Special Report No 2/2004 concerning pre-accession aid Has Sapard been well managed? together Commission's replies
Date: 2004-05-26
Institutions: European Court of Auditors
Subjects: EU financing, European Commission, European Court of Auditors, accession to the European Union, aid to agriculture, audit, budgetary control, financial management, interinstitutional relations (EU), operation of the Institutions, rural development

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 2/2004

concerning pre-accession aid

HAS SAPARD BEEN WELL MANAGED?

together with the Commission’s replies

(pursuant to the second subparagraph of article 248(4) of the EC Treaty)

(2004/C 295/01)

CONTENTS

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

What is Sapard? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How did we audit Sapard? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STAGES IN THE IMPLEMENTATION OF SAPARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Large proportions of available funds remained unused . . . . . . . . . . . . . . . . . . . . . . . . . .

because of the time needed for setting up the programme . . . . . . . . . . . . . . . . . . . . . . . .

and because of delays in implementation by the Sapard countries . . . . . . . . . . . . . . . . . .

Key steps have not been analysed so that lessons can be learned . . . . . . . . . . . . . . . . . . .

and budgets were systematically under-utilised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DECENTRALISED IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

was a choice by the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

but the lack of preparation by the Commission and the tight time frame led to difficulties
with decentralisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and the Commission’s management was not always suited to Sapard countries’ needs

MAIN RESULTS OF SAPARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Limited impact in 8 out of 10 countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VAT included as eligible expenditure does not contribute to Sapard objectives . . . . . . . .

There was little contribution to achieving ‘EU standards’

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

Targets were not always clear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and reporting on objectives and priorities by the Commission was not as required

Institution building has been positive except for agri-environment . . . . . . . . . . . . . . . . .

Paragraph

Page

I-XI

1-10

1-7

8-10

11-25

11-12

13-15

16-21

22-23

24-25

26-35

26-27

28-30

31-35

36-57

36-37

38-40

41-47

48-49

50-51

52-57

3

4

4

5

5

5

6

6

7

7

7

7

8

8

8

8

9

9

10

10

10

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Paragraph

Page

ASSESSMENT OF SYSTEMS SET UP IN SAPARD COUNTRIES . . . . . . . . . . . . . . . . . . . . . . . .

Prior approval of the systems has ensured tight financial control systems . . . . . . . . . . . .

Systems were generally working in practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

but there was a lack of supporting elements in files . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sapard systems relied on other weaker systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and national rules on interest were in conflict with Sapard rules . . . . . . . . . . . . . . . . . . .

IMPLEMENTATION PROBLEMS IN SAPARD COUNTRIES . . . . . . . . . . . . . . . . . . . . . . . . . . .

Potential beneficiaries lack own resources and have difficulties in obtaining credit

and there were heavy administrative procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

which had as an effect that only financially strong beneficiaries are supported . . . . . . . .

58-80

58-60

61-65

66-67

68-76

77-80

81-97

81-90

91-95

96-97

ACTION REQUIRED BY THE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98-109

because insufficient rules and checks result in expenditure on general costs being mis-
spent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98-103

and there is a lack of assurance that money is well spent under private procurement rules

104–109

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110–121

ANNEX 1 EU contribution 2000-2003 by country and by main type of beneficiary and measure . . . . . . .

ANNEX 2 List of projects reviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

11

11

12

12

13

13

13

14

15

15

15

16

16

18

19

23

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EXECUTIVE SUMMARY

I.
The Special Accession Programme for Agriculture and Rural Development (Sapard) is the first external
aid programme which is implemented in a decentralised manner. The objectives of the programme are to con-
tribute to the implementation of the Community acquis and to solve problems for the adaptation of the agri-
cultural sector and rural areas in the 10 countries which benefit from Sapard aid (1). These 10 countries are
hereafter referred to as ‘the Sapard countries’. Due to the large increase in the pre-accession budget, which for
Sapard was to be managed by newly created structures under newly created rules, the Court performed an audit
which aimed at answering the question: ‘Has Sapard been well managed?’ (see paragraphs 1 to 10).

II.
The answer to that question is that management has been of mixed quality. Although there were sub-
stantial delays in getting Sapard under way some were caused by a failure on the part of the Commission to
plan as early as possible. That said, the pace of the implementation of Sapard has increased but the main objec-
tives had not been achieved by the end of 2003. There have been delays in implementation in most of the
Sapard countries caused in part by a lack of guidance and advice from the Commission and the steep learning
curve that the countries faced, and some measures have not been activated.

III.
Large proportions of available funds remained unused and budgets were systematically over-estimated,
because considerable time was needed to set up and implement Sapard. Detailed implementation principles
and rules were not ready when the Council adopted the Sapard Regulation in June 1999. Systems needed to
be set up in the Sapard countries, which took a long time in some cases, for which the Commission did not
analyse the reasons. Since the start of Sapard in the countries concerned, heavy administrative procedures,
stricter than required by the Sapard rules, have hampered a rapid and efficient implementation of the pro-
gramme (see paragraphs 11 to 25).

IV.
The Commission’s option for decentralised implementation was correct given the likely large numbers
of projects to be financed, but it under-estimated the time which would be needed for this to be done. Although
the Commission organised seminars and had other contacts with Sapard countries, its decentralised manage-
ment for Sapard does not guarantee that implementation problems are actively and systematically identified
and followed up. Because of this, best practices were not applied in all the Sapard countries (see paragraphs 26
to 35).

In the first four years of implementation, only 323 million euro (14,8 %) of the available budget of
V.
2 183 million euro was paid to final beneficiaries. Due to the low level of spending during the pre-accession
period, which for 8 of 10 of the beneficiary countries is from 1 January 2000 until 1 May 2004, there has
been only a minor contribution to the objectives defined for Sapard. For Bulgaria and Romania, for which the
pre-accession period is foreseen to last until 1 January 2007, a much higher impact can be expected. In Poland,
Sapard will pay at least 17,7 million euro in the form of VAT to the state budget which does not contribute to
the objectives of Sapard (see paragraphs 36 to 40).

VI.
The first results of completed projects show that the money for agricultural processing has generally
been spent on projects which increase the quantity of agricultural production, more than on projects which
improve the quality of agricultural production (meeting quality and health standards and protection of the envi-
ronment) (see paragraphs 41 to 47).

VII.
The Commission did not report on how well Sapard achieved its objectives, but instead focused on
institution building. This has been positive, because Sapard could provide national administrations with
hands-on experience for the management of EU funds after accession. However, for one of the most impor-
tant measures after accession, agri-environment, the effect was limited (see paragraphs 48 to 57).

VIII.
A requirement under Sapard is prior approval, by the Commission, based on its audits, of the sys-
tems set up by the countries concerned. This has ensured that well-defined systems with key controls were in
place before any funds could be spent. This requirement is a key difference from comparable programmes in
Member States, which can start with implementation without such audits or prior approval of the systems by
the Commission (see paragraphs 58 to 60).

(1) These 10 countries are: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia and

Romania.

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The Court found for the Sapard systems that key concepts were included, that procedures were well-
IX.
documented, that the systems which existed on paper were generally working in practice and that for most
files reviewed the checking procedures were followed. A difficulty was that other related systems, which pro-
vided input to the Sapard systems but which did not receive prior approval by the Commission, were not of
the same quality. This was in particular the case for the national checks on compliance with quality, health
and environmental standards, which were found to be insufficient (see paragraphs 61 to 80).

X.
Key implementation problems were that potential beneficiaries lacked own resources, had difficulties
in obtaining credit and were faced with heavy administrative procedures. The result of this was that Sapard
favoured the financially strong and the better organised with sufficient capital or access to loans. For smaller
farms and firms which have the greatest efforts to make in meeting standards to modernise and increase effi-
ciency, this was a major handicap (see paragraphs 81 to 97).

XI.
The rules and the checks for private procurement and for general costs were insufficient.
Effective checks to prevent the acceptance and payment of overstated invoices were not made (see para-
graphs 98 to 109).

INTRODUCTION

What is Sapard?

3.
The programme has been managed under Chapter 1 of
Title B7 (Pre-accession strategy) of the budget (4). The amounts
made available for the 10 Sapard countries for the years 2000-
2003 were 2 183 million euro (5). Annex 1 provides a break-
down by country of this amount.

1.
The Luxembourg European Council of December 1997
took decisions to launch the enlargement process with the objec-
tive of preparing the applicant countries for accession to the
Union. This included an enhanced pre-accession strategy intended
to enable the countries of central and eastern Europe to eventu-
ally become members of the European Union and, to that end, to
align themselves as far as possible with the Community acquis (1).
As part of the pre-accession strategy, it was decided to increase
substantially pre-accession aid: alongside the already existing
Phare programme (2), it would comprise a structural instrument
and aid for agriculture as from 2000.

2.
Accordingly, the Special Accession Programme for Agri-
culture and Rural Development (Sapard) was launched on 1 Janu-
ary 2000. The Sapard Regulation (3) specifies that the objectives
of the programme are to:

— contribute to the implementation of the acquis communautaire
concerning the common agricultural policy and related
policies,

— solve priority and specific problems for the sustainable adap-
tation of the agricultural sector and rural areas in the appli-
cant countries.

(1) Body of EU law setting out the common rights and obligations which

bind the Member States of the European Union.

(2) The Phare programme is the first pre-accession instrument and was set
up by Council Regulation (EEC) No 3906/1989 of 18 December 1989
(OJ L 375, 23.12.1989).

(3) Council Regulation (EC) No 1268/1999 of 21 June 1999 (OJ L 161,
26.6.1999) on Community support for pre-accession measures for
agriculture and rural development in the applicant countries of cen-
tral and eastern Europe in the pre-accession period.

4.
Sapard provides aid from EU and national funds of up to
50 % to agricultural producers (mainly for on-farm investments
in agricultural machines) and processing plants (mainly for invest-
ments in equipment), the remaining part (50 % or more) being
financed by the beneficiary (6). In the case of local communities
(for rural development infrastructure such as local roads and sew-
age systems) the Sapard aid is up to 100 %. In all cases (whether
the public aid granted is up to 50 % or 100 %), the EU contrib-
utes 75 % of the aid paid, while national co-financing provides the
remaining 25 %.

5.
Sapard is unique in the sense that it is the first external aid
programme which is implemented in a decentralised manner.
This latter aspect means that there is no ex ante approval by the
Commission for project selection, tendering and contracting (7).
Decentralised management in the Sapard countries has closely
followed the systems set up in EU Member States, including the
approval by the Commission of a ‘Programme for Agriculture and

(4) General budget of the European Union. As from 2004, Sapard is man-
aged under Chapter 5 of title 5 (Agriculture and rural development)
of the budget, and only includes new allocations for Bulgaria and
Romania.

(5) Appropriations for commitment.
(6) The level of public aid is a function of the type of measure or project.
For revenue-generating investments the normal maximum aid level is
50 % of the total eligible cost.

(7) As defined in Article 12 of Council Regulation (EC) No 1266/1999 of
21 June 1999 on coordinating aid to the applicant countries in the
framework of the pre-accession strategy (OJ L 161, 26.6.1999).

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Rural Development’ for each Sapard country. The Sapard Regu-
lation stipulates that the programmes should be based on plans
drawn up by those countries, which should relate to the 15 mea-
sures defined in the Regulation.

concluded and payments made in these four countries (1). In addi-
tion, key elements of the systems set up in the Sapard countries
were reviewed. The staff of the Supreme Audit Institutions of the
countries visited have worked with and accompanied the Court’s
auditors.

6.
There has been a concentration on those measures which
focus on investments in agricultural processing (improving the
processing and marketing of agricultural products, and invest-
ments in agricultural holdings) and those which develop rural
areas (development and improvement of rural infrastructure). The
Sapard countries granted these a higher priority than other pos-
sible measures such as those for agri-environment, forestry and
afforestation to which they allocated only 4 % of all resources.
Annex 1 provides a breakdown by country of the allocation to the
main type of measure and beneficiary.

7.
Implementation and payment functions in the Sapard
countries are the responsibility of the Sapard Agency. Potential
beneficiaries send applications to local offices of this agency. A
separate body in the Ministry of Finance, called the National Fund,
requests and receives payments from the Commission, and makes
funds available to the Sapard Agency.

How did we audit Sapard?

8.
Due to the large increase in the pre-accession budget in
general, which effectively doubled from 1999 to 2000 and which,
for Sapard, was to be managed by newly created structures under
newly created rules, the Court decided to perform an audit which
aimed at answering the question: ‘Has Sapard been well man-
aged?’ Three audit objectives were defined, which sought to
review:

— the Commission’s management and control systems for the

programme,

— the quality of systems set up in the applicant Sapard coun-

tries, and

— project selection, approval and implementation by national

and regional authorities.

These objectives allowed the Court to analyse whether the man-
agement and control systems were effective and applied reason-
ably or whether they were insufficient in their coverage.

9.
Audits were carried out in the Commission (DG Agricul-
ture) and in four Sapard countries (Bulgaria, Lithuania, Poland
and Romania). Documentary checks were made for a sample of
76 projects, of which 42 were visited on the spot between
November 2002 and September 2003. The projects in the sample
covered the main measures implemented at the time of the audit,
which themselves represented around 95 % of all contracts

10.
The audit of Sapard built on the results of previous audits,
which had focused on the setting up of the programme and the
Commission’s analysis and monitoring of the Sapard systems,
which have been published in the Court’s Annual Reports (2). The
main conclusions were that considerable time was used in setting
up the Sapard instrument, in particular in clarifying and working
out the details of the complex legal basis, and that the manage-
ment and control systems foresaw insufficient checks in risk areas
such as staffing, prevention of double funding, sound financial
management, bank interest, and compliance with minimum stan-
dards for environment, hygiene and animal welfare.

STAGES IN THE IMPLEMENTATION OF SAPARD

Large proportions of available funds remained unused

11.
The diagram shows the stages in the implementation of
the Sapard programme from the first proposal for legislation until
31 December 2003. The boxes give information about when key
steps were completed. The amounts indicated in section ‘A’ show
the gap between the total Community financial contribution in
the general budget (3) and the total amount for which contracts
have been concluded with beneficiaries. The difference thus
reflects the amount available in the budget which was not used by
the Sapard countries because of the time needed to have their sys-
tems approved, and, following this, the delays in those countries
arising from difficulties in implementation. The two main imple-
mentation problems are presented in paragraphs 81 to 95.

(1) The main measures are: investments in agricultural holdings, improv-
ing the processing and marketing of agricultural and fishery products,
and development and improvement of rural
infrastructure. This
represents some 80 % of commitments made in all applicant
countries.

(2) Court of Auditors Annual Reports concerning the financial year 2000
(OJ C 359, 15.12.2001) (paragraphs 6.41 to 6.53); 2001 (OJ C 295,
28.11.2002) (paragraphs 6.8 to 6.32); and 2002 (OJ C 286, 28.11.03)
(paragraphs 8.23 to 8.31).

(3) Cumulative appropriations for commitment.

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DIAGRAM

Implementation of Sapard 1998-2003

A = Amounts in the EU budget for which contracts were not signed.
B = Contracts concluded but not yet paid.
C = Amounts paid to beneficiaries.
Source

: European Court of Auditors: payments and contracts as at 31 December 2003.

12.
Section ‘B’ shows the amount of contracts concluded
with final beneficiaries but which have not yet been paid. This
reflects the time needed for the implementation of projects,
which, for example for construction projects, can normally take
more than a year, but also reflects administrative delays (see para-
graph 16 et seq). Section ‘C’ shows the actual flow of funds to
beneficiaries.

14.
The Commission did not use the time available in the
period between March 1998, when it proposed the Sapard Regu-
lation (2), and June 1999, when it was adopted by the Council, to
make further implementation preparations. This 15-month
period could have been used to prepare detailed principles and
rules which would have clarified the policy and accelerated
implementation.

because of the time needed for setting up the programme

13.
In June 1999, the Council adopted the Commission’s
proposal for a Regulation on Sapard. This set out a new and com-
plex legal framework, which required further definition. It took
the Commission seven months to set out the implementation
principles; then six months to draft and adopt the detailed rules;
then a further six months to draft, negotiate and adopt the agree-
ments with the Sapard countries. Thus, the legal basis was fina-
lised on 29 November 2000 (1). By the end of March 2001, all
countries had signed the agreements.

15.
After completion of the legal framework in Novem-
ber 2000, the start of Sapard depended on the time needed to set
up the systems by the Sapard countries. Some countries were
quick: the Commission approved the systems for some of the
measures in Bulgaria in May 2001. For others it took longer.
Hungary did not start the implementation of some of the Sapard
measures until 27 November 2002.

and because of delays in implementation by the Sapard
countries

16.
Since the start of Sapard in the countries concerned,
heavy administrative procedures, stricter than required by the

(1) Further details are given in the Court’s Annual Report concerning the

(2) Proposal

from the Commission for

a Council Regulation

financial year 2000, paragraphs 6.41 to 6.43.

(COM(98) 153 final, 19 March 1998).

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Sapard rules, have hampered an efficient implementation of the
programme. Below are some examples of the implementation
problems found by the Court (see also paragraph 91 et seq).

because Sapard countries could have taken into account success
factors when setting up systems for the management of EU funds.

17.
Romania was the last-but-one Sapard country to have
parts of its systems approved, but it was not well-prepared for
applying the programme in August 2002. The time between
receiving the application form and approving it took up to seven-
and-a-half months. Since April 2003 the situation has improved
because the Romanian authorities have changed certain proce-
dures and increased the number of staff available to deal with
these applications. Despite these delays, the large number of
applications made it possible for the Romanian authorities to use
all funds planned for rural infrastructure for the whole seven-year
period (2000-2006).

Poland also received a large number of applications for
18.
this type of project. However, for administrative reasons not
required by the Sapard rules, more than 250 million euro which
were available were not used for more than one year (1). This
hampered an efficient implementation of Sapard.

19.
In Lithuania, the average time between submission of the
project application and signature of the contract is 4,5 months.
One of the main reasons for the delays in approving the applica-
tions is the lack of staff in the key unit which evaluates all project
applications.

20.
In Bulgaria, all checks made at local level are reperformed
by the Sapard Agency at central level. This adds about one month
to each project approval (thereby delaying project implementa-
tion) and about one month to each payment approval stage. Such
double checks are necessary when systems are set up, but the
need for them should be kept under review.

Later, the Commission also did not include such an
23.
analysis in the mid-term evaluation of the programme in each
Sapard country. By including this element, success factors and
constraints in putting in place the systems could have been iden-
tified, thereby assisting similar exercises in the future. An exter-
nal evaluation was not launched to ensure that the experience
gained from Sapard could be used in the future.

and budgets were systematically under-utilised

The Commission could not make accurate estimates of
24.
the amounts included for payments in the budgets for the first
three years. Up to the end of 2002, it made 850,8 million euro
available for payments, of which only 154,4 million euro (18 %)
were used, while the other part was cancelled (2). The Commis-
sion noted that the payment estimates were uncertain because
they depended on factors which were out of its control and there
was no previous experience in managing external aid in a decen-
tralised manner. Thus, the amounts could not be based on suffi-
ciently detailed documentation and calculations.

25.
Instead, other arguments were provided to justify the
amounts, such as the need to give a positive signal that the Com-
mission was confident that the countries concerned would be
able to implement Sapard. There is a need to separate political
will and economic reality but, as a consequence of an undue
emphasis on the former, the Commission systematically overes-
timated the amounts for payments in the budget.

As will be seen in paragraph 35, the Commission has not
21.
looked actively for implementation problems such as the ones
described above. Although in some cases the Commission has
taken action by discussing the issue with the country concerned,
this was not done systematically.

DECENTRALISED IMPLEMENTATION

was a choice by the Commission

Key steps have not been analysed so that lessons can be learned

22.
The Commission did not analyse the critical steps which
delayed the setting up of the systems by the Sapard countries.
This would have been good management practice. Such an analy-
sis should include its own role and would have been useful,

(1) The reason for the delays is the following. Poland splits annual bud-
gets into specific measures and, for the largest measures, to specific
regions. Application rounds are launched for specific regional, annual
allocations. This practice of linking projects to specific regional,
annual allocations blocked the use of other available budgets. For rural
development infrastructure, the allocation to the regions requires a
decision by the Ministry of Agriculture, which was, for a large part of
the funds, not done until 22 September 2003.

26.
Until June 1999, external aid required ex ante approval by
the Commission for project selection, tendering and contracting.
The legal basis for Sapard made it possible, for the first time, that
such ex ante approvals for external aid could be waived. The
Council did not stipulate that such a system of decentralised man-
agement must be used, but the Commission opted for this. The

(2) The amount of 154,4 million euro cannot be compared with the dia-
gram because it includes 139,7 million euro of advance payments
made by the Commission to applicant countries and 0,1 million euro
for seminars. These amounts are not shown in the diagram because
they are not paid to final beneficiaries. The 154,4 million euro also
includes 14,6 million euro of payments made by the Sapard agencies,
from the advance payments, to final beneficiaries. These latter pay-
ments (adjusted by the Court for timing differences because the Com-
mission books the payments on a cash basis) are shown as section ‘C’
in Figure 1.

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Commission’s option for decentralised implementation was cor-
rect given the likely large numbers of projects to be financed.

27.
Since the Commission had not set out the methods for
managing the programme either as part of its proposal for the
Sapard Regulation in March 1998, or during the subsequent
period, it needed to do this after the adoption of the Regulation
in June 1999 by the Council. In January 2000, the Commission
adopted a communication indicating that Sapard should be man-
aged decentrally. The reasons given by the Commission as to why
it decided upon decentralised implementation were:

— that it did not have the necessary technical and human
resources to manage the expected large number of small
projects,

— to prepare the Sapard countries for management of agricul-
tural and rural development spending after accession.

but the lack of preparation by the Commission and the tight
time frame led to difficulties with decentralisation

The Berlin European Council of March 1999 assumed
28.
that the accession of six new Member States, five of which were
eligible for Sapard, might take place from 2002 onwards (1). Since
this meant for those five countries that Sapard would only be
operational for two years, it was necessary to start the Sapard pro-
gramme as soon as possible in order to have effect.

29.
However, by opting for decentralised implementation the
Commission had to provide a legal framework for making Sapard
rules applicable in those countries. Then the Sapard countries
needed to set up their systems, for which they had no previous
experience. Given the complexity of the tasks, the Commission
under-estimated the time which would be needed for this to be
done.

30.
Of the five countries, only Estonia (in June 2001) and
Slovenia (in November 2001) had their systems approved by the
Commission before 2002. The time taken did not result in a
shortening of the implementation period for Sapard because the
Gothenburg European Council of June 2001 set May 2004 as the
accession date, due to protracted enlargement negotiations.

and the Commission’s management was not always suited to
Sapard countries’ needs

In the Commission’s view, its responsibility under a sys-
32.
tem of decentralised management is to monitor the implementa-
tion of Sapard. The formal tools for this are through the negotia-
tion of the programmes, analysis of annual
implementation
reports provided by the Sapard countries and the participation, in
an advisory capacity, in each national Monitoring Committee,
which meet twice a year (2).

The Commission assigned few staff to do this. On aver-
33.
age less than the time of one official was allocated for managing
the programme of a Sapard country (3). For instance, a single offi-
cial was responsible for overseeing the implementation of both
the Romanian and the Bulgarian programmes amounting to
1 442 million euro of Community assistance.

34.
The Commission’s approach for managing the pro-
gramme can be illustrated by the following. As part of the 2001
discharge, the European Parliament criticised the Commission for
under-implementation of the Sapard budget, because payments
to final beneficiaries were very low. The Commission replied that
expenditure is essentially a function of how rapidly beneficiaries
incur expenditure, which the Commission could not control. The
Commission gave a commitment to speed up implementation, of
which the main result was that letters were sent to beneficiary
countries asking them what the Commission could do (4).

35.
The Court’s audit identified several areas where different
practices are applied in the Sapard countries, some with good
results but others which are counter-productive (see para-
graphs 21, 39, 80, 90, 95, 103 and 109). The Commission has
helped by the organisation of seminars and its daily contacts with
the Sapard countries, but this does not guarantee that implemen-
tation problems are actively and systematically identified and that
action is taken in order to ensure that the best practices are imple-
mented in all 10 countries (see also paragraphs 85 and 86).

MAIN RESULTS OF SAPARD

Limited impact in 8 out of 10 countries

36.
The Sapard Regulation established the framework for
Community support for the pre-accession period. For 8 out of 10
of the beneficiary countries, this period is from 1 January 2000
until 1 May 2004. The expenditure paid to final beneficiaries up
euro
2003 was
to

31 December

323 million

31.
In line with the principles of EU programmes in the
Member States, the Sapard countries have full responsibility for
the management of Sapard. The international agreements, signed
between them and the Commission, assign the responsibility for
day-to-day management, in particular identifying and addressing
implementation problems, to the Sapard countries.

(1) Initially, accession was foreseen for six countries: Czech Republic,
Estonia, Hungary, Poland, Slovenia (Sapard) and Cyprus (non-Sapard).

(2) The other official ways to be informed reach the Commission at later
stages: results of mid-term evaluation (by 31 December 2003) and
final evaluation (by 31 December 2006).

(3) Commission staff involvement in audits is not considered as manage-

ment in a strict sense and is discussed in paragraph 58.

(4) The Commission could not control the rate of commitments and pay-
ments because it did not want to change the fully decentralised man-
agement framework of Sapard and did not propose changes such as
an additional measure for credit or guarantees.

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(14,8 % of the available budget of 2 183 million euro), more than
half of which was paid in the last quarter of 2003. Due to the low
level of expenditure during the pre-accession period for these
countries (see paragraphs 11 to 20), there has been only a minor
contribution to the objectives defined in the Regulation before
accession.

37.
For Bulgaria and Romania, the European Council has set
a target date for accession of 1 January 2007, provided that these
countries meet the necessary requirements. For these countries, a
much higher impact can be expected.

There was little contribution to achieving ‘EU standards’

41.
The Sapard Regulation stipulates in Article 4(3) that the
countries concerned shall ensure that priority is given to improv-
ing market efficiency, quality and health standards and measures
to create new employment in rural areas, in compliance with the
provisions on the protection of the environment. The Court’s
audit found that 44 out of the 46 projects reviewed for the two
measures ‘investments in agricultural holdings’ and ‘improving
the processing and marketing of agricultural products’ increased
or modernised production (1).

VAT included as eligible expenditure does not contribute to
Sapard objectives

38.
Under the international agreements concluded between
the Commission and each Sapard country, VAT invoiced on
equipment or services may not be charged as an eligible cost for
reimbursement if any of the following conditions are fulfilled:

42.
However, only two projects were implemented which
had as the main objective the improvement of standards of the
business. While it is true that the new, modern equipment itself
fulfils EU standards, there was little evidence that,
for the
24 Sapard projects for on-farm investments, there was any effect
on the quality, health or environmental standards for the farm as
a whole. Similarly for the 20 projects for processing plants
reviewed, although there was an effect from the new equipment
itself on the plant as a whole, this was not in terms of readiness
of the whole establishment to EU standards.

(a)

is recoverable, refunded or offset by any means

it

if
whatsoever;

(b)

if it does not form part of the general taxation system, or

(c)

if it bears disproportionately on any part of the programme.

39.
The beneficiaries for the measure ‘development and
improvement of rural infrastructure’ are local municipalities and
the invoices for projects financed by this measure include VAT.
In Poland, because VAT is not reimbursable, such VAT is charged
to the project as an eligible cost. This is not the case in the other
Sapard countries audited.

40.
Based on the 2000-2003 allocations to Poland for the
measure (270 million euro), and with VAT rates varying between
7 % and 22 %, depending on the supply concerned, the Court has
estimated that the VAT will amount to at least 17,7 million euro.
This VAT amount will be paid by Sapard to the state budget in
which case it does not contribute to the objectives defined for the
programme. To put it in perspective, it is equivalent to the aver-
age Community contribution in Poland for approximately 400
road modernisation projects or 2 000 farm improvement
projects. The effect of allowing VAT as an eligible cost for financ-
ing in Poland but not in other Sapard countries is that not only
are fewer projects undertaken but also the effective level of
national co-financing is substantially reduced. Therefore, the
impact of Sapard is substantially diminished in that country. This
is disproportionate, and thus the expenditure is ineligible under
the terms of (c) above. There is no evidence that the Commission
took action, and it should investigate the full circumstances with
a view to determining whether Poland should repay the VAT to
the programme.

43.
The importance of this is underlined in the Commission’s
recent monitoring reports on the state of preparedness for EU
membership (2). In these reports, the Commission identified the
current pace of upgrading the agri-food establishments in the
Czech Republic, Hungary, Poland and Slovakia as an area of seri-
ous concern. For Poland it concluded that urgent progress was
needed in public health and that immediate action was needed in
order to implement the acquis by the date of accession.

44.
The agri-food sector, to which 27 % of Sapard funds are
allocated, also receives substantial amounts of foreign direct
investments. In Poland, the sector attracts around 575 million
euro of such investment per year, which is 10 times as much as
the annual Sapard allocation (3). The sector is one of the most
dynamic of Polish industry. In such an environment, the financ-
ing of commercial investments should be left to the private sec-
tor. Sapard funding should concentrate on meeting EU standards.

Projects for the measure ‘investments in agricultural
45.
holdings’ typically involved the purchase of bigger, more modern
and more powerful farm equipment, which had the effect of
increasing production of the beneficiary holding. In some coun-
tries there was a strong concentration of these investments in the

(1) In total, 48 projects were reviewed for the two measures; however, in
two cases the project had not advanced sufficiently to draw a conclu-
sion on the main objective.

(2) Comprehensive monitoring reports of the European Commission on
the state of preparedness for EU membership of the Czech Republic,
Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia
and Slovakia, 5 November 2003.

(3) The revised EU allocation for 2000-2003 averages 57 million euro per

year.

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cereals sector. Investments in the milk and meat sector, where the
need for compliance with EU standards is much higher, were low.
After analysis of Sapard countries’ annual reports submitted in
June 2003, the Commission has also identified an imbalance.

and reporting on objectives and priorities by the Commission
was not as required

46.
Even if Sapard mainly concerned the purchase of equip-
ment, it could still have contributed to upgrading to EU standards
if procedures had been strictly applied. This was not the case:
requirements and checks for minimum standards are defined in
the national legislation. They are the same for all agricultural pro-
ducers and processing plants, whether they have a Sapard project
or not. The Court’s audit found that hygiene and environmental
checks by the national authorities were insufficient. Further details
are provided in paragraphs 70 to 76.

47.
Thus, when looking at the overall Sapard objective of
implementation of the acquis concerning the common agricul-
tural policy and related policies, the following can be concluded.
Until the end of 2003, the money has generally been spent on
projects which increase the quantity of agricultural production,
more than on projects which improve the quality of agricultural
production (meeting quality and health standards and protection
of the environment).

Targets were not always clear

48.
The Court’s on-the-spot audits of the priority ‘creation of
employment in rural areas’ revealed several cases where due to
modernisation of equipment using Sapard investments fewer jobs
were needed. However, the monitoring of Sapard did not take
into account any negative effects on rural employment from
investments in the agri-food sector. For the few projects where
the number of jobs to be created was quantified, it was found that
these were based on general intentions, which depended on the
expected market developments rather than on the direct effect of
the Sapard project.

49.
Investments in rural development infrastructure have to
take place in rural areas in order to be eligible. However, the
Commission did not ensure that the projects were actually imple-
mented in rural areas. Normally population density is the yard-
stick for defining rural areas. However, data was not available in
certain countries, and the Commission approved the use of other
criteria. This led to Sapard co-financing investments of very
doubtful rural nature. Several cases were found where the area
served by the project was, in effect, a suburb of a larger town. The
true rural nature of the municipalities was not established. This is
despite the fact that the gap between infrastructure facilities of
urban and rural areas within Sapard countries is generally greater
than between urban and rural areas in the present Member States.

Article 13 of the Sapard Regulation stipulates that the
50.
Commission shall present an annual report on the Community
support granted,
in particular, the
in which it shall outline,
progress made towards achieving the objectives set out. In order
to do this, objective criteria for measuring the progress towards
achieving objectives or the priorities of the Sapard Regulation,
such as a summary of the main indicators set out in the Sapard
programmes, should have been set out in the annual reports. This
was not done.

51.
The 2000, 2001 and 2002 annual reports from the
Commission provide detailed and technical descriptions of
actions taken by the Commission including progress in terms of
setting up the systems and payments (1). However, these are only
the means needed to achieve the objectives.

Four years after the start of the programme, the Commission has
not established or communicated the extent to which the objec-
tives set out for the programme have been achieved.

Institution
agri-environment

building

has

been

positive

except

for

52.
Despite the objectives and priority areas defined in the
Council Regulation, the Commission views Sapard mainly as an
institutional-building device to ensure the easy take-up of Com-
munity practices after accession. Thus, the Commission has
stressed on various occasions, including in its annual reports, that
the real contribution of Sapard is to facilitate implementation of
necessary arrangements after accession.

53.
However, Sapard should primarily be judged as to how
well it has contributed to the objectives set when it was created.
It must also be borne in mind that institution building is one of
the objectives of the Phare programme and programmes for easy
take-up of Community practices have been implemented through
Phare management procedures and paid for by the Phare bud-
get (2). In each of the countries visited around 6 million euro from
Phare was used for pre-accession advisers, experts for program-
ming and setting up and auditing the systems, pilot projects and
computer equipment for and training of staff in the bodies which
were implementing Sapard.

(1) Sapard annual reports (Reports from the Commission to the European
Parliament, the Council, the Economic and Social Committee and the
Committee of the Regions) COM(2001) 241 final 3 July 2001,
COM(2002) 434 final 30 July 2002, COM(2003) 582 final 7 Octo-
ber 2003.

(2) In March 1997, the Commission decided to fully focus the Phare pre-
accession instrument on preparing candidate countries for joining the
EU. About 30 % of the annual Phare budget of around 1 500 million
euro per year was allocated to institution building, in particular to
introducing the objectives and procedures of the Structural Funds.

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The institution-building effect of Sapard has been posi-
54.
tive. Phare paid for and managed the institution building, while
Sapard provided the opportunity of ‘learning-by-doing’. Sapard
could provide national administrations with hands-on experience
for the management of EU funds because many procedures are
the same (programming, implementation procedures, monitor-
ing). The combined results of Phare and Sapard have been an
achievement, because structures and systems which were virtu-
ally non-existent only a few years ago have been set up and were
found to be both operational and generally effective. Para-
graphs 61 to 65 provide further details on these systems.

However,

institution building and learning-by-doing
55.
were not successful for the agri-environmental measure. This
important rural development measure is the only one which is
compulsory for Member States, and it is also the largest, repre-
senting 41 % of funds available for rural development under
EAGGF Guarantee. The reform of the CAP also places increased
importance on agricultural environment.

56.
Due to the complexity of the agri-environment measure
in general, and the fact that it was conceived as a pilot under
Sapard, details were issued by the Commission to the Sapard
countries only on 21 December 2001. These details required
modifications to the Sapard Programmes which have been
approved for each country and the setting up and approval of the
relevant systems. This meant that the measure could not be
implemented before the end of 2002. By December 2003, only
the Czech Republic and Slovakia managed to do this. Hungary
even removed the whole measure from Sapard. Poland suggested
doing the same, but was convinced by the Commission of the
relevance of keeping it. However, delays in working out the
detailed implementation rules continued, and the measure was
not implemented in Poland before it joined the EU.

57.
The Commission defined for the agri-environment mea-
sure that the actions should have the objective of developing
practical experience of agri-environment implementation at both
the administrative and farm levels. This objective has not been
met, because by December 2003, six out of eight beneficiary
countries acceding in May 2004 had gained only limited
experience of implementing this measure under Sapard.

ASSESSMENT OF SYSTEMS SET UP IN SAPARD COUNTRIES

Prior approval of the systems has ensured tight financial control
systems

17 Commission decisions were made for parts of the system
approved in a country, each of which conferred management of
aid on a provisional basis. Full conferral, which was envisaged
after further verifications by the Commission and implementation
of Commission recommendations, was not given. The Commis-
sion did not assume its responsibility to fully decentralise man-
agement. Indeed, the Commission did not define the criteria to be
met to receive full conferral of management.

59.
The legal basis also defined the minimum criteria and
conditions for decentralised management, such as a well-defined
system for managing the funds including effective internal con-
trol and the presence of adequate personnel. The Commission’s
analyses, in the form of system audits, have ensured that a well-
defined system with key controls was in place before any funds
could be spent (1).

60.
Consequently, Sapard countries started project imple-
mentation (concluding contracts) after the Commission decision
approving the systems, when all procedures, check lists and forms
were approved. This situation is different in Member States, where
Structural Funds expenditure for the period 2000-2006 was eli-
gible from 1 January 2000 or, in certain circumstances, as soon
as the first draft of the programming document was submitted to
the Commission, without prior approval of the systems.

Systems were generally working in practice

61.
The Sapard management and control systems have key
elements in common with EU programmes. Structural Fund pro-
cedures are applied for programming, monitoring and evaluation.
EAGGF Guarantee Fund procedures are used for the financial
management, including the clearance of accounts procedure (2)
and use of paying agencies.

62.
The programming exercise, which was entirely new for
Sapard countries, required them, inter alia, to describe the strat-
egy, select priorities, describe the measures and indicate the finan-
cial resources to be used. Nonetheless, all Sapard programmes for
agriculture and rural development were ready and approved by
the Commission in the autumn of 2000. It took no longer to
establish Sapard programmes than it took for Member States to
have their Structural Fund programmes approved. Monitoring
structures were also set up within an acceptable time.

The paying agencies set up in the Sapard countries for
63.
implementation of Sapard will in most cases be the paying agen-
cies which will be used for the management of EU funds after
accession. In Lithuania and Poland, the agencies will be manag-
ing both the Guarantee and Guidance sections of the EAGGF.

58.
The Sapard legal basis required a decision from the Com-
mission on decentralised management, based on an analysis of
the management and control systems of the country concerned
(known as conferral of management). As at December 2003,

(1) With the exception of certain elements, see paragraph 10.
(2) This is the procedure under which the Commission decides whether
expenditure made by CAP paying agencies should be definitively
charged to the EU budget.

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As in the Member States, internal audit units were opera-
64.
tional in all paying agencies and the attestation of the accounts
and reports on management and control systems were performed
by operationally independent certifying bodies. The Court found
that professional audits were performed.

65.
The Court reviewed the procedure descriptions and
checklists and checked 33 files to test that the systems worked as
documented. Notwithstanding the weaknesses identified later in
this report, the Court found for the Sapard systems that key con-
cepts were included, that procedures were well documented, that
the systems which existed on paper were generally working in
practice and that for most files the checking procedures were
followed.

but there was a lack of supporting elements in files

66.
A common problem with the files reviewed in the four
countries visited was a lack of documentation of checks. Check
lists were completed but the files generally did not contain justi-
fications or explanations to support the conclusions indicated by
the assessors. Notably there were no notes or working papers set-
ting out the tasks performed such as calculations, documents
checked on the spot or people met on the spot etc. In the absence
of such documents, the work of the second reviewer of the check
list was limited to verifying that all boxes had been ticked, rather
than carrying out a meaningful check. Since guidelines setting out
how checks should be performed did not always exist, it was gen-
erally not possible for the Court’s auditors to review what work
was performed and to ascertain on what basis the boxes in the
check lists were ticked as satisfactory.

An example of this was the lack of documentation for
67.
the analyses of business plans in Lithuania. Applicants have to
submit business plans in support of their project. These plans
indicate the viability of the business including the investment. The
procedure in Lithuania requires the evaluator to analyse the busi-
ness plans. However, there was little evidence of this analysis on
file in the samples examined by the Court. This work is very tech-
nical and requires more than what is currently done: a tick in the
box ‘Yes’, for example, signifies that ‘the indexes and financial
ratios of the farming activity correspond to the critical values
established by the Minister of Agriculture.’

Sapard systems relied on other weaker systems

68.
The Sapard systems need prior approval from the Com-
mission which is based on audits. The same procedure does not,
however, apply to systems which are directly related to and which
provide input to the Sapard systems. Examples of this are recruit-
ment procedures for staff and checks to examine minimum stan-
dards for hygiene, environment and animal welfare. These sys-
tems and procedures are not covered by the Commission’s audits
and prior approval of the systems.

task (1). Examination of the recruitment procedures in Bulgaria,
Lithuania and Poland found that recently recruited staff were not
recruited using transparent procedures and that personnel files
did not contain any information on the procedure followed or
documentation on the selection of the staff concerned. In Lithua-
nia several cases were found where only one applicant applied for
posts available in the Sapard Agency and the selection tests were
routinely destroyed at their conclusion. There is thus no transpar-
ent procedure which guarantees that qualified people are selected,
the quality approved by the
and that
Commission.

the systems are of

Project applicants are required to comply with health and
70.
environmental standards, both prior to and after project imple-
mentation. As part of its decisions to decentralise management of
aid, the Commission accepted the national checks on compliance
with quality, health and environmental standards without review-
ing who checked what, how or when. The Commission did not
require the Sapard countries to provide such information as part
of the Sapard procedures. The only check required by the Com-
mission and actually performed by Sapard Agencies was the pres-
ence of certificates issued by the responsible public body.

71.
In Romania, certificates of compliance with standards
were issued by the environmental agency and the agency respon-
sible for hygiene and health checks. Neither the Romanian
authorities nor the Commission had assessed the basis for issuing
these certificates. When the Court reviewed the latter, it found
that what was checked, and how, was not documented. Inspec-
tion reports for Sapard projects were not always available and, if
they were, they did not provide any details of the checks
undertaken.

72.
In Bulgaria, the national authorities check the require-
ment that the holding and the project meet the national environ-
mental standards by the presence of a decision from the commu-
nal committee. This decision is based only on information
provided by the beneficiary, and on-the-spot checks are not car-
ried out to check this.

73.
No information was available from the Commission or
the national authorities on the extent of environmental checks
performed in Sapard countries. In order to assess the sufficiency
of what was checked and how, the Court requested meetings with
representatives from the bodies which performed such inspec-
tions. In Poland, such details were not provided and consequently
the Court can have no opinion on how Poland ensures compli-
ance with the provisions on the protection of the environment as
required by the Sapard Regulation.

74.
Checks in Lithuania and Bulgaria on standards for the
measure ‘investments in agricultural holdings’ were only carried
out by the relevant agency before the project was approved, but

The Sapard legal basis requires that adequate personnel,
69.
with suitable experience, must be available and assigned to the

(1) Council Regulation (EC) No 1266/1999 of 21 June 1999 (OJ L 161,
26.6.1999) on coordinating aid to the applicant countries in the
framework of the pre-accession strategy; Annex 1(iii).

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Official Journal of the European Union

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not when it had been completed. It is important that such subse-
quent checks are performed and certificates issued if justified in
order to ensure that national and EU standards have indeed been
met by the end of the project.

Different practices were noted in the Sapard countries,
80.
and the Commission did not ensure that best practices were
applied in all 10 countries.

75.
Thus, for one of the projects visited on-the-spot in Lithua-
nia, the Court found that manure was inappropriately stored,
with a consequent risk of nitrate leakage and non-respect of EU
standards. There had been a pre-approval check on the spot, but
since then the number of cows had significantly increased. Checks
prior to the payment to ensure that environmental standards had
been respected were not made as required by the Sapard
programmes.

76.
Problems were also found concerning compliance with
hygiene and health standards in Poland. For one of the projects
reviewed by the Court, the purchase of new equipment for a milk
processing plant, the report on progress to meet EU standards
prepared by the veterinary authorities stated that the plant com-
plied for 74 % with the standards. This report was not taken into
account. Other checks were not made when the project was com-
pleted and paid, even though the requirement in the Polish pro-
gramme that the whole enterprise should comply with EU stan-
dards was apparently not fulfilled.

and national rules on interest were in conflict with Sapard rules

77.
As soon as the systems were approved, the Commission
made advance payments to Sapard countries which could be used
as working capital. Due to the time needed to start making pay-
ments to beneficiaries (see paragraph 16), these advance pay-
ments remained largely unused for the first year of Sapard imple-
mentation. The Commission required that normal commercial
conditions should be obtained for such amounts which should
respect a satisfactory level of security. The Court found that this
was not the case, as higher interest rates could have been obtained
with the same level of security in three of the four countries
audited because national rules were applied.

78.
In Bulgaria, different commercial banks were asked to
offer conditions in order to select the bank which was to hold the
Sapard accounts. After the Commission had made the advance
payment, the Bulgarian authorities placed unused funds on time
deposits. This best practice was not applied in Lithuania, Poland
and Romania, where national legislation obliged the authorities to
use the national bank. These banks offered lower interest rates
than commercial banks, and funds could not be placed on time
deposits.

The largest difference was found in Romania where
79.
approximately 650 000 euro more interest could have been
earned up to the end of 2003 if available higher rates had been
applied to unused Community funds. Problems were also noted
in other countries, for instance in Poland, where the interest was
booked on a sub account which was not interest-bearing.

IMPLEMENTATION PROBLEMS IN SAPARD COUNTRIES

Potential beneficiaries lack own resources and have difficulties
in obtaining credit

81.
For projects which do not generate substantial net rev-
enues (such as local roads) the aid rate is up to 100 % as infra-
structure is a necessary pre-condition for any development in
rural areas. High numbers of applications were received for such
projects, and the high rate of aid financing is one of the principle
reasons frequently stated for this success. For all other projects, as
the aid rate is limited to 50 %, beneficiaries are required to finance
at least 50 % of the project costs from their own funds or through
loans.

Sapard payments to beneficiaries must be based on dec-
82.
larations of expenditure incurred. This means that they have to
pre-finance the expenditure, often for a period of several months,
which is the time it takes for the Sapard Agency to handle the
payment claim and make the payment. Heavy administrative pro-
cedures have prolonged this period (see paragraph 93).

83.
An enquiry by the Sapard Agency amongst farmers and
agricultural advisors in Poland investigated the main obstacles in
applying for Sapard aid (1). This showed that the three main dif-
ficulties were the high cost of bank credit, the requirement to pre-
finance and the lack of own resources for the investment. The
potential for Sapard is nevertheless high, which can be seen by the
success of the Polish national aid scheme, under which the State
provides loans to farmers of up to 80 % of the project. In 2002,
more than 24 000 farmers were supported under this scheme,
which is 10 times that of the Sapard programme (2).

84.
Applicants have major problems in securing advance
financing and complementary funding. This is mainly because of
the lack of working and investment capital, combined with a
restrictive credit policy of banks, which is exacerbated by an
underdeveloped property market and banking system. This is a
general problem in all Sapard countries, and has been one of the
bottlenecks for implementing Sapard and one of the main reasons
for lower-than-expected project implementation. The Sapard pro-
gramme itself does not include the possibility of addressing this
problem, and the countries have tried to solve this themselves in
different ways.

(1) Opinions on the Sapard Measure 2 programme expressed by Agricultural
Advisory Centres and potential beneficiaries of the programme, Warsaw,
30 November 2002.

(2) 2 377 contracts were signed with farmers in the period September

2002-November 2003.

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The Bulgarian authorities were of the opinion that a
85.
credit scheme would help to solve these problems, and thus facili-
tate the implementation of Sapard. Consequently, a scheme which
would provide credit to Sapard beneficiaries was approved, and
60 million euro was allocated to it in the 2003 national budget.
The scheme was notified by the Bulgarian Minister of Agriculture
to the Commission in June 2003. In its reply in July 2003, the
Commission stated that it was of the opinion that the scheme
might include certain elements of state aid and that in that case
certain changes were required in order to respect competition
rules (1). Apart from questioning the financial details of the Bul-
garian scheme by letter, no urgent assistance or advice was pro-
vided and, in the event, Bulgaria withdrew the proposal. Thus, the
60 million euro available to address a key implementation prob-
lem in Sapard was not used because the Commission did not
actively follow up the problem.

86.
Other countries have already implemented similar
schemes, which were, however, not examined by the Commis-
sion. The Lithuanian authorities, for example, have set up a guar-
antee fund which issues guarantees to potential Sapard (and non-
Sapard) beneficiaries for loans. Elements of this scheme might
also be considered as state aid.

87.
Romanian municipalities faced considerable difficulties
in making payments to contractors, as the amounts concerned
were frequently greater than their whole annual budget. The rules
prevented the Sapard Agency from paying contractors’ invoices
directly. Faced with a similar situation, the Lithuanian Sapard
Agency did make such payments directly to municipalities, thus
violating the Sapard rules for an amount of around 1 million
euro (2).

In order to reduce the financial burden of pre-financing
88.
on the beneficiary, Lithuania and Romania made interim pay-
ments to beneficiaries as projects progressed. This practice was
not applied in all countries as this was considered to increase the
administrative workload.

An additional problem which exists in Romania is the
89.
commitment for municipalities to bear maintenance costs after
project completion which is a condition of eligibility for the mea-
sure concerned. Most projects concerned roads and the actual
extent of this future commitment to maintenance was not prop-
erly calculated by the municipalities or questioned by the Sapard
Agency. Even provisional figures were not known and when
questioned by the Court’s auditors the municipalities were unable
to give a reasoned estimate or indicate how these costs might be
budgets. Most
realistically

from their

limited

funded

municipalities considered the question of maintenance as being of
secondary importance. It was more important to have the project
approved. The current system in Romania thus does not guaran-
tee the sustainability of the investments which is a major
weakness.

90.
The Commission did not identify such implementation
problems and so was unable to address them in a consistent man-
ner. Because the Sapard programme itself does not have the
means to solve them, ad hoc solutions were arrived at. The result
was that different practices were adopted by the Sapard countries,
some of which were good, while others violated the rules.

and there were heavy administrative procedures

91.
After the first nine months of Sapard implementation in
Poland, 977 applications were received, of which 472 (48 %)
were rejected. An analysis of these figures showed that the main
reason for rejection was that the applications were not prepared
properly. The difficulties relate mainly to the large number of
documents to be provided and the difficulty in obtaining them.
The same problem was found in Bulgaria, which can be illustrated
by one of the projects reviewed by the Court. For this relatively
simple project for the purchase of a combine harvester and a
plough, the number of pages in the application file was 2 477 and
for the file with the payment request 601 pages. The relevance of
some of these documents is not always clear, and there is a need
to simplify the procedures and relieve the burden for beneficia-
ries, which will, in turn, speed up implementation.

92.
Another example of this is that when the Sapard Agen-
cies find that an application is incomplete, beneficiaries are given
the opportunity to provide the missing documents. The time
available for this is often insufficient. Consequently, the applica-
tion is rejected. For instance, only one document was missing for
the application for a project to upgrade a local road in Poland.
This document, the budget for the following year, required a
meeting of the municipality’s Council, which could not be held
within the time allowed. The project was rejected.

93.
The length of time often taken for processing applica-
tions also discourages potential applicants. The delays in process-
ing payment requests further extend the period of pre-financing
and deter possible beneficiaries.

The time from the payment claim to the actual day of
94.
payment is two to three months for the countries visited. Apart
from the time for evaluation of the payment claim the total time
also includes the waiting time after the payment order has been
prepared. In Poland, one farmer had to wait almost six months to
be reimbursed because he completed the project before the
expected completion date stated in his application. The Polish
officials stated that they could not accept a payment request
before the date forecast.

(1) A ceiling of 50 % of public aid from all sources cannot be exceeded.
Since Bulgaria applied a grant rate of 50 %, any subsidy element in the
grant scheme would exceed this ceiling.

(2) As at 31 March 2003.

95.
In all the cases where the Court identified that procedures
cause difficulties in implementation, Sapard countries have
applied stricter procedures than those required by the Commis-
sion. National management appeared unable to solve the prob-
lems, which were often due to rigid and unnecessary bureaucracy,

30.11.2004

EN

Official Journal of the European Union

C 295/15

even if they hampered an efficient implementation of Sapard. Fur-
thermore, best practices were not applied, which hampered a
more speedy implementation of Sapard.

which had as an effect that only financially strong beneficiaries
are supported

96.
Due to the requirement on beneficiaries to pre-finance
projects and the heavy administrative procedures, the Sapard sys-
tem favours the financially strong and the better organised with
sufficient capital or access to loans. For smaller farms and firms
which have the greatest efforts to make in meeting standards to
modernise and increase efficiency this is a major handicap.

97.
Based on the 13 farms visited on the spot by the Court
in the four countries, the auditors found that the farmers gener-
ally prefinanced the project and financed their own contribution
from their own resources, which other, poorer, farmers were
unable to do. This was particularly the case in Lithuania, where
this was a key element which has led to all the farmer beneficia-
ries visited being granted aid for more than one project.

ACTION REQUIRED BY THE COMMISSION

because insufficient rules and checks result in expenditure on
general costs being misspent

paid in cash. The Court’s audit found that, despite this risk, there
were insufficient checks for these costs. There was typically no
justification or explanation for the amounts charged, and no
checks were made that the costs were in relation to the services
provided or indeed that the services were provided in the first
place. It was merely ascertained that the maximum laid down was
not exceeded and that appropriate supporting documentation
(invoice and proof of payment) was present.

100.
Thus, the Bulgarian Sapard Agency reported to the
Monitoring Committee in 2003 that: ‘there were cases of benefi-
ciaries presenting counterfeit invoices from contractors, especially
for consultancy services’. The Court believes that the 12 % limit
is far too generous without further explanation by the beneficiary
of why a fixed maximum amount for a business plan should be
set, and that beneficiaries should be actively encouraged to use
free or cheaper services provided by the agricultural advisory ser-
vices in their own countries, which had been developed using
Phare funding.

101.
The Court identified problems in several of the projects
reviewed. For instance, there were cases where beneficiaries
applied for a second project, for which they again included the
costs of a business plan, despite the fact that the second plan was
almost identical to the first. There were even cases where the sec-
ond project was a simple extension of the original project, and
where the costs of the business plan exceeded those charged to
the first project. In all cases the invoiced amount was paid with-
out analysis by the Sapard Agencies.

98.
Sapard rules allow that general costs of up to 12 % of
total eligible costs may be charged to the project (1). These costs
can be architects’, engineers’ and consultants’ fees, legal fees, fea-
sibility studies and acquisition of patents and licences for prepar-
ing and implementing a project. To date, the general costs charged
were largely for the costs of preparing beneficiaries’ business
plans. The highest amounts were found in Bulgaria and in Lithua-
nia, where the relevant amount paid by the EU up to the end of
2003 is estimated by the Court to be 700 000 euro. In other
countries very little was charged for business plans. The difference
in the amounts charged between the countries should alone have
led the Commission to examine this matter.

102.
In one example, the general costs for preparation of the
business plan (15 400 euro) were paid to a consulting company
which was owned by the wife of the manager of the company
that had received Sapard aid. She was also a representative of that
latter company, and was thus able to sign on that company’s
behalf to accept the business plan provided by her own consult-
ing company. The payment order was signed by her husband.
When the Court visited the project on the spot, the beneficiary
could not demonstrate that the amount paid was justified by the
services provided. In addition, the applicable procurement rules
(see paragraph 108) were not applied. The costs had been
accepted and paid in full by the Bulgarian Sapard Agency.

99.
The risk related to these costs is high, in particular for
consultancy costs for the preparation of business plans, because
there is no direct relationship between the cost of the project
(equipment etc.) and preparing a business plan, whether it relates
to a small or large investment. Basing the reimbursement on a
percentage of the project does not ensure economy. The risk is
further increased because the rules allow that this expenditure is

(1) Bulgaria reduced the general costs for the preparation of business
plans to 5 %, and Romania in certain cases (for projects which do not
include construction and for two measures only) to 3 % or 5 %
depending on the measure.

Despite the cases identified by the Court, the Commis-
103.
sion has not thought it necessary to change the rules. It has not
addressed this aspect either in its ex ante audits or in its follow-up
audits, and the weaknesses identified were not detected by the
Bulgarian or the Commission’s audits (2). The examples demon-
strate that the Sapard rules and checks do not prevent the accep-
tance and payment of overstated invoices.

(2) Since the expenditure was paid in 2002, the Commission had already

carried out its clearance of account audit.

C 295/16

EN

Official Journal of the European Union

30.11.2004

and there is a lack of assurance that money is well spent under
private procurement rules

104.
Around 60 % of the Sapard funds are used following a
private procurement procedure. Apart from the general rule of
respect of the principles of sound financial management, the
applicable rules are simple. They require a beneficiary to obtain
at least three quotations for the costs of any services, supplies and
works costing more than 10 000 euros. The same rules apply also
to large projects, which may be up to 5 million euro in the case
of investments in processing plants.

The Court

105.
found that, despite the large amounts
involved, insufficient checks were made. There were no checks on
whether the offers were comparable, and whether the best offer
was selected. Except in Bulgaria, where initial steps were being
undertaken, there were no comparisons with reference prices,
which would allow Sapard assistance to be limited if unjustified
costs were claimed. The Commission’s audits did not address this
issue. That such checks are required is shown by the audit find-
ings set out below.

The Court’s analysis of

106.
the offers presented for
34 projects showed that in the majority of the cases the three
offers were not comparable and therefore of little or no value (1).
Beneficiaries are not required to specify in writing the details of
the planned investment. Consequently, offers were generally
received which were for different equipment specifications, or
without such specifications at all, and there were large price dif-
ferences. In addition, the offers did not always contain the infor-
mation on the main determining factors which caused the ben-
eficiary to select an offer.
In cases where the offers were
comparable, the cheapest offer was not always selected and no
explanation or justification was provided. It was impossible in
most cases to analyse whether the best offer was accepted and
thereby to ensure sound financial management, in particular of
economy and cost-effectiveness.

107.
Around half of the beneficiaries encountered by the
Court confirmed that the three-offer procedure was meaningless
because they knew in advance which equipment they intended to
buy. The other two offers were obtained purely to fulfil the
requirement. For example, for a Sapard project to buy a tractor in
Poland, the beneficiary had already decided which tractor she
wanted to buy and from whom. In order to fulfil the three-offer
requirement, she obtained two further identical offers (2) which
purported to be from different sales points of another company.
However, she had not considered buying from them, even though
they were slightly cheaper, as they would not be able to provide
after-sales service in the future.

(1) In the sample of projects reviewed by the Court, private procurement
rules were applied to 34 projects. In 23 cases the offers were found to
be not comparable.

(2) In the same handwriting and written with a purple pen.

Sometimes three offers were not obtained. In Bulgaria
108.
the procedure was not applied in respect of general costs, whereas
in other countries it was. In Poland, several cases were found
where one investment was broken down into several items each
below 10 000 euro, thus avoiding the procedure. In other cases
several different items each larger than 10 000 euro were com-
bined in single offers.

The weaknesses identified by the Court were not
109.
detected by the Commission’s audits nor by its management
information system. Thus, the different practices noted between
countries have not been addressed by the Commission. The
examples demonstrate that the Sapard rules and checks do not
prevent the acceptance and payment of overstated invoices. Bet-
ter rules and checks are required, in particular for larger projects,
both by the Sapard country and by the Commission.

CONCLUSIONS AND RECOMMENDATIONS

110.
The Commission did not use the time available, before
the adoption of the Sapard Regulation by the Council, to prepare
for detailed implementation principles and rules. Thus, more time
than necessary was used, after the adoption by the Council, to
provide them.

After their adoption, in November 2000, the start of
111.
Sapard depended on the time needed by the countries to set up
the systems. The Commission and the Sapard countries did not
analyse why some countries were quick and why for others it
took longer.

112.
Heavy administrative procedures in the countries con-
cerned, stricter than required by the Sapard rules, have hampered
an efficient and effective implementation of the programme.

— The Commission should, for new expenditure programmes,
use the time available before adoption of the legal basis by
the legislative body to work out the detailed implementation
procedures.

— The Commission should analyse the lessons learned from
new programmes, in particular, in the case of Sapard, the set-
ting up of decentralised systems, in order to be prepared for
similar exercises in the future.

113.
The Commission’s application of a system of decentra-
lised management has meant that it has not actively identified
implementation problems, provided advice on addressing them
nor monitored results. Moreover, staff resources were limited.
Due to this, best practices were not applied in all countries, and
practices which were counter-productive were not prevented, all
of which hampered a quicker yet secure implementation of
Sapard.

30.11.2004

EN

Official Journal of the European Union

C 295/17

— Even in the case of decentralised management, the Commis-
sion should ensure that best practices are implemented in all
beneficiary countries, and that sufficient resources are allo-
cated to this task.

The Commission’s proposals to the budgetary author-
114.
ity were not based on reliable and realisable budget forecasts of
implementation.

— Whilst the Commission may wish to demonstrate to the
countries that it has confidence in their respective abilities to
implement the Sapard instrument, the political will should
not be translated into unrealistic budget forecasts.

Sapard had as a positive effect that structures and sys-
115.
tems which did not exist a few years ago were set up and func-
tion in the Sapard countries. Key elements of these systems will
be used for the management of EU funds after accession.

116.
Prior approval of the systems based on both the Sapard
countries’ and Commission audits has ensured that well-defined
systems with key controls existed, at least on paper, before any
funds could be spent. This is good practice. However, Member
States may implement new legislation without such prior audits
of the system.

— The Commission should consider whether ex ante audits and
prior approval of new financial and management systems
before money is spent would also be good practice for Mem-
ber States.

117.
Due to the low level of expenditure during the pre-
accession period, there has been only a minor contribution to the
objectives defined in the Sapard Regulation for 8 of the 10 ben-
eficiary countries.

The first results of completed projects show that the
118.
money has generally been spent on projects which increase the
quantity of agricultural production, and not on projects which
improve the quality of agricultural production (meeting quality
and health standards and protection of the environment).

— The Commission should address this imbalance and ensure
that Sapard funds are used for projects which have as the

main objective the improvement of standards for processing
plants or farms as a whole.

119.
The Court found that the rules and the checks for pri-
vate procurement and for general costs were insufficient. Effec-
tive checks to prevent the acceptance and payment of overstated
invoices were not made. Insufficient checks were also noted for
compliance with standards for hygiene and the environment.

— The Commission should address this lack in rules and effec-

tive checks.

120.
A key implementation problem was that potential ben-
eficiaries lacked own resources and had difficulties in obtaining
credit. Whilst the Sapard programme offers a large number of
measures,
it does not include the possibility to address this
problem.

— For similar, future actions, the Commission should simplify
the Sapard programme by reducing it to three or four key
measures. The Commission should examine whether in that
case a system of loans and guarantees could replace or
supplement existing measures in order to address the prob-
lem of project financing.

121.
So, ‘Has Sapard been well managed?’ The answer is that
management has been of mixed quality. On the one hand, Sapard
has allowed countries to gain ‘hands-on’ experience of operating
an EU aid system, for which the Commission has been a driving
force. On the other hand, this was not a primary aim of Sapard
and the key objectives that had been set were not achieved, such
as assisting in the Community acquis particularly those relating to
environmental and health standards. This was due to avoidable
delays in implementation, and as a consequence those countries
joining in 2004 have not had the benefit of delivering aid for the
measures approved, for the period of about four-and-a-half years
from the beginning of 2000 to May 2004, which had been
planned by the legislative authority. In addition, by early 2004,
due to delays in setting up systems, the full range of measures that
had been programmed (including agri-environment) has not been
applied. The Commission under-estimated the problems that had
to be faced by beneficiaries of financing their projects. This prob-
lem should have been identified at an early stage and solutions
found in order to ensure that the available aid had maximum
effect across all target beneficiaries.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 26 May 2004.

For the Court of Auditors
Juan Manuel FABRA VALLÉS
President

C 295/18

EN

Official Journal of the European Union

30.11.2004

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30.11.2004

EN

Official Journal of the European Union

C 295/19

ANNEX 2

List of projects reviewed

M 1 — Investments in agricultural holdings

M 2 — Improving the processing and marketing of agricultural and fishery products

M 3 — Development and improvement of rural infrastructure

Sample No

Measure

M 1

M 2

M 3 (4)

1

2

3

4

5

6

7

8

9

10

11

12

13

14

v

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v

BULGARIA

Project description

Purchase of new equipment for a cereal farm including
a tractor

Purchase of new equipment for a cereal farm including
a combine harvester

Purchase of new equipment for a cereal farm including
a combine harvester

Purchase of new equipment for a meat processing
plant

Purchase of new equipment for a milk processing plant

Purchase of new equipment for a meat processing
plant

Purchase of new equipment for a winery

Purchase of new equipment for a cereal farm including
a combine harvester

Purchase of new equipment for a cereal farm including
a combine harvester

Purchase of new equipment for a cereal farm including
a combine harvester

Purchase of new equipment for a meat processing
plant

Purchase of new equipment for a fruit and vegetable
processing plant

Construction of storehouses and purchase of a silos for
a cereal farm

Purchase of new equipment for a cereal farm including
a combine harvester

Visit on the
spot (1)

Substantive
test (2)

Compliance
test (3)

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

(1) Visit on the spot to meet with the final beneficiary and to inspect the project.
(2) File review to check general costs, key procurement rules, objective and other key issues relating to the project.
(3) File review to check that the supervisory and control systems worked in practice.
(4) Systems for the measure were not approved at the time of the audit.

C 295/20

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Sample No

Measure

M 1

M 2

M 3

LITHUANIA

Project description

Visit on the
spot (1)

Substantive
test (2)

Compliance
test (3)

v

v

v

v

v

v

1

2

3

4

5

6

7

8

9

10

11

12

Modernisation works and purchase of new equipment
for a dairy farm

Purchase of new equipment for a cereal farm

Purchase of new equipment for a cereal farm

Purchase of new equipment for a pig farm

Purchase of new equipment for a dairy farm

Purchase of new equipment for a dairy farm

v

v

v

Purchase of new equipment for a meat processing
plant

Reconstruction works and purchase of new equipment
for a meat processing plant

Construction of water and sewage infrastructure

Reconstruction of sewage infrastructure

Construction of sewage infrastructure

Construction of a slaughterhouse

v

v

v

v

v

v

v

v

v

v

(1) Visit on the spot to meet with the final beneficiary and to inspect the project.
(2) File review to check general costs, key procurement rules, objective and other key issues relating to the project.
(3) File review to check that the supervisory and control systems worked in practice.

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

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Official Journal of the European Union

C 295/21

POLAND

Sample No

Measure

M 1

M 2

M 3

Project description

Visit on the
spot (1)

Substantive
test (2)

Compliance
test (3)

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

Purchase of new equipment for a milk processing plant

Purchase of new equipment for a milk processing plant

Purchase of new equipment for a fruit and mushroom
processing plant

Purchase of new equipment for a milk processing plant

Purchase of new equipment for a milk processing plant

Construction works and purchase of new equipment
for a poultry meat processing plant

Purchase of new equipment for a meat processing
plant

Installation of a ventilation system in a milk processing
plant

Purchase of new equipment for a fruit processing plant

Purchase of new equipment for a meat processing
plant

Construction works at a mushroom farm

Purchase of new equipment for a horticultural farm

Purchase of new equipment for a fruit farm

Purchase of new equipment for a vegetable farm

Purchase of new equipment for a dairy farm

Purchase of new equipment for a fruit farm

Purchase of new equipment for a horticultural farm

Purchase of new equipment for a fruit farm

Purchase of new equipment for a fruit farm

Purchase of new equipment for a fruit farm

v

v

v

v

v

v

v

v

v

v

Sewage system construction

Local road upgrading

Sewage system construction

Local road upgrading

Sewage system construction

Local roads upgrading

Sewage system construction

Modernisation of a local sewage plant

Local road upgrading

Sewage system construction

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

(1) Visit on the spot to meet with the final beneficiary and to inspect the project.
(2) File review to check general costs, key procurement rules, objective and other key issues relating to the project.
(3) File review to check that the supervisory and control systems worked in practice.

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

C 295/22

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Sample No

Measure

M 1 (4)

M 2

M 3

ROMANIA

Project description

Visit on the
spot (1)

Substantive
test (2)

Compliance
test (3)

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

v

v

v

v

v

Reconstruction works at a meat processing plant

Reconstruction works at a meat processing plant

Reconstruction works at a meat processing plant

Reconstruction works and purchase of new equipment
for a meat processing plant

Reconstruction works and purchase of new equipment
for a winery

Local road upgrading

Local road upgrading

Installation of a water supply system

Construction of sewage and waste water treatment
station

Local road upgrading

Local road upgrading

Local road upgrading

Local road upgrading

Installation of a water supply system

Installation of a water supply system

Construction of a water supply system

Local road upgrading

Local road upgrading

Local road upgrading

Construction of extended water supply system

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

v

(1) Visit on the spot to meet with the final beneficiary and to inspect the project.
(2) File review to check general costs, key procurement rules, objective and other key issues relating to the project.
(3) File review to check that the supervisory and control systems worked in practice.
(4) Systems for the measure were not approved at the time of the audit.

TOTAL

76

24

24

28

42

75

33

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THE COMMISSION’S REPLIES

EXECUTIVE SUMMARY

I.-II.
implementation of the Sapard instrument.

The Commission welcomes the audit carried out on the

The Commission considers, however, that a final analysis con-
cerning the impact of the programme can be made only when it
has been fully implemented.

While the main elements of the Commission’s proposal on the
Sapard Regulation (EC) No 1268/1999 were maintained, the text
of the proposal was subject to ongoing discussions (as regards the
budget headings under which the pre-accession instruments
should be financed, including the financial implementing mecha-
nisms) until the final stage of its adoption. As long as the legal
uncertainty remained, the Commission was not in a position to
draw up the final legal provisions for the implementing arrange-
ments. These provisions were adopted by the Commission on
26 January 2000.

The approach was new and this was the first time external aid was
managed on a fully decentralised basis. One main objective of
Sapard is to contribute to the implementation of the acquis. An
essential part of this is to assure a good administrative capacity
able to perform the demanding tasks of rural development policy
implementation according to the principles of sound financial
management. This is also in line with the demand of the Euro-
pean Parliament, expressed in the European Parliament resolution
accompanying the 1999 discharge, that ‘effective protection of
the Community’s financial interest in the applicant countries
should be an absolute priority in the next few years’.

Committee meetings. However, the exact procedural choice
remains with the countries concerned. The Commission cannot
prevent them from applying their own internal administrative
arrangements as long as the Sapard rules are respected.

IV.
The Commission’s responsibility under a system of decen-
tralised management is to monitor the implementation of Sapard.

As current events show money is flowing now at a regular pace
in almost all Sapard countries, based on a reliable system which
can be used as a basis for the programmes as Member States.

V.
Payments made to final beneficiaries alone in 2003
amounted to EUR 288 million. By 31 December 2003, against
the 2000-2003 allocation of EUR 2 183 million, total commit-
ments to final beneficiaries amounted to EUR 1 214 million
(56 %) while actual payments made to the beneficiaries totalled
EUR 323 million (15 % of allocation). According to information
received from the Sapard countries, at least seven out of eight
countries due to join the EU will be able to contract all the avail-
able funds for the 2000-2003 period to final beneficiaries.

The rule on the eligibility of VAT for EU part-financing applies to
the Sapard countries as well as to the Member States receiving
support under the Structural Funds. Multi-annual Financing
Agreement (MAFA) rules apply.

VI.
The Commission considers that increasing production
capacity at project level is compatible with improving standards
and the need for restructuring to improve market efficiency.

The Commission is of the opinion that it has provided sufficient
guidance and advice to the Sapard countries and has worked with
them to prepare the setting up of the institutions and procedures.
This has been done both through extensive assistance of experts
from Member States through Phare twinning arrangements, and
through ongoing exchange of information in the framework of
seminars and fact-finding missions (see the Commission’s Sapard
Annual Report for 2000).

VII.
The Commission considers institution building as one of
the fundamental elements of the acquis and a pre-condition for
the responsible use of EU funds. The agri-environment measure
was a facility for the Sapard countries to gain administrative expe-
rience through pilot actions and was not one of the most impor-
tant measures needed to restructure the agricultural sector and
prepare for accession.

III.
The Sapard budgets for 2000-2004 were drawn up on the
basis of the most reliable information available at that time. The
sizeable challenges posed by the need to set up an entirely new
system and the lack of experience of the Sapard countries in this
area meant that implementation took time, but in most cases no
longer than could be reasonably expected, given experience from
similar exercises in the Member States. The Commission is well
aware of the reasons why it took longer in some countries to set
up the administrative system for implementing Sapard.

Whenever it was made aware of ‘heavy administrative proce-
dures’, the Commission advised the countries concerned by cor-
respondence, during bilateral meetings and at the Monitoring

IX.
The Commission welcomes the Court’s assessment that
the Sapard system generally works in practice. The Commission
recognises that there have been some problems with the controls
on compliance with minimum standards and has made recom-
mendations for improvements. On the basis of its audits up to
March 2004, the Commission considers that the situation has
improved since the Court’s audit.

X.
The Commission is aware of the problem of lack of own
resources and of the difficulties in obtaining credit. To address
this issue, the Commission, with the aid of Phare funds, is sup-
porting a project to improve access to credit for SMEs in Sapard
countries, which should help widen access to Sapard. This project

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Official Journal of the European Union

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has recently been extended with a specific sub-window focusing
on credit institutions serving farmers and small rural businesses.
It also encourages the candidate countries to use national credit
schemes as far as they are respecting Community competition
rules and aid intensities of the Sapard Regulation.

In order to facilitate the application of national credit schemes the
Commission in its recent proposal for a modification of Regula-
tion (EC) No 1268/1999 included a specific provision in this
respect (see also reply to point 97).

Although the Commission has also identified weaknesses
XI.
in some cases and has made recommendations for improvements,
it considers that the situation has improved since the Court’s
audit. Where necessary, these recommendations will be followed
up under the clearance of accounts procedures.

INTRODUCTION

At the end of 2003 almost 13 000 projects were being

9.
implemented in the 10 Sapard countries.

10.
The legal basis was designed so that Sapard countries
would be working with arrangements similar to those used by
Member States. See also the reply to points 13 and 14.

The management and inspection systems established by the com-
petent authorities of the Sapard countries are subject to ex ante,
before management of the funds is delegated, and ex post audits,
through the clearance of accounts and compliance audits. These
three types of audits, as required by the Multi-annual Financing
Agreement (MAFA), form the basis of the system used to provide
reasonable assurance as to the legality and regularity of expendi-
ture charged to the Community budget. In this context, the Com-
mission considers that the main risks are adequately covered.

STAGES IN THE IMPLEMENTATION OF SAPARD

11.
The Sapard budgets for 2000-2004 were drawn up on
the basis of the most reliable information available at that time.
The sizeable challenges posed by the need to set up an entirely
new system, and the lack of experience of the Sapard countries in
this area, meant that implementation took time but in most cases
no longer than could be reasonably expected.

Sapard, unlike the Structural Funds, could not build on a stock of
projects already in the pipeline as at 1 January 2000. For the sake
of sound financial management and the protection of the finan-
cial interests of the Community, Sapard projects are eligible for
selection only after the adoption of the Decision on conferral of
management.

While the main elements of the Commission’s pro-
13.-14.
posal on the Sapard Regulation (EC) No 1268/1999 were main-
tained, the text of the proposal was subject to ongoing discus-
sions (including discussions on budget headings) until the final
stage of adoption of the Sapard Regulation. As long as the legal
uncertainty remained, the Commission was not in a position to
draw up the final
the implementing
legal provisions for
arrangements.

Following adoption of the Regulation, a working group prepared
the basic provisions for the financial management of Sapard
within a few months. These were adopted by the Commission on
26 January 2000.

The reason for this strategy was the novelty of the approach and
the fact that this was the first time external aid was managed on a
fully decentralised basis. The detailed steps and the time required
for elaborating and agreeing the financial implementing arrange-
ments are outlined in the Commission’s Sapard Annual
Report 2000.

These steps involved the adoption of the implementing Regula-
tion (adopted on 18 April 2000), the elaboration and adoption of
the Multi-annual Financing Agreement (MAFA) and the 2000
Annual Financing Agreement (AFA) by the Commission (adopted
on 29 November 2000), and the negotiation of bilateral agree-
ments (MAFA and AFA) with each of the 10 Sapard countries (all
agreements were signed between 18 December 2000 and end of
March 2001).

16.
The Commission has, on various occasions, advised
Sapard countries to avoid unnecessary administrative procedures
not required by the MAFA, where appropriate via seminars, meet-
ings or letters.

The Sapard systems are designed by the national authorities not
only on the basis of the accreditation criteria but also taking into
account national legislation and their knowledge of the risk areas
in their countries. Stricter rules are necessary in some situations
to protect the financial interests of the Community (see point 20
concerning double checks).

17.
The capacity of Romania to spend EU funds has been the
subject of ongoing discussions and exchange of letters between
the Commission and Romania. Although the Romanian Sapard
Agency has committed a large amount, the Commission is closely
monitoring the situation (because of the low uptake in terms of
payments) and providing advice as appropriate to reduce bottle-
necks and risks in the procedures.

18.
The Commission has formally addressed this issue with
Poland on several occasions, during bilateral meetings and at the
Monitoring Committee meetings. For example, the Commission
urged the Polish authorities to ‘review the elements of Polish
legislation which could slow down a smooth implementation of
the programme’. However, the choice remains with the country
concerned. The Commission cannot prevent Sapard countries
from applying their own internal administrative arrangements as
long as the Sapard rules are respected.

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Notwithstanding the stricter national provisions for contracting
and payments, Poland expects to commit all available funds for
2000-2003 to final beneficiaries.

The Lithuanian authorities acknowledge this situation
19.
and state that they recruited additional staff for project evaluation.

The Commission considers that it has allocated a suf-
32.-33.
ficient number of qualified staff, in the Sapard Unit as well as in
the services responsible for overseeing the accreditation process
and carrying out audits, to ensure proper monitoring and finan-
cial management and control of the use of Community funds in
the Sapard countries.

The Commission considered that these additional checks
20.
were essential to protect the financial interests of the Community.

21.

The Commission refers to its reply to point 35.

22.-23.
Although the Commission did not formally prepare
such an analysis it actively monitored the implementation pro-
cess and provided advice to the relevant agencies in the Sapard
countries.

The Commission will consider including such an analysis in the
synthesis evaluation planned in 2004, which will also summarise
the findings of the mid-term evaluations.

The Commission agrees that such an analysis could be useful if
similar exercises were to be prepared in the future.

24.-25.
The budgets for the first three years were based on
the most reliable but limited information available at the time. In
this context the Commission reiterates its remarks to point 2.39
of the Court’s 2002 Annual Report in which the reasons for the
under-utilisation of the budgets are stated. One of the reasons for
not fully utilising the budget was that greater priority was given
to firm management of appropriations.

Payments made in 2003 under Sapard represent 61 % of the
available payment appropriations in the 2003 budget. Payment
applications received during the fourth quarter indicate that pay-
ment execution has now reached cruising speed.

Desk officers in the Commission Sapard unit are responsible, as a
general rule, for only one programme of a Sapard country. Only
very experienced and qualified Commission officials are respon-
sible for two programmes. The Commission allocated more staff
to Sapard than to the Member States programmes where in many
cases desk officers are responsible for more than two
programmes.

The most experienced staff member of the Commission’s Sapard
unit, together with the Deputy Head of Unit, monitored the Bul-
garia and Romania Sapard programmes until the end of 2003.

34.
The Commission could not give a ‘commitment to speed
up implementation’ due to the reasons the Court rightly cites. Yet
it offered to give any help to the Sapard countries which could
speed up implementation, e.g. speedily adopting justified pro-
gramme amendments, sending advice and interpretation letters,
and conducting seminars. It also asked the countries to indicate
possible opportunities to simplify the delivery system of Sapard
without weakening the sound financial practices set up. All viable
proposals were accepted via modifications to the MAFA or via
changes in the relevant Regulations.

A key feature of the system set up is that the countries
35.
concerned first identify problems. In such instances the Commis-
sion has consistently provided guidance and advice to the Sapard
countries. These actions have been described in detail in the Com-
mission’s Sapard 2000 to 2002 annual reports.

MAIN RESULTS OF SAPARD

DECENTRALISED IMPLEMENTATION

27.
For the Commission it was essential for the Sapard coun-
tries to be able to gain experience of the management and con-
trol system used under EAGGF from running Sapard to protect
the financial interests of the Community after accession when
EAGGF expenditure in the new Member States is expected to be
EUR 4 billion in 2005 and rising.

28.-30.
Sapard was originally conceived as a seven-year pro-
gramme, irrespective of the politically set targets for accession.
For countries joining the EU during this seven-year period,
Article 15 of Regulation (EC) No 1268/1999 sets out that Sapard
countries shall not receive support on accession to the EU.

By 31 December 2003, against the 2000-2003 alloca-
36.
tion of EUR 2 183 million, the total commitment to final benefi-
ciaries amounted to EUR 1 214 million (56 %), while actual pay-
ments made to beneficiaries totalled EUR 323 million (15 % of
allocation). At this stage, in terms of the level of commitments
made by the Sapard Agencies to the final beneficiaries, according
to information received from the countries, at least seven coun-
tries out of the eight due to join the EU will be able to commit all
available funds relating to the 2000-2003 period at the date of
transition to the post-accession regime.

38.-40.
The rule on the eligibility of VAT for EU part-
financing applies to the Sapard countries as well as to the Mem-
ber States receiving support under the Structural Funds.

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The Commission will examine the impact of this after the pro-
gramme has been completed. An assessment will be made in the
framework of the clearance of accounts procedure, and the appro-
priate conclusions will be drawn.

Investments in the milk and meat sector were low due to
45.
the depressed market situation in particular in key markets, like
Russia. The first substantiated information on the implementa-
tion of a significant set of measures was included in the 2002
implementation reports from five countries and now in the mid-
term evaluation reports for the 10 programmes.

41.-43.
The Commission is of the opinion that this balance
between measures in the programmes is consistent with the
objectives of Sapard under Article 1(2) of Council Regulation (EC)
No 1268/1999 already mentioned in point 2 of the report, with
the provisions under Article 4(3), which provides that ‘…
priority is given to measures to improve market efficiency, qual-
ity and health standards and measures to create employment in
rural areas …’, and with the commitments adopted in the Acces-
sion Partnership pursuant
to Article 6 of Regulation (EC)
No 1268/1999.

Once the implementation reports were received, the Commission
asked for more detailed information and advised countries to
refocus the programmes whenever necessary.

46.
The Commission services have also identified certain
problems with the respect of minimum standards in the Sapard
countries, and have made recommendations for improvements in
systems and controls.

Article 4(3) of Regulation (EC) No 1268/1999 places the Sapard
programmes on two pillars – market and employment. The objec-
tives of Sapard as set out in Article 1 provide that these two pil-
lars contribute to the ‘implementation of the acquis’ and to ‘sus-
tainable adaptation of the agricultural sector’.

47.
The Commission considers that increasing production
capacity at project level is compatible with improving standards
and the need for restructuring to improve market efficiency (see
also replies to points 41 to 45).

The programmes approved by the Commission contain a well-
balanced set of different measures which meet these conditions.

See reply to point 41: the employment problem in rural
48.
areas cannot be seen separately from the other measures of a rural
development plan.

These measures were therefore considered, by both the Commis-
sion and the Sapard countries, to be ones that should be imple-
mented as a priority, to assist in the restructuring of the agri-food
sector and in the countries’ preparation for the application of the
acquis.

The overall impact on job creation cannot be assessed by count-
ing the number of jobs declared by project beneficiaries in their
application form. This element can only be fully assessed in the
evaluation studies, once the programme has been completed.

It is normal and inevitable that measures which can be directly
linked to the sustainable adaptation of the agricultural sector,
such as ‘investments in agricultural holdings’ and ‘processing and
marketing’, modernise production methods and lead also in cer-
tain cases to an increase in production at project level. On the
other hand, measures under ‘diversification’ are aimed at creating
sustainable income possibilities outside agriculture. While the
Court found little evidence of any effect on the quality, health or
environmental
that
increased or modernised production at project level is not incom-
patible with improvement of standards. All the entrepreneurs in
the Sapard countries were well aware that continued profitability
relies on meeting the minimum standards of the EU. All the new
equipment meets these standards.

the Commission considers

standards,

49.
There is no commonly agreed definition of the term ‘rural
areas’. To confine this definition to ‘population density’ is not pos-
sible. Therefore, as in the Member States programmes, each of the
Sapard programmes contains a definition of ‘rural areas’ accord-
ing to the national standards of the country concerned.

For example, Bulgaria lays down in its programme that ‘rural
areas are the municipalities which do not have on their territory
a town with population above 30 000 people and where the
municipality population density is below 150 people per km2. All
settlements in the municipalities identified as rural areas are settle-
ments belonging to rural areas.’

A final analysis can be made only after the programme is imple-
mented in full.

50.-51.
The Commission considers it has reported on all
relevant elements in its annual reports on Sapard implementation.

44.
The meeting of standards is not incompatible with com-
mercial investment. Commercial investment normally sets the
example for the private sector and thus serves as a pacesetter for
rural development.

The Commission’s annual Sapard report contains contributions
made by the Sapard countries with an analysis of these assess-
ments. The Commission will nevertheless consider how to take
account of the Court’s remarks in drafting future reports.

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Phare provided assistance to the Sapard countries to set
53.
up structures able to implement the acquis, including implement-
ing arrangements for Sapard. Yet the main task of setting up
implementation systems to transfer EU funds was up to the man-
agement of Sapard through the procedures of conferral of man-
agement, accreditation of measures etc.

54.
Expenditure available under EAGGF after accession made
it essential that the Sapard countries gain experience in manag-
ing this type of measure.

55.
The agri-environment measure was a facility for the
Sapard countries to gain administrative experience through pilot
actions, and was not one of the most important measures needed
to restructure the agricultural sector and prepare for accession.

With the exception of Slovenia, which had already imple-
56.
mented an advanced national scheme, the complexity of the agri-
environmental measures and their lack of experience meant that
the Sapard countries were not able to present detailed agri-
environmental measures at the same time as the rest of their pro-
grammes. In 2000 the Commission began to identify the main
environmental key facts of each country and the relevant aspects
available in each programme and to draft guidelines to support
the Sapard countries. The guidance paper that emerged was the
subject of a seminar in Brussels on 12 and 13 November 2001.
The final formulation of this guidance paper was officially trans-
mitted to all Sapard countries on 21 December 2001.

This allowed the approval of agri-environmental measures for six
countries in 2002 and 2003, and conferral of management has
been granted to the Czech Republic and Slovakia. Even if the con-
ferral of management has not been granted to the other countries,
the experience they gained is important because the approved
schemes are transposable to the post-accession rural development
programmes.

In the particular case of agri-environment, the objective
57.
was limited to avoid financing large agri-environment schemes
which could have exhausted the Sapard budget without reaching
their main objectives. For this reason, the Commission decided
that this measure could be only applied at pilot level with the pur-
agri-environment
experience
of
pose
implementation.

developing

in

Given the complexity of the measure, calculation of cost, income
lost and premium, the Commission is of the opinion that the
Sapard countries have gained valuable experience through the
programming exercise and most countries are now in a good
position to readily implement these measures under the new
programmes.

ASSESSMENT OF SYSTEMS SET UP IN SAPARD COUNTRIES

58.
The definitive delegation of management is not a prior-
ity for either the Commission or the candidate countries, as speci-
fied by Section A, Article 4(4) of the MAFA.

Prior approval of the systems by the Commission is

60.
required by Article 12 of Regulation (EC) No 1266/99.

63.
The Commission has encouraged the Sapard countries to
use the experience from the Sapard agency to set up their paying
agency and welcomes the fact that they intend to do so.

Up to 31 March 2004, the Commission examined
66.
107 files in eight Sapard countries and visited 36 projects on the
spot. In some cases the Commission has also identified that the
documentation of checks needs to be improved and has made
appropriate recommendations. However, extensive evidence has
been found of completed checklists and handwritten reports giv-
ing sufficient detail of the work performed. These results indicate
that the situation is improving since the Court’s audit.

67.
The conformity audits performed by the Commission
services found several examples of comprehensive verification of
the economic viability.

The Commission considers that this is not a systematic problem
for all Sapard countries, but will keep the matter under review.

69.
The knowledge and skills of senior managers and other
key managers in both the Sapard Agency and the regional offices
were thoroughly checked during a number of interviews before
the delegation of management was conferred. This gave the Com-
mission reasonable assurance as to the abilities of staff. Following
the Court’s comments in its 2001 Annual Report (see point 6.19),
the Commission has further stepped up the documentation on
these checks (principally curriculum vitae, job descriptions, dec-
larations of independence and impartiality).

The quality of the staff in place has enabled the accredited sys-
tems to operate in a way which may generally be regarded as
satisfactory.

According to the Lithuanian authorities, the results of each pub-
lic competition are recorded in protocols, which are archived for
three years.

Nevertheless, for the Sapard countries the Commission will con-
tinue to follow up this issue.

Checks on compliance with health and environmen-
70.-76.
tal standards, which are an integral part of the acquis communau-
taire, are the responsibility of the relevant national authorities. The
countries involved verify the respect of minimum standards as
part of their national controls, which are carried out indepen-
dently of whether or not Sapard aid has been received.

In Lithuania, an applicant presents with the payment claim docu-
ments from these authorities confirming that the project imple-
mented complies with all Community standards.

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The Polish authorities have said that the investment supported by
Sapard met all the relevant EU standards. However, the whole
holding complied with only 74 % of the standards.

The Commission has also identified certain problems with the
respect of minimum standards in the Sapard countries. They have
made recommendations for improvements in systems and
controls.

In the Commission’s view, the term ‘normal com-
77.-79.
mercial conditions’ is best evaluated at national level. Although
the Court may consider that higher interest rates could have been
obtained in certain cases, it is primarily for the national authori-
ties to decide upon the appropriate day-to-day arrangements. For
the acceding countries, it is sometimes more important to gain
security for their deposits rather than the highest yield.

80.
As a normal procedure in the clearance of accounts, and
in cases like this which do not call into question the complete-
ness, accuracy and veracity of the accounts, the follow up of the
Commission’s recommendations by the certifying body as well as
by the paying agency and the national fund are to be assessed the
following year.

This will be done as part of the 2003 Sapard clearance of
accounts.

IMPLEMENTATION PROBLEMS IN SAPARD COUNTRIES

According to information from the Sapard countries, at
81.
this stage a sufficient number of support applications has been
received by the Sapard agencies (including measures with a maxi-
mum aid rate of 50 %) to commit in at least seven out of the eight
acceding countries all available money for the 2000-2003 period
at the date of transition to the post-accession regime. In Bulgaria
the most recent information indicates that the full amount avail-
able during the whole 2000-2007 period of the programme
under the measures concerning investments in agricultural hold-
ings and in processing and marketing will soon have been
committed.

82.
The Commission advised the Sapard countries to also
make interim payments on expenditure incurred, according to the
progress of the project. It has also encouraged the Sapard agen-
cies to shorten the interval between expenditure claims being reg-
istered and aid being paid.

The mid-term evaluation reports of the programmes
83.-84.
also confirm the analysis of the Court that, amongst other things,
the lack of appropriations for part-financing may be one of the
reasons for the initial slow absorption under the Sapard pro-
grammes. Poland has at this stage informed the Commission that
it will not accept any further applications, as the number of
registered projects already exceeds the amounts available under
the programme (see point 36).

The Commission is aware of the problem highlighted and has dis-
cussed it with the international financing institutes and the appli-
cant countries during the process of programming. The Commis-
sion, with the aid of Phare funds, is supporting a project to
improve access to credit for SMEs in Sapard countries, which
should help widen access to Sapard.

However, in its answer to point 2.41 of the Court’s 2002 Annual
Report the Commission referred to the problem that, even when
credit is available, some beneficiaries cannot or are reluctant to
take out mortgages on property, and other matters of unclear title
of ownership, in particular of land, also play a part.

85.
In its reply to the notification of this scheme the Com-
mission asked for further details to give an opinion on the respect
of the competition rules. According to the Bulgarian authorities
the Sapard agency recently decided not to implement the scheme
due to the difficulty of calculating the exact amount of state aid
included in this scheme. Yet, based on the findings of the mid-
term evaluation report, the Commission will urge Bulgaria to pro-
ceed with this scheme and to make it compatible with the Com-
munity competition rules.

In order to facilitate the application of national credit schemes the
Commission, in its recent proposal for a modification of Regula-
tion (EC) No 1268/1999, included a provision that by ‘determin-
ing the rate of public aid account shall not be taken of national
aid of a nature to facilitate access to credits granted without the
benefit of any Community contribution provided under the
present instrument’.

See also comments under point 82 concerning commitments in
Bulgaria.

86.
The Commission encourages the Sapard countries to use
such schemes as long as they respect Community competition
rules and aid intensities provided for in the Sapard Regulation.

87.
In the interests of sound financial management the Com-
mission agreed with the Sapard countries in the framework of
MAFA not to pay the invoices directly to contractors but to reim-
burse expenditure borne by the final beneficiaries.

Romania has been advised to pay in instalments and has now
introduced this possibility.

As soon as the Commission became aware of this problem it
asked the Lithuanian authorities for more information.

According to the Lithuanian authorities, the Agency promptly
collected confirmation documents (payment orders and bank
statements) from all the municipalities that received support from
the Sapard Programme. The financial risk to the Community has
thus been addressed. Lithuania has now changed its system to
comply with MAFA.

88.
The Commission regrets very much that this practice was
not applied in all countries. It strongly advised them on various
occasions to use this facility but it is up to the Sapard countries
to decide whether they wish to follow such advice.

The Commission will monitor the issue via the usual

89.
channels.

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Whenever any of these problems became evident the
90.
Commission immediately provided the necessary advice and took
appropriate steps to ensure that solutions were found. The ongo-
ing discussion of the mid-term evaluation reports provides a fur-
ther opportunity to react to these problems.

92.
The Commission agrees that the period for providing
missing documents must be long enough to cover the issue of
new documents and the resubmission of documents with the nec-
essary (supplementary) information. It will be up to the Sapard
countries to define the adequate time period. The conclusions of
the mid-term evaluation could be useful in defining this period.

93.-94.
The Sapard countries generally experienced techni-
cal and procedural difficulties during the initial period of imple-
mentation resulting in delays in processing applications and pay-
ment claims. Although there are still certain problems in some
countries, overall the situation has improved substantially.

95.
Under the system of decentralised management the Com-
mission’s influence on the implementation procedures applied in
the Sapard countries is limited.

Whenever necessary and possible the Commission gave advice on
how to simplify and streamline procedures within the provisions
laid down in the Sapard Regulations and in the MAFA. However,
the countries themselves decide whether to follow this advice.

96.-97.
A key criterion is that all beneficiaries must prove
economic viability. Smaller, economically unviable farms will
therefore not be targeted by the programme. This is a key element
of the objective to help restructure the agricultural sector.

The Commission is aware of the problem of lack of own resources
and of the difficulties in obtaining credit. It has discussed these
issues with the international financing institutes and the Sapard
countries during the process of programming and implementa-
tion. The Commission, with the aid of Phare funds, is supporting
a project to improve access to credit for SMEs in Sapard coun-
tries, which should help widen access to Sapard. This project has
recently been extended with a specific sub-window focusing on
credit institutions serving farmers and small rural businesses. It
also encourages the candidate countries to use such national
credit schemes as far as they are respecting Community compe-
tition rules and aid intensities of the Sapard Regulation.

In order to facilitate the application of national credit schemes the
Commission, in its recent proposal for an amendment of Regu-
lation (EC) No 1268/1999, included a specific provision in this
respect (see reply to point 85).

As at 31 March 2004, almost 13 000 projects are to be imple-
mented by the Sapard countries.

ACTION REQUIRED BY THE COMMISSION BECAUSE

98.-103.
The Commission has found that the level of expen-
diture on general costs is limited and that the problems men-
tioned by the Court are restricted to a few Sapard countries.

Following its conformity audit in Bulgaria, and in the light of the
Court’s observations, the Commission recommended to the
national authorities to implement a system allowing them to
check that the amounts paid for this purpose are within reason-
able limits in absolute value, and proportionate to the services
effectively supplied in comparison to average costs charged for
similar services in Bulgaria. The Commission notes that the Bul-
garian authorities have identified various problems themselves
and have taken action to prevent undue payments.

The Commission agrees that in most cases a payment of 12 % of
the total investment for general costs would be too high.

Regarding the particular case referred to in paragraph 103, the
Commission is working on this and other cases identified by the
Court to recover any amount unduly paid.

104.-109.
The Commission insisted on including the ‘three-
offer’ rule for the sake of sound financial management. These
three offers should be reasonably comparable. However, this sys-
tem is not in any way similar to public tendering. The beneficiary
retains a free choice of supplier.

In certain circumstances it might be difficult to obtain three
entirely comparable offers. For example the choice of machinery
is often made on the basis of information regarding qualities and
prices, which could be obtained from different sources (agricul-
tural exhibitions, regional seminars, direct contacts with suppli-
ers). Other issues which could influence the choice are previous
experiences gained with a particular make, distance to the closest
point of repair or service, reaction time or the price of spare parts
after the expiry of the warranty period. The rule of submitting
three quotations can provide some evidence that the final benefi-
ciaries have searched for at least three alternatives on the basis of
which a choice has been made.

The cost element is only one of the factors to be taken into
account in assessing sound financial management. Both the qual-
ity of the goods purchased and the services provided, and secur-
ing the results expected in terms of the costs borne form part of
this analysis. The Commission’s opinion is that the provision of
an adequate after-sales service, even though it cannot be part-
financed, increases the life of the investment financed and is an
acceptable justification for the choice of supplier. In the case of
private beneficiaries, the Commission considers that, in addition
to the three prices system, the fact that the beneficiaries have to
bear part of the investment also helps meet the criteria of
economy and cost/efficiency.

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The Court’s findings do not concern the acceptability of exces-
sive invoices, i.e. an invoice where the price paid is excessive in
terms of the value of the goods or service provided, which is not
the case in this instance.

The Commission has, on various occasions, advised
112.
Sapard countries to avoid unnecessary administrative procedures
not required by the MAFA, where appropriate via seminars, meet-
ings or letters.

Conformity audits undertaken by the Commission revealed that
comparison to reference prices is done, at least to some extent, in
Bulgaria, Latvia, Slovenia and the Czech Republic. In countries
where this was not done, the Commission has made appropriate
recommendations.

Offers do not need to be entirely comparable under private pur-
chasing. This does not mean that they are of little value. Never-
theless, the Commission agrees with the Court that a justification
should always be received and examined if the beneficiary does
not select the cheapest offer. In the cases where this procedure
was not found to be fully or effectively in place recommendations
for improvement have been made. However, in most cases the
Commission has obtained evidence that justifications are given if
the cheapest offer is not chosen. It will recommend that this is
done by Sapard systematically.

In Bulgaria, the Court has identified one case where the general
costs exceeded EUR 10 000 without three offers. As stated above,
this case is subject to examination under the clearance of accounts
procedure.

On the basis of its detailed examination of payments in eight
Sapard countries so far, the Commission did not find widespread
failures of the Sapard control and management system.

CONCLUSIONS AND RECOMMENDATIONS

110.
While the main elements of the Commission’s proposal
on the Sapard Regulation (EC) No 1268/1999 were maintained,
the text of the proposal was subject to ongoing discussions
(including discussions on budget headings) until the final stage of
adoption of the Sapard Regulation. As long as the legal uncer-
tainty remained the Commission was not in a position to draw up
the final legal provisions for the implementing arrangements.

Following adoption of the Regulation, a working group prepared
the basic provisions for the financial management of Sapard
within a few months. These were adopted by the Commission on
26 January 2000.

The reason for this strategy was the novelty of the approach and
the fact that this was the first time external aid was managed on a
fully decentralised basis. The detailed steps and the time required
for elaborating and agreeing the financial implementing arrange-
ments are outlined in the Commission’s Sapard Annual Report
2000.

The Sapard systems are designed by the national authorities not
only on the basis of the accreditation criteria but also taking into
account national legislation and their knowledge of the risk areas
in their countries. Stricter rules are necessary in some situations
to protect the financial interests of the Community (see point 20
concerning double checks).

— The Commission agrees with the statement and believes it
does follow this approach to the extent possible in the light
of the development in the adoption of the legal basis.

— The Commission agrees that such an analysis could be use-
ful if similar exercises were to be prepared in the future.

113.
It is a key feature of the systems set up that it is for the
Sapard countries to identify problems in the first instance. The
Commission considers that it has allocated a sufficient number of
qualified staff, in the Sapard Unit as well as in the services respon-
sible for overseeing the accreditation process and carrying out
audits, to ensure proper monitoring and financial management
and control of the use of Community funds in the Sapard coun-
tries. The Commission has consistently provided guidance and
advice to the Sapard countries. These actions have been described
in detail in the Commission’s Sapard annual reports for 2000 to
2002.

— The Commission is of the opinion that it has taken all rea-
sonable steps to encourage best practice by providing advice
to all countries, where appropriate, on specific issues raised
and by liaison with each country via letters, seminars and
bilateral meetings, as evidenced in the Commission’s annual
reports.

114.
The budgets for the first three years were based on the
most reliable, but limited, information available at the time. In
this context the Commission reiterates its remarks to point 2.39
of the Court’s Annual Report for 2002, in which the reasons for
the under-utilisation of the budgets are stated. One of the major
reasons for not fully utilising the budget was that greater priority
was given to firm management of appropriations.

116.
The current Regulations governing EAGGF Guarantee
Section state clearly that the Member States are responsible for
accrediting paying agencies.

111.
Although the Commission did not formally prepare
such an analysis, it actively monitored the implementation pro-
cess and provided advice to the relevant agencies in the Sapard
Countries.

Prior accreditation by the Commission would result in it taking
responsibility for the systems established by the Member States.
This runs counter to the principle of shared management in which

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the Member states implement Community policies and the Com-
mission verifies the respect of these rules, with the possibility to
make financial corrections in cases of non-respect.

and related policies, and to solve priority and specific problems
for the sustainable adaptation of the agricultural sector and rural
areas in the countries.

The Commission remains confident that the current system
remains effective.

117.
A final and balanced analysis concerning the impact of
the programme (and, in particular, achievement of the objectives)
can only be made when the programme has been implemented
in full.

118.
The Commission considers that increasing production
capacity at project level is compatible with improving standards
and the need for restructuring to improve market efficiency.

The Commission is following up on the development in uptake
through the monitoring data and the annual
implementing
reports. It followed the procedures provided for in Article 8(b) of
the MAFA during the review of the five annual implementation
reports due by the end of June 2003 to follow up on any imbal-
ances or other developments where data indicated a tendency to
deviate from the objectives identified in the programmes. The
Commission will follow the same procedure during the review of
the implementation reports due from all 10 countries by the end
of June 2004.

Although the Commission has also identified weak-
119.
nesses in some cases and has made recommendations for
improvements, it considers, based on its own audits up to March
2004, that the position has improved since the Court’s audit.
Where necessary these recommendations will be followed up
under the clearance of accounts procedures.

120.
The Commission has taken an initiative to help address
this problem through the Phare- funded project to improve access
to credits for farmers and small rural businesses, and proposed
modifications to the Sapard Regulation (EC) No 1268/1999 to
facilitate the application of national credit schemes.

— The Commission agrees that a more limited number of key
measures should be considered. It is however of the opinion
that a system of loans and guarantees to replace or supple-
ment existing measures should not be recommended. The
provision proposed in the amendment of Regulation (EC)
No 1268/1999 to facilitate the use of national credit schemes
would, if approved by the Council, provide the necessary
flexibility to the Sapard countries.

121.
According to the Sapard regulation, the objectives of
the programme are to contribute to the implementation of the
acquis communautaire concerning the common agricultural policy

An essential part of the first objective is to establish a good
administrative capacity enabling the demanding tasks of rural
development policy implementation to be carried out according
to the principles of sound financial management. This is in line
with the European Parliament resolution accompanying the 1999
discharge.

The sizeable challenges posed by the need to set up an entirely
new system, and the lack of experience of the Sapard countries in
this area, meant that this process took time, but in most cases no
longer than could be reasonably expected. The Commission is
pleased to note that the Court considers that its decision to opt
for a decentralised approach was correct, and that it found that
the Sapard systems set up generally work well in practice.

The Commission believes that the large number of projects con-
tracted (almost 13 000 already by the end of 2003) will contrib-
ute substantially to the achievement of the second objective. Nev-
ertheless, a final and balanced analysis concerning the impact of
the programme (and, in particular, achievement of the objectives)
can only be made when the programme has been implemented
in full.

Regarding measures still to be accredited, the Commission shares
the Sapard countries’ view that priority should be given to ensure
efficient implementation of the measures already accredited to
enhance financial absorption, before working on the accredita-
tion of additional measures.

The agri-environment measure was a facility for the Sapard coun-
tries to gain administrative experience through pilot actions and
was not one of the most important measures needed to restruc-
ture the agricultural sector and prepare for accession.

The Commission is aware of the problem facing small undertak-
ings, namely lack of own resources, and of the difficulties in
obtaining credit. A key criterion of Sapard is that all beneficiaries
must prove economic viability. Smaller, economically unviable
farms will therefore not be targeted by the programme. This is a
key element of the objective to help restructure the agricultural
sector. However, the Commission is supporting a project (with
the aid of Phare funds) to improve access to credit for SMEs in
Sapard countries, which should help widen access to Sapard.