Communication from the Commission to the Council, the European Parliament and the European Court of Auditors - Commission Action Plan towards an Integrated Internal Control Framework {SEC(2005) 49}
Date: 2006-01-17
Institutions: European Commission
Subjects: administrative transparency, audit, budgetary control, financial regulation, general budget (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 17.1.2006 
COM(2006) 9 final 

COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN 
COURT OF AUDITORS 

Commission Action Plan towards an Integrated Internal Control Framework 

{SEC(2005) 49} 

EN 

   EN 

 
 
 
  
COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN 
COURT OF AUDITORS 

Commission Action Plan towards an Integrated Internal Control Framework 

1. 

INTRODUCTION AND BACKGROUND 

2004 marked the eleventh successive financial year for which the European Court of 
Auditors  issued  a  qualified  Statement  of  Assurance  (DAS)  as  regards  a  part  of  the 
payment  appropriations.  In  2004,  the  DAS  for  the  general  budget  was  positive  for 
payments  relating  to  administrative  expenditure,  pre-accession  aid  and  that  part  of 
agricultural expenditure subject to the Integrated Administration and Control System 
(IACS). This represents some 35% of budget expenditure. 

The  qualified  DAS  reflects  the  complexity  of  the  issues  facing  the  Commission  in 
implementing  the  EU  budget,  and  the  challenge  it  faces  in  providing  the  Court  of 
Auditors with satisfactory audit evidence. The public perceive the qualified DAS as a 
severe criticism of the Commission’s management of Union resources. These are two 
reasons why the Commission has made it a strategic objective to achieve a positive 
DAS during its mandate.  

The Commission’s “Roadmap to an Integrated Internal Control Framework”1 of June 
2005 sets out proposals for a Community integrated control framework which aims 
to achieve this objective. That communication proposed an integrated framework that 
would help to ensure more effective and efficient internal control of EU funds and, 
because  it  would  be  consistent  with  ECA  opinion  No  2/20042  on  an  effective  and 
efficient integrated internal control framework, could provide a sound basis on which 
the Court could rely to draw up its statement of assurance. 

The present communication: 

–  reports on action taken on the objectives set out in the June Communication, 

–  addresses  the  main  gaps  identified  in  the  Gap  Assessment3,  also  taking  into 

account the 2004 Annual Report of the Court of Auditors, 

–  reflects the follow-up to be given to ECOFIN conclusions of 8 November 2005, 

–  and, on this basis, identifies the main concrete actions to be taken and the role that 
the Council, Member States and the European Parliament should play in achieving 
a reliable and functioning integrated internal control framework, giving assurance 
to the Commission and, ultimately to the Court of Auditors.  

1 
2 
3 

COM(2005) 252. 
OJ C 107, 30.4.2004, p. 4 (the ‘Single Audit’ Opinion). 
SEC(2006) 49 accompanying this Communication. 

EN 

2 

   EN 

 
                                                 
2. 

CONCRETE PROPOSALS FOR ACTION IN THE 2006-07 PERIOD 

The  following  proposals  have  been  grouped  thematically,  and  within  each  a 
description  has  been  provided  of  the  conceptual  development  of  each  action,  from 
the Single Audit Opinion and Roadmap to the gap assessment and ECOFIN Council 
conclusions of 8 November 2005. The four themes for action4 are: 

•  Simplification and common control principles (action 1-4) 

•  Management declarations and audit assurance (action 5-8) 

•  Single audit approach: sharing results and prioritising cost-benefit (action 9-11) 

•  Sector-specific gaps (action 12-16). 

2.1. 

Simplification and common control principles 

To  achieve  the  correct  balance  between  ensuring  adequate  control  and  avoiding 
onerous  compliance  and  bureaucratic  requirements,  the  integrated  framework  will 
introduce  common  principles  emphasising  clarity,  simplicity  and  a  consistent 
approach to evaluating the risk of error in the underlying transactions. This approach 
has to be incorporated in the reflections of the Legislative Authority, focusing on an 
appropriate chain of control and the responsibilities of the different actors. 

Action 1: Simplification review of proposed 2007-13 legislation 

The  Roadmap  identified  “exploring  the  scope  for  greater  simplification  of  the 
management  of  EC  funds,  and  ensuring  that  the  control  requirements  are 
proportionate to the risks” as a key gap to be filled in the management of Community 
funds and proposed legislation for the period 2007-13. 

Council  reinforced  this  approach  in  the  ECOFIN  conclusions,  paragraph  5:  “The 
regulations  to  be  adopted  for  the  programming  period  2007-13  should  include 
simplification of the control requirements while providing reasonable assurance”. 

The  gap  assessment  also  identified  a  number  of  areas  across  management  modes 
where  illegalities  and  irregularities  were  more  likely  to  occur  due  to  difficulties 
encountered  by  beneficiaries  in  applying  eligibility  criteria  and  other  conditions. 
irregularity.  The 
to  avoiding 
Simplification  could  contribute 
administrative burden on beneficiaries should be reduced, and correct application by 
intermediary bodies should be made as straightforward as possible. 

this  kind  of 

The  Commission  will  keep  the  simplification  of  the  regulatory  framework  under 
consideration during the negotiations on all the 2007-2013 legislation. The Council 
and the European Parliament are considered to support such initiatives. 

4 

An overview of all actions and related Council and European Parliament issues is attached in annex 1. 

EN 

3 

   EN 

 
                                                 
Action  2:  Integrate  common  internal  control  principles  in  the  proposal  for  the  revised 

Financial Regulation 

The  ECOFIN  conclusions  (paragraph  6)  stated  that  “there  is  scope  for  general 
common  principles  and  elements  regarding  internal  controls”  which  could  help  “to 
optimise the effectiveness, economy and efficiency of current control systems”. 

The  outcome  of  the  gap  assessment  carried  out  by  the  Commission  services 
identified the need for an over-arching legal framework based on common principles. 
This  will  provide  a  means  to  guarantee  that  all  stakeholders  are  bound  by  a 
fundamental set of control principles and also provide the Court of Auditors with a 
clearer basis for auditing management processes and procedures. In order to illustrate 
the scope and orientations for a budgetary principle on internal control, a first draft 
can be found in Annex 2. 

The  Council  and  the  European  Parliament  should  use  the  opportunity  of  the 
consultation on the revised Financial Regulation to give their opinion on the need to 
insert  a  budgetary  principle  on  effective  and  efficient  internal  control  providing  a 
common standard. 

Action  3:  Establish  and  harmonise  the  presentation  of  control  strategies  and  evidence 

providing reasonable assurance 

As  set  out  in  the  Roadmap,  the  ultimate  goal  of  the  integrated  internal  control 
framework is to ensure and provide evidence that supervisory systems and controls 
are in place which keep the risk of irregularity within reasonable limits. 

The gap assessment showed a frequent lack of adequate definition and demonstration 
of  all  elements  of  the  control  strategy  being  employed  in  a  given  service  or 
programme. 

ECOFIN emphasised (paragraph 3) that “the controls and assurance required should 
be  improved  by  building  on  existing  control  structures”,  which  is  in  line  with  the 
Commission's  assessment  that  a  considerable  amount  of  assurance  is  already 
obtained,  and  that  by  more  effectively  structuring  its  presentation,  the  bases  for 
assurance  can  be  better  communicated  to  the  Court  of  Auditors  and  the  Discharge 
Authority. 

its  political  accountability 

The European Parliament asked for an individual to sign the annual synthesis report. 
The Commission considers that, through the adoption of the synthesis report, it fully 
assumes  its  political  responsibility  for  the  implementation  of  the  budget  and 
expresses 
the 
to 
Commission’s firm opinion that it would not be appropriate to replace this collective 
responsibility with the signature of one individual. The Commission will, however, 
strive  to  express  the  Commission’s  political  accountability  more  clearly  in  the 
synthesis  report.  The  Commission  will  enhance  the  presentation  of  the  control 
strategies  in  place  in  each  policy  area,  and  improve  the  summaries  of  their 
implementation in the activity reports. Providing better guidelines on the content of 
the  Commission  services'  Annual  Activity  Reports  (AARs)  should  reinforce  the 
AARs’ ability to provide a solid basis for the ECA’s DAS, by presenting clearly the 

the  discharge  authority.  It 

is 

EN 

4 

   EN 

 
basis  for  the  Director-General's  own  assurance  regarding  the  effective  management 
of the risk of error in the legality and regularity of the underlying transactions. 

The Court of Auditors should be able to develop its DAS methodology so as to rely 
effectively on the Annual Activity Reports of the Commission services and the related 
synthesis report by the Commission, focussing on the management of the risk of error 
in the legality and regularity of the underlying transactions. 

Action  4:  Initiate  inter-institutional  dialogue  on  risks  to  be  tolerated  in  the  underlying 

transactions 

The  ‘Single  Audit’  opinion  introduced  the  concept  of  a  ‘tolerable  risk  of  error’, 
which  the  Roadmap  communication  further  developed  into  the  definition  of 
reasonable  assurance  in  terms  of  the  management  of  the  risk  of  error  in  the 
underlying  transactions.  The  European  Parliament  gave  its  political  analysis  of  the 
issue in its resolution on the 2003 discharge, in which it also called on the Council to 
work with the Parliament and Commission to give the creation of a comprehensive 
control and audit framework the priority and political momentum it requires. 

In  line  with  the  above,  in  paragraph  17  of  the  ECOFIN  conclusions,  the  Council 
concluded  that  it  should  reach  an  understanding  with  the  European  Parliament 
regarding  the  risks  to  be  tolerated  in  the  underlying  transactions,  taking  also  into 
account  the  multi-annual  character  of  EU-funding.  The  Commission  also  considers 
that  such  an  agreement  could  help  the  Court  of  Auditors,  when  finalising  their 
Statement  of  Assurance,  because  it  clarifies  the  expectations  of  the  Discharge 
Authority and allows for matching the costs of controls with the expected benefits. 

The  Commission  will  initiate  an  inter-institutional  dialogue  in  March  2006  on  the 
basic principles to be considered regarding the risks to be tolerated in the underlying 
transactions. On this basis, the Council and the European Parliament should reach 
an initial agreement regarding these risks by end 2006.  

2.2.  Management declarations and audit assurance 

Declarations  by  management  reinforce  its  accountability,  and  provide  an  incentive 
for  managers  of  Community  funds  to  assess  and  improve  their  underlying  control 
systems.  Together  with  assurance  from  independent  auditors,  they  form  part  of  the 
structure which provides assurance to the Commission and ultimately to the Court of 
Auditors. 

Action  5:  Promote  operational  level  management  declarations  and  synthesis  reports  at 

national level 

In its communication on the Roadmap, the Commission took up the proposal of the 
European  Parliament  in  its  2003  discharge  that  the  Member  States  should  provide 
annual  ex-ante  Disclosure  Statements  and  ex-post  Declarations  of  Assurance  at  the 
highest political level. 

The gap assessment undertaken by the Commission's services identified a number of 
areas  where  management  declarations  could  improve  oversight  and  scrutiny, 
particularly in shared, joint and indirect centralised management. 

EN 

5 

   EN 

 
The  issue  of  Member  State  declarations  met  with  some  opposition  in  ECOFIN, 
which  concluded  that  “existing  operational-level  declarations  can  provide  an 
important means of assurance” (paragraph 12), but did not accept the usefulness of 
national-level declarations. 

Given  the  above  conclusion,  the  Commission  will  seek  to  ensure  that  existing 
declarations,  and  those  provided  for  in  forthcoming  legislation,  provide  the 
maximum  impact  in  terms  of  improving  assurance  on  the  effectiveness  of  the 
relevant  control  structures  for  shared  and  indirect  centralised  management. 
Moreover,  due  to  the  large  number  of  intermediary  bodies,  there  are  considerable 
benefits to be gained from having one contact point, such as the Coordinating Bodies 
in the agricultural sector, which can promote the harmonised application of controls 
through  training  and  guidance,  and  present  a  synthesis  at  national  level  of  the 
assurances given by each operational management, and of the measures being taken 
to address any deficiency.  

Member States should designate a national coordinating body per policy area which 
can for example provide all stakeholders with an overview of the assurance available 
in  respect  of  Community  actions  under  shared  and  indirect  management  in  their 
Member State. The cooperation of Member States is necessary when ensuring such a 
provision 
implementation  via 
implementing  rules  and  guidance,  adapted  to  the  arrangements  for  providing 
assurance on Community funds for the policy area. 

legislation,  and  steering 

forthcoming 

its 

in 

Action  6:  Examine  the  utility  of  management  declarations  outside  shared  and  indirect 

centralised management mode 

In the areas of external policies and, to a lesser extent, internal policies, management 
declarations  could  play  a  valuable  role  in  encouraging  greater  attention  to  the 
importance of effective internal control, as already outlined for shared management.  

The  Commission  will  explore  the  introduction  of  management  declarations,  where 
appropriate, in joint and decentralised management modes. 

Council and the European Parliament should carefully examine the appropriateness 
of  internal  control  structures  and  procedures  proposed  in  the  new  legislative 
proposals. 

Action 7: Promote best practices for increasing the cost-benefit of audits at project level 

The  Roadmap  outlines,  in  a  number  of  cases,  how  independent  auditors  can  add 
assurance  on  the  underlying  transactions.  Both  the  gap  assessment  and  the  Single 
Audit opinion identified the risk of partiality where an auditor has been selected by 
the beneficiary or intermediary body, or where his opinion is not directly useable by 
the Commission because of its restricted scope or content. 

The expert panel discussed the possibility of using ‘agreed upon procedures’ which 
would  explicitly  require  a 
transparent  check  on  key  eligibility  criteria,  a 
comparatively higher level of assurance for a given cost. 

EN 

6 

   EN 

 
The  Commission  will,  based  on  its  services’  extensive  experience  with  audit 
certificates,  develop  proposals  for  optimising  the  level  of  assurance  available  from 
third-party audit bodies at project level. 

Member States should actively participate in enhancing the usability of independent 
audit  results  in  the  chain  of  control  and  integrate  this  aspect  in  its  guidance  for 
controlling EU funds. 

Action 8: Facilitate additional assurance from SAIs 

The Roadmap proposes a role for Supreme Audit Institutions to “exercise oversight 
over  the  national  control  frameworks  for  EC  funds”,  as  well  as  providing  an 
independent opinion on potential management declarations. 

The  gap  assessment  identified  a  number  of  areas  in  shared  management  where  the 
SAIs  could  add  assurance  by  providing  an  opinion  as  to  the  management  of  EU 
funds,  or  within  the  framework  of  their  audits  of  national  funds  which  provide  co-
financing for Community projects. 

The  Council  (paragraph  14)  recognised  that  some  Supreme  Audit  Institutions  are 
willing  to  discuss  further  how  they  might  strengthen  their  contribution  to  an 
integrated  control  framework  governing  EU  funds  without  jeopardising  their 
independence. The Contact Committee of the Heads of Supreme Audit institutions of 
the European Union continues to contribute towards improving the framework in this 
context and plans follow up of this work in 20065. 

In  collaboration  with  the  European  Court  of  Auditors,  the  Commission  will 
strengthen  its  dialogue  with  SAIs,  and  analyse  how  existing  assurance  could  be 
complemented and reinforced on the basis of existing SAI reports. 

Member  States  should  invite  their  national  and  regional  Parliaments  to  ask  their 
SAIs for audit and assurance on EU funding at their level. The conclusions of these 
reports should also be made available to the Commission and the European Court of 
Auditors. 

2.3. 

Single audit approach: sharing results and prioritising cost-benefit 

To  minimise  the  duplication  of  control  work,  and  maximise  the  level  of  control 
which  can  be  achieved  with  a  given  level  of  resources,  sharing  well-defined  and 
documented control information can permit reliance on controls at each level in the 
chain.  A  formalised  assessment  of  costs  and  benefits  at  each  level  will  enable  the 
demonstration that the controls in place have optimised the residual risk of error in 
the underlying transactions. 

Action  9:  Construct  effective  tools  for  sharing  audit  and  control  results  &  promote  the 

single audit approach 

In the ‘single audit concept’, sharing audit data is key to improving the targeting of 
audit  and  control  efforts.  The  Roadmap  provides  for  “the  coordination  of  working 

5 

As adopted at its meeting in Stockholm on 5-6 December 2005. 

EN 

7 

   EN 

 
                                                 
programmes, and access by each control body to the results of the work of others”. 
The  gap  assessment  noted  the  desirability  of  sharing  audit  data  across  all 
management  modes,  both  among  Commission  services  and,  via  the  control  chain, 
between  the  Commission  and  Member  States  or  Third  Countries.  ECOFIN 
(paragraph  6)  requests  clarification  on  “single  Audit  in  the  context  of  internal 
control”. 

The Commission will build on its existing accounting system and its infrastructure of 
audit tracking tools to enhance the sharing and coordination of the audit efforts of the 
different stakeholders. 

Member  States  are  called  on  to  continue  to  cooperate  actively  with  the  relevant 
Commission  services  in  deciding  on  audit  strategies,  audit  guidance,  planning  of 
audits and sharing of the results and their follow-up. 

Action 10: Make an initial estimate and analysis of the costs of controls 

The Court’s Single Audit Opinion and the Roadmap highlighted the need to reach an 
appropriate balance between the costs and benefits of controls. 

The  gap  assessment  showed  that  for  the  majority  of  Commission  services,  the 
concept of cost estimation required considerable development. 

The Council (paragraph 5) requested the Commission to assess the cost of controls 
by area of expenditure. 

As an initial step towards a more detailed analysis of control costs, the Commission 
will estimate the initial cost per key policy area, based on a consistent methodology, 
and aim to present the results in early 2007. 

Member  States  are  asked  to  deliver  data  on  costs  for  the  control  of  expenditure 
under  shared  and  centralised  indirect  management  in  good  time  and  in  a 
comparable format to be defined by the Commission. 

Action 11: Initiate pilot projects on evaluating benefits 

In  addition  to  the  considerations  on  cost-benefit  in  the  Roadmap  and  the  Council 
conclusions,  the  gap  assessment  also  noted  the  difficulties  in  identifying  and 
quantifying the benefits gained from different aspects of internal control, inter alia, 
reputational  issues,  the  deterrent/dissuasive  effect,  and  the  advantages  of  spreading 
best practice among the various beneficiary communities. 

Bearing  these  difficulties  in  mind,  the  Commission  will  launch  a  pilot  study  on 
internal  policies,  including  research,  to  quantify  the  benefits  attached  to  a  given 
control  strategy,  with  a  view  to  incorporating  the  cost/benefit  approach  in  the 
management of the risk of error in the underlying transactions. 

Council and the European Parliament are asked to integrate the results of these pilot 
studies  in  their  reflections  regarding  the  risks  to  be  tolerated  in  the  underlying 
transactions. 

EN 

8 

   EN 

 
2.4. 

Sector-specific gaps 

Due  to  the  highly  heterogeneous  nature  of  individual  EU  policies,  the  integrated 
framework  must  be  capable  of  flexible  application  if  it  is  to  be  implemented 
optimally.  Following  the  detailed  analysis  performed  in  the  gap  assessment, 
Commission services are now in a position to put in place the appropriate controls, 
coupled  with  a  proportionate  level  of  reporting  in  order  to  ensure  that  their 
effectiveness can be readily demonstrated. 

Action 12: Address the gaps identified by participating services6 

In  the  Roadmap,  the  Commission  instructed  its  services7  to  identify  the  gaps  and 
propose plans of action to complete the control framework on which the Court can 
base  the  assurance  it  seeks.  The  gap  assessment  report8  was  further  discussed  with 
the panel of experts drawn from the Member States’ administrations. 

The  gap  assessment  by  each  service  provides  a  detailed  comparison  of  the  control 
principles identified by the Court of Auditors in its Single Audit Opinion and those 
controls  currently  in  place,  or  envisaged  in  the  2007-13  legislation.  These  gap 
assessments  have  now  been  updated  following  informal  bilateral  contacts  with  the 
staff of the Court of Auditors. 

Each  Commission  service  will  take  steps,  within  the  framework  of  the  normal 
Strategic  Planning  and  Programming  cycle,  to  close  these  gaps  via  the  Annual 
Management Plans, and report on progress in the Annual Activity Reports. 

Member  States  are  called  upon  to  cooperate  with  the  Commission  services  in  the 
implementation of actions, and where the actions involve changes to legislation the 
Council  and  the  European  Parliament  should  be  open  to  considering  such 
amendments. 

Action 13: Analyse the controls under shared management (in particular Structural Funds) 

at regional level and the value of existing statements 

As  requested  by  the  ECOFIN  Council,  by  the  end  of  2006  the  Commission  will 
examine the present implementation of controls on the Structural Funds at sector and 
regional level, covering sample checks, paying authorities and winding-up bodies, as 
well as the value of existing statements and declarations, based on annual reporting 
to be delivered by 30 June 2006 by the Member States' authorities under Article 13 
of Regulation (EC) No 438/2001, and on audits performed by Commission services. 

Member  States  should  ensure  that  the  relevant  information  to  be  provided  by  the 
authorities under Article 13 for Structural Funds is delivered in accordance with the 
proposed  timetable.  The  issue  of  how  Member  States  can  provide  assurance  to  the 

6 

7 

8 

DGs participating in the gap assessment were those with activity above a certain threshold in EUR and 
meeting other necessary criteria. 
Only the services with the major level of expenditure in the different management modes were asked to 
provide such a gap assessment. 
SEC(2005) 1152. 

EN 

9 

   EN 

 
                                                 
Commission in the most efficient and effective manner will also be discussed during 
the bilateral annual meetings with the Member States’ auditors.  

Action 14: Provide greater guidance for Structural Funds on managing the risk of error 

The Roadmap identified a number of areas for improvement in the area of Structural 
Funds9  which  would  contribute  to  managing  the  risk  of  error  in  the  underlying 
transactions for both the current and future periods. 

The  Council  (paragraph  6  of  the  ECOFIN  conclusions)  requested  clarification  with 
regard  to  a  number  of  issues,  most  of  which  have  been  addressed  in  the  gap 
assessment. The services responsible will strengthen the existing guidance, to enable 
beneficiaries and intermediaries to adopt a targeted approach to reducing error in the 
underlying  transactions  through  more  systematic  control  work  and  intensified 
information activities directed at beneficiaries. Special attention will also be given to 
the  role  and  responsibilities  of  paying  authorities  in  providing  assurance  regarding 
the Structural Funds. 

Support  is  requested  from  Member  States  in  developing  and  implementing  the 
guidance  for  Structural  Funds  where  it  is  most  needed,  and  in  its  distribution  and 
dissemination. 

Action 15: Promote the ‘Contracts of Confidence’ initiative for Structural Funds 

The Roadmap identifies the ‘Contracts of Confidence’ as an initiative that can assist 
in rendering controls effective throughout the programming period.  

The  gap  assessment  notes  that  the  ‘Contracts  of  Confidence’  initiative  offers  audit 
assurance  on  an  annual  basis  which  is  comparable  to  that  proposed  for  the  new 
period, and is thus of particular interest as a mechanism to improve assurance for the 
current programming period, as well as representing a proactive measure to prepare 
for the next programming period. 

The ECOFIN  conclusions  (para. 11) have now added further impetus to this action 
and  the  political  level  commitment  of  five  Member  States  (Denmark,  the 
Netherlands,  Austria,  Portugal  and  the  United  Kingdom)  to  sign  such  contracts  has 
recently been obtained. 

Member States should implement for Structural Funds the ‘Contracts of Confidence’ 
to provide assurance for the current period, and also to lay the groundwork for the 
next  programming  period.  Those  that  do  not  should  reflect  on  how  to  provide 

9 

The primary controls (checks on the reality of the service rendered and on the expenditure claimed) are 
either exhaustive, or else sufficient with regard to the costs and benefits of the checks. 
There is an appropriate risk analysis. 
The error rate for each programme is assessed and reported. 
There is adequate information to beneficiaries. 
Proportionate but dissuasive sanctions are applied for serious irregularities. 
Primary controls are adequately supervised by the implementing body and by the Managing Authority; 
Corrective action is taken whenever necessary; 
The Paying authority has the means and resources to obtain the assurance it needs to certify the amounts 
claimed from the Commission. 

EN 

10 

   EN 

 
                                                 
 
 
 
 
 
 
 
comparable assurance on the present period and how they will prepare their control 
systems for the next programming period. 

Action 16: Establish common guidelines per policy family 

The Roadmap requires action on “improving cooperation arrangements in line with 
the 'single audit' approach, and completing the existing body of guidance on common 
principles and standards regarding auditing methods, key controls and strategies for 
on-the-spot checks”. 

As  noted  in  the  gap  assessment,  considerable  progress  has  already  been  made  in 
many  policy  families  via  bilateral  discussions  in  the  area  of  error  rates,  recoveries, 
audit  approaches  (risk  and  representative  sampling)  and  on-the-spot  checks.  These 
initiatives will be further reinforced in the course of 2006. 

To enable consistent approaches to be adopted for each policy family in line with the 
internal  control  framework,  the  Commission  will  formalise  guidelines  per  policy 
family in 2006 and 2007. 

As this is mainly an internal Commission measure, the Council, Parliament and the 
Court of Auditors should benefit from the progress made in this domain in the form 
of  clearer  and  more  coherent  reporting  in  the  Annual  Activity  Reports  of  the 
services. 

3. 

CONCLUSIONS 

It is for the Commission and the Member States together to ensure that the Court is 
in a position to find audit evidence of progress towards adequate management of the 
risk of error (taking into account an accepted tolerance level).  

Each service will address the gaps identified in its gap assessment. On the basis that 
positive  opinions  have  been  received  on  administrative  expenditure,  pre-accession 
aid, the European Development Fund and that part of agricultural expenditure subject 
to IACS, the first horizontal issues to be addressed will concern internal policies and 
Structural Funds.  

However,  for  about  80% of the budget, the Commission shares the implementation 
with  the  Member  States,  and  it  expects  the  Member  States  to  have  an  adequate 
control framework in place which is correctly applied. They should ensure that their 
management  of  money  on  the  Commission’s  behalf  reduces  the  risk  of  irregular 
expenditure to an acceptable level, and that they can demonstrate this to national and 
Community auditors. 

Therefore, the Commission insists on the help of Member States, the Council and the 
European  Parliament,  as  specified  above  and  outlined  in  Annex  1,  to  ensure  a 
successful outcome in the interest of the European Union and its citizens. 

EN 

11 

   EN 

 
ANNEX 1 
Summary of action plan and requested support from other Institutions 

Simplification and common control principles 

1  Simplification  review  of  proposed 

2007-13 legislation 

The Commission will keep under consideration the simplification of the regulatory 
framework  during  the  negotiations  on  all  the  2007-2013  legislation.  Council  and 
the European Parliament are considered to support such initiatives. 

June 2006 

2 

Integrate  common  internal  control 
principles  in  the  proposal  for  the 
revised Financial Regulation 

The  Council  and  the  European  Parliament  should  use  the  opportunity  of  the 
consultation on the revised Financial Regulation to give their opinion on the need 
to insert a budgetary principle on effective and efficient internal control providing 
a common standard. 

February 2006 

3  Establish  and  harmonise  better  the 
presentation  of  control  strategies 
and  evidence  providing  reasonable 
assurance 

The Court of Auditors should be able to develop its DAS-methodology so as to rely 
effectively  on  the  Annual  Activity  Reports  of  the  Commission  services  and  the 
related synthesis report at Commission level, focussing on the management of the 
risk of error in the legality and regularity of the underlying transactions.  

End 2006 

4 

Initiate  inter-institutional  dialogue 
on  risks  to  be  tolerated  in  the 
underlying transactions 

The Commission will initiate an inter-institutional dialogue in March 2006 on the 
basic  principles  to  be  considered  regarding  the  risks  to  be  tolerated  in  the 
underlying  transactions.  On  this  basis,  the  Council  and  the  European  Parliament 
should reach an initial agreement regarding these risks by end 2006.  

December 2006 

Management declarations and audit assurance 

5  Promote 

operational 

management 
synthesis reports at national level 

declarations 

level 
and 

Member  States  should  designate  a  national  coordinating  body  per  policy  area 
which can for example provide all stakeholders with an overview of the assurance 
available in respect of Community actions under shared and indirect management 
in  their  Member  State.  The  cooperation  of  Member  States  is  necessary  when 
its 
ensuring  such  a  provision 

legislation,  and  steering 

forthcoming 

in 

End 2006 

EN 

12 
EN 

 
 
 
 
 
 
implementation via implementing rules and guidance, adapted to the arrangements 
for providing assurance on Community funds for the policy area. 

6  Examine  the  utility  of  management 
declarations  outside  shared  and 
indirect centralised management  

the  European  Parliament 

Council  and 
the 
appropriateness of internal control structures and procedures proposed in the new 
legislative proposals. 

should  carefully  examine 

Permanent action 

7  Promote 

best 

for 
increasing  cost-benefit  of  audits  at 
project level 

practices 

Member States should actively participate in enhancing the usability of independent 
audit  results  in  the  chain  of  control  and  integrate  this  aspect  in  its  guidance  for 
controlling EU-funds.  

2006 
and later on 
permanent concern 

8  Facilitate additional assurance from 

SAIs 

Member  States  should  invite  their  national  and  regional  Parliaments  to  ask  their 
SAIs for audit and assurance on EU-funding at their level. The conclusions of these 
reports should also be made available to the Commission and the European Court 
of Auditors. 

End 2006 

Single audit approach: sharing of results and prioritising cost-benefit 

9  Construct  effective  tools  for  the 
sharing  of  audit  and  control  results 
audit 
the 
&  promote 
approach 

single 

10  Conduct  an  initial  estimation  and 
analysis in the costs of controls 

Member  States  are  called  on  to  continue  to  cooperate  actively  with  the  relevant 
Commission services in fixing audit strategies, audit guidance, planning of audits 
and sharing of the results and their follow-up.  

2006 
and later on 
permanent concern 

Member  States  are  asked  to  deliver  data  on  costs  for  the  control  of  expenditure 
under  shared  and  centralised  indirect  management  in  good  time  and  in  a 
comparable format to be defined by the Commission. 

By February 2007 

11 

Initiate  pilot  projects  on  evaluating 
benefits 

Council  and  the  European  Parliament  are  asked  to  integrate  the  results  of  these 
pilot studies in their reflections regarding the risks to be tolerated in the underlying 
transactions. 

From mid 2007 
onwards 

EN 

13 
EN 

 
 
 
 
Sector-specific gaps 

12  Address 

the  gaps 
participating services 

identified  by 

Member States are called upon to cooperate with the Commission services in the 
implementation of actions, and where the actions involve changes to legislation the 
Council  and  the  European  Parliament  should  be  open  to  considering  such 
amendments. 

Permanent action 

13  Analyse  the  controls  under  Shared 
Management 
particular 
Structural  Funds)  at  regional  level 
and the value of existing statements 

(in 

Member  States  should  ensure  that  the  relevant  information  to  be  provided  by  the 
Authorities under Article 13 for Structural Funds, is delivered in accordance with 
the proposed time table. The issue of how Member States can provide assurance to 
the Commission in the most efficient and effective manner, will also be discussed 
during the bilateral annual meetings with the Member States’ auditors.  

June 2006 

End 2006 

14  Provide 

greater 

for 
structural  funds  on  managing  the 
risk of error 

guidance 

15  Promote 

the 

of 
Confidence’ initiative for Structural 
Funds 

‘Contracts 

Support  is  requested  from  Member  States  in  developing  and  implementing  the 
guidance for Structural Funds where it is most needed, and in its distribution and 
dissemination. 

End 2006 
Dissemination: 2007 

Member  States  should  implement  for  Structural  Funds  the  ‘Contracts  of 
Confidence’  to  provide  assurance  for  the  current  period,  and  also  to  lay  the 
groundwork for the next programming period. Those that do not should reflect on 
how  to  provide  comparable  assurance  on  the  present  period  and  how  they  will 
prepare their control systems for the next programming period. 

September 2006 

16  Establish  common  guidelines  per 

policy family  

As this is mainly an internal Commission measure, Council, European Parliament 
and  Court  of  Auditors  should  benefit  from  the  progress  made  in  this  domain 
through clearer and more coherent reporting in the Annual Activity Reports of the 
services. 

From 2006 onwards 

EN 

14 
EN 

 
 
 
 
 
 
 
(1) 

(2) 

(3) 

(4) 

ANNEX 2 
Draft outline of Principle of effective and efficient Internal Control 

The  implementation  of  the  budget  shall  be  ensured  through  effective  and  efficient 
internal control in accordance with each management mode. 

For the purpose of the implementation of the  budget, internal control is  defined  as a 
process  applicable  at  all  levels  in  the  chain  of  control  and  designed  to  provide 
reasonable assurance on the achievement of the following objectives: 

(a) 

effectiveness and efficiency of operations, 

(b) 

reliability of financial reporting, 

(c) 

(d) 

safeguarding  of  assets  and  information  and  prevention  and  detection  of  fraud 
and irregularities, 

adequate management of  the risks related to the legality and regularity of the 
underlying transactions. 

Effective  internal  control  is  based  on  best  international  practices  and  includes 
particularly  the  following  key  components:  segregation  of  tasks;  adequacy  of 
knowledge and skills needed to perform assigned tasks; appropriate risk management 
and  control  strategy;  promotion  of  ethical  behaviour,  avoiding  conflicts  of  interest; 
communication  of  pertinent  information  and  guidance;  adequate  audit  trails;  data 
integrity  in  data  systems;  monitoring  of  performances;  procedures  for  identified 
internal control weaknesses and exceptions. Such components are subject to periodic 
assessments. 

Efficient internal control relies for all activities on the following principles: adequacy 
of  controls  at  beneficiary  level;  agreed  risk  strategies  striving  to  relate  the  cost  of 
control to the level of risk to be managed; control results accessible to all appropriate 
actors  in  the  chain  of  control;  clear  and  unambiguous  legislation  and  guidance; 
enforcement of dissuasive penalties at the earliest possible stage in the control chain as 
well as provision of annual management assurance at the appropriate level in order to 
provide  a  reasonable  assurance  on  the  legality  and  regularity  of  underlying 
transactions. 

EN 

15 

   EN