area’ aid application
(including the forage area) and one or more ‘animal’ aid applica-
tions. All aid applications have to indicate the identity of the
farmer and give the farmer’s written undertaking to respect the
particular rules of the schemes involved. All the information
necessary for carrying out all the eligibility checks before the aid
is paid must be included in the aid applications, or annexed to
them.

19.
If such an inspection finds that animals are not correctly
identified and registered, sanctions are applied ranging from
restrictions on movement to destruction of the animals con-
cerned, depending on the seriousness of the problem found (4).
These sanctions are in addition to the financial sanctions applied
under IACS Regulations (see paragraph 32).

21. Area aid applications have to identify all agricultural parcels,
their area, location, use and the aid scheme concerned. Member
States may require use of areas for crops not eligible for aid
schemes administered by IACS to be declared under an ‘other use’
heading.

22. Applications for bovine animal premiums have to identify
the eartag numbers of the animals for which aid is being claimed
and they have to refer to the area aid application in which the for-
age area was declared (5).

The integrated control system

Administrative controls

23. The main purpose of IACS administrative controls is to
ensure that aid is correctly calculated and that there are no dupli-
cate payments. This involves checking the holdings claiming the
aid, cross-checking areas declared (including forage areas) and
cross-checking animals declared.

24. These administrative controls are of two types: manual and
automated. Manual administrative controls take place at all stages
of the examination of applications, from the point when human
intervention proves necessary. Automated controls include all
procedures carried out with the help of computers in order to
check the eligibility criteria in respect of aid applications. The
main automated checks are the cross-checks on parcels and ani-
mals. Given the volume of the transactions involved, and the
complexity of the cross-checks required, such cross-checks can-
not be efficiently carried out manually.

(5) Even if a farmer has no arable crops, he must declare his forage areas
to be eligible for the animal aids (exemption rules apply for small
farms only).

(1) The computerised database should be fully operational by 31 Decem-
ber 1999. Once the database is operational, holdings must report to
the competent authority all movements, births and deaths of animals.
Council Directive 97/12/EC of 17 March 1997 (OJ L 109, 25.4.1997,
p.1) concerns veterinary measures for intra-Community trade, but
also specifies the requirements for the computerised database as
stipulated by Regulation (EC) No 820/97. Article 14 of the Directive
refers to the information which should be available in the computer
system. This is the identification code, date of birth, sex, breed or
colour of coat, ID code of the mother cow (dam), the ID number of
the holdings where born, ID numbers of all holdings where the ani-
mal has been kept, the dates of each change of holding, date of death
or slaughter. If these requirements are respected the database could
provide complete documentation on each bovine animal.

(2) Special Report No 19/1998 concerning the Community financing of
certain measures taken as a result of the BSE crisis, accompanied by
the replies of the Commission (OJ C 383, 9.12.1998).

(3) Commission Regulation (EC) No 2630/97 of 29 December 1997
(OJ L 354, 30.12.1997, p. 23). The risk analysis must take into account
the number of animals on the holdings; public and animal health
considerations and any previous existence or outbreak of disease, the
amount of bovine premium claimed/paid in comparison to previous
years, other significant changes and the results of checks conducted
in earlier years (e.g. the proper keeping of herd registers and pass-
ports).

(4) Commission Regulation (EC) No 494/98 of 27 February 1998
(OJ L 60, 28.2.1998) laying down detailed rules for the implementa-
tion of Council Regulation (EC) No 820/1997 as regards the applica-
tion of minimum administrative sanctions in the framework of the
system for the identification and registration of bovine animals.

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25. The efficiency of the manual administrative checks is directly
dependent on the quality of the human resources available and
the procedures applied. With regard to automated checks, the effi-
ciency depends on the quality of the basic data (alphanumerical
system of identification of parcels and bovine animals), on the
amount of information made available in the applications and the
level of development of the computer programs.

26. As far as areas are concerned, the main automated checks
are eligibility checks on the parcels, checks to ensure they actu-
ally exist, checks on the surface area and checks to ensure there
are no duplications, i.e. verifying that the same area does not
appear in more than one application. Checks on the eligibility of
the parcels consist, among other things, in verifying that the par-
cels for which applications for payment are submitted are areas
which, on 31 December 1991, were not under permanent pas-
ture, permanent crops (i.e. crops which do not have to be planted
each year), forest or non-agricultural uses (1).

27. For bovine animals, the main automated checks are eligibil-
ity checks on the animal (age, sex, breed in the case of suckler
cows, the existence of the number allocated) and checks to ensure
there is no unjustified duplication, i.e. ensuring that an animal
does not benefit from the same aid several times or from differ-
ent forms of aid.

28. Since the end of the transitional period it should be impos-
sible for payment to be made against an application before it has
passed through all the computer filters and before any anomalies
have been resolved. It is also important that Member States reg-
ister anomalies found during previous administrative controls and
field inspections to make sure that errors identified in the preced-
ing years are not repeated (2).

Field inspections

29. The main role of field inspections is to check that statements
made by the farmers in their aid applications tally with reality.
Field inspections must cover at least 5 % of ‘area’ aid applications
and 10 % of ‘livestock’ aid applications (3). Selection for inspec-
tion should be on the basis of a risk analysis together with an ele-
ment of representativeness of the aid applications submitted (4).
The rate of control should be increased if on-the-spot checks
reveal significant
irregularities in a region or part of a
region. Inspections should be unannounced and cover all the agri-
cultural parcels and animals covered by one or more applica-
tions (5). See Illustration 5 for the rate of inspection for each aid
scheme in the Member States for 1998.

30. Physical or traditional field inspections of area aid applica-
tions can be replaced by remote sensing. In this case Member
States interpret satellite images or aerial photographs in order to
recognise the crop and measure the area. Traditional field inspec-
tions should be carried out if the remote sensing identifies poten-
tial inaccuracies in the claims.

31. The quality of the field inspections is directly dependent on
the quality of the risk analysis, the quality of the controllers, the
scope of the checks carried out and the measuring technique
applied (in the case of the agricultural parcels).

(3) According to Article 6(3a) (applicable from 1 January 2000) of Regu-
lation (EEC) No 3887/92, Member States can decide to reduce the rate
of inspection from 10 % to 5 % where a fully operational computer-
ised database in accordance with Article 5 of Regulation (EC)
No 820/97 has been in place for at least one year.

(4) The risk analysis should take into account the amount of aid involved,
the number of parcels or animals, changes from the previous year, the
findings of checks made in the past, other factors to be defined by the
Member State and infringements of Regulation (EC) No 820/97 (for
bovine animals).

(5) Regarding the inspection of agricultural parcels, a sample should be
measured in accordance with the tolerances set by the Member State
and their eligibility should be checked. As far as bovine animals are
concerned, before 1999 no document existed explaining the scope of
the controls to be carried out. As from 1999, the Commission’s
implementing Regulation was completed. Thus, the on-the-spot checks
of livestock aid applications should include a check of the total num-
ber of animals present on the holding, a check of the register to
ensure that all the animals for which aid applications were submitted
in the prior 12 months have been kept during the retention period(s),
a sample check of the register against supporting documents, such as
invoices, veterinary certificates, etc., a check of all bovine animals, and
their identification by eartags, passports and on the register.

(1) Council Regulation (EEC) No 1765/92 of 30 June 1992 establishing a
support system for producers of certain arable crops, Article 9, first
paragraph.

(2) For example, land declared as arable land by a producer, which was
found on inspection to be permanent forage area, or even building
land or lakes — these parcels will not be eligible in future and should
therefore be included in a database allowing an efficient cross-check
for future claims.

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Illustration 5

Inspection rates in 1998

Area aid

Special beef

Suckler cow

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

NB: Greece increased its inspection rate for bovine premiums in an attempt to compensate for serious weaknesses in the other elements of IACS.

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

Sanctions

32.
If the aid applications are submitted late, sanctions should be
imposed. If discrepancies are noted during an administrative or an
on-the-spot control, the Regulations stipulate that either a simple
amendment shall be made to the application, if the discrepancy
is below a certain threshold, or sanctions shall be imposed accord-
ing to a graduated scale if the discrepancy exceeds this threshold
(see the Annex). The rules for sanctions for bovine animals were
changed significantly in 1999, with the introduction of sanctions
for animals not actually claimed for premium, and by increasing
the scope of sanctions to include claims for which premium was
granted in the previous 12 months (1). In addition, if a control
reveals that aid has been paid without justification over one or
more of the previous years, the amounts must be recovered retro-
actively (2) with effect from the first false declaration.

THE ROLE OF THE COMMISSION

Introduction

the Regulations and providing guidance to Member States; gather-
ing information on how IACS is implemented by the Member
States; evaluating and enforcing the implementation of IACS by
the Member States.

General organisational background

The Agriculture Directorate-General (DG AGRI)

34. Between 1993 and 1996, when Member States were required
to reach full implementation of IACS, the monitoring of imple-
mentation of IACS was carried out by a specific unit of DG AGRI
assisted by the Clearance-of-Accounts Directorate. Since 1997,
this task has been given to the Clearance-of-Accounts Director-
ate. Responsibility for technical aspects dealing with remote-
sensing and electronic identification systems was transferred to
the Joint Research Centre in ISPRA (Institute for Systems, Infor-
matics and Safety).

33. The Commission’s main role is to ensure that Member States
correctly implement IACS Regulations, and to propose changes to
the Regulations where appropriate. This involves interpreting

(1) Commission Regulation (EC) No 1678/98 of 29 July 1998 (OJ L 212,

30.7.1998, p. 23).

(2) Commission working document, Doc. VI/629/98.

35. The market sections of DG AGRI for beef and veal and cere-
als are also indirectly involved in the implementation of IACS
because they are consulted on regulatory changes and provide
assistance on the interpretation of market-specific regulations
which have a direct influence on the operation of IACS. An
IACS Expert Committee, composed of representatives of the Mem-
ber States and the Commission, meets two or three times a year.

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The main role of the Committee is to discuss changes to IACS
Regulations.

Guidance by the Commission and regulatory issues

The Health and Consumer Protection Directorate-General
(DG SANCO)

36. Following the BSE crisis, responsibility for veterinary mea-
sures was transferred to DG SANCO in 1997. Detailed bovine
identification and registration rules were introduced (see para-
graphs 16 to 19). IACS Regulations require these rules to be com-
plied with as a condition of eligibility for animal premiums, and
there are many cross references and similarities between the two
sets of Regulations. For example, it is a regulatory requirement
that errors found on bovine identification and registration inspec-
tions carried out by national veterinary services should be noti-
fied to the authorities responsible for IACS inspections, and vice
versa.

37.
IACS and market Regulations are by their nature complicated
and are not precise enough to explain in detail all eventualities
relating to their interpretation. The Commission therefore pro-
vides Member States with interpretations of the Regulations, and
occasionally with more general guidance and recommenda-
tions (1).

38. The Regulations have been amended many times to reflect
increases in the scope of IACS, changes to the provisions of the
aid schemes which it controls and changes to the control system
itself. All these changes complicate the work of those dealing with
IACS (farmers and the national administrations, including infor-
mation system developers and inspectors). Illustration 6 shows
that the main Regulations were modified 80 times between 1992
and 1999.

Illustration 6

Changes to the Regulations between 1992 and 1999

31

19

10

9

11

s
e
g
n
a
h
c
f
o
r
e
b
m
u
N

35

30

25

20

15

10

5

0

Basic IACS Regulation
(EEC) No 3508/92

Implementation rules
for IACS Regulation
(EEC) No 3887/92

Area Aid Regulation
(EEC) No 1765/92

Basic Animal
Premiums Regulation
(EEC) No 805/68

Implementation Rules
for Animal Premiums
Regulation (EEC)
  No 3886/92

Source: The EU CELEX database.

(1) The Clearance-of-Accounts Directorate issues interpretations of IACS
Regulations. The market sections issue interpretations relating to the
specific animal and area aid schemes. Most requests for interpreta-
tion follow changes in the Regulations. A register of interpretations
is kept by DG AGRI-B-1. Recently-issued interpretations have been
periodically grouped together and distributed to all Member States at
IACS expert group, and at the EAGGF Committee.

 
 
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Management information

Evaluation of IACS and enforcing implementation

39.
In order to monitor the effective implementation of IACS by
the Member States, the Commission needs relevant and reliable
information on a timely basis from Member States, covering such
subjects as aid application statistics, administrative and on-the-
spot control statistics, and reports on progress with implementa-
tion. Such information enables the Commission to better target
missions to Member States, and is essential for budgetary and
market management. Apart from its discussions at IACS Expert
Committee and information obtained while undertaking audit
visits, the main information the Commission receives from the
Member States is:

40. The main tool used by the Clearance-of-Accounts Director-
ate to evaluate and enforce the implementation of IACS consists
of inspections in Member States and the imposition of sanctions
as part of the clearance-of-accounts procedure when risks to the
EAGGF are identified. Under the reformed clearance of accounts
procedure, (as evaluated by the Court in Special Report No 22/
2000 (7)) sanctions can be applied retrospectively for a maximum
of two years preceding written notification to the Member State
concerned.

(a)

information on measures taken to implement IACS (1). This
was intended to provide the Commission with up-to-date
information on the national measures taken to implement
IACS;

Main findings at Commission level

General organisational background

(b) statistics for bovine premiums (2) and areas declared (3);

The Agriculture Directorate-General (DG AGRI)

(c) non-regulatory statistics on aid applications, administrative
and on-the-spot controls, for area aid and animal premium
schemes, called IACS statistics (these have become obligatory
from 2000 (4));

(d) annual reports by certifying bodies on paying agencies which
should be submitted to the Commission by 10 February of
the following year (5);

(e) reports on inspections relating to bovine identification and
registration (6): the first report was due for 1 July 1999.

41. While the Clearance-of-Accounts Directorate has overall
responsibility for IACS, other Commission services are also
involved (see paragraphs 35 and 36). Certain problems found by
the Court might not have arisen if coordination between the ser-
vices had been more effective (see paragraph 42(c)) relating to the
inspection of animal databases, and paragraph 67 relating to over-
shoot of beef premium ceilings).

The Health and Consumer Protection Directorate-General (DG SANCO)

42. The cross references and similarities between IACS Regula-
tions and the bovine identification and registration Regulations
are logical. However, there are problems with the implementa-
tion:

(a) there was no systematic monitoring, at the Commission, of
coordination at Member State level of bovine identification
and registration, and IACS inspections. For example, the Com-
mission was not sure of the extent to which the veterinary
authorities inform IACS authorities of relevant problems found
on inspection, and vice versa;

(1) Article 18 of Commission Regulation (EEC) No 3887/92.
(2) Annex V to Commision Regulation (EEC) No 3886/92 (as amended).
(3) Annex VIII to Commission Regulation (EC) No 658/96 of 9 June

1996 (OJ L 91, 12.4.1996, p. 46).

(4) Article 17 of Regulation (EEC) No 3887/92 as last modified by Regu-

lation (EC) No 2801/1999.

(5) Commission Regulation (EC) No 1663/95 of 7 July 1995 laying down
detailed rules for the application of Council Regulation (EEC)
No 729/70 regarding the procedure for the clearance of accounts of
EAGGF Guarantee Section (OJ L 158, 8.7.1995, p. 6).

(6) Commission Regulation (EC) No 2630/97 of 29 December 1997 lay-
ing down detailed rules for the implementation of Council Regula-
tion (EC) No 820/97 as regards the minimum level of controls to be
carried out in the framework of the system for the identification and
registration of bovine animals (OJ L 354, 30.12.1997, p. 23).
Article 5 requires Member States to make annual reports to the Com-
mission. DG SANCO receives these reports.

(7) Special Report No 22/2000: Evaluation of the reformed clearance-of-

accounts procedure (OJ C 69, 2.3.2001).

31.7.2001

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(b) although the deadline for implementation of the bovine iden-
tification and registration database was 1 January 2000, eight
Member States did not have databases which had been
approved as fully operational on that date (Germany, Greece,
Spain, France, Ireland, Italy, Portugal and the United Kingdom
excluding Northern Ireland) (1);

(c) the bovine identification and registration database approval
process by DG SANCO is not adequate. Approval is based on
a short visit to the Member State concerned, during which no
detailed system testing is carried out. At present the Commis-
sion has no formal monitoring programme to check whether
approved databases remain fully operational and comply with
the terms of approval. Specifically, a programme of missions
to the Member States had not been established by July 2000,
although the Commission had started approving the Member
States’ databases in April 1999;

(d) a database may be considered fully operational and approved
under the bovine identification and registration regulations,
leading to a reduced rate of inspection of 5 %, while at the
same time it may not be considered by the Clearance-of-
Accounts Directorate as fully operational under IACS Regula-
tions, thus requiring a higher inspection rate of 10 % (2).

Guidance by the Commission and regulatory issues

Guidance by the Commission

43. The Clearance-of-Accounts Directorate is responsible for
control and audit of expenditure and for imposing financial sanc-
tions on Member States in the context of the clearance-of-accounts
procedure. It is also responsible for the management and admin-
istration of IACS, organising changes to the Regulations and issu-
ing guidance to Member States. However, relatively few resources
have been allocated to this latter role and by concentrating on
assessing the performance of Member States in the context of the
clearance-of-accounts procedure, insufficient attention has been
given by the Commission services to the role of setting IACS
policy and guiding Member States in its implementation.

(1) For the other Member States (Belgium, Denmark, Luxembourg, the
Netherlands, Austria, Finland, Sweden and the region of Northern Ire-
land of the United Kingdom), the operational character of the national
database for bovine animals has been recognised.
In the case of Luxembourg, while the bovine identification and reg-
istration database was approved as being fully operational on 19 May
1999, the auditors noted that, following a visit in May 2000, the
Clearance-of-Accounts Directorate doubted whether the database
complied with the conditions of approval.

(2)

44. Even in areas where the Commission has issued a number of
interpretations and recommendations, there are still different
practices in the Member States. For example:

(a) the tolerances used in measuring areas during on-the-spot
inspections - a key factor in determining whether to impose
sanctions or not (see Table 3). This problem has already been
referred to by the Court in its 1999 Annual Report (3). The
Commission revised its guidelines by introducing maximum
allowed technical tolerances with effect from 2000 (4);

(b) the interpretation of cases of ‘obvious error’ (5) — where a
discrepancy in an aid application is deemed to be an obvious
error, the Member State authority may correct it without
imposing any sanctions on the applicant;

(c) the imposition of retroactive sanctions.

45. The Court’s audit found areas where interpretations and rec-
ommendations by the Commission were needed, such as:

(a) the admissibility of customary standards used by Member
States to measure cultivated areas (6). This problem was referred
to by the Court in its 1999 Annual Report (3). The Commis-
sion dealt with the problem in 2000 (7);

(b) the definition of areas eligible for set-aside (8). The Commis-
sion abolished this eligibility criterion with effect from the
2001/02 marketing year;

(3) Paragraphs 2.36 and 2.37 of the Court of Auditors Annual Report

concerning the financial year 1999 (OJ C 342, 1.12.2000).

(4) Doc. VI/8388/94 rev. 6, 17.12.1999.
(5) The Commission has issued several guidelines to Member States on
what constitutes an obvious error. Doc. VI/646/96 of 27 February
1996 applied for 1998 aid applications, and included such cases as
incomplete information, errors in addition, a parcel listed twice in the
same application, and reversal of identification numbers.

(6) Article 6(7) of Commission Regulation (EEC) No 3887/92 (as amended)
provides that the total area of an agricultural parcel may be taken into
account provided that it is fully utilised according to the customary
standards of the Member State or region concerned, and that in other
cases the area actually utilised shall be taken into account.

(7) Commission Regulation (EC) No 2721/2000 of 13 December 2000
(OJ L 314, 14.12.2000, p. 8), amending Article 6(7) of Regulation
(EEC) No 3887/92.

(8) Court Case C-372/98 of 12 October 2000 on whether the United
Kingdom has interpreted too restrictively the requirement under
Article 2 of Regulation (EC) No 762/94 that, in order to be eligible for
set-aside, a harvested crop must have been planted in the previous
campaign. The United Kingdom had interpreted this as meaning that
grass silage was not eligible, whereas other Member States, and the
Commission services, treated such land as eligible.

C 214/18

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Official Journal of the European Communities

31.7.2001

Table 3

Measuring methods and technical tolerances for classical field inspections applied in 1998 in the six Member States visited

Member State
Region

GPS (1)

Differential
(code)

Geodetic (phase)

Total station

Wing
compass

Wheel

Tape

Topofil

Planimeter

Pacing

Germany
Bavaria
0-0,49 ha
0,5– 1,99 ha

2,0– 4,99 ha

5,0– 19,99 ha
> 20,0 ha
Baden-Württemberg
Berlin
Brandenburg
Bremen
Hamburg
Hessen
Mecklenburg-
Western Pomerania
Lower Saxony
North Rhine-
Westphalia
Rheinland-Pfalz

Saarland
Saxony
Saxony-Anhalt
Schleswig-Holstein
Thuringia

Spain
< 0,5 ha
0,5 – 1 ha
1-3 ha
3-6 ha
6-15 ha
15-25 ha
> 25 ha

France

Ireland

Portugal

United Kingdom
England
Northern Ireland
Scotland
Wales

10 %
5 % (mini
0,05 ha)
3 % (mini
0,10 ha)
2 %
1 %
—
—
maxi 12 %
1 %
—
—
—

maxi 12 %
3 %

—
—

—

—
—
—
—
—
1 %
—
—
1 %

—
—

< 0,5 ha: 2 %
< 5 ha: 5 %
> 5 ha: 1 % 0,5 – 20 ha: 1 %
> 20 ha: 0,5 %
—
—
1 %
0 %
—

3 %
maxi 12 %
1 %
0 %
maxi 12 %

10 %
8 %
6 %
4 %
3 %
2,5 %
2 %

1 metre
around the
parcel

10 %
8 %
6 %
4 %
3 %
2,5 %
2 %

—

1 %

—

2 %
2 %
2 %
2 %

—

< 5ha: 5 %
5-25 ha: 3 %
> 25 ha: 2 %

2 %
2 %
2 %
2 %

(1) GPS = Global positioning system.
(2) Tolerance of the equipment.
Source: Member States documentation.

1 %
1 %

1 %

1 %
1 %
variable
—
—
—
—
1 %
—

—
—

1 %

—
1 %
1 %
0 %
—

(2)
(2)
(2)
(2)
(2)
(2)
(2)

—
—

—

—
—
—
3 %
3 %
—
—
—
3 %

3 %
3 %

—

3 %
3 %
—
0 %
3 %

—

10 %
5 % (mini
0,05 ha)
3 % (mini
0,10 ha)
3 %
3 %
3 %
—
—
3 %
—
—
3 %

10 %
5 % (mini
0,05 ha)
3 % (mini
0,10 ha)
3 %
3 %
3 %
3 %
3 %
—
3 %
3 %
3 %

3 %
3 %

3 %

3 %
3 %
3 %
0 %
3 %

3 %
—

3 %

3 %
3 %
3 %
0 %
3 %

—

—
—

—

—
—
—
—
—
—
—
—
—

—
—

—

—
—
—
—
—

10 %
5 % (mini
0,05 ha)
3 % (mini
0,10 ha)
3 %
2 %
—
—
—
—
—
—
—

—
3 %

—
< 1 ha: 10 %
1-5 ha: 5 %
> 5 ha: 2 %
—
3 %
2 %
0 %
2 %

—
—

—

—
—
—
—
—
—
—
—
—

—
—

—
—
—
—
—
—
—
—
—

—

10 %
8 %
6 %
4 %
3 %
2,5 %
2 %

10 %
8 %
6 %
4 %
3 %
2,5 %
2 %

— < 5ha:
5 %

> 5ha:
3 %

5 %

—

—
—
—
—

—

—

—
—
—
—

10 %
8 %
6 %
4 %
3 %
2,5 %
2 %

—

—

5 %

—

—

—

—
—
—
—
— allowed
—
—

—

—

—

—

—

—
—
—
—

—

—

—
—
—
—

5 %

—

4 %
4 %
4 %
4 %

31.7.2001

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Official Journal of the European Communities

C 214/19

(c) the calculation of density factors where the Commission still
needs to issue an interpretation. The rules are complicated
and many different practices were found in the Member States
visited.

after the abandonment, in 1996, of the compulsory rotation rule
for set-aside. To carry out effective controls, the Member States
would have had to have drawn up a special control programme.
While Germany developed such a programme, Spain, France and
Portugal did not.

46.
In other areas, even if the Regulations are sufficiently clear,
practices in Member States differ. The Commission should con-
tinue to ensure correct implementation by Member States and,
when appropriate, act through the clearance-of-accounts proce-
dure, in cases such as:

(a) sanctions imposed on the main bovine premiums in Portugal

are not reflected in reduced extensification premiums;

(b) the lack of national cross-checking of suckler cow premium
applications to detect unjustified claims (Spain, France, United
Kingdom);

(c) the minimum number of agricultural parcels or animals to

control during an on-the-spot visit.

47. Regarding the movements of bovine animals between Mem-
ber States, the Commission has not taken adequate measures to
assure that the Member States cooperate under Article 15 of
Regulation (EEC) No 3887/92 (see paragraph 71(b)).

Regulatory issues

50.
In September 1998, in an attempt to simplify the Commu-
nity rules, the ‘two years’ criterion was dropped but without indi-
cating from which year this amendment would apply (3). In
November 1998, a new Regulation was issued which specified
that the abolition of this criterion was to apply to areas set aside
during the 1999/2000 and subsequent agricultural years (4). Fol-
lowing this clarification, Germany retained this check for the
1998/99 agricultural year while Spain, France and Portugal did
not consider it on account of the legal principle that stricter rules
may not be applied retroactively.

51. Under the beef and veal Market Regulations (5), suckler cow
premiums are paid not on the basis of individual animals, but for
the maintenance of a herd of a specific number of suckler cows.
However IACS Regulations require detailed checks for all bovine
animals, and not just at herd level (see paragraph 27). Spain,
France and the United Kingdom do not make adequate cross-
checks on individual suckler cows applied for, claiming that the
Market Regulation provides aids for the herd and not for indi-
vidual animals. However inadequate cross-checks increase the risk
of overpayments.

48. One of the main regulatory conditions for eligibility for area
aid is that land was used for arable farming at 31 December
1991 (1). Even for the three Member States joining the EU in 1995,
this condition is applicable. However, compliance with such a
condition involves very high costs, as there were no systems in
place in the Member States at that time to allow this to be satis-
factorily checked retroactively.

52.
In the case of area aid, the calculation of the rate of error
after an on-the-spot check is carried out by dividing the discrep-
ancy found by the total area declared and not by the area of the
sample checked. This method minimises anomalies and thus
reduces penalties. The impact of this method is all the greater in
France, where the sample of parcels to be controlled was not sys-
tematically increased if anomalies were found. In 2000, the Com-
mission introduced clear rules to increase the sample to be checked
when errors are found (6).

49. The rules for the setting-aside of agricultural land, one of the
fundamental conditions for the granting of area aid, stipulated
that, to be considered, the set-aside areas must have been culti-
vated by the applicant during the two years preceding the applica-
tion (2). This condition was difficult to check and lost its relevance

(1) Article 9 of Council Regulation (EEC) No 1765/92.
(2) Article 3(4), first indent, of Commission Regulation (EC) No 762/94
of 6 April 1994 laying down detailed rules for the implementation of
Council Regulation (EEC) No 1765/92 with regard to the set-aside
scheme, (OJ L 90, 7.4.1994, p. 8).

(3) Commission Regulation (EC) No 1981/98 of 17 September 1998
amending Regulation (EC) No 762/94, (OJ L 256, 18.9.1998, p. 8).
(4) Commission Regulation (EC) No 2490/98 of 18 November amend-
ing Regulation (EC) No 1981/98, (OJ L 309, 19.11.1998, p. 27).
(5) Pre-Agenda 2000 reforms: Article 4(d) of Council Regulation (EEC)
No 805/68 (as amended) of 27 June 1968 on the common organisa-
tion of the market in beef and veal (OJ L 148, 28.6.1968 p. 24); and
post-Agenda 2000 reforms: Article 6 of Council Regulation (EC)
No 1254/1999 of 17 May 1999 on the common organisation of the
market in beef and veal (OJ L 160, 26.6.1999, p. 21).

(6) Commission Regulation (EC) No 2801/1999 of 21 December 1999

(OJ L 340, 31.12.1999, p. 29).

C 214/20

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Official Journal of the European Communities

31.7.2001

53. Farmers can be excluded from area aid or animal aid schemes
for two years if they intentionally make a false declaration (see the
Annex). However area aid farmers may escape this sanction if they
make an arrangement to include these areas in another farmer’s
aid application for the years concerned, as the agricultural parcels
themselves are not blocked for payment. In doing so, farmers are
at best attempting to circumvent IACS sanctions provisions, and
are at worst attempting to defraud.

tion in the reports about IACS varies (2), and an important
potential source of management information about the imple-
mentation of IACS is lost. This has already been criticised sev-
eral times by the Court. In its 1998 Annual Report (3), the
Court pointed out that the certifying bodies do not systemati-
cally refer to the results of IACS inspections. In its Special
Report No 22/2000 (4) on the reformed clearance-of-accounts
procedure, the Court pointed out that certifying bodies did
not adequately check the on-the-spot inspection process, nor
analyse information on error rates and penalties applied as a
result of IACS controls.

Management information

54. The extent and quality of the information provided by the
Member States needs to be improved (see paragraph 39). The
Commission should continue its efforts to improve and evaluate
this information, to better manage the Member States’ implemen-
tation of IACS. During the audit the Court found that:

(a) the information on measures taken to implement IACS was
neither systematically provided by the Member States, nor
sought by the Commission. The Member States’ obligations to
provide information were reinforced by regulation from
2000 (1);

(b) the statistics on bovine premiums are used by the beef market
section as part of its general review of the market situation,
and to check that payments have not been made in excess of
animal ceilings. However, they were not referred to by the
Clearance-of-accounts Directorate, or cross-checked against
the non-regulatory IACS statistics. A full review of the quota
and premia paid for the claim years 1997 onwards is planned
by the Commission as part of its annual plan for 2001;

(c) IACS statistics relating to aid applications, administrative con-
trols and inspections are a key tool for making analyses. These
key statistics were provided on a non-regulatory basis only,
and is a specific regulatory requirement from 2000 (1). Mem-
ber States are often slow in providing the statistics. For
example, in June 2000 data on controls for bovine animals
from Spain, Ireland and Italy for 1998 were still missing or
incomplete. In addition, while the Commission regularly evalu-
ated the area aid statistics in summary reports, there had been
no such report on the animal premia since 1994;

(d) the annual reports by the certifying bodies are required by leg-
islation to give the information and assurances required under
the clearance-of-accounts procedure, and are not specifically
required to analyse IACS. Consequently the extent of informa-

(1) Article 17 of Commission Regulation (EC) No 2801/1999 of 21 Decem-

ber 1999 (OJ L 340, 31.12.1999, p. 29).

55. The audit found that there are very wide variations in the
statistics reported by Member States, which makes them difficult
to interpret. The extent of the variations is too great to be explained
by different rates of inaccurate aid applications in the different
Member States.

56. The main findings from an analysis of the 1998 statistics are:

(a) the percentage of field inspections (in respect of both animal
and area aids), that detect errors varies between over 80 % and
practically 0 %, depending on the aid scheme and the Member
State (see Illustration 7);

(b) the percentage of aid applications which are found by admin-
istrative controls to have discrepancies varies between over
35 % to practically 0 %, depending on the aid scheme and the
Member State (see Illustration 8);

(c) regarding the results of field inspections for area aid, some
countries report mostly minor errors and hardly any serious
errors (5) (especially Ireland and the United Kingdom), and
others report much more serious errors (especially Italy, Greece
and Spain) with relatively few minor errors (see Illustration 9);

(d) regarding the results of field inspections for animal premium
inspections, some countries reported hardly any serious errors
(especially Ireland, Portugal and Austria) while others reported
many more (especially Italy, Greece, Spain and Germany) (see
Illustration 10).

(2) For example, the 1998 reports by certifying bodies from France give
significant information on the operation of the systems relating to
IACS, while the reports from the United Kingdom give relatively little.
(3) Annual Report concerning the financial year 1998, paragraph 2.92

(OJ C 349, 3.12.1999).

(4) Special Report No 22/2000 on evaluation of the reformed clearance-

(5)

of-accounts procedure (OJ C 69, 2.3.2001).
In this context a serious error is defined as an overdeclaration by
more than 20 %, which has the effect of excluding the entire area
claimed from aid.

31.7.2001

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Official Journal of the European Communities

C 214/21

Illustration 7

Percentage of inspections finding errors in 1998

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

 0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Area aid

Special beef

Suckler cow

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

Illustration 8

Errors found by administrative controls in 1998

s
n
o
i
t
a
c
i
l
p
p
a
d
i
a
f
o
e
g
a
t
n
e
c
r
e
P

45 %

40 %

35 %

30 %

25 %

20 %

15 %

10 %

5 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Area aid

Special beef

Suckler cow

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

NB: Austria and Sweden did not provide all information for area aid and suckler cow applications, respectively.

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

 
 
 
C 214/22

EN

Official Journal of the European Communities

31.7.2001

Illustration 9

Types of errors found by area aid field inspections in 1998

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

20 % and greater
Between 3 % and 20 %
Up to 3 %

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

Types of errors found by field inspections of bovine animals in 1998

Illustration 10

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

NB: Italy did not provide information for applications excluded.

Source: Basic data obtained from Commission DG AGRI (IACS statistics for 1998).

No payment for two years
No payment for the year
Partially sanctioned

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

31.7.2001

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Official Journal of the European Communities

C 214/23

57. The main findings from an analysis of the evolution of sta-
tistics about field inspections from 1997 to 1999 are:

found on inspection, excluding Italy, was 1,3 % in 1998 and
1999;

(a) regarding inspections of area aid, the rate of discrepancy found
is low (except in Italy) and tends to decrease. In 1999, seven
Member States had discrepancies of less than 1 % of the areas
inspected (see Illustration 11). The average discrepancy rate

(b) regarding inspections of bovine animals the statistics are
incomplete and for some Member States incoherent. In most
Member States who reported data the discrepancy rate is
higher than 5 %. Some Member States have reported rates
above 100 % — which underlines the inconsistency of the
data (see Illustrations 12 and 13).

Evolution of discrepancies in areas found with field inspections (%)

Illustration 11

1997
1998
1999

s
e
i
c
n
a
p
e
r
c
s
i
d
h
t
i

w
d
e
t
c
e
p
s
n

i
a
e
r
a
f
o
e
g
a
t
n
e
c
r
e
P

21 %
20 %
19 %
18 %
17 %
16 %
15 %
14 %
13 %
12 %
11 %
10 %
9 %
8 %
7 %
6 %
5 %
4 %
3 %
2 %
1 %
0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

NB: Greece had not provided statistics for 1999 (by 1.2.2001).

Source: Court of Auditors review of the Commission’s IACS statistics.

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

 
 
 
 
 
C 214/24

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Official Journal of the European Communities

31.7.2001

Special Beef premium — Evolution of discrepancies found during field inspections (%)

Illustration 12

s
e
l
c
n
a
p
e
r
c
s
i
d
h
t
i

w

i

s
l
a
m
n
a
f
o
e
g
a
t
n
e
c
r
e
P

120 %

110 %

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

1997
1998
1999

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

NB: Greece did not provide statistics for 1997 nor Italy for 1999. Denmark did not provide complete statistics for the three years nor France for 1997. Figures for Finland in
1997 are inconsistent as they show a percentage of discrepancy higher than 100 %.

Source: Court of Auditors review of the Commission’s IACS statistics.

Suckler cow premium — Evolution of discrepancies found during field inspections (%)

Illustration 13

s
e
i
c
n
a
p
e
r
c
s
i
d
h
t
i

w

i

s
l
a
m
n
a
f
o
e
g
a
t
n
e
c
r
e
P

160 %

150 %

140 %

130 %

120 %

110 %

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

1997
1998
1999

Austria

Portugal

Finland

EU-15

United Kingdom
Sweden

Italy

Luxembourg

Netherlands

NB: Greece did not provide statistics for 1997 nor Italy for 1999. Denmark did not provide complete statistics for 1998. Figures for Denmark in 1999 and for Finland in 1997
are inconsistent as they show a percentage of discrepancy higher than 100 %.

Source: Court of Auditors review of the Commission’s IACS statistics.

 
 
 
 
 
 
 
 
31.7.2001

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Official Journal of the European Communities

C 214/25

In conclusion, the evidence suggests that administrative con-
58.
trols and field inspections are being applied and reported differ-
ently in each Member State.

63. The information available was not systematically exploited
in such an evaluation. Moreover, the implementation of IACS as
such is not routinely reported on by the Commission. The last
time the Commission produced a document evaluating the over-
all implementation of IACS was in July 1998, when it reported to
Parliament in the context of the 1996 discharge procedure (3).

59. Furthermore, some of the information sought by the Com-
mission from the Member States is not adapted to the specific
requirements of the schemes. For example, IACS statistics do not
include the slaughter option for the special beef premium scheme.
In consequence, incorporating such figures leads to an incorrect
analysis of the consolidated statistics.

60. Sound bovine identification and registration systems are
needed for the control of bovine aid premiums and to trace ani-
mals and beef. However by June 2000, no reports on inspections
relating to bovine identification and registration for 1998, i.e. the
first year of operation, had been received from Germany, Greece,
Ireland, Luxembourg, Austria and Sweden. Belgium sent the pro-
posed structure of a report only. The content of the reports
received varies greatly between Member States, making analysis of
the state of implementation difficult (1) (see also paragraph 42 for
weaknesses related to bovine identification and registration).

Evaluation of IACS and enforcing implementation

61. Evaluation of the efficiency and effectiveness of IACS is par-
ticularly important as it is the principal means of control of most
of expenditure under the CAP. The information which is collected
is often either inaccurate, late, or non-comparable, which com-
plicates such evaluations (see paragraphs 54 to 59).

62. Some information relevant to such an evaluation has not
been sought, e.g. costs of administering IACS in the Member States
or savings produced by IACS in terms of reductions made to
incorrect aid applications. In its Special Report No 22/2000 (2),
the Court pointed out that the Commission did not require pay-
ing agencies to quantify sanctions applied, so that the value of
errors detected through IACS was not calculated.

64. The reports produced following the Commission’s missions
to Member States for area aid and animal premium schemes as
part of the clearance-of-accounts procedure do not systematically
report on the implementation of all the elements of IACS, although
key and ancillary control weaknesses are identified. Table 4 sum-
marises these weaknesses identified by the Commission in the
Member States. Some reports may nevertheless include a general
assessment of the state of implementation of IACS, and in this
context the Commission’s services have concluded that IACS has
not been implemented in Greece, while it has been implemented
in Austria, France, Germany, Ireland, Italy, Spain, and the United
Kingdom. Nevertheless, weaknesses still exist in all Member States
as can be seen from Table 4.

65. The Court’s findings confirm, in part, those obtained by the
Commission during its audits in the Member States (see Table 5
and paragraphs 69 to 70). However, this is not always the case for
various reasons, of which the main ones are:

(a) the objectives of the checks in the Member States or regions
visited were not the same. In 1998, the Commission concen-
trated mainly on the on-the-spot checks and the application
of penalties, while the Court analysed the system in its entirety;

(b) in Member States with decentralised databases, (in particular,
Germany, Spain and the United Kingdom) some regions are
only visited, every three or four years.

66. With regard to the latter point, the Commission decided not
to undertake a detailed inspection of area aid in the Autonomous
Community of Catalonia in 1998 and 1999. The Court’s audit of
October 1999 found, inter alia, that the Autonomous Community
of Catalonia did not carry out any automated administrative con-
trols for surface areas up to 1999, which is a key control weak-
ness (see paragraph 70(b)). The Commission has taken immedi-
ate action to avoid loss to the EAGGF, as under the reformed
clearance-of-accounts procedure, the Commission has a time limit
of only 24 months to propose corrections. At least 1 million euro
is estimated to be recoverable for 1997.

(1) The Commission’s Health and Consumer Protection Directorate-
General was preparing, in July 2000, a Regulation to provide detailed
guidance for Member States on the structure of this annual report.
(2) Special Report No 22/2000 on the evaluation of the reformed

clearance-of-accounts procedure (OJ C 69, 2.3.2001).

(3) Report on the status of implementation of the integrated administra-
tion and control system in the Member States, Doc. VI/6467/98 of
6 July 1998.

Summary of weaknesses identified by the Commission in the Member States regarding the year 1998 (mission reports from 1998 to June 2000)

Table 4

Area aid

Animal premiums

Respect
of
deadlines

Compute-
rised
databases

Identifica-
tion
system
for
parcels

Aid
applica-
tions

Adminis-
trative
controls

On-the-
spot
controls

Penalties

Respect
of
deadlines

Compute-
rised
databases

Identifica-
tion and
registra-
tion
system
for
animals

Aid
applica-
tions

Adminis-
trative
controls

On-the-
spot
controls

Penalties

Other

Belgium
Denmark
Germany:

national level
Bavaria
North Rhine-Westphalia
Schleswig-Holstein
Mecklenburg-Western
Pomerania

Greece
Spain:

national level
Andalucia
Aragon
Cantabria
Castile-Leon
Castile-La Mancha
Cataluna
Galicia
Rioja

France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
UK: England and Northern Ireland

Scotland

NB: ‘Key’ and ‘ancillary’ control weaknesses are defined according to the Commission’s guidelines for imposing penalties under the clearance-of-accounts procedure, except that controls over duplicate payments, and the correct application of
penalties, are treated in this table as ‘key’ controls.

Key control weakness identified

Ancillary control weakness identified

No control weaknesses identified

Area not examined

Source: Court of Auditors review of Commission mission reports to Member States.

C
2
1
4
/
2
6

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

.

.

3
1
7
2
0
0
1

.

.

3
1
7
2
0
0
1

Summary of weaknesses identified by the Court of Auditors in the Member States visited (for 1998 applications — mainly budget 1999)

Table 5

Area aid

Animal premiums

Compu-
terised
databases
and
integrated
control
system

Identifica-
tion
system for
parcels

Aid
applica-
tions

Adminis-
trative
controls

On-the-
spot
controls

Penalties

Computer-
ised
databases
and
integrated
control
system

Identifica-
tion and
registra-
tion
system for
animals

Aid
applica-
tions

Adminis-
trative
controls

On-the-
spot
controls

Penalties

Other

Member States and regions

Germany:

central level
region of Bavaria
region of Lower Saxony

Spain:

central level
region of Catalonia
region of Navarre

France
Ireland
Portugal
United Kingdom: central level

region of Scotland
region of Wales

Not applicable at this level

Good — functioning without problems

Average — functioning with some problems

Poor — not functioning at an acceptable level

Source: Court of Auditors.

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

C
2
1
4
/
2
7

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Other findings

70. As indicated on this table, the audit found that:

67. With regard to area aid, Member States’ calculations of over-
shoots of base areas are checked at Commission level by the Mar-
ket and the Clearance-of-Accounts Directorates. These checks
were criticised by the Court in its 1996 Annual Report (1) and the
Commission took action to strengthen the information provided
by the Member States, allowing better controls. From 2000 (2),
the Commission again improved the procedures to be used by the
Member States to calculate the overshoots. This procedure, even
though not yet guaranteeing 100 % accuracy, can be contrasted
with special beef premium ceilings, where there is no similar
framework to declare and control the overshoot (see para-
graph 54(b)). There is therefore a risk that incorrect calculation of
an overshoot by a Member State would go unnoticed by the Com-
mission, leading to overpayments. The Court has identified risk
of such errors in Spain, France and Portugal.

THE ROLE OF THE MEMBER STATES

68. Member States are responsible for setting up IACS (3). All
management of aid applications, including computer systems and
databases, is located at Member State level. During the transitional
stage, the Commission could request changes to the Member
States’ measures for implementing IACS (4). Since 1997, the Com-
mission’s interventions have been more limited (see para-
graph 34).

(a) only in Germany and Ireland were there no major weaknesses

in respect of the implementation of IACS in 1998;

(b) in Spain, the level of development varied greatly between the
Autonomous Community of Navarre, which had no major
weaknesses, and the Autonomous Community of Catalonia,
where, in particular, there were no cross-checks on the par-
cels. In addition, the national instructions sometimes did not
comply with the Community Regulation. In particular, penal-
ties were not imposed in respect of anomalies discovered dur-
ing administrative checks on bovine premiums. Furthermore,
the national cross-checks on bovine animals were very incom-
plete;

(c)

in France, there were weaknesses in the quality of the on-the-
spot checks for area aid applications, mainly as a result of the
fact that the checks were largely carried out by temporary
staff working alone and receiving a fixed sum for every appli-
cation checked. Furthermore, where administrative controls
or field inspections revealed anomalies relating to previous
years, retroactive sanctions were not applied;

(d) in Portugal, the cross-checks on animals were far from com-
plete (lack of verification of several eligibility criteria, e.g.
existence of eartag number allocated; no cross-checking
between the payment file for male bovine animals and the
payment file for suckler cows (5)) and the penalties were applied
inconsistently;

(e)

in the United Kingdom (Scotland and Wales) cross-checks on
the animals were incomplete, in particular in respect of suck-
ler cows, for which a national cross-check was not carried out.

Main findings at Member State level

71. Furthermore, the audit revealed that:

69. During the audit of 1998 aid applications in the six Member
States the Court found that, two years after the deadline for its
introduction, not all features of IACS were fully in place in all
Member States: numerous weaknesses were found and consider-
able delays had occurred. Table 5 offers a concise overview of the
situation encountered, with an evaluation according to three cat-
egories: good, average and poor.

(a) where fraud is suspected, and after the application of sanc-
tions provided for in IACS Regulations, the case could be
prosecuted in the national courts. Practices for treating these
situations differed widely within and between Member States.
Many cases were prosecuted in Germany (Länder of Bavaria
and Lower Saxony), while the other Member States visited did
not exclude many cases from aid for the following year, and
sent very few cases for prosecution. This means that farmers
are not treated in the same way throughout the EU. Where
few cases are prosecuted, an important dissuasive tool is lost;

(1) Paragraph 3.73 of Annual Report 1996 (OJ C 348, 18.11.1997).
(2) Commission Regulation (EC) No 2316/1999 (OJ L 280, 30.10.1999,

(5)

p. 43).

(3) Council Regulation (EEC) No 3508/92, Article 1.
(4) Commission Regulation (EEC) No 3887/92, Article 17, final para-

graph.

In the absence of such a cross-check between premium payments for
male bovine animals and suckler cows, there is a risk that aid is paid
twice for the same animal, notwithstanding the fact that the premi-
ums are paid for animals of different sex. Such duplicate payments
occurred in Portugal.

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(b) in 1998, trade in live bovine animals between the Member
States amounted to the equivalent of 1,6 million tonnes
(around 20 % of EU production (1)). Even if the Regulations
provide that Member States should cooperate with each other
to implement IACS (2), there was often a lack of such coopera-
tion regarding the exchange of information on the movement
of bovine animals between Member States. This resulted in
insufficient checks on the identification and eligibility of ani-
mals for aid in the importing Member State;

(c) there are similarities between IACS and veterinary legislation
which result from interservice cooperation at the time of
drafting. Regarding the controls required by the new bovine
identification and registration Regulation, as described in para-
graph 18, there was a general lack of coordination between
the veterinary (i.e. bovine identification and registration) and
IACS inspections, with a risk of unnecessary duplication of
effort. Both Regulations stipulate checks on 10 % (of herds for
veterinary inspections and of aid applications for IACS inspec-
tions) but it is quite possible to carry out these checks using
similar samples, as the risk-analysis criteria are also very simi-
lar. Furthermore, where there is an absence of coordination,
there is a risk that errors found on one type of inspection will
not automatically be communicated to the authority respon-
sible for the other (see paragraph 42(a)).

CONCLUSION AND RECOMMENDATIONS

Conclusion

In 1999, 63,6 % of EAGGF-Guarantee Section expenditure
72.
was processed by IACS, either directly or indirectly. In 2004, this
percentage should exceed 80 % (see paragraph 6). It is therefore
important that this system has been well designed, and for the
most part is effectively implemented in order to control the Euro-
pean Union’s agricultural expenditure and avoid undue payments.

In 1998, the sixth year after its creation and the second after
74.
the end of the transitional period, there were weaknesses in the
implementation of IACS in all the Member States visited. The
weaknesses sometimes concerned elements which had not yet
reached an acceptable level of completion to allow effective con-
trols and even elements of IACS which had not yet been put in
place (see paragraphs 69 and 70).

75. A lack of coordination between the veterinary and IACS
inspections could also be observed. This deficiency has resulted in
a multiplication of the checks on farmers and financial burdens
for the Member States. The implementation of integrated controls
at this level would seem appropriate (see paragraph 71).

76. The Commission’s Clearance-of-Accounts Directorate is
responsible for the control and audit of expenditure, and for
imposing financial penalties on Member States. It is also respon-
sible for the management and administration of IACS, for the
organisation of changes to the Regulations and for the issuing of
guidance to Member States. While the Directorate has been con-
centrating on assessing the performance of Member States in the
context of the clearance-of-accounts procedure, more attention
should be given to the role of setting policy and guiding Member
States. Furthermore IACS Regulations are complex and subject to
frequent amendments. Despite interpretations given by the Com-
mission, there are still different interpretations in the Member
States or between the regions of the same Member State and, as a
consequence, unequal treatment of the farmers of the European
Union. The Commission needs to do more to guide Member States
so as to ensure that the Regulations are properly understood and
correctly and consistently applied throughout the Union (see
paragraphs 43 to 45).

77. As regards the new bovine identification and registration
Regulations, and particularly the approval of the databases, there
was a general lack of coordination between the Health and Con-
sumer Protection Directorate-General and the Agriculture
Directorate-General
in 1999. Furthermore, the procedure for
approving databases was not adequate and there was no monitor-
ing programme to check whether approved databases remain fully
operational and comply with the terms of approval (see para-
graph 42).

73. The overall concept of IACS by the Commission is satisfac-
tory. The system rests on two pillars, namely the identification of
parcels of agricultural land and the identification of animals. Both
pillars have to be sound (all parcels of agricultural land and all
animals have to be correctly identified) and all computer data-
bases and procedures have to be well designed and implemented.
IACS provides a sound basis for controlling most of the EAGGF-
Guarantee Section expenditure.

78. The Community Regulations contain several anomalies. The
use of land at 31 December 1991, one of the main eligibility cri-
teria for area aid, is very costly to control (paragraph 48). Incon-
sistencies between the various Regulations have also been noted
(paragraphs 49 to 51).

(1) Commission’s Comext database and Eurostat monthly statistics of

meat (11-2000).

(2) Commission Regulation (EEC) No 3887/92, Article 15.

79. The Community provisions relating to sanctions were not
sufficiently precise in 1998, in particular, with regard to area aid
(paragraph 52), and to detection and monitoring of cases of delib-
erate false declarations (paragraph 53).

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80. The extent and quality of the information provided by the
Member States needs to be improved. The Commission should
continue its efforts to improve and evaluate this information, in
order to better manage the Member States’ implementation of
IACS, particularly for the animal aid schemes. Member States are
often slow in providing necessary information to the Commis-
sion (see paragraphs 54 to 60). The Commission must identify
which information it really needs and issue clear guidance to
Member States in this regard and, if necessary, put it on a regula-
tory basis. In particular, more effort should be made to ensure
that information supplied by Member States on the results of
administrative and on-the-spot checks is consistent and complete.
The current limitations inhibit the Commission’s ability to effec-
tively manage the implementation of IACS by the Member States.

Recommendations

81. The Court recommends:

(c) that all the agricultural parcels of all farmers receiving Com-
munity aid should be included in the parcels database in order
to allow effective controls, thus ensuring that several aid pay-
ments are not made for the same parcel;

(d) that all animals carrying an identification number which is
not compatible with the new databases should be retagged —
a sine qua non for conducting effective cross-checks;

(e) that the Commission should improve its capacity to system-
atically evaluate the implementation of IACS, in particular by
ensuring that relevant and reliable information is obtained
from the Member States and exploited, and by reporting on a
periodic basis on the progress made;

(f)

that the Commission should consider requiring the Member
States to provide reliable financial data on sanctions in order
to allow cost-benefit analyses of IACS to be made;

(a) that the rules governing the various measures relating to IACS
should be simplified, harmonised and formulated in a more
precise manner, and inconsistencies and contradictions should
be eliminated from them;

(g) that the responsibilities of all Commission services involved
in the management and administration of IACS should be
clearly set out;

(b) that an IACS interpretation and procedures manual should be
issued and regularly updated and made available to the Mem-
ber States. This manual should include aid calculation examples
explaining how to treat complicated cases;

(h) that the Commission should decide on procedures and pro-
grammes to check whether approved databases remain fully
operational and comply with the terms of approval.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 6 et 7 June 2001.

For the Court of Auditors

Jan O. KARLSSON

President

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ANNEX

RULES FOR APPLICATION OF SANCTIONS IN 1998

LATE LODGEMENT OF A CLAIM (Article 8)

1 % reduction of aid per working day of late lodgement (no aid at all if claim is lodged more than 25 days late).

An area aid application need not be submitted by farmers applying for only bovine animals that are exempted from the stock-
ing rate requirement and do not apply for extensification premiums (small producers), or only for ewe or goat premium, or
deseasonalisation premium.

AREA AID (Article 9)

If the area actually determined is found to be greater than that declared in the ‘area’ aid application, the area declared shall
be used for calculation of the aid.

If the area actually determined is found to be less than that declared in an ‘area’ aid application, the area actually determined
on inspection shall be used for calculation of the aid. However, except in cases of force majeure, the area actually determined
on inspection shall be reduced by twice the difference found if this is more than 3 % or two hectares but not more than
20 % of the determined area.

If the difference is more than 20 % of the determined area no area-linked aid shall be granted.

However, in the case of a false declaration made intentionally or as a result of serious negligence:

— the farmer in question shall be excluded from the aid scheme concerned for the calendar year in question, and

— in the case of a false declaration intentionally made, from any aid scheme included directly in IACS for the following

calendar year, in respect of an area equal to that for which his aid application was rejected.

For the purposes of this Article, ‘determined area’ means the area for which all of the conditions laid down in the rules have
been met.

Forage areas, set-aside areas and each arable crop area for which a different aid rate is applicable shall be treated exclusively
and separately.

Note: The Regulation does not indicate what is to be considered as serious negligence and what is to be considered as false
declaration. The corresponding decision is therefore based on the judgment of the administrations concerned in line with
the national rules.

ANIMALS (Article 10)

Where an individual limit or individual ceiling is applicable the number of animals shown in aid applications shall be reduced
to the limit or ceiling set for the farmer concerned.

If the number of animals declared in an aid application exceeds that found during checks the aid shall be calculated on the
number of animals found. However, except in cases of force majeure and after deduction of animals dead due to natural
circumstances, the unit amount of the aid shall be reduced:

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(a)

in cases where an application concerns a maximum of 20 animals:

— by the percentage corresponding to the difference found if this is not more than two animals,

— by twice the percentage corresponding to the difference found if this is more than two but not more than four

animals.

If the difference is greater than four animals, no aid shall be granted;

(b)

in other cases:

— by the percentage corresponding to the difference found if this is not more than 5 %,

— by twice the percentage if the difference found is more than 5 % but not more than 20 %.

If the difference found is more than 20 % no aid shall be granted.

The percentages mentioned under (a) are calculated on the basis of the number declared, and those mentioned under (b) on
the basis of the number found.

However, where it is found that a false declaration was made intentionally or as a result of serious negligence:

— the farmer in question shall be excluded from the aid scheme concerned for the calendar year in question, and

— in the case of a false declaration made intentionally, from the same aid scheme for the following calendar year.

Note: The Regulation does not indicate what is to be considered as serious negligence and what is to be considered as false
declaration. The corresponding decision is therefore based on the judgment of the administrations concerned in line with
the national rules.

Source: Commission Regulation (EEC) No 3887/92, as amended.

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THE COMMISSION’S REPLIES

SUMMARY

I. The 1992 reforms of the CAP represented a watershed in the
way Community support for agriculture was managed, with a
shift from price support to direct payments to farmers. This
increased the number of beneficiaries but also the risk of irregu-
larity and fraud and therefore the reform package also included
provisions for each Member State to set up an integrated admin-
istration and control system (IACS) for direct payments. The IACS
aims to cover all aid applications from individual producers. This
improves efficiency in processing aid applications and checks on
payments.

Under the IACS, Member States are obliged to set up computer-
ised databases to enable electronic cross-checks and on-the-spot
checks of holdings. For this type of check to work, it has also been
necessary to set up a new system to identify land and identify and
register animals, as well as to record details of every beneficiary’s
applications for aid. Aerial photographs and satellites are used to
map land surfaces and verify land use.

Observations made during inspections and in meetings of experts
have shown that the IACS has proved to be an excellent instru-
ment for gathering reliable data on the situation in the field and
for conducting checks on aid applications.

IV. Having set out the regulatory framework for incurring expen-
diture under the IACS and providing guidelines and advice to
Member States on their IAC systems, the Commission closely
monitored the work which allowed any shortcomings in the
operation of the system to be identified so that the Member States
could take the steps needed to remedy them. If the IAC systems
put into place by a Member State prove to be unsatisfactory, the
Commission refuses, under the clearance-of-accounts procedure,
to finance all or part of the expenditure concerned.

tion of controls. While recognising that not all implementations
are totally satisfactory, the diversity of Member States’ customs,
traditions and existing administrative and legal systems must be
taken into account. It is also important to point out that Member
States may decide to go beyond the minimum legislative require-
ments. Therefore, certain differences in practice between Member
States are bound to occur.

Many of the amendments referred to by the Court were minor
and the great majority relate to changes made for reasons of mar-
ket management.

VI. The Commission agrees that some Member States have failed
to supply some information in a correct and timely fashion.

In relation to the arable crops and animal premium sectors, the
Commission has already identified which information it needs
and issued clear guidelines to Member States in this regard. Sig-
nificant steps to improve the supply of information in the animal
premium sector had been taken by mid-2000. The need for sta-
tistical information from Member States to be supplied punctu-
ally has also been stipulated on a regulatory basis as from 2000.

VII. The Court describes in general terms the main control defi-
ciencies established in some Member States. The Commission
agrees that, even for those Member States where the IACS has
been implemented, weaknesses still exist and are treated accord-
ingly in the context of the clearance-of-accounts procedure.

VIII. The Court’ s recommendations on management and sim-
plification of the rules are noted, but it must be mentioned that
for the most part suitable action has already been instigated. Of
particular importance in this context is the current review of
existing IACS legislation in the light of experience gained since
the CAP reform introduced from 2000.

The competence for the IACS lies with DG AGRI’s Clearance-of-
Accounts Directorate, which operates in close cooperation with
the DG AGRI legal and market services, as well as DG SANCO.

DESIGN OF THE INTEGRATED SYSTEM

The identification system for agricultural parcels

V. The fact that there is such a diversity of market regulations
emphasises the importance of the IACS in ensuring a harmonisa-

15. The Court describes the different systems in place in various
Member States.

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Member States have diverse customs, traditions and existing legal
and administrative systems that naturally lead to the different
approaches outlined by the Court. While recognising that not all
implementations are totally satisfactory, the diversity of Member
States’ existing systems must also be acknowledged, and taken
into account when assessments are made under the clearance-of-
accounts procedure. Moreover, without such an approach, it would
have been impossible to install a quality control tool so rapidly.

(a)

It is necessary also to mention the often very complete infor-
mation supplied to the Commission by Member States with
regard to their implementation of market schemes, i.e. guide-
lines to controllers and producers, standard documentation,
etc. This information is systematically subjected to scrutiny.

As Member States may decide to go beyond the minimum legisla-
tive requirements, certain differences in practice between the
Member States are bound to occur.

The integrated control system

Sanctions

32. The rules on sanctions in respect of bovine premium schemes
were significantly changed and clarified by amending Regulation
(EC) No 1678/98 with effect from 1 January 1999, in particular
to take into account the changes to bovine identification and reg-
istration introduced by Council Regulation (EC) No 820/97.

THE ROLE OF THE COMMISSION

Evaluation of IACS and enforcing implementation

40.
It is also recalled that, in its Special Report No 22/2000 as
referred to, the Court was complimentary in its views on the
IACS.

Main findings at Commission level

General organisational background

The Agriculture Directorate-General (DG AGRI)

41. The competence for the IACS lies with DG AGRI’s Clearance-
of-Accounts Directorate, which operates in close cooperation
with the DG AGRI legal and market services, as well as DG
SANCO.

The Health-and-Consumer-Protection Directorate-General
SANCO)

(DG

Guidance by the Commission and regulatory issues

42.

38. Although there appears to be a plethora of regulations
amending Regulation (EEC) No 3508/92 and Regulation (EEC)
No 3887/92 on the integrated administration and control system,
many of the amendments were very minor, particularly for Regu-
lation (EEC) No 3508/92. Moreover, as market rules have been
regularly changed in line with policy, amendments of the control
rules were inevitably driven by market-scheme requirements.

Management information

39.
Information from Member States is not always supplied in
complete or timely fashion, thus hindering mission-planning.
However, the clearance-of-accounts risk- analysis procedure and
annual plan for the different years do indeed take into account the
information received.

(a) The obligatory exchange of inspection findings between the
national veterinary and the IACS services is covered by legisla-
tion (see Regulation (EC) No 1678/98, which became appli-
cable in 1999). The effectiveness of this cooperation is audited
by DG AGRI.

(b) The Court points out the differing progress made by Member
States in setting up databases for bovine identification and
registration.

Progress on databases in all Member States was monitored
and audited by DG AGRI and DG SANCO throughout 1999
and 2000. Shortcomings and delays have been noted for
follow-up action.

The adoption of new Regulation (EC) No 1760/2000 of the
European Parliament and of the Council of 17 July 2000 has
not basically changed the situation; however the 1 January
2000 deadline set for recognition by the Commission of the
fully operational character of the national database for bovine
animals has been deleted.

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(c) To date, the system for recognition of the fully operational
character of the national databases has worked as follows.

After an in-depth analysis of the information submitted by the
Member States, DG SANCO carries out an on-the-spot visit
with the aim of having a full demonstration and a thorough
discussion. DG SANCO is examining how best to incorporate
checks on the operational character of the databases in its
overall control and inspection functions.

(d) The Court notes differing minimum inspection rates accepted
by DG SANCO and DG AGRI. However, as regards the inspec-
tions conducted in respect of the bovine identification and
registration regulations, Member States with a fully opera-
tional database and effective cross-checking facilities may con-
sider a 5 % inspection rate. DG AGRI applies the same criteria
in principle.

(b) The concept of the ‘obvious error’ is covered by a working
document already in the Court’s possession. An even more
homogeneous approach is being developed to take account of
progress made in modern technology.

(c) Commission Regulation (EEC) No 3887/92 and Council Regu-
lation (EC) No 1258/1999 establish very clear obligations on
Member States to recover undue payments, including those
paid for earlier claim years. The Commission will further see
to a more consequent and uniform application by Member
States.

46. The weaknesses mentioned by the Court under points (a), (b)
and (c) have been subject to a clearance-of-accounts procedure
and in some cases given rise to financial corrections, whereas the
other cases are still under an ongoing procedure.

Guidance by the Commission and regulatory issues

Guidance by the Commission

43. The Court suggests that the Commission has allocated too
few resources to the general management and administration of
the IACS. The significant amendments to the IACS legislation in
the form of Regulation (EC) No 1678/98 and Regulation (EC)
No 2801/1999, following developments with regard to bovine
identification and Agenda 2000 respectively, clearly demonstrate
the role of clearance of accounts in both policy-setting and guid-
ance, activities directly benefiting from its detailed and up-to-date
knowledge of national implementation.

The abovementioned significant amendments to the IACS legisla-
tion furthermore necessitated a whole series of interpretations
and guidance issued by the Commission to all Member States,
which has been given to the Court.

It

is planned that

47.
the review of Regulation (EEC)
No 3887/92 will involve discussing with the Member States the
need for a more specific provision on mutual assistance.

Regulatory issues

48.
It is possible to verify compliance with this condition by
checking selected satellite images from the period 1986 to 1991,
which identify land use on 31 December 1991.

50. With a view to simplifying the rules, the Commission prom-
ised, in the framework of the 1998/99 price package, to withdraw
the requirement that set-aside land must have been part of the
holding for two years.

The Commission deliberately published the Regulation after the
end of the period of set-aside, with a view to its application from
the following crop year, to avoid favourable treatment for produc-
ers who did not fulfil the earlier requirements.

Moreover, audit observations letters sent to Member States sys-
tematically make extensive recommendations both on regulatory
compliance and on practical control.

As the explanatory memorandum states, Regulation (EC)
No 2490/98 was merely intended for clarification.

44.

(a) The Commission requested all Member States to provide infor-
mation on the tolerances for each of the methods used in
2000. Analysis of this information has shown that all Mem-
ber States apply the technical tolerances at agricultural parcel
level, and that Member States have adapted their maximum
tolerances to those recommended by the Commission.

51. While agreeing that inadequate cross-checking increases the
risk of overpayment, we would point out that an individual cow
may be covered by several applications, provided it is suitably
replaced. In the circumstances, it is the replacement that must be
checked, since multiple application is not in itself irregular. How-
ever, the Commission appreciates the Court’s remark, and con-
firms that is has indeed paid attention to this aspect in the Mem-
ber States, including those mentioned.

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52. According to Article 9(2), reductions are applicable only at
crop group level. The Commission does not share the Court’s
view that
the Community provisions minimise anomalies.
Article 6 of Regulation (EEC) No 3887/92 states that where errors
are found in the sample checked, the sample shall be extended.
Member States have been recommended in a working document
to measure all the parcels within the same crop group, as soon as
discrepancies are revealed.

Certifying bodies report on procedures to ensure compliance with
Regulations. However, Regulation (EC) No 1663/95 does not spe-
cifically require reporting either of the general implementation of
the IACS, or of statistics in particular, because it is not directly
concerned with the accounting clearance, for which the certify-
ing body’s work is used. However, the Court’s observation that
certifying bodies might evaluate the IACS implementation is noted
for future action.

53. The Commission is aware of this problem of avoiding the
full effect of sanctions, and is examining the need for relevant
provisions in the forthcoming consolidated Commission Regula-
tion on the IACS. The following has to be taken into account:

— the Commission has found, when assessing cases classified by
Member States as false declarations made intentionally, that
they often involve applicants declaring an area when there is
no area at all. Therefore, the second year’s sanction is without
effect and it is not feasible simply to exclude an area equal to
that which was rejected in the first year. The actual dissuasive
effect of such a provision would be very limited, as would its
impact on risk to the fund,

— a ‘blocking’ clause could in many cases lead de facto to sanc-
tioning of third persons. If the rejected aid application related
to land that was leased in the current year, on a contract ter-
minating at the end of the year, the sanction would be imposed
on the owner (or person then entitled). This raises a number
of legal problems.

Management information

54. The Commission has already taken regulatory and guidance
steps to meet its objectives of better management and control.

(b) The Court is correct to say that ceilings on bovine premiums
have not yet been definitively checked. By their nature (pay-
ments can be made up to two years after the claim period)
these checks can only be carried out to the required audit
standard in claim year + 2.

(c) Although not appearing in any formal summary report, ani-
mal premium statistics are evaluated and subjected to rigor-
ous on-the-spot audit every year, leading to numerous finan-
cial corrections under the clearance-of-accounts procedure in
most Member States. It is regrettable that some Member States
fail to supply statistics on request, but this failing has been
corrected via the amendment of Regulation (EC) No 2801/
1999.

55 to 59. The Court’s observations are based on statistics sup-
plied to it by Commission departments, and are generally very
similar to those formulated under the clearance of accounts.
Where Member States fail to supply some or all of the required
statistics, this failing is systematically taken into account under
clearance-of-accounts procedures.

56.

(b) Some Member States had an error rate of 0 %, as all cases with
discrepancies after administrative controls are followed up by
field inspections.

(c) This reflects correctly the situation in reality and the main
reason is differences among Member States and the standard
of the map material they have at their disposal.

(d) Similarly to point (c), differences between Member States in
the detection and reporting of serious errors are often due to
the varying control systems put in place.
For both the arable crops and animal premium sectors, such
differences are investigated in the context of the clearance of
accounts procedure.

58 and 59. Statistics on control results (administrative and
on-the-spot checks) were systematically requested from all Mem-
ber States. Experience gained as more schemes were covered by
the IACS meant that the tables initially used to collect informa-
tion had to be updated.

In order to avoid very wide variations in the statistics reported for
area aid, a special pre-printed questionnaire was created with
detailed explanations, which the Member States have been asked
to complete since 1995. It has therefore been possible to analyse
and compare the results of all Member States and to conclude that
administrative controls and field inspections are being reported
uniformly.

(d) The Court observes that national certifying bodies could be

used to analyse the IACS implementation.

The need for more attention to be paid to the specific nature of
some bovine premium schemes was already addressed in 1999
and is being further developed for 2000.

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60. The report on controls carried out in 1998 has been received
from most Member States (Denmark, Spain, France, Italy, the
Netherlands, Austria, Portugal, Finland, Sweden and the United
Kingdom). However, the degree of completeness was very varied.
The report on controls carried out in 1999 has been received
from all Member States except Greece. As provided for in Regula-
tion (EC) No 2630/97 the Commission has laid down the model
for the annual reports from Member States on the results of con-
trols made in the bovine sector regarding Community provisions
for identification and registration in Commission Regulation (EC)
No 1898/2000 of 7 September 2000.

Evaluation of the IACS and enforcing implementation

account the effectiveness and efficiency of the required controls,
and in its observation letters regularly suggests improvements to
the audited Member States.

Furthermore, most audit reports drafted by the Commission’s
departments evaluate the IACS implementation, either partially or
more completely, and all findings of weaknesses and/or non-
compliance are illustrated in great detail in the clearance-of-
accounts summary reports that appear several times each year,
providing a source of information not only on problems noted
but also on follow-up action taken by the Commission.

61. The Commission agrees on the importance of reliable and
timely information from the Member States and it takes their per-
formance in this matter into account when assessing situations in
the framework of the clearance of accounts. Furthermore, accounts
are not cleared until statistical information has been received and
scrutinised for any shortcomings.

64. The Commission agrees that, even for those Member States
where the IACS has been satisfactorily implemented, weaknesses
still exist and are dealt with in the context of the clearance-of-
accounts procedure. This said, it must be recalled that the clearance-
of-accounts procedure is a regulatory procedure, designed to pro-
tect the interests of both Community budget and Member States.

62. The Commission has not so far carried out any kind of
detailed cost/benefit analyses concerning implementation of the
IACS.

In focusing on 1998 alone, the Court does not give due weight to
the ongoing nature of the clearance of accounts.

In view of the extremely high proportion of expenditure to be
controlled, the Commission has been more concerned with mak-
ing the IACS work, rather than with evaluating its cost-
effectiveness. Of particular importance is the dissuasive/deterrent
effect of the IACS rules on sanctions, which is difficult to quantify.
Furthermore, the IACS plays a very low-key but highly effective
role in the detection of aid claims for rejection in the initial stages
(i.e. before they enter the system proper).

Viewing the cost-effectiveness of checks solely in financial terms
is too narrow a perspective. Checks have a wider importance, in
making sure that expenditure is incurred in conformity with
Community legislation, thereby helping to ensure that the eco-
nomic objectives of the common market organisations are
achieved.

63. The Court states that the Commission does not routinely
report on the IACS implementation. It must be mentioned that
there is no obligation to do so, although a report on the IACS
implementation was indeed sent to the European Parliament in
1998, with subsequent updates on discharge procedures.

65. The Commission welcomes the Court’s findings, which con-
firm its own. However, the Court’s implication that the Commis-
sion did not analyse Member States’ implementing systems in
their entirety (in 1998) is misleading. Clearly, the ongoing nature
of the Commission’s audit and supervision of the IACS does not
require in-depth examination of all aspects every year.

(a) Specifically for 1998, the Commission can demonstrate its
preoccupation with matters other than on-the-spot checks
and application of sanctions.

(b) It is not considered necessary to visit every paying agency
every year, hence the employment of an annual risk analysis
by the Commission to determine its audit scope. When a
region is actually subject to on-the-spot audit in the context
of clearance of accounts, the audit invariably covers several
years. Furthermore, these periodical and sometimes regionally-
based audits always provide useful information on national
implementation.

Of greater significance is the Commission’s ongoing monitoring
and reporting of the IACS situation. The Commission takes into

66. Attention was drawn to a potentially serious problem of lack
of checks on forage areas in Catalonia at the time of the clearance
of accounts audit of bovine premiums in September 1998, which
gave rise to serious doubts regarding legitimacy of declared for-
age areas.

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Other findings

71.

67. Potential overshooting of the regional ceilings for special
beef premium is under consideration by the Commission, which
is auditing this aspect in the clearance-of-accounts procedure (see
also point 54).

(a) The Commission is aware of the differing national legal sys-
tems and practices in pursuing suspected fraud cases, but
Member States are clearly under an obligation to apply the
sanctions as provided in Articles 9(3) and 10 of Regulation
(EEC) No 3887/92.

THE ROLE OF MEMBER STATES

Main findings at Member State level

69 and 70. The Commission refers to its detailed response given
at point 64.

As regards the Court’s Table 5, in respect of the weaknesses indi-
cated as ‘Poor — not functioning’, the Commission confirms that
almost all aspects are already being dealt with in the clearance-
of-accounts procedure. Similarly, the clearance-of-accounts pro-
cedure has dealt with the areas identified as ‘Average — function-
ing with some problems’. In some other respects the Commission’s
evaluations are actually less favourable towards the Member States
than those of the Court.

With regard to the weaknesses found concerning cross-checks
and other controls linked to bovine identification and registration,
it should be mentioned that the databases referred to in Article 5
of Regulation (EC) No 820/97 did not have to be operational until
31 December 1999.

(a) The Commission has established major weaknesses in respect
of 1998 in both Germany and Ireland, which are being fol-
lowed up in the clearance-of-accounts procedure.

(b) With respect to Catalonia, which gives rise to much negative
comment from the Court, the Commission can confirm that
following its audit mission of September 1998, a whole series
of financial corrections either have been or are being pro-
posed for both regional and national expenditure in the
clearance-of-accounts procedure.

(c) The Court’s findings in France correspond largely to those of
the Commission, and financial consequences have been or are
being applied in the clearance of accounts. Furthermore, the
Clearance-of-Accounts Directorate has established some seri-
ous deficiencies in respect of bovine identification and regis-
tration.

The Commission must, however, take account of the prin-
ciples of Community law, which among other things guaran-
tee means of administrative or legal recourse, as appropriate.
It must also allow for the fact that national legal orders are not
identical.

The Commission has been asked by some Member States to
create a system of objective figures to define discrepancies to
which more serious sanctions should apply. The feasibility of
this approach is currently being investigated, with a view to
including a new system of penalties in the consolidated Com-
mission Regulation on the IACS.

(b) See response given at point 47.

(c) The relevant veterinary and IACS legislation are interlinked;
Member States may carry out combined inspections, and
some of them do so. It should not be forgotten, however, that
not all animals or stockfarmers covered by Regulation (EC)
No 820/97 are subject to the IACS; efficient coordination is
the responsibility of Member States.

CONCLUSION AND RECOMMENDATIONS

Conclusion

74. The Commission has established that the basic elements of
the IACS have been implemented in all Member States, with the
exception of Greece and a few Spanish Autonomous Communi-
ties where the financial impact is not appreciable. Not all aspects
of the IACS are satisfactorily operational in all of the Member
States, however, as weaknesses relating to certain key and ancil-
lary controls continue to exist. Every control system is perfect-
ible, and one responsibility of the Commission’s auditors is to rec-
ommend improvements.

Nevertheless, when weaknesses such as those illustrated by the
Court are established, the Commission continues to apply finan-
cial consequences in the form of reductions of advances and cor-
rections in the clearance of accounts procedure.

(d) For Portugal, the Court’s remarks are very similar to those of
the Commission, which has proposed or is proposing finan-
cial consequences in the clearance-of-accounts procedure.

75. The Commission advises Member States to integrate their
controls as already allowed.

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76. The Court considers that more attention should be paid by
the Commission to setting of the IACS policy and guidance of
Member States. The significant amending Regulations (EC)
No 1678/98 and (EC) No 2801/1999, and the comprehensive
administrative work to provide interpretations, as well as the
regular organisation of expert group meetings, bear ample wit-
ness to the Commission’s efforts in this respect. Resulting improve-
ments have been largely due to the expert knowledge, and the
ability of the Commission to achieve rapid improvements and
practical solutions.

However, correct application of legal texts adopted by the Com-
mission lies firstly with Member States. The IACS legislation is
sometimes complex as a result of its role in providing harmonised
rules for a wide variety of direct aid schemes, which themselves
may involve variations (e.g. live and slaughter model for the spe-
cial beef premium).

The Commission stresses that many changes were made after
changes in market regulations. The Commission emphasises the
current review of the IACS legislation that, following its stated
intentions to simplify and clarify, will result in a codified replace-
ment of the IACS Regulation.

The IACS has proven to be the essential tool to limit and reduce
the risk to the Fund (See the Court’s comments in the discharge
of 1998 and 1999).

The Commission can confirm that compliance with this condi-
tion can be verified by checks of selected satellite images from the
period 1986 to 1991. These remote sensing checks identify land
use on 31 December 1991.

79.
In response to the Court’s observations on imprecision in
Community provisions on sanctions, we would refer the reader to
the answers under points 55, 56 and 76(a). According to
Article 9(2), reductions are applicable only at crop group level
and Member States are clearly under the obligation to apply the
sanctions as provided in Articles 9(3) and 10e of Regulation No
(EEC) 3887/92.

As to monitoring cases of fraud and irregularity, the Member
States are required under Council Regulation (EEC) No 595/91 to
communicate to the Commission every quarter a list of irregulari-
ties which have been the subject of judicial or administrative pro-
cedures.

80. Statistics supplied to the Court by the Commission were
incomplete, but the fault lies with the Member States concerned.
In the animal premium sector, steps have already been taken to
improve the future quality of information received from Member
States; both by regulatory amendment and by redrafting the
model declarations (with explanatory notes for guidance), of which
the Court has already received a copy. Financial consequences
decided in the clearance procedure for all claim years since 1993
demonstrate that the assessment of statistical information has
been properly evaluated.

77. All clearance- of- accounts audit reports on bovine premium
schemes are sent systematically to DG SANCO, and the Clearance-
of-Accounts Directorate is informed of DG SANCO inspections
and database approvals. Indeed, the Clearance-of-Accounts Direc-
torate sometimes participates in these missions. Therefore, the
implication that either Commission department is unaware of
events is incorrect.

In relation to the arable crops sector, the Commission has already
identified which information it really needs and issued clear guide-
lines to Member States in this regard and also put it on a regula-
tory basis. Reference is also made to the responses given in rela-
tion to points 58 and 66.

The Court is right to stress at point 36 the similarities between
IACS and veterinary legislation. This is due to the close coopera-
tion of the different departments. The Clearance-of-Accounts
Directorate was active in formulating the Commission implement-
ing Regulations adopted in late 1997 and early 1998 on bovine
identification and registration. Likewise, the veterinary services
were involved in drawing up the IACS rules on checks and sanc-
tions introduced by amending Regulation (EC) No 1678/98.

Recommendations

81.

78. The Court observes difficulty in checking one of the main
eligibility criteria: land use at 31 December 1991.

(a) The IACS legislation is already being reviewed along the lines
suggested by the Court. In order to be efficient Regulations
(EEC) No 3508/92 and (EEC) No 3887/92 have to take into
account the particularities of the market management schemes,
which makes it rather difficult to achieve the precision of the
IACS rules recommended by the Court.

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(b) The Commission has already gone some way towards meet-
ing the Court’s recommendation and regularly distributes a
compendium of interpretations and explanatory notes drawn
up at the request of Member States. However at present it is
not the Commission’s intention to provide a general IACS
interpretation and procedures manual.

(c) The ‘compatibility clause’ introduced by the new Article 9a
into the IACS Regulation (EEC) No 3508/92 should ensure
that no undue double aid payments are made for the same
parcel.

(d) For the Commission to recognise the fully operational char-
acter of a national database for bovine animals all bovine ani-
mals in the Member State must be recorded in the database.

(f)

In principle, reliable data on sanctions applied by Member
States are already available to enable an evaluation of the direct
financial benefits of the IACS — but see response to point 62.

(g) The management and administration of the IACS lies with the
Member States. As regards the responsibilities of the Commis-
sion, there is a clear distinction of duties between the differ-
ent Commission departments as a function of the scope of
the legal bases involved. While the market-related units, in
particular those dealing with livestock and area aid, are in
charge of providing interpretations on the conditions of
whether or not an aid application is eligible, the Clearance-
of-Accounts Directorate is responsible for the interpretation
of the administration and control requirements as provided
for by Regulations (EEC) No 3508/92 and (EEC) No 3887/92.

(e) Ways of further meeting the Court’s recommendation will be
investigated, also taking into account the available resources.

(h) The Commission will investigate the possibilities, also taking

into account resources available.