Special report No 3/2005 concerning rural development: the verification of agri-environment expenditure, together with the Commission's replies
Date: 2005-07-14
Institutions: European Court of Auditors
Subjects: European Commission, European Court of Auditors, agricultural expenditure, audit, interinstitutional relations (EU), organic farming, report, rural development, sustainable agriculture

11.11.2005

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 3/2005

concerning rural development: the verification of agri-environment
expenditure, together with the Commission’s replies

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

(2005/C 279/01)

CONTENTS

Paragraph

Page

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

Agri-environment policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit scope and approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LEGISLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The agri-environment measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Checking agri-environment sub-measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUDIT OBSERVATIONS AT COMMISSION LEVEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Verifiability of the agri-environment sub-measures

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

Implementation of agri-environment programmes in the period 1993 to 1999 . . .

Approval of RDPs by the Commission for the period 2000 to 2006 . . . . . . . . . . .

Verification of the functioning of the control systems . . . . . . . . . . . . . . . . . . . . . . . . . . .

Control of organic farming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The regulatory control system for organic farming . . . . . . . . . . . . . . . . . . . . . . . . .

The implementation of the organic farming control system . . . . . . . . . . . . . . . . . . .

I-VI

1-18

1-11

12-18

19-27

19-22

23-27

28-54

28-35

29-31

32-35

36-39

40-54

41-44

45-54

AUDIT OBSERVATIONS AT MEMBER STATE LEVEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55-106

The verifiability of agri-environment sub-measures in five Member States . . . . . . . . . . . .

55

Administrative checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56-59

On-the-spot checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60-106

Particularity of agri-environment

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

Checking the respect of usual good farming practice . . . . . . . . . . . . . . . . . . . . . . . .

60-61

62-69

Checking the sub-measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70-106

3

4

5

5

7

7

7

8

8

8

8

9

9

9

10

10

12

12

13

13

13

13

14

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Paragraph

Page

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

107-119

Overall conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

107

At Commission level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

108-112

At Member State level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113-117

Recommendations

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

118-119

ANNEX: Examples where the contractual requirements of the Côte d’Or AE programme are not clear . . . . .

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

18

18

18

18

19

20

21

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GLOSSARY

AE

: agri-environment, the rural development measure established by Articles 22 to 24 of Regulation (EC)

No 1257/1999

Beneficiary :

the recipient of an EU payment

CAP

: common agricultural policy

EAGGF

: European Agricultural Guidance and Guarantee Fund

GFP

: usual good farming practice

IACS

:

integrated administration and control system

MEKA II

: Marktentlastungs- und Kulturlandschaftsausgleich. The largest AE programme in Baden-

RD

RDP

:

:

Württemberg, Germany

rural development

rural development plan (before Commission approval). Rural development programme (after
Commission approval)

Undertaking : a condition which a beneficiary must comply with in order to be entitled to receive the AE payment

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EXECUTIVE SUMMARY

I.
Agri-environment support (AE) is paid annually to farmers who enter into an undertaking to carry out
their activities in a manner that goes beyond usual good farming practice and is deemed environmentally ben-
eficial. It is the largest rural development measure with 13 480 million euro EU co-financing planned for the
period 2000 to 2006 (see paragraphs 6, 7 and 19 to 22).

II.
The objective of this audit was to assess whether the Commission has adequate assurance that the farm-
ing practices and techniques for which AE is paid are verifiable and properly verified, and thus that the recipi-
ents of AE payments comply with their obligation to farm in an evironmentally-friendly manner (see para-
graphs 12 to 18).

III.

The audit found that the Commission:

— only partially ensured verifiability before approving RDPs (see paragraphs 32 to 35),

— has not sufficiently verified the correct functioning of AE control systems in the Member States (see para-

graphs 36 to 39),

— in the case of organic farming, has not fully assumed its responsibilities. This is an important sub-measure

within AE (see paragraphs 46 to 54).

The principal problems encountered in the case of organic farming are:

— the annual implementation reports, which should give assurance about the objectiveness and effective-
ness of the inspection system, are incomplete and not reliable. Even if they were complete and accurate,
the information requested would not give assurance about the objectiveness and effectiveness of the
inspections carried out (see paragraphs 46 to 49),

— Commission checks in seven Member States in 1998 to 2001 detected important weaknesses in the super-
vision of inspection systems, but these findings were not properly followed up and no further checks have
taken place in any Member States (see paragraphs 50 to 54).

The audit’s findings in the Member States concern the timing of the on-the-spot checks and the veri-

IV.
fiability of certain key sub-measures:

— sub-measures are checked outside of the period of undertaking or at inopportune moments (see para-

graphs 74 to 85),

— for common sub-measures, such as reduction or limitation of inputs, checks are largely dependent on the

self-declaration of beneficiaries which are difficult to corroborate (see paragraphs 86 to 96),

— reliance is placed on inconclusive visual checks (see paragraphs 97 to 101),

— detailed instructions are not always set out for inspectors, who often rely on their own knowledge or expe-
rience to form an opinion. There is no clear baseline with which to compare performance (see para-
graphs 100 to 106).

V.
The Court’s audit concludes that the verification of the agri-environment measure poses particular prob-
lems and is far more resource-intensive than verification of the first pillar measure and indeed than other rural
development measures. Such verification can rarely lead to even reasonable assurance at a reasonable cost (see
paragraph 107).

VI.
The Commission, Council and Parliament should consider, for the new programming period com-
mencing in 2007, how to take into account the principle that if a measure cannot be adequately checked, it
should not be the subject of public payment (see paragraphs 118 and 119).

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INTRODUCTION

Agri-environment policy

To implement the measures, rural development plans were
5.
approved by the Commission, thereby becoming rural develop-
ment programmes. These cover a period of seven years from
1 January 2000 to 31 December 2006 and were prepared by the
competent authorities designated by the Member States. In total
68 rural development programmes containing AE (and other
measures) have been approved.

1.
Support for agricultural production methods compatible
with protection of the environment was established by Council
Regulation (EEC) No 2078/92, which covered the period 1993
to 1999 (1).

2.
In a decision of the European Parliament and the Council
‘Towards sustainability’, the integration of environmental con-
cerns into the common agricultural policy (CAP) was identified as
a priority (2). As a response to this, and to similar proposals in
Agenda 2000, the Commission issued a statement declaring that
its programme for the period 2000 to 2006 would include
‘strengthened agri-environment measures as compulsory ele-
ments’ of
rural development programmes (RDP) (3). Agri-
environment (AE) is the only rural development measure that
Member States are obliged to include in their RDPs.

The sixth environment action programme of the European
3.
Community indicated that ‘increasing resources are needed and
broader scope should be given for agri-environment measures’ as
a means to attaining the Community’s environmental objec-
tives (4). Thus AE was accorded a high priority.

6.
AE is co-financed by EAGGF Guarantee throughout the
Community, with a 75 % contribution in Objective 1 areas
and 50 % in other areas (6). This was revised in 2003 to up
to 85 % for Objective 1 areas and up to 60 % in other areas. Aid
rates vary between different sub-measures and Member States but
the average agri-environment premium in the EU in 2001
amounted to 89 euro per hectare (7).

States

related

7.
In 2004, 1 739 million euro out of 4 749 million euro
rural development EAGGF Guarantee expenditure declared by
to AE under Regulation (EC)
Member
No 1257/1999 (8). It is programmed to spend 13 480 million
euro for the EU 15 in respect of the programming period 2000
to 2006. This represents over 27 % of all rural development
expenditure and agri-environment is thus the largest rural devel-
opment measure. At the end of 2004, 10 201 million euro of the
total programmed had been spent.

For

4.
the period 2000 to 2006, Regulation (EC)
No 1257/1999 brought together various rural development (RD)
measures (5).

(1) Council Regulation (EEC) No 2078/92 of 30 June 1992 on agricul-
tural production methods compatible with the requirements of the
protection of the environment and the maintenance of the country-
side (OJ L 215, 30.7.1992, p. 85).

(2) Article 2(1) of Decision No 2179/98/EC of the European Parliament
and of the Council of 24 September 1998 on the review of the Euro-
pean Community programme of policy and action in relation to the
environment and sustainable development (OJ L 275, 10.10.1998,
p. 1).

(3) Attached to Decision No 2179/98/EC, page 12.
(4) Article 3(9), COM(2001) 31 final of 21 January 2001.
(5) Council Regulation (EC) No 1257/1999 of 17 May 1999 on support
for rural development from the European Agricultural Guidance and
Guarantee Fund (EAGGF) and amending and repealing certain Regu-
lations (OJ L 160, 26.6.1999, p. 80).

8.
As indicated in the graph, most expenditure paid during
the period 2000 to 2003 relates to Austria, Germany and Finland.
The relatively high level of expenditure for Austria and Finland
can partly be explained by the individual Member states’ policy
decision to allocate significant expenditure to AE and partly by
the fact that larger Member States such as Italy, France and Ger-
many were still closing their programmes from the prior period.

(6) Objective 1 areas are regions whose development is lagging behind.
(7) European Commission’s fact sheet: Overview of the implementation

of rural development policy 2000 to 2006.

(8) A further 193 million euro was declared by Member States under the
old agri-environment scheme (Regulation (EEC) No 2078/92). The
ratio of ‘old’ expenditure (Regulation (EEC) No 2078/92) to current
(Regulation (EC) No 1257/1999) expenditure will decline over the
coming years as undertakings entered into in 1999 expire.

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Expenditure on agri-environment under Regulation (EC) No 1257/1999 per Member State, 2000 to 2003

(million euro)

Graph

Source: European Commission.

The links between agriculture and the environment are of
9.
great public and political
interest, particularly now that the
reform of the CAP has introduced compliance with environmen-
tal standards and practices, the non-respect of which could lead
to partial or full reduction or recovery of the direct aid (1).

Agri-environment expenditure involves making pay-
10.
ments to farmers in exchange for their undertaking to farm in
ways which are environmentally friendly and which must go
beyond usual good farming practice (GFP): in other words the
Community purchases environmental services from farmers
(see text box 1).

Text box 1

Farming is an activity whose significance goes beyond simple food
production. Throughout the production chain processes occur that
can have an impact on the natural environment. For example, heavy
use of pesticides and fertilisers, incorrect drainage or irrigation prac-
tices, a high level of mechanisation or unsuitable land use can pro-
duce environmental degradation. However, abandonment of farm-
ing activities can also endanger the EU’s environmental heritage
through loss of semi-natural habitats and the biodiversity and land-
scape associated with them.

In accordance with Regulation (EC) No 817/2004, Member States
have to define codes of Good Farming Practice (GFP) at regional or
national level. GFP should correspond to a type of farming that a
reasonable farmer would follow in the region concerned, which
entails compliance with existing statutory environmental require-
ments. It constitutes the baseline requirement for farmers wishing to
join agri-environmental schemes.

Agri-environment sub-measures have become the principal instru-
ment for achieving environmental objectives within the CAP. The
main sub-measures being conversion to organic farming, prevention
of soil erosion, reduction of inputs and upkeep of landscape features.

(1) Council Regulation (EC) No 1782/2003 of 29 September 2003 estab-
lishing common rules for direct support schemes under the common
agricultural policy and establishing certain support schemes for farm-
ers, notably Articles 3 to 5 (OJ L 270, 21.10.2003, p. 1).

Source: European Commission’s fact sheet Agriculture and the envi-
ronment.

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The Court’s Special Report No 14/2000 ‘Greening the
11.
CAP’ included a review of the AE actions set up by Regulation
(EEC) No 2078/92, covering the programming period 1993
to 1999 (1). The principal conclusion regarding the verifiability of
AE in this Special Report was that it was not feasible to verify
compliance with measures to reduce fertiliser usage, ‘The prob-
lem is known to the Commission’s own checkers, but the Com-
mission continues to approve such measures’ (paragraph 77 of
that Report).

Audit scope and approach

The objective of the audit visits in the Member States was

17.
to assess whether:

— the co-financed agri-environment sub-measures are reliably

measurable and verifiable, and that

— the checking procedures applied by Member States provide
them and the Commission with adequate assurance as to the
respect of agri-environment undertakings.

The auditors paid particular attention to the main sub-
18.
measures as indicated in text box 1 (3). Projects examined were
selected on the basis of EAGGF Guarantee payments in 2003.

12.
The objective of the audit was to assess whether the
Commission has adequate assurance that the specific farming
practices and techniques for which AE is paid:

LEGISLATION

— are verifiable, and

The agri-environment measure (4)

— are indeed properly verified.

19.

Support for agri-environment shall promote:

The Commission needs such assurance in order to sat-
13.
isfy itself that the expenditure concerned is legal and regular, i.e.
that Member States administer the scheme in a way which ensures
that the recipients of AE compensatory payments comply with
their obligations to farm in an environmentally-friendly manner.

— ways of using agricultural land which are compatible with
the protection and improvement of the environment, the
landscape and its features, natural resources, the soil and
genetic diversity,

— an environmentally-favourable extensification of farming

and management of low-intensity pasture systems,

The audit did not attempt to assess the environmental

14.
benefits of the AE sub-measures.

— the conservation of high nature-value farmed environments

which are under threat,

15.
Audit visits were carried out in the Commission and five
Member States: Austria, France, Germany, Italy and Luxembourg
over the period March to September 2004 (2). These Member
States were selected on the basis of the amounts spent and the
representativity of their AE sub-measures.

— the upkeep of the landscape and historical features on agri-

cultural land, and

— the use of environmental planning in farming practice.

16.
At the Commission, the audit included a detailed review
of whether the Commission ensured the verifiability of the agri-
environment sub-measures before approving Rural Development
Plans and whether the Commission verified the correct function-
ing of the control systems in Member States. Particular attention
was paid to the supervision system for organic farming.

20.
A compensatory amount is granted to farmers who give
AE undertakings for at least five years. As indicated before, such
undertakings must involve more than GFP.

21.
The compensatory amount is calculated on the basis of
income foregone and additional costs incurred in respecting the
undertakings, plus the need to provide an incentive.

(1) OJ C 353, 8.12.2000.
(2) 1. Austria RDP, region selected: Burgenland. 2. France RDP, Contrats
territoriaux d’exploitation, département selected: Côte d’Or. 3. Ger-
many: RDP of Baden-Württemberg: MEKA II. 4. Italy: RDP of Veneto
and 5. Luxembourg.

(3) Other categories of sub-measures also examined are crop rota-
tion; extensification; breeds in danger of being lost to farming and
plant varieties under threat of genetic erosion.

(4) Articles 22 to 24 of Regulation (EC) No 1257/1999.

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The Regulation also sets out how the programming of
22.
the rural development measures should be performed (1). Mem-
ber States design their RDP’s according to specific needs and strat-
egies. They should be drawn up at the geographical level deemed
to be the most appropriate. Therefore the type of AE sub-
measures and their weight in the RDPs can vary considerably.

A farmer who gives an AE undertaking relating to one
27.
part of a farm is required to adhere to at least the standard of
usual good farming practice throughout the farm. Member States
are required to define verifiable standards of GFP in their RDPs (5).

Checking agri-environment sub-measures

AUDIT OBSERVATIONS AT COMMISSION LEVEL

Verifiability of the agri-environment sub-measures

23.
Rules concerning the checking by Member States of rural
development measures, including AE, require that initial applica-
tions to join a scheme, and subsequent applications for payment,
shall be checked in a manner which ensures effective verification
of compliance with the conditions for granting support (2). Such
verification shall consist of administrative and on-the-spot checks.

The Court analysed whether the Commission has ensured
28.
the verifiability of the agri-environment sub-measures before
approving RDPs.

24.
The administrative checks must be exhaustive, that is
they must be performed before payment to each beneficiary in
respect of each measure. Where appropriate, these checks should
include cross-checks with data from the integrated administration
and control system (IACS).

25.
The on-the-spot checks shall cover at least 5 % of ben-
eficiaries each year and all the different types of RD measures set
out in the programming documents (3). These on-the-spot checks
shall be spread over the year on the basis of an analysis of the
risks presented by each RD measure. Each check shall cover all
the undertakings and obligations of a beneficiary which can be
checked at the time of the visit.

26.
An important provision relating exclusively to AE stipu-
lates that payments may be based on limitations on the use of fer-
tilisers, plant protection products or other inputs only if such
limitations are technically and economically measurable (4).

(1) Title III, Chapter II of Regulation (EC) No 1257/1999.
(2) Articles 67 to 69 of Commission Regulation (EC) No 817/2004 of
29 April 2004 laying down detailed rules for rural development from
the European Agricultural Guidance and Guarantee Fund (EAGGF)
(OJ L 153, 30.4.2004, p. 30). This Regulation replaces, but does not
materially change in this respect, successively Commission Regula-
tions (EC) No 1750/1999 of 23 July 1999 (OJ L 214, 13.8.1999,
p. 31) and (EC) No 445/2002 of 26 February 2002 (OJ L 74,
15.3.2002, p. 1).

(3) Commission Regulation (EC) No 2419/2001 of 11 December 2001
laying down detailed rules for applying the integrated administration
and control system for certain Community aid schemes established by
Council Regulation (EEC) 3508/92 (OJ L 327, 12.12.2001, p. 11).
Regulation (EEC) 3508/92 has since been repealed and replaced by
Regulation (EC) No 1782/2003.

Implementation of agri-environment programmes in the
period 1993 to 1999

29.
The Commission carried out two detailed evaluations of
the implementation of agri-environment programmes in the
period 1993 to 1999 (6). The second of these was conducted in
1998, towards the end of the programming period, but well
before many of the related undertakings had expired. The Euro-
pean Parliament called for evaluation before the adoption of the
Agenda 2000 proposals which would reinforce AE as a key part
of the CAP and was intended to identify remaining problems and
weaknesses (7).

30.
The evaluation found that there were problems intrinsic
to the nature of the AE actions themselves and that ‘the challenge
to audit authorities presented by the agri-environment undertak-
ings should not be underestimated’. It also indicated that sub-
measures which require the farmer to reduce inputs by a certain
amount or not to exceed an amount of fertiliser per hectare were
difficult to check because soil analyses could not reliably deter-
mine respect of the input limits. Furthermore the evaluation
stated that book inspections, that is relying on farmer declaration
and inspection of purchase records, are not sufficient to identify
errors or irregularities. Also, in some actions where the farmer
must follow a series of general undertakings such as the mainte-
nance of hedgerows, the actual requirements were not clear
enough for the beneficiary to understand what was required.

(5) Ibid, Articles 20 and 35.
(6) Commission Report to the Council and European Parliament on the
application of Council Regulation (EEC) No 2078/92, COM(97) 620
final of 4.12.1997, and DG VI Working Document VI/7655/98: State
of application of Regulation (EEC) No 2078/92: Evaluation of agri-
environment programmes.

(7) Iversen report adopted by European Parliament, October 1998: see

(4) Commission Regulation (EC) No 817/2004, Article 18(3).

page 12 of Evaluation.

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The evaluation concluded that ‘if a measure cannot be
31.
adequately checked, it should not be the subject of public pay-
ment’ and that ‘premia justification must focus on sufficiently
controllable measures’. This conclusion was reflected in the rural
development legislation for the period 2000 to 2006, notably
Regulation (EC) No 817/2004 (1).

The Commission carried out a series of checks to 12
37.
Member States over the period September 2000 to June 2001 to
ensure that systems were in place to correctly administer and con-
trol RD expenditure for the period 2000 to 2006 (‘preventive’
enquiries). The Commission produced a synthesis of the results of
these checks and this led to modifications in its Guidelines to
Member States (3).

Approval of RDPs by the Commission for the period 2000
to 2006

32.
In 2000 and 2001 the Commission carried out analyses
of the RDP’s submitted by the Member States for the period 2000
to 2006. However, the analysis only included to a limited extent
ensuring that the AE sub-measures proposed could be effectively
and efficiently verified.

The checks covered all RD measures not just AE but did
38.
not examine expenditure, nor examine the actual functioning of
the systems, because such expenditure had not started by the time
of the check.

An internal risk assessment in 2004 confirmed that it
33.
had approved RDP’s without verifying the controllability of the
measures, due to the difficulty of assessing the controllability on
paper of all the sub-measures and actions presented in the 68
RDP’s. It concluded that in future its role in assessing controlla-
bility should be reviewed.

The unit in the Commission’s Agriculture Directorate-
34.
General responsible for checking RD expenditure argued that
such an analysis of the controllability had not been carried out,
because it believes it is not required under shared management (2).

In order to fulfil its responsibilities, the Commission
35.
should evaluate the verifiability of
the sub-measures when
approving the RDP’s. Unless the Commission does so, it has no
assurance that Member States can administer the scheme cor-
rectly and ensure that those receiving AE compensatory payments
farm in the ways they undertook to do. This evaluation would
also identify those sub-measures with high control risks.

Verification of the functioning of the control systems

36.
The Court also analysed whether the Commission has
verified the correct functioning of the control systems in respect
of the period 2000 to 2006 (Regulation (EC) No 1257/1999),
especially the administrative and on-the-spot checks.

39.
The clearance of accounts unit responsible for RD has
since carried out a check of less-favoured area payments through-
out the Community, but, as at the beginning of 2005, had not
checked the systems for AE, even though this is the largest com-
ponent of rural development expenditure and is considered as
high risk (see paragraph 30 above) (4).

Control of organic farming

40.
Regarding control systems, conversion to organic farm-
ing, one of the most significant AE sub-measures, is a specific
case (5). In order to benefit from AE aid, a certain number of con-
ditions have to be met. The respect of these conditions is, in most
Member States, not checked by the normal AE inspectors but by
specialised inspection bodies (third parties).

(3) VI/10535/99 rev 7, Guidelines for the implementation of systems of
management, checks and penalties concerning rural development
measures under Regulation (EC) No 1257/1999.

(4) Less-favoured area payment is a rural development measure estab-

(1) Article 18(3) of Regulation (EC) No 817/2004 relates exclusively to

lished by Articles 13 to 20 of Regulation (EC) No 1257/1999.

AE.

(2) Under shared management implementation tasks are delegated to
Member States. However, the Commission has final responsibility for
the implementation of the Budget (Articles 53(3) and 53(5) of the
Financial Regulation).

(5) According to the latest Commission figures available 338 million euro
were committed to be spent in 2003 as the EAGGF Guarantee
co-financing for the conversion to organic farming under Regulation
(EC) No 1257/1999 and Regulation (EEC) No 2078/92. This repre-
sented 16 % of the EU contribution to AE in that year.

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The regulatory control system for organic farming

The implementation of the organic farming control system

Farmers who receive support under the sub-measure
41.
‘organic farming’, must respect the detailed rules on organic pro-
duction methods which are established in a specific Council
Regulation (1). Organic farming has two distinguishing features
which set it apart from other AE sub-measures. Firstly, there is a
Community-wide minimum standard for labelling products as
‘organic’ and secondly, there is a requirement for an approved
inspection body to certify annually each producers’ compliance
with the rules and standards.

42.
In order to gain assurance that the organic rules of pro-
duction are indeed being respected by the beneficiary of the AE
sub-measure, Member States place reliance on the inspection sys-
tem set up specifically for organic farming. This system requires
that each operator who produces organically and wishes to mar-
ket the products as such must be inspected at least annually. This
should be done by either a public inspection authority or (which
is much more common, 12 out of 15 Member States) an approved
private inspection body, which must comply with EN 45 011, the
International standard for bodies operating product certification
systems (2). Farmers are free to choose which inspection body will
carry out these inspections.

43.
Member States are obliged to carry out supervision of the
inspection system (3). They shall designate an authority respon-
sible for the approval and supervision of private inspection bod-
ies (the competent authority). After an inspection body has been
approved, the competent authority shall ensure that the inspec-
tions carried out by the inspection body are objective and verify
the effectiveness of its inspections (4).

44.
Each year (before 1 July) Member States are required
to inform the Commission of measures taken in the preceding
year for the implementation of the organic farming Regulation
and shall communicate (in particular) a report on the supervision
of private inspection bodies (5). The Commission published an
action plan for organic food and farming in June 2004 in which
it is stated that, ‘The current inspection system works very effi-
ciently in most cases’ (6).

(1) Council Regulation (EEC) No 2092/91 of 24 June 1991 on organic
production of agricultural products and indications referring thereto
on agricultural products and foodstuffs (OJ L 198, 22.7.1991, p. 1).
(2) The European Action Plan for Organic Food and Farming reports that
the obligation to satisfy this international standard has been imple-
mented in different ways and Action 17 requires the development of
a specific accreditation system for inspection bodies.

(3) Regulation (EEC) No 2092/91, Article 9(4).
(4) Ibid, Article 9(6).
(5) Ibid, Article 15.
(6) European Action Plan for Organic Food and Farming, annexed Com-

45.
As most Member States place reliance on the organic
farming control system when carrying out the minimum 5 %
on-the-spot checks of the AE sub-measure conversion to organic
farming, the Court set out to ascertain whether this system works
as required.

Annual implementation reports

46.
The annual implementation reports should set out the
supervision, the key aspects of which are the requirement to
ensure that the inspections carried out by the inspection body are
objective and to verify the effectiveness of these inspections.

47.

The Court found that:

(a) not all Member States send these supervision reports. There
were no reports from Austria, for example. At the end of the
audit (November 2004), of the 48 reports due over the period
2000 to 2003 in respect of the 12 Member States obliged to
file such reports, 15 had not been sent. The missing reports
in respect of Austria, France, Ireland, Portugal, Spain and the
United Kingdom have since been received (full details are set
out in the table);

(b)

the reports are composed of a table with the number of vis-
its carried out by the various private inspection bodies, the
number of samples taken for analysis and the number of
irregularities found and penalties applied. There is no con-
clusion on the functioning of the system. The Commission’s
guidance to Member States on how to prepare these reports
requested a standardised table and stated that completion of
this table fulfills the reporting requirement, as mentioned in
paragraph 46 (7);

(c)

the Commission makes limited use of the reports;

(d)

the quality is not always satisfactory and the reports include
errors and inconsistencies. The Commission guidance states
that ‘the reports submitted to the Commission so far have
been a very mixed bag, making it difficult for the Commis-
sion to have an overall view of implementation’. This situa-
tion still remained at the time of the Court’s audit;

(e)

furthermore there are no clear guidelines to the Competent
Authorities regarding how to carry out the supervision of
inspection systems.

mission staff working document, section 5.6.

(7) Document 8856/VI/97-rev.3a.

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Submission of supervision reports 2000 to 2003, situation as at the closure of the Court audit: November 2004

Table

2000

2001

2002

2003

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Portugal

Spain

Sweden

UK

n/a

n/a

n/a

n/a

n/a

n/a

n/a

*

n/a

n/a

n/a

n/a

n/a

n/a

*

= supervision report sent
= supervision report not sent
= partly sent

*
n/a = not applicable, because supervision is not required when inspections are carried out by a public authority.
Note that the missing reports in respect of Austria, France, Ireland, Portugal, Spain and the United Kingdom had been received by June 2005.
Source: Commission.

48.
A further requirement is that by 31 March each year
Member States shall inform the Commission of the list of inspec-
tion bodies approved on 31 December of the previous year, their
legal and operational structure, their standard inspection proce-
dure and their penalty arrangements (…) (1). Although Member
States communicate the list of inspection bodies, not all send
details of their standard inspection procedure annually.

49.
The Court concludes that, even if these reports were
complete and accurate, they would not give assurance about the
objectiveness and effectiveness of the inspections carried out.

Checks made by the Commission to ensure that the system is working

50.
The Directorate-General for Health and Consumer Pro-
tection (DG SANCO) is responsible for food safety and in this
context the Food and Veterinary Office, part of DG SANCO, vis-
ited seven Member States between 1998 and 2001 (2). One of the
objectives of these visits was to check whether the supervision
and inspection systems for organic farming were working
correctly.

51.
The Court found that there is no consensus within the
Commission regarding the priority of checking organic farming.
Whereas the Directorate-General for Agriculture and Rural Devel-
opment (DG AGRI) has stressed the value of these DG SANCO
missions, DG SANCO has stated that the priority accorded to
organic farming checks is low. There have been no further visits
or assessments of the systems since the last visit in 2001. Thus
the Commission is not ensuring that the key control of supervi-
sion of the inspection system is working adequately.

Follow-up of DG SANCO reports

(1) Regulation (EEC) No 2092/91, Article 15.
(2) France, Germany, Netherlands, United Kingdom, Austria, Italy and

Spain.

52.
DG SANCO’s seven visits to Member States detected sig-
nificant weaknesses in the supervision of inspection systems
which resulted in recommendations to both the Member State
and the Commission services concerned.

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DG SANCO requested each Member State to submit an
53.
action plan setting out what it intended to do to address the
observations made. Only Austria did so. The other six submitted
comments on the draft reports addressed to them. DG SANCO
concluded its follow-up by asking DG AGRI to ‘arrange for nec-
essary action to be taken in response to outstanding issues’.

The Court reviewed all seven DG SANCO reports, the
54.
underlying work, and the follow-up thereto carried out by DG
AGRI. DG AGRI prepared a summary of the follow-up for each
of the seven DG SANCO-visited Member States. It lists the DG
SANCO recommendations and what has happened since. The
Court found that the follow-up of the significant weaknesses
identified by DG SANCO was insufficient (see examples in text
box 2). It concludes that the Commission has limited assurance of
the correct functioning of the supervision and inspection system
in the Member States.

Text box 2

Organic farming: observations arising from DG SANCO
checks in Member States and their subsequent follow-up

Austria: DG SANCO and DG AGRI consider all questions
resolved because Austria’s action plan addressed all issues raised.
However the Commission has taken no steps to ensure that the
action plan has been put in place and responds adequately to the
criticisms raised in the DG SANCO report:

— no technical assessment of inspection bodies’ work by compe-

tent authority,

— no record of work done,

— no witnessing of inspectors work on the spot,

— merely discussions with inspectors,

United Kingdom: the Commission made critical observations on
the need to strengthen supervision of the inspection bodies by the
competent authority and on ‘Annual reports from inspection bodies
to competent authorities’. These are the two key criticisms in the DG
SANCO report. DG AGRI had no information on the UK authori-
ties’ response to these criticisms.

Italy: DG SANCO identified serious weaknesses in the supervision
of the inspection system. For example it found that ‘supervision of
the activities of the inspection bodies in the field is in the planning
stage’ and that ‘the emphasis is....on the completeness of the docu-
mentation required, without going too much into the subject of
assessing the effectiveness of the inspection activities’ and that ‘the
approach to supervision activities is predominantly administrative’.
The Commission has not followed up these observations.

Spain: some material observations in the DG SANCO report are
not referred to in the DG AGRI summary of follow-up:

— absence of a system in place ‘to evaluate whether the inspection
systems in the autonomous communities work to satisfaction’,

— in the case of the only approved inspection body, whether it was
supervised and whether that body fulfilled the mandatory inter-
national standards for inspection bodies,

— failure to inspect all operators annually, and

— that the quality of the inspection reports was variable.

In a letter sent to the Spanish authorities at the end of 2001 the
Commission points out that the Member State has not submitted an
action plan and that it had to be received within one month other-
wise ‘it will be necessary for this matter to be referred to the relevant
Commission services for their consideration as to the further action
to be taken’. No action plan had been sent by early 2005 and no
further action had been taken by the Commission

AUDIT OBSERVATIONS AT MEMBER STATE LEVEL

The verifiability of agri-environment sub-measures in five
Member States

— a general attitude of confidence in the performance of the
inspection bodies in ensuring that operators comply with
organic production rules on the part of the competent author-
ity.

55.
The audit in the Member States covered both the admin-
istrative and the on-the-spot checks, concentrating on the latter
because it is the key level for ensuring eligibility. The Court
selected as wide a range of sub-measures as possible and the audi-
tors accompanied the national/regional checkers during their
checks. These checks included verifying the respect of GFP.

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Administrative checks

56.
In the five Member States audited by the Court the
administrative checks are generally well executed and the cross-
checks under IACS are a useful means of helping to ensure that
the surface area and number of animals declared are correct (1).

57.
In Luxembourg the basic AE sub-measure requires that
100 % of the agricultural holding be under the AE undertaking (2).
This requirement makes administrative checks easier, since the aid
is paid in respect of all surfaces in the IACS declaration. The
farmer confirms that he has respected the conditions in the
annual surface declaration and the cross-checks are performed as
for the first pillar.

58.
As in other countries, in France the beneficiary is not
required to put the whole farm under AE undertaking and the
areas included can change from year to year. The beneficiary must
indicate the parcels of land actually committed for a given year by
identifying them on the IACS surface area declaration. In order to
do this, however, he only has two codes to choose from, even
though there are more than 100 possible sub-measures. In the
case of parcels of land potentially committed under a number of
sub-measures, it is often impossible to ascertain under which sub-
measure(s) it has in fact been committed.

59.
These procedures make it impossible to apply automated
consistency checks to compare the information contained in the
annual declaration and the undertakings signed by the benefi-
ciary. Thus administrative checks have limited value.

On-the-spot checks

Particularity of agri-environment

Under the applicable rules of the first pillar of the CAP
60.
significant reliance can be placed on teledetection to verify
whether an aid claim reflects reality, ie checking surface areas of
parcels of land (how much land is being farmed). Teledetection is,
in most cases, not effective for checking compliance with envi-
ronmental undertakings (what farming methods are being used)
and thus there is a need to make a physical inspection on-the-
spot. This makes the checking of AE sub-measures more labour-
intensive and therefore more costly than checking other agricul-
tural aid.

The technical nature of many AE sub-measures means
61.
that specialised knowledge is required of the checkers. For
example, a category of sub-measure common to all the Member
States visited is the limitation of inputs such as fertilisers and pes-
ticides. Assessing compliance with these undertakings is more dif-
ficult than simply confirming that a parcel contains a certain
crop. Similarly, ensuring that GFP is adhered to also requires spe-
cialist skills.

Checking the respect of usual good farming practice

62.
Compliance with a defined code of GFP throughout the
beneficiary holding is a precondition for receiving AE payments.
Such codes were introduced in RDPs for the period 2000 to 2006.
It is required that the RDPs include verifiable standards, which
entail compliance with general mandatory environmental
requirements (3).

The requirement to check GFP is very demanding on
63.
checkers of AE, who are usually not plant protection or fertilisa-
tion specialists. The Commission’s guidelines on this call on the
Member States to ‘define at programme level a reasonable set of
essential practices to be checked on the spot’ (4).

64.
The essential GFP practices selected nationwide for the
5 % on-the-spot checks in Germany focus on questions that are
easily verifiable. A study by the German Federal Agricultural
Research Centre (5) reports that the choice of GFP indicators to be
verified in all German Bundesländer is determined by the qualifi-
cations of the inspectors and as these are not experts in plant pro-
tection or fertilisation but are the direct aid, first pillar inspectors,
these indicators ‘can only cover aspects easily verifiable for a lay-
person’. These indicators must also be verifiable by the inspector
at every season. Thus the practices checked concern the holding
of specific documents, such as results of soil analyses and nutri-
ent accounts which provide only limited evidence of the respect
of GFP. This is also the case in Luxembourg.

65.
A good practice for verifying GFP was found in Germany
where there is an additional, check for more detailed aspects of
GFP carried out by specialist authorities on 1 % of farmers and
any breaches of GFP are communicated to the paying agency and,
where appropriate sanctions are imposed and AE payments
reduced.

(1) The Court is reporting separately with a detailed analysis of the imple-

mentation of IACS.

(2) The premium for conservation of the landscape and the natural envi-

ronment (PEENP).

(3) Articles 20 and 35 of Regulation (EC) No 817/2004.
(4) Point 4.14 of the Commission Guidelines.
(5) Bundesforschungsanstalt für Landwirtschaft, Braunschweig: Good
farming practice definitions, implementation, experiences. Braunsch-
weig, September 2003, pages 28 and 55 in respect of Germany.

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The German Federal Agricultural Research Centre report
66.
notes that checks carried out by the specialist authorities follow
an environment-oriented risk assessment for the selection of
farms to be visited based on the probability of non-compliance (1).
These specific checks detect more infringements and have a
greater effect on correcting behaviour than the checks carried out
in the context of the 5 % checks which are selected on criteria
such as size of payment.

Checking the sub-measures

Selection of the on-the-spot inspections

67.
The French authorities have drawn up instructions at
national level concerning the procedures to be applied, when car-
rying out the 5 % checks, to verify compliance with the seven GFP
criteria set out in the national rural development plan; these
instructions have been approved by the Commission. However, in
reality, these seven criteria and the related checks are not
demanding.

68.
For example, concerning the utilisation of fertilisers: the
checker verifies that the use of fertilisers is documented, but only
if the farm is in a nitrate vulnerable area or if one of the agri-
environment sub-measures requires a logbook to be kept. The
checker is expressly instructed not to check invoices or other
documents. Another example concerns the checks on nitrate fer-
tilisers: the instructions to the checker for this GFP are identical
to those described above with one addition, namely ‘to verify, as
far as possible and on a basis of the logbook, that these fertilisers
have not been applied during “risk” periods (i.e. when the ground
is frozen or waterlogged, etc.)’.

69.
The Court’s observations indicate that, as GFP are often
unclearly defined, tests are, in practice, limited to a number of
undemanding but easily verifiable criteria. As a consequence, the
extent to which the AE sub-measures go beyond GFP is difficult
to assess. The Court reiterates its observations and recommenda-
tions on GFP made in its special report on support for less-
favoured areas and in particular those pointing to the impossibil-
ity of satisfactorily verifying their respect (2). The Court indicated
that the Commission should ensure that Member States provide
a definition of GFP which is clear and can be conveniently veri-
fied and, if this is not possible, the Commission should propose a
system of support which relies on a more controllable concept
than GFP.

70.
In France the procedure is in conformity, on the whole,
with existing rules (3). However no technical agri-environment
criterion had been determined for inclusion in the risk analyses.
The Commission’s guidelines in this respect stipulate that risk cri-
teria specific to each measure should be taken into account (4). In
addition, the on-the-spot checks should be spread over the year
on the basis of an analysis of the risks presented by each rural
development measure (5).

71.
In Italy, the findings of previous years’ checks are not
used to inform the risk analysis and have similarly not been taken
into account in drawing up the following year’s sample (6).

72.
In Luxembourg the risk analysis, indeed the sampling
procedure as a whole, is based on direct first-pillar aid because the
AE measure is an integral part of the same administrative system.
This being the case, no specific risk analysis is made for this agri-
environment measure.

73.
Sample selection in Austria complies with Regulation
(EC) No 2419/2001. Furthermore, a separate selection, respect-
ing the 5 % requirement,
the sub-measure
winter/autumn greening which has a commitment period outside
the main inspection period. The sampling is done by a depart-
ment independent of the on-the-spot checkers.

is made for

Timing of the checks

74.
The Commission guidelines state that the best time of
year for on-the-spot checks must be determined so as to cover the
most representative undertakings and obligations of the measure
to be checked and that the on-the-spot checks must be carried out
during that period (7). This respects Article 69 of Regulation (EC)
No 817/2004 (see paragraph 25).

(1) Page 39 of main study.
(2) Special Report No 4/2003 concerning rural development: support for

less-favoured areas (OJ C 151, 27.6.2003).

(3) In particular Article 19 of Regulation (EC) No 2419/2001.
(4) Point 4.3. of the Commission Guidelines.
(5) Article 69 of Regulation (EC) No 817/2004.
(6) Article 19(1)(d) of Regulation (EC) No 2419/2001.
(7) Point 4.4 of the Commission guidelines, VI/10535/99 Rev 7.

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In Luxembourg the on-the-spot checks are carried out
75.
between June and August, i.e. around the period when arable
crops are harvested, and until September in the case of forage
areas. This period is appropriate for on-the-spot checks on arable
crops and forage areas but not necessarily for agri-environment
sub-measures or GFP, for which certain conditions must be ful-
filled and checked outside this period (1). The optimum periods
for the checking of the various types of agri-environment under-
takings have not been identified.

The combination of more than one undertaking per sub-
80.
measure means that in such cases a sub-measure cannot be fully
checked. This is also the case for sub-measure ‘widening of dis-
tance between the rows of crops to 17 cm’, where the widened
distance between the rows of cereals can be checked during the
principal control period, but where the sub-measure’s other
undertaking (no spraying of fungicide before a certain stage in the
development of the cereal, normally early May) can only be veri-
fied at an earlier point in time.

76.
In Austria, although the checks in general take place at
the appropriate time, the sub-measure ‘erosion protection of vine-
yards’, for which the period of commitment is between 1 Novem-
ber and 30 April, is checked between 15 May and the end of Sep-
tember. Thus, the erosion protection measure is checked outside
of the commitment period. This was recognised by the Austrian
authorities who have committed to complete the procedures.

In Baden-Württemberg the sample to be checked on the
77.
spot for the AE programme and other surface-based RD measures
is divided into four checking periods covering May to mid-
December, so that the various undertakings under the sub-
measures can be checked. The checks are correctly spread over
the year on the basis of an analysis of the risks to AE. However
the nature of the AE sub-measures means that, although at least
5 % of beneficiaries are checked each year, the fact that each ben-
eficiary in the sample is only visited once in the control year
means many sub-measures and undertakings cannot be fully
checked.

78.
All 11 cases examined by the Court in Germany in June
2004 (the principal control period, during which at least half the
checks should be carried out) contained sub-measures that could
not be checked at the time of the visit.

79.
Moreover there are sub-measures under this AE pro-
gramme that have more than one undertaking, which can only be
checked at different moments of the year. For example, for the
very widespread sub-measure autumn/winter greening of arable
areas, green cover must: (a) be sown by mid-September and (b) be
maintained intact until end of November/February. In such cases,
the application will only be verified at most once, that is one of
the two undertakings will not be checked.

(1) In the Annex to the Grand Duchy Regulation of 11 February 2002 on
Good Farming Practice, paragraphs 4 — Application of fertiliser on
frozen or waterlogged ground, 5 — Application of fertiliser in the
proximity of water courses, 6 and 7.1 — Forgoing application of fer-
tiliser at certain times in winter. With regard to the basic agri-
environment measure, the PEENP, the obligation to plant ‘a new crop
or a catch crop in case of application of organic fertilisers on arable
land during the period following harvesting of the main crop and up
to 15 November’ and the ban on spreading farmyard manure during
the period from 15 November to 15 January following harvesting on
those parcels used to grow maize also render checks necessary at other
times of the year.

81.
In France the date of the on-the-spot check depends on
notification of the sample. The on-the-spot checks are carried out
as soon as possible after arrival of the file in order to avoid delays
in payment (in practice, from July to October). The checks are
therefore not necessarily carried out at the appropriate moment,
on the basis of an analysis of the risks presented by the measure
to be checked. Moreover, where the beneficiary, according to the
contractual requirements, is obliged to implement or to refrain
from a practice which involves more than one key date, there is
no provision for a further visit.

82.
The problems caused by the need to carry out the check
within a very limited period or the need to visit a project more
than once was set out in the Commission Report to the budget-
ary authorities on the lessons from the prior period (2).

83.
The need to make more than one on-the-spot check visit
was confirmed by Regulation (EC) No 746/96, article 19(4) of
which required that, ‘as far as possible, all undertakings given by
a beneficiary shall be the subject of checking (3). If necessary,
checks on specific undertakings shall be made at different times
of the year’. Thus the authorities had to return to check an AE
project, if this was necessary to verify that all the undertakings
made were being respected.

For the period 2000 to 2006 the equivalent requirements
84.
appear in Articles 67 to 69 of Regulation (EC) No 817/2004.
There is no longer the requirement to check all the AE undertak-
ings to which the beneficiary has subscribed, and nor is the need
to return to the beneficiary at different times of the year. More-
over the Commission’s guidelines to Member States for the cur-
rent period only require the most representative undertakings and
obligations to be checked and encourage Member States to orga-
nise the inspection system so as to reduce the number of visits to
any individual beneficiary, in theory down to one visit (4).

85.
Thus the current legislative system allows that many
undertakings will not be checked even in the case of those ben-
eficiaries selected as part of the 5 % sample to be inspected on the
spot.

(2) Section 3.7.3 of that Report.
(3) Commission Regulation (EC) No 746/96 of 24 April 1996 laying
down detailed rules for the application of Council Regulation (EEC)
No 2078/92 on agricultural methods compatible with the require-
ments of the protection of the environment and the maintenance of
the countryside (OJ L 102, 25.4.1996, p. 19).
(4) Points 4.4 and 4.5 of Commission Guidelines.

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Reliance on self-declaration by beneficiaries

In all Member States visited, the Court noted that signifi-

86.
cant reliance was placed on self-declaration of beneficiaries.

87.
Checks on sub-measures inspected in France for example,
rely to a large extent on the veracity of the declarations made by
the beneficiaries and, in particular, on the reliability of the parcel
and grazing logbooks. In these documents, the farmer himself
enters applications of fertilisers and phytosanitary products,
planting, mowing and harvesting activities, and grazing periods.
The checkers are not obliged to go beyond simply verifying that
the data have been entered in these logbooks.

88.
A Commission inspection report (see paragraph 37) con-
cluded that this type of check could not be considered sufficient
and had to be supplemented by other types of check (1). Indeed,
the Commission’s guidelines recommend complementing the
checks on the information recorded by the beneficiary by other
checks focusing, for example, on yield, invoices or soil and plant
analyses (2).

The ‘Reduction of nitrate fertiliser by 20 %’ sub-measure

89.
provides an example:

(i)

the reference value on the basis of which the 20 % reduction
is calculated depends on the expected yield provided by the
beneficiary;

(ii) actual compliance with the 20 % reduction is verified using

the beneficiary’s records.

90.
The Court observed no standard procedure for carrying
out verifications of the documents used as evidence to prove
compliance with the contractual requirements. One inspector
may make mathematical calculations in order to verify that limits
have been complied with, while another inspector will merely
check that the relevant documents have been filled in. Similarly,
a number of checkers carry out administrative checks on all the
parcels under contract while others check no more than a sample.

91.
This sub-measure whereby the beneficiary reduces the
nitrate fertiliser to 20 % less than the recommended optimum is
also one of the principal AE sub-measures in Baden-Württemberg,
for example. The checklist for the on-the-spot checks for this sub-
measure requires the checker to assess whether the records of fer-
tiliser applied are plausible and complete.

(1) Rapport de synthèse de l’enquête sur la mise en place des systèmes de
gestion, contrôle et sanctions mis en place par les EM pour les mesures
de DR 2000-2006, page 22, of 16.8.2001.

(2) Point 4.12 of Commission Guidelines.

In addition, the checker must check the accuracy of the
92.
information used for calculating the optimum nitrate level. The
basis for the calculation (and hence the 20 % reduction thereto)
is the expected yield. This figure is provided by the beneficiary.
There is no standard level for this, and a variation in the expected
yield of +/– 15 % is considered plausible. The checker is only
required to investigate when significant overstatements are evi-
dent. Thus the method of calculating the optimum level of nitrate
fertiliser is sensitive to small changes in the expected yield.

93.
The illustrative example in text box 3 shows that, by over-
stating his expected yield by a margin which is still ‘plausible’ (e.g.
14 %), a beneficiary could apply 100 % of the recommended level
of nitrate fertiliser (64kg N/ha) and yet claim compensation under
the sub-measure for reducing nitrate fertilisation by 20 %.

Text box 3

Baden-Württemberg: reduction of nitrate fertiliser by
20 %

If the beneficiary were to increase the figure for his expected yield by
14 % (i.e. within the accepted variation +/– 15 %), the level of
reduced nitrate fertilisation (N – 20 %) would be the same as the
recommended level of nitrate fertiliser for GFP (64 kg/ha. in the
example below).

Real situation

Expected yield

× factor for the type of crop

50

2,3

+ N in non-harvestable parts

Total need for N

– N from soil, previous crops

N fertilisation for GFP

– 20 %

N – 20 %

115

20

135

– 71

64

– 12,8

51,2

Hypothetical
example,
expected yield
overstated by
14 %

57

2,3

131

20

151

– 71

80

– 16

64

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The second key information provided by the beneficiary
94.
is the actual amount of mineral and organic fertiliser applied and
recorded in the parcel register. This depends on the beneficiary
accurately recording the fertiliser that he has applied. The Court
found that ensuring that the amount of fertiliser actually applied
is accurately recorded is difficult in practice and the checker
merely ensures that the records are up to date and plausible.

95.
The effect of understating the amount applied on crops
could have the effect of unjustifiably awarding compensation
under this sub-measure. A combination of a lesser understate-
ment and a moderate overstatement of expected yield would have
the same effect and be even more difficult to detect.

96.
The Court concludes that this type of sub-measure is
verifiable only by relying on the information provided by the ben-
eficiary. Thus, it does not satisfy the requirement of Regulation
(EC) No 817/2004 that payments based on limitations on the use
of inputs may only be made if such limitations are technically and
economically measurable.

Verification dependent on visual checks

97.
The on-the-spot checkers make visual inspections on the
field in order to ensure respect of undertakings such as reduction
in the use of inputs. Such inspections are important as they pro-
vide additionnal assurance. However, they have limitations, in
particular when undertakings are difficult to verify.

Text box 4

Two adjacent parcels with the same type of wheat were checked, one
parcel with and one without growth regulators. It was not possible
to see significant differences between the two fields. Any small dif-
ferences observed in the height of the plants could also have been
caused by the differences in the preparation of the soil, the previous
crop and/or the date of sowing.

The local instructions state that laboratory analysis should only be
employed ‘if the effect of the growth regulators cannot be assessed
visually’. Such analyses are considered too expensive to carry out,
except in cases of flagrant non-respect.

100.
The checks performed by inspectors, in the field, in all
Member States audited by the Court are based on their individual
knowledge and (for some undertakings), to a minor extent,
detailed instructions for on-the-spot checks. Indicators to be
checked are rarely given in the handbooks. However once in the
field the inspectors refer to many indicators which are based on
their technical knowledge and experience. The Court noted that
many of these indicators are very useful and crucial for determin-
ing the outcome of the inspection of several important sub-
measures, such as reduction of inputs. These include the colour
and height of the crop, existence of weeds, etc.

101.
It might not be practical to include fully detailed
descriptions of all criteria, indicators or parameters in the hand-
book of the inspectors. The Court considers however that a mini-
mum of general provisions could usefully be included in the
handbook on how undertakings should be checked on the field.
It would ensure controllability of the undertakings and a homog-
enous treatment between inspections. A development of written
instructions would provide the checkers with verifiable criteria
against which to check. It would also improve the documenta-
tion of the checks carried out and the usefulness of inspection
reports during subsequent visits.

Lack of baseline data

98.
The Baden-Württemberg AE programme includes a sub-
measure where the farmer undertakes not to use growth regula-
tors. The on-the-spot checks for this sub-measure are based on
visual observation. Cereals at varying heights and an uneven
impression of the field are considered as adequate evidence of
non-usage of growth regulators.

102.
In France, the contracts signed by the prefect and the
beneficiary contain the basic conditions which the latter is obliged
to comply with in the context of his AE undertakings. The Court
discovered numerous cases in which the precise meaning of the
conditions was not clear and neither the checker nor the benefi-
ciary understood what was required. In addition, in respect of
some conditions there were differences of interpretation between
the checkers.

99.
However, the situation is not always clear. Differences in
height between use and non-use are rather small (for rye 20 cm
but only 4 cm for wheat). Moreover, differences in height also
depend on climate, date of sowing, quality of soil and the variety
of the cereal concerned. See illustrative example in text box 4.

The Annex to this report contains four examples of this
103.
phenomenon. This lack of clarity makes the on-the-spot work of
the checkers difficult, particularly in view of the fact that they also
carry out on-the-spot checks in seven other départements. As each
département has its own requirements, the provisions governing
any given action may differ from one to the other.

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The sub-measure ‘Preservation and care of landscape
104.
elements’ involves taking care of trees, ditches, etc. but the farmer
must also ensure that the object in question is not removed.

105.
Given the nature of the undertakings, it is not always
possible to verify the existence and respect of undertakings. Since
the reference criteria which are being used during controls have a
general character or are not always traceable. It is evident from
the majority of beneficiaries visited and from the information
obtained from the inspectors that there is a high level of flexibil-
ity in implementing the obligation and indeed also in verifying it.

106.
The Court found that, concerning the control of land-
scape elements, for administrative and financial reasons it is
scarcely possible to meet demands for documentation as they
would have to be mapped all over the country. In Austria, the
quality of the checks will potentially be enforced from 2005
onwards when aerial pictures will be used to check landscape ele-
ments and that these checks will include retrospective checks.

With respect to organic farming, the Member States’
110.
reports, which are supposed to give assurance about the objec-
tiveness and effectiveness of the inspection system, are incom-
plete, late and inaccurate. This is relevant for AE because the
inspection system is relied upon by the Member States to replace
their own checks in this sub-measure(paragraphs 46 to 49).

111.
Commission checks in seven Member States in 1998
to 2001 detected important weaknesses in the supervision of
inspection systems, but these findings were not properly followed
up. No further checks have taken place in any Member State,
despite the Commission having identified the need to do so. Thus
the Commission has not ensured that the key control of supervi-
sion of the inspection system is working adequately (para-
graphs 50 to 54).

In the Commission’s Action Plan for Organic Food and
112.
Farming it is stated that ‘The current inspection system works
very efficiently in most cases’. The Court’s audit did not find that
the Commission had adequate assurance to make this assertion
(paragraphs 44 and 46 to 54).

CONCLUSIONS AND RECOMMENDATIONS

At Member State level

Overall conclusion

107.
Unlike for first pillar expenditure, it is not possible to
obtain assurance at a reasonable cost in respect of all AE under-
takings necessary to receive the aid. Even obtaining reasonable
assurance on compliance with all obligations given in respect of
a minimum sample of 5 % of beneficiaries per year, involves sig-
nificant costs for Member States, either in terms of on-the-spot
checks or costly laboratory analyses. Teledetection is of limited
use in checking the respect of AE (and GFP) undertakings and
thus AE checking is more labour-intensive than checking the first
pillar. Moreover, the checks are more technically demanding
(paragraphs 60 and 61).

At Commission level

The Commission only ensured to a limited extent the
108.
verifiability of the AE sub-measures at the RDP approval stage
and thus, has not identified those which have a high control risk
(paragraphs 32 to 35).

113.
Those elements of GFP tested in the course of the
on-the-spot checks are limited to a number of undemanding, but
easily verifiable, criteria (paragraphs 62 to 69).

The risk analyses to determine the samples to be
114.
selected rarely include AE-specific considerations and little analy-
sis is carried out of the results of checks to inform the following
year’s analysis (paragraphs 70 to 73).

The audited Member State administrations largely apply
115.
the on-the-spot checking provisions of Regulations
(EC)
No 817/2004 and (EC) No 2419/2001 and the Commission’s
guidelines, but the fact that the undertakings (and GFP) should be
respected either at more than one point in time or continuously
means that they are often unable to obtain even reasonable assur-
ance on compliance. The administrative and on-the-spot checks
procedures are closely associated with those of the first pillar and
the latter often take place at the same time as the direct aids
checks, around the harvest time, which is not always the appro-
priate moment to verify compliance with AE undertakings and
GFP (paragraphs 74 to 85).

116.
Control of the AE sub-measures in the Member States
audited relies to a large extent on the self-declaration of the ben-
eficiaries (paragraphs 86 to 96).

109.
It has not visited any Member States to test the AE con-
trol systems that have been in operation for the first five of the
seven years on this, the largest RD measure, which is known to
be high risk (paragraphs 36 to 39).

117.
Some undertakings in the sample to be checked on the
spot are not checked reliably because of the absence of objective
parameters for visual checks (paragraphs 97 to 106).

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Recommendations

118.
The Court has identified a number of detailed aspects in
which the arrangements for verifying AE expenditure could be
improved:

— the division of responsibilities between Commission and
DGs AGRI and SANCO, in respect of organic farming, should
be clarified,

— the Commission should verify the functioning of the current
AE control system. This would allow lessons learned to be
applied for the following programming period. The Commis-
sion should also plan to review the operation of the AE con-
trol system of this next period at an appropriate stage,

— the Commission should take steps to ensure that reports on
supervision of inspection of organic farming provide the nec-
essary information, are submitted on time and are followed
up appropriately,

— Member States should plan and organise their checks of AE
expenditure on an AE-specific risk basis, so that all material
sub-measures can be checked during the appropriate period;
and should ensure that inspectors have clear criteria against
which to check.

However, the Court’s audit indicates that there are major difficul-
ties in checking significant areas of agri-environment expenditure.
Effective verification requires evidence to be obtained about
detailed farming practices; obtaining such evidence is, in many
cases:

— disproportionately costly, and/or

— extremely demanding from a technical point of view.

119.
The Commission concluded in its evaluation that, ‘if a
measure cannot be adequately checked, it should not be the sub-
ject of public payment’ (see paragraph 31). The Court’s audit
shows that this is respected to a limited extent. The Commission,
Council and Parliament should consider how this principle should
be put into practice in respect of proposals for AE expenditure in
the 2007 to 2013 planning period, taking into account, on the
one hand, the risk of non-compliance and, on the other hand, the
potential benefits of this type of expenditure.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 14 July 2005.

For the Court of Auditors
Hubert WEBER
President

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ANNEX

Examples where the contractual requirements of the Côte d’Or AE programme are not clear

1.

2.

3.

4.

‘The analyses (one for every 5 to 10 ha) shall be interpreted and used as a basis for drawing up a fertility balance report
in the first and fifth years and as an annual reference’. In one case, the fact that the beneficiary had failed to carry out
one soil analysis per year and per 10 ha was entered as an anomaly (this anomaly had not been discovered in the course
of an on-the-spot check the year before). Another checker responsible for another case (and informed by the benefi-
ciary of the statements made by the technical expert) interpreted the obligation to carry out a soil analysis for every
10 ha as only having to be done once during the five years covered by the contract and did not consider it unusual that
such an analysis had not yet been made in year two. According to the French authorities a third interpretation is in fact
the correct one, i.e. that one soil analysis per 10 ha should be carried out both in year one and in year five.

‘Application of organic fertiliser not exceeding approximately 65 units of nitrogen’. The word ‘approximately’ is inap-
propriate to qualify a limit. Would 66 units be acceptable, in spite of a limit of ‘approximately 65’? What about
70 units?

It is difficult to ascertain whether the maximum number of large animal units per hectare is applicable to the entire
holding or only to the hectares committed under the relevant sub-measure. The checkers had no information on this.

The meaning of the phrase ‘in the case of grazed areas, the amounts which are under the control of the farmer’ is not
clear. Does this mean that the farmer can influence the amounts of manure produced by animals grazing the meadow?

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THE COMMISSION’S REPLIES

EXECUTIVE SUMMARY

I to III.
Agri-environment measures (AEM) are central elements of the common agricultural policy (CAP)
responding to the concerns of society with respect to the protection and improvement of the environment in
rural areas. The Commission welcomes the Court’s report in this respect. In response to the Court’s findings
the Commission would like to emphasise:

— at the beginning of each programming period, the Commission analyses the rural development pro-
grammes as submitted by the Member States. The Commission issued useful guidelines for its desk offic-
ers which allowed them to assess most of the agri-environmental measures on their verifiability. Further-
more, the different responsibilities under shared management should be emphasised: the Commission sets
out the legal framework and Member States are responsible for proposing verifiable measures (1). The fact
that a programme is approved by the Commission does not relieve a Member State of its responsibilities
(see paragraphs 32 to 35),

— the Clearance of Accounts Directorate organises its audit work on the basis of an instrument of central
risk analysis covering all agricultural expenditure. It takes into account different risk elements, including
the observations of the Court and the length of time since the last audit and, determines the audit priori-
ties. On the basis of this risk assessment, it was determined in previous years that priority should be given
to other audits. However, the following elements demonstrate that the Clearance of Accounts of DG AGRI
has already in different ways assessed the systems in place for AEM:

— the agri-environmental measures were audited in all Member States in 1997 to 1999 and follow-up
audits were carried out in 2000 to 2002 in those Member States for which financial corrections had
been proposed. The Commission considers that this provided a reasonable level of assurance about
the compliance of the systems in place and, in particular, about the implementation of appropriate
control systems for the different sub-measures, including those considered of limited verifiability,

— moreover, the new basic requirement of controlling the respect of good farming practices, introduced
by Regulation (EC) No 1257/1999, was subject of a thorough examination during the enquiry on less-
favoured areas carried out in most of the Member States in 2003 and 2004 (see paragraph 39),

— the Commission was constrained by the fact that it did not have the legal base to carry out inspections in
the Member States. Nevertheless, it has followed up the organic farming inspection system in the Member
States by means of their supervision reports and other sources of information.

Most operators are inspected each year as evidenced by Member States’ reports.

In addition, to the extent that organic farming measures are co-financed by the EAGGF in the framework of
rural development, the audit services of DG AGRI, as part of their ongoing enquiry on AEM (2005 to 2006),
are carrying out a partial examination of the supervisory system in place in the regions and Member States
audited.

(1) See Regulation (EC) No 817/2004, Article 67(1), second indent: ‘The Member States shall define suitable methods and

means for verifying each support measure as well as the persons who shall be subject to checks.’

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— The annual supervision reports give a number of indications on the inspection system in place such as
confirmation of the number of inspection visits carried out and the number of infringements notified. Nev-
ertheless, the Commission identified in the European Action Plan on Organic Food and Farming the need
to improve the quality of the supervision reports. The issue of supervision is part of ongoing work on a
review of (EEC) No Regulation 2092/91. It is also to be linked with Regulation (EC) No 882/2004 (1) to
be applicable from 2006, which reinforces the framework for the organisation of official controls and
supervision at Member States’ level (see paragraphs 47 to 49).

— The Commission took note of the mission reports on all seven Member States concerned. It also consid-
ered other sources of information relating to the inspection system in the Member States (see para-
graphs 50 to 54).

The Commission has taken note of the weaknesses identified by the Court and it will continue to

IV.
undertake, to the extent possible, to remedy the individual cases in partnership with the Member States:

— in accordance with Regulation (EC) No 817/2004, checks shall be spread over the year on the basis of an
analysis of risk of each rural development measure. This risk analysis is established by the Member State
that shall adapt it year by year to the previous findings, in such a way as to privilege checks in times where
elements more at risk can be controlled (see paragraphs 74 and 77),

— the reliance on declarations (record keeping e.g. plot-wise on date/quantities of fertilisers/pesticides
applied) is useful, for example, if the undertaking spans the whole year and regular inspections within the
year are not feasible. In case of doubt, the authorities should proceed to further examination and/or analy-
sis (see paragraph 97),

— visual checks are normally applied in combination with other control instruments and form only a lim-

ited part of the control of agri-environment commitments,

— knowledge and experience of the inspectors play an important role in the on-the-spot checks. Member
States have established a catalogue of good farming practice (GFP) which is very often supplemented by
checklists, instructions, training, a quality assurance concept and the obligation to refer to the competent
authorities in case of doubt. With regard to other commitments specific to each AE sub-measure, most
Member States have established operating manuals, circulars and/or instructions for the use of the inspec-
tors, ensuring thus a certain homogeneity in the controls carried out on the same measure throughout
the national territory (see paragraphs 100 and 101).

V.
The Commission agrees that the control of some agri-environment measures, due to the complexity, is
resource intensive both in technical and financial terms. A comparison of resource requirements between agri-
environment measures and those of first pillar measures should be seen in a wider context. The resource
requirements for agri-environment measures have to be judged in relation to the objectives pursued. Agri-
environment policy is a central and essential part of the strategy to integrate environmental concerns into other
policy areas such as agriculture.

The Commission would like to place the issue of controllability of agri-environment measures within

VI.
a broader context:

— many agri-environment measures/commitments can be in principle, and are, assessed on their verifiabil-
ity when the programmes are examined by the Commission services; for some other commitments, by
their nature, controllability can be more difficult, often requiring particularly costly analysis. Therefore, a
complete exhaustive check is too costly and might bring about only limited value added as to the mini-
misation of the risk for the budget and/or the environment;

(1) Regulation (EC) No 882/2004 of the European Parliament and of the Council of 29 April 2004 on official controls per-

formed to ensure the verification of compliance with feed and food law, animal health and animal welfare rules.

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— however, the risk of non-compliance has to be weighted against the potential benefits of this measure. A
system which provides a sufficient level of control while remaining proportionate is what is needed for
the agri-environment measure, which the Commission deems to be an essential element of the strategy
for integration of environmental concerns into the CAP. As stated by the Court, controls should provide
for reasonable assurance at reasonable cost;

— for the next programming period the Commission has proposed a control system which will be, to the
extent possible, aligned with control systems related to cross-compliance that Member States have to set
up for first pillar payments (cross-compliance);

— furthermore, the Commission has proposed a clearer allocation of responsibilities between Member States

and Commission thus reinforcing the principle of shared management.

INTRODUCTION

9 and 10.
The Commission agrees that the links between
agriculture and environment are of great public and political
interest. It points out that agri-environment and cross-compliance
are both designed to ensure integration of environmental con-
cerns into agricultural policy. These aspects are complementary:
cross-compliance consists of environmental requirements with
which farmers have to comply in order not to have a partial or
full reduction of direct payments; whereas agri-environment pay-
ments are made to farmers willing to go significantly beyond this
baseline and provide environmental services in return for
payment.

AUDIT OBSERVATIONS AT COMMISSION LEVEL

32 to 35.
As part of the examination of the rural develop-
ment programmes, the Commission verified that the agro-
environmental measures defined by the Member State were
acceptable and relevant. For this purpose, the Commission issued
useful guidelines for its desk officers to help assess the proposed
agri-environmental measures. However, the Commission consid-
ers that, in principle, most of the agri-environment measures can
reasonably be assessed for verifiability (e.g. uncultivated field mar-
gins, conversion of arable to grassland, cutting dates, green cover
in winter, preservation of rare breeds/crop varieties, crop rota-
tions, irrigation reduction measures, stocking limits, etc.).

It is correct that the Commission was not in a position to make
an exhaustive ex ante examination of the controllability of all
(sub-) measures proposed. In this context, the different responsi-
bilities under shared management need to be taken into account:
the Commission sets out the framework but Member States are
responsible for proposing measures and ensuring that there are
appropriate verifiable indicators for each measure. The fact that a
programme is approved by the Commission does not relieve a
Member State of its responsibilities.

Concerning the internal risk assessment, this was a glo-
33.
bal evaluation of
rural development
the instruments of
and intended as a management tool to improve this policy after
2006. In this document, the unit responsible for the audit of rural
development signalled the impossibility (given the short period
for approval of the programmes and the lack of resources) to
examine the controllability of all the eligibility criteria and to
evaluate ex ante in detail the management and control systems
established by the Member States for the implementation of the
plans/programmes.

For the next programming period, DG AGRI will consider appro-
priate steps based on the results of this global evaluation.

37 and 38.
The ‘preventive’ enquiry carried out by the Com-
mission in 12 Member States, between 2000 and 2001, had as
main objective the assessment of the control systems envisaged,
by the bodies visited, to manage and control all rural develop-
ment measures during the programming period 2000 to 2006.

Nevertheless, for some other commitments this assessment may
seem more difficult. In this context, the Commission decided not
to accept certain measures for reasons of low controllability (e.g.
reduction of N-fertilisation by less than 5 % or reduction of other
fertilisers by less than 20 %).

A separate ‘follow-up’ enquiry was carried out in 2000 to 2002
in all Member States already audited in 1997 to 1999 in respect
of the ‘accompanying measures’ (programming period 1993
to 1999) in order to ensure that the detected shortcomings had
been corrected. This enquiry included nine missions specifically
on AEM to five Member States that had been subject of financial
corrections for deficiencies in their management and control
systems.

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The Clearance of Accounts Directorate organises its audit
39.
work on the basis of an instrument of central risk analysis cov-
ering all agricultural expenditure. It takes into account different
risk elements, including the observations of the Court and the
length of time since the last audit, and determines the audit
priorities.

(d) This document aimed at giving some guidance to the Mem-
ber States on the type and format of information they have
to submit. The reports have since then been written in a
more uniform format. The Commission has now embarked
on a process of improving the format and the content of the
supervision report, in cooperation with the Member States.

On the basis of this risk assessment, it was determined in previ-
ous years that priority should be given to other audits. The 2005
central risk analysis indicated a relatively high risk value for agri-
environmental measures, which were thus selected for audit in
2005/2006.

(e)

In the European Action Plan on Organic Food and Farming
adopted on 10 June 2004 the Commission highlighted that
further improvements have to be made.

However, the following elements demonstrate that the Clearance
of Accounts of DG AGRI has already in different ways assessed
the systems in place for AEM:

— the audits of 1997 to 1999 (see paragraph 37) covered AEM
in almost all Member States and in 2000 to 2002 follow-up
audits evaluated improvements in Member States where
shortcomings were found. These audits provided a reason-
able level of assurance about the systems in place for the
management and control of AEM during the programming
period 1993 to 1999, which mostly remained unchanged in
the programming period 2000 to 2006. These audits also
covered the implementation of appropriate control methods
for sub-measures considered as being difficult to verify,

— the enquiry carried out in most Member States in 2000
and 2001 (see paragraph 37), also included the compliance
audit of the management and control systems related to
AEM,

— the only truly new element introduced by Regulation (EC)
No 1257/99 for AEM, i.e. the good farming practices, was
the subject of thorough system audits in the framework of
the LFA enquiry performed in most Member States in 2003
and 2004.

47.

(b) Completion of the standardised table is the minimum report-
ing requirement, though the ‘guidance document’ states that
‘further information may be submitted as Member States feel
fit’. Some Member States also send a written report giving a
description of their inspection system and drawing up con-
clusions on the inspections carried out.

The provisions of Regulation (EC) No 882/2004, applicable as
from 2006, establish a whole set of requirements that will pro-
vide the Member States with clear criteria on, inter alia, the organi-
sation of official controls (Article 3), the designation of compe-
tent authorities (Article 4) and delegation of control tasks
(Article 5), on control and verification procedures (Article 8)
and control activities and techniques (Article 10). Linked to it, the
supervision requirements are being reviewed in the framework of
the amendment of Regulation (EEC) No 2092/91.

49.
These reports give a number of indications on the inspec-
tion system in place such as confirmation of the number of
inspection visits carried out, which is at the least very close to,
and in most cases exceeds, the number of operators, and the
number of infringements notified. The Commission identified in
the European Action Plan on Organic Food and Farming the need
to improve the quality of the supervision reports.

50.
Notwithstanding the fact that existing Community legis-
lation does not provide a legal basis for Community inspections
to be carried out with the aim of checking on compliance with
the control requirements on organic farming laid down in Regu-
lation (EEC) No 2092/91, a number of FVO visits took place
between 1998 and 2001. This was in the context of concerns
expressed by some Member States in the Standing Committee.
These concerns stemmed from the increasing volumes of organic
produce being imported into the EU from 75 third countries.

51.
The Commission considers ‘on-the-spot’ checks by Com-
munity inspectors as additional means to verify the proper func-
tioning of the Member State’s organic farming inspection system.

(c) These reports were of limited use for the evaluation of super-
vision by Member States’ authorities, but were nevertheless
helpful to show whether all operators were submitted
to inspections (see also paragraph 49).

None the less, the issue of the official controls on organic farm-
ing, including the national supervisory systems, will be reassessed
in the framework of the review of Regulation (EEC) No 2092/91
as initiated by the European Action Plan on Organic Food and
Farming and in the light of the entry into force of Regulation (EC)
No 882/2004.

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In addition, to the extent that organic farming measures are
co-financed under rural development, the audit services of DG
Agri, as part of their ongoing enquiry on AEM (2005 to 2006),
are carrying out a partial examination of the supervisory system
in place in the regions and Member States audited. This examina-
tion concerns the supervision work performed by the competent
authorities on the approved inspection bodies for organic farm-
ing as well as the procedures implemented by the rural develop-
ment control authorities with regards to the systematic verifica-
tion of the annual certification of the organic farmers benefiting
from EAGGF aid.

DG AGRI received and noted the DG SANCO reports on
54.
all seven Member States concerned. It also considered other
sources of information relating to the supervision and inspection
system in the Member States. The Commission made a follow-up
when needed. Additionally, it is a specific feature of the organic
farming sector that the control systems are reinforced by the mar-
ket of certified and labelled organic products itself, both by the
suppliers and by interested consumers. The competition on the
market implies close scrutiny of the control systems by operators
and frequent signalling of potential irregularities to the compe-
tent authorities. This results in an important self-correcting effect.

Finally, the Commission did not have sufficient resources to carry
out inspections by the FVO, other than those carried out in
response to concerns raised by the Member States on imported
organic products.

Reply to text box 2:

Moreover, it was considered that this area is of low risk for food
safety compared to the other challenges faced. The core activities
of the FVO are food safety, animal health, animal welfare and
plant health. The demands placed on the FVO for missions in
these areas exceed considerably its capacity for missions. Accord-
ingly choices have to be made, on the basis of risks to public
health, animal health, animal welfare and plant health, in draw-
ing up the FVO mission programme. In addition, the major pri-
orities for the FVO were missions to the EU applicant countries
in the pre-enlargement process. In fact, 36 % of all FVO inspec-
tions in 2003 were performed in the applicant countries.

52.
Recommendations, designed to improve the systems,
have been taken on board by most Member States. In its Euro-
pean Action Plan on Organic Food and Farming, as adopted by
the Commission on 10 June 2004, the Commission has defined
an overall policy including the further improvement and strength-
ening of the inspection systems.

53.
According to normal follow up procedures within FVO,
reminders to submit action plans were sent to these six Member
States. In the absence of response, a note was sent to DG AGRI
which took action where appropriate.

As examples, following up the adoption of Austria’s action plan
and the relevant complementary information given by the Aus-
trian authorities, the Commission took the view that the short-
comings pointed out in the FVO report had been addressed prop-
erly and that there was no immediate need for verification on the
spot.

As for the United Kingdom, the FVO mission report made the
suggestion to strengthen supervision in order to improve the UK
control system. Since then the UK government has notified a
number of structural changes to their inspection system. In their
letter dated 21 July 2003 the Department of Environment, Food
and Rural Affairs (DEFRA) announced the appointment of an
Advisory Committee on Organic Standards which is to assist
DEFRA in taking decisions on the performance of the UK inspec-
tion bodies and on their continued approval. The advice is based
on an assessment carried out by the UK accreditation service and
on-the-spot inspections carried out by independent consultants.
The Commission considers it as a step in the right direction.

Concerning Italy, the Commission followed up the recommenda-
tions included in the FVO report and looked into the relevant
information. As the Italian authorities had taken the necessary
measures to follow up the individual cases and had also regularly
transmitted the annual supervision reports of the inspection bod-
ies, the Commission decided that no further follow-up was
needed.

As mentioned in paragraph 47(e), another important action
undertaken was the adoption of the European Action Plan on
Organic Food and Farming.

Spain had sent explanatory comments on the draft FVO report,
of which some were included in the final report. The Commis-
sion took action on what it considered the main shortcoming, i.e.
the labelling, by starting an infringement procedure. In addition,
the latest annual reports from Spain refer to supervision of pri-
vate inspection bodies.

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AUDIT OBSERVATIONS AT MEMBER STATE LEVEL

58 and 59.
In the framework of the assessment of modifica-
tions proposed to the national development plan for 2004, the
Commission has requested the French authorities to inform the
Commission about the measures, which would be taken to tackle
the weaknesses highlighted by the Court of Auditors. These modi-
fications are on the agenda of the STAR Committee of Septem-
ber 2005.

The Commission is aware of this situation and has there-
69.
fore proposed, in its regulation for the next programming period,
that agri-environmental payments will only cover commitments
going beyond the relevant mandatory standards established pur-
suant to Articles 4 and 5 of and Annexes III and IV to Council
Regulation (EC) No 1782/2003 as well as minimum requirements
for fertiliser and plant protection product use and other relevant
mandatory requirements established by national
legislation
and identified in the programme.

This will entail more efficient controls (jointly first and second pil-
lars) and set free capacities for controlling the proposed new base-
line for agri-environment (see Article 37 of the Commission’s
proposal).

60 and 61.
A comparison of resource requirements should
be treated with care. The resource requirements for agri-
environment measures have to be judged in relation to the objec-
tives pursued. Agri-environment policy is a central and essential
part of the strategy to integrate environmental concerns into
other policy areas such as agriculture. The Commission recogn-
ises that an efficient control of agri-environmental measures will
often require a high level of specialised resources. The Commis-
sion services therefore provided guidelines giving indications as to
how to assess compliance with complex undertakings (input ban
or reduction) and the GFP.

70.

See reply to paragraphs 58 and 59.

72.

See reply to paragraph 64.

64 and 65.
The good agricultural practice according to Regu-
lation (EC) No 1257/1999 in Germany is based on the specific
agricultural legislation which is binding for all utilised agricultural
areas and husbandries in the whole of Germany, as well as for all
farms regardless of their production sector or size. The two-step
approach followed in Germany (firstly check of indicators, fol-
lowed secondly by in-depth control in case of doubt) seems
reasonable.

In the case of Luxembourg, the mid-term review had already
highlighted the lack of specific indicators for the evaluation of
agri-environment and the inherent risk concerning the control of
these measures. The Commission took up these issues with the
Member State in the context of the discussions on the annual
report 2003. The Commission will raise these elements again
with the Member State in question in the context of the annual
report of Luxembourg for 2004.

67 and 68.
The seven criteria respond to the requirements of
the guidelines for the implementation of systems of management,
checks and penalties concerning rural development measures and
they cover the important practices of a farm holding. Further ele-
ments of good farming practices are, in addition, defined for each
action in the scope of agri-environment. The Commission has
approved these seven criteria; but the related national instructions
are the responsibility of the Member State.

74.
This recommendation was formulated in the Commis-
sion guidelines to make clear to the Member States that on-the-
spot checks shall not be performed during unsuitable seasons.

However, in order to avoid that all on-the-spot checks are carried
out during the same period of the year, and to prevent certain
undertakings from being ever being checked at all, these checks
shall be spread over the year on the basis of a risk analysis on each
rural development measure, established by the Member State and
adapted year by year to the previous findings, in order to favour
checks in periods where more-at-risk elements can be checked.

75.

See reply to paragraph 64.

77 and 78.
Imposing repeat checks on the same beneficiary
is not considered to be acceptable and might bring about only
very limited added value in relation to the means made available;
however, where necessary, supplementary checks have to be per-
formed. On the other hand, spreading the controls over different
periods of the year ensures that all obligations are checked at least
on some beneficiaries, allowing thus to determine the level of risk
presented by each commitment and obligation and providing
compliance with the provisions of Article 69(2) of Commission
Regulation (EC) No 817/2004 (see above reply to paragraph 74).

81.

See reply to paragraphs 58 and 59.

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C 279/27

The reason for deleting this requirement was to
84 and 85.
reduce the administrative/financial burden (simplification) of the
Member States whilst concentrating standard controls on essen-
tials of the commitments which could serve as indicators for the
overall compliance of the beneficiary. Irregularities and doubts
should then lead to an exhaustive control. Simplification contin-
ues to be a major concern of Member States for the next pro-
gramming period.

(See also reply to paragraphs 74 and 77).

In cases where a register of landscape elements
104 to 106.
is not available, other ways of verifying respect of commitments
must be implemented. Visual checks constitute the main instru-
ment, which in many cases can ensure sufficient reliability, e.g. on
the existence or non-existence of elements.

Improvements in this respect should result from the implemen-
tation and control as laid out in Annex IV to Regulation (EC)
No 1782/2003 from 2005 onwards (maintaining landscape fea-
tures) and Member States’ progress in mapping landscape
features.

Self-declarations consist in most cases of records on cer-
86.
tain production techniques applied (e.g. records on purchase, date
and quantity of fertiliser/pesticide applications). If the undertak-
ing spans over the whole year and regular inspections within the
year are too costly, it is useful that the inspector can refer first to
such records and book inspections. In case of doubt, the authori-
ties should proceed with further in-depth controls.

87.

See reply to paragraphs 58 and 59.

89 and 90.

See reply to paragraphs 58 and 59.

91 to 96.
Due to the complexity experienced in the imple-
mentation of this measure, it has been withdrawn by Baden-
Württemberg in 2005.

Since the visit of the Court of Auditors to Baden-
97 and 98.
Württemberg, it has been decided that in 50 % of the on-the-spot
checks a sample has to be taken for examination in a laboratory.

Another example is Austria, where checks also contain extensive
leaf and soil analysis in addition to visual inspections.

100 and 101.
The knowledge and experience of the inspec-
tors play an important role in the on-the-spot checks. All Mem-
ber States have established a catalogue of GFP, which is very often
supplemented by checklists, instructions, training, a quality assur-
ance concept and the obligation to refer to the competent authori-
ties in case of doubt. With regard to other commitments specific
to each AE sub-measure, most Member States have established
operating manuals, circulars and/or instructions for the use of the
inspectors, ensuring thus a certain homogeneity in the controls
carried out on the same measure throughout
the national
territory.

CONCLUSIONS AND RECOMMENDATIONS

107.
A comparison of resource requirements between agri-
environment measures and those of first pillar measures should
be seen in a wider context. The resource requirements for agri-
environment measures have to be judged in relation to the objec-
tives pursued. Agri-environment measures are a central and essen-
tial part of the strategy to integrate environmental concerns into
other policy areas such as agriculture.

The Commission agrees that the control of AE measures is labour-
intensive and costly due to the complexity of
the agri-
environment measures. These costs may be ‘significant’ but that
is inevitable for a policy which addresses integration of environ-
mental concerns into agriculture, where complexity is inherent in
the relationship. Therefore, a complete exhaustive check is too
costly and might bring only limited value added as to the mini-
misation of the risk to the budget. However, the Commission
considers that ‘significant’ control costs are an acceptable price to
pay for this policy. The Commission finds that the two-step
approach, which is implemented in certain Member States, is a
reasonable method. It considers that the systems put in place in
the Member States give a reasonable assurance.

As a part of the examination of the RDP’s, the Commis-
108.
sion verified that the agro-environmental measures defined by the
Member State were acceptable and relevant. In addition the Com-
mission refused to accept certain proposals because of their insuf-
ficient added value, and/or weakness of controllability (see
paragraph 32).

However, it is correct that the Commission was not in a position
to make an exhaustive ex ante examination of the controllability
of all measures proposed. In this context it is important to note
the different responsibilities under shared management.

102 and 103.
The Commission will undertake, to the extent
possible, to remedy the individual cases in partnership with the
Member States; this necessitates clear information for beneficia-
ries and controllers about the content of the commitment and a
review of the level of penalties in cases of non-compliance.

109.
The Clearance of Accounts Directorate organises its
audit work on the basis of an instrument of Central Risk Analysis
covering all agricultural expenditure that determines the audit
priorities.

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However, it considers, for the reasons outlined above under para-
graph 39, to have reasonably covered the AEM control systems
since the beginning of the current programming period.

in partnership with the Member
115.
States, will undertake to improve the situation to a feasible extent.

The Commission,

Moreover, on the basis of the latest central risk assessment, the
AEM were selected for audit in 2005/2006.

110.
Concerning the more recent Member States’ supervision
reports, the situation has improved as regards their completeness
and timing. They indicate that the number of inspection visits to
operators is at least of the same magnitude as the number of
operators. By June 2005, all the supervision reports since 2000
have been received, with the exception of two reports from one
Member State in 2000 and 2001. The European Action Plan on
Organic Food and Farming has identified the need for improving
the quality of the supervision reports. The Commission has com-
mitted itself to address the issue and the discussion on changing
the format and publishing the supervision reports has already
started in the Standing Committee on Organic Farming.

111.
The need for further checks must be considered in the
light of the risks linked to all measures and directives that need to
be controlled, and especially the risk relating to food safety. Based
on other information sources and taking into account a correct-
ing effect driven by competition in the market of organic prod-
ucts, the Commission has ensured a general follow-up of the
supervision of the inspection system in all Member States given
the resources available (see paragraph 54).

The issue of supervision is part of the ongoing work on the review
of Regulation (EEC) No 2092/91. It is also linked to Regulation
(EC) No 882/2004 applicable from 2006, which reinforces the
framework for the organisation of official controls and supervi-
sion at Member States’ level.

112.
The main weaknesses found were on supervision of the
private inspection bodies, which lead to recommendations con-
cerning this aspect. From the hearing and consultations held in
the process of elaborating the European Action Plan for Organic
Food and Farming, the Commission concluded that the inspec-
tion system was functioning well.

113.
Easily verifiable control parameters are necessary to
ensure that a first control visit provides for a reasonable impres-
sion about the overall compliance of the beneficiary. In case of
doubt additional in-depth controls would follow.

of

69

Article

Regulation

Commission

114.
(EC)
No 817/2004 is clear on this point ‘on-the-spot-checks shall be
spread over the year on the basis of an analysis of the risks pre-
sented by each rural development measure’. When weaknesses are
detected, they are taken up by the Commission together with the
Member States. Furthermore the Commission can, following ex
financial
accounts procedure,
post
corrections.

clearance of

impose

The Commission is of the opinion that self-declaration
116.
(e.g.
record keeping on purchase, date and quantity of
fertiliser/pesticides application) is a practical tool for the control-
lers as a first indicator (e.g. for commitments which span over the
whole year). They should, if deemed necessary, be followed as
much as possible by further examinations and/or analysis.

117.
Visual checks are applied in combination with other
control instruments and form only a limited part of the control
of agri-environment commitments. By nature, parameters for
such checks are not always necessarily quantifiable. Further
improvements, in particular to the control of landscape elements,
can be expected in future (e.g. mapping). As to the detected weak-
nesses, the Commission will undertake steps in partnership with
Member States to remedy the situation.

118.

— Regulation (EEC) No 2092/91 clearly confers on the Mem-
ber States the burden of approving and supervising the con-
trol system for organic farming. None the less, the issue of
the official controls on organic farming,
including the
national supervisory systems, will be reassessed in the frame-
work of the review of Regulation (EEC) No 2092/91 as ini-
tiated by the European Action Plan on Organic Food and
Farming and in the light of the entry into force of Regulation
(EC) No 882/2004. However, the need for specific checks
must take into consideration the risks implied by the mea-
sures of all regulations and directives that need to be con-
trolled, not least the risk relating to food safety.

— The audit services of DG AGRI are currently performing a
thorough verification of the functioning of the control sys-
tems related to the AEM and will take appropriate measures
if shortcomings are detected, including formulating recom-
mendations to improve the control provisions in the next
programming period.

— During the meetings of the Standing Committee on Organic
Farming, most recently in November 2004, February and
March 2005, Member States were regularly reminded of their
obligations. By March 2005, the 2003 supervision reports
had all been received by the Commission. The Commission
has already started a discussion with Member States in the
Standing Committee on Organic Farming on how to improve
the quality and the relevance of the supervision reports.
Reporting requirements is also an item for revision in the
framework of the review of the Regulation (EEC) No 2092/91
and application of Regulation (EC) No 882/2004.

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C 279/29

— The Commission agrees with the Court and has already put
in Commission Regulation (EC)

requirements

these
No 817/2004.

— The Commission agrees that costs for controlling agri-
environment are particularly high, owing to the inherent
complexity of the subject matter and the need for particular
expertise; the capacity of agri-environment measures to
achieve integration effectively requires it to be complex,
and its value as a policy for integration justifies such
expenditure.

— As outlined before, the integration of environmental con-
cerns into agriculture is, by its nature, a complex, technical
subject. Therefore, it is normal that a reasonable level of tech-
nical expertise is needed to control certain AE measures. That
does not invalidate the measures: their value in integration
justifies the need for this expertise.

The Member States have systems in place to control
119.
agri-environment measures and the measures are checked in all
Member States. Nevertheless, as indicated by the Court, weak-
nesses in the implementation of the control systems exist. The
Commission’s Clearance of Accounts service is, in 2005/2006,
conducting an audit programme to verify the control of agri-
environment measures in Member States. This may lead to finan-
cial corrections to be imposed, as has already been the case for the
past programming period 1993 to 1999.

For the next programming period the Commission has proposed
a control system which will be, to the extent possible, aligned
with control systems related to cross-compliance that Member
States have to set up for first pillar payments (cross-compliance).
In addition, the Commission has proposed a clearer allocation of
responsibilities between Member States and Commission thus
reinforcing the principle of shared management.