Report from the Commission to the European Parliament on the follow-up to 2005 Discharge Decisions (Summary) - European Parliament Resolutions [SEC(2007) 1185]
Date: 2007-09-19
Institutions: European Commission
Subjects: EU office or agency, budgetary discharge, common agricultural policy, common fund, expenditure, general budget (EU), international affairs, management audit, revenue

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.9.2007 
COM(2007) 538 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 

on the follow-up to 2005 Discharge Decisions (Summary) - European Parliament 
Resolutions 

[SEC(2007) 1185] 

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TABLE OF CONTENTS 

PREAMBLE............................................................................................................................... 3 

I - COMMISSION RESPONSES TO THE RECOMMENDATIONS MADE BY  

THE EP IN THE GENERAL BUDGET DISCHARGE RESOLUTION ................... 4 

a) Horizontal issues .................................................................................................................... 4 

b) Sectoral issues........................................................................................................................ 6 

c) Special Reports issued by the Court of Auditors ................................................................... 9 

II - EP DISCHARGE ON EDF .................................................................................................. 9 

III – Recommendations in the resolutions concerning individual agencies............................. 10 

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PREAMBLE 

Due  to  translation  constraints,  the  Commission's  report  on  the  follow-up  to  European 
Parliament  (EP)  Discharges  given  for  the  2005  financial  year1  is  being  published  in  all  EU 
official languages in this summarised form. The Commission’s full answers to each specific 
Parliament  recommendation  available  in  a  Commission  working  document2  which  is 
published  in  English,  French  and  German.  Both  these  follow-up  reports  relate  to  the 
resolutions adopted by the European Parliament on 24 April 2007. 

this  summary  report 

Each  chapter3  of 
the  relevant 
recommendation numbers in the full Commission working document mentioned above. These 
references will help readers to find in the working document all recommendations (and action 
planned  or  already  taken  by  the  Commission)  which  relate  to  a  given  chapter  or  are  of 
particular interest to them.  

includes  cross-references 

to 

Both reports have been drafted pursuant to Article 276(3) of the EC Treaty and Article 180b 
of  the  Euratom  Treaty,  and  to  Article  119(5)  of  the  EDF  Financial  Regulation  and  similar 
provisions in the former ad hoc EDF Financial Regulation which state that the “Commission 
shall take all appropriate steps to act on the observations in the decisions giving discharge and 
on other observations by the European Parliament relating to the execution of expenditure, as 
well  as  on  comments  accompanying  the  recommendations  on  discharge  adopted  by  the 
Council.  At  the  request  of  the  European  Parliament  or  the  Council,  the  Commission  shall 
report on the measures taken in the light of these observations and comments and in particular 
on the instructions given to the departments which are responsible for the implementation of 
the budget. These reports shall also be forwarded to the Court of Auditors"4. 

In the discharge decisions for the general budget, the EDF and the Agencies, the Commission 
has  identified  a  total  of  163  recommendations  made  by  the  European  Parliament  to  the 
Commission. The Commission considers that for 52 recommendations the required action has 
already been taken, though in some cases results of the actions will need to be examined. For 
another  99  recommendations  the  Commission  agrees  to  take  the  action  recommended  by 
Parliament.  Finally,  the  Commission  cannot  accept  12  recommendations  and  will  therefore 
not be taking the requested action5. 

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2005 General Budget Discharge, 2005 EDF Discharge, 2005 Agencies Discharge. 
Commission  Staff  Working  Paper,  Annex  to  the  Report  from  the  Commission  to  the  European 
Parliament on the follow-up to the 2005 Discharge Decisions. 
Both  the  present  summarised  report  and  the  integral  working  document  follow  the  structure  of  the 
resolutions containing the recommendations of the European Parliament. 
See also Article 147 of the Financial Regulation for the general budget. 
See recommendations 2, 8, 29, 33, 36, 68, 86, 107, 134, 153, 162 & 163. 

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I - COMMISSION RESPONSES TO THE RECOMMENDATIONS MADE BY THE EP 

IN THE GENERAL BUDGET DISCHARGE RESOLUTION 

The  following  is  a  summary  of  the  Commission's  replies  to  the  specific  requests  made  by 
Parliament in its 2005 Discharge Resolutions. 

A) HORIZONTAL ISSUES 

Statement of assurance (Commission working document, points 1-7) 

As  regards  the  accounts,  the  Commission  has  corrected,  where  possible,  for  the  errors  that 
were  highlighted  by  the  Court  during  its  2005  audit.  The  Commission  has  also  considered 
these errors and their causes while planning and performing its closure of the 2006 accounts, 
so  as  to  try  to  avoid  their  recurrence.  Regarding  the  pre-financing  reports,  the  Accounting 
Officer of the Commission  will furnish  the  budgetary authority with six-monthly reports on 
the pre-financing operations. 

In shared management the Commission has asked Member States to ensure that beneficiaries 
of Structural Funds are made aware of controls and the risk of cancellation of funding. Further 
guidance  on  information  that  Member  States  will  have  to  send  to  the  Commission  on 
recoveries  and  withdrawals  of  funding  following  irregularities  has  been  issued  and  an 
amendment  has  been  made  to  the  regulatory  reporting  provisions.  Closure  guidelines  for 
2000-06 programmes were issued by the Commission in August 2006. Guidance illustrating 
good  practices  in  first-level  management  checks  and  checks  by  paying  authorities  has  also 
been issued.  

Where the Commission finds deficiencies in national control systems for both agricultural and 
structural  actions  expenditure,  it  sets  deadlines  for  the  required  improvements  and  failing 
prompt  action  can  suspend  payments  or  apply  financial  corrections.  These  measures 
encourage  the  Member  States  to  ameliorate  their  controls.  Moreover,  the  Commission  has 
presented a proposal to the Council to amend Council Regulation (EC) No 1290/2005 on the 
financing  of  the  Common  Agricultural  Policy  (CAP),  including  a  provision  for  a  new 
transparent  and  effective  mechanism  which  will  allow  it  to  further  simplify  the  existing 
possibility to reduce or suspend payments to a Member State in case of serious and persistent 
deficiencies in the national control systems.  

National management declarations (Commission working document, point 8)  

Given  the  different  governmental  structure  and  management  structures  for  EU  funds  under 
shared management of the 27 Member States, the Commission considers that the development 
of  a  single  standard  declaration  would  not  yield  significant  benefits.  The  Commission  will, 
however, continue to support such initiatives taken by national administrations in line with the 
revised Financial Regulation (Art 53, (3)), which provides that "Member States shall produce 
an annual summary at the appropriate national level of the available audits and declarations" 
for shared management. Model declarations are also included in relevant sectoral legislation. 

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Point 44 of the IIA (Commission working document, point 9)  

The  Annual  Activity  Reports  of  Directorates-General  contain  an  assessment  of  the 
functioning  of  management  and  control  systems.  In  the  reports  of  Directorates-General 
implementing  funds  in  shared  management,  this  assessment  also  covers  the  Member  State 
level. 

Suspension of payments and financial corrections (Commission working document, points 
10-21) 

In line with the legislation, the Commission will continue its practice of suspending payments 
and  imposing  financial  corrections  when  serious  system  deficiencies  errors  are  detected  in 
Member States in programmes under shared management. Under the rules for the Structural 
Funds for the 2007-2013 period a Director-General may interrupt payments to a programme 
for up to six months. The Commission has also presented a proposal to the Council to amend 
Council Regulation (EC) No 1290/2005 on the financing of the Common Agricultural Policy 
(CAP), including a provision for a new transparent and effective mechanism which will allow 
it to further simplify the existing possibility to reduce or suspend payments to a Member State 
in case of serious and persistent deficiencies in the national control systems. The 2006 annual 
accounts  of  the  EC  already  include  information  about  the  financial  corrections  made  by  the 
Commission.  For  2007,  it  is  foreseen  to  add  further  information  concerning  the  financial 
corrections made by the Member States. 

The Commission's internal control system (Commission working document, points 22-26) 

The  Commission  provided  a  mid-term  scoreboard  in  July  2007,  and  a  final  report  on  the 
implementation of the Action Plan towards and Integrated Internal Control Framework is due 
in early 2008. The final report will take a first look at the impact of the different actions on 
assurance  and  will  draw  conclusions  for  the  future  consolidation  of  the  Integrated  Internal 
Control  Framework.  As  the  time  limit  for  certain  actions  is  end-December  2007,  the 
Commission will require a limited time to assess and bring together the results of the different 
actions and it will therefore not be possible to deliver the final report before early 2008. 

Political  responsibility  and  administrative  responsibility  at  the  Commission  (Commission 
working document, points 27-40)  

As  regards  the  annual  activity  reports,  the  Commission  will  continue  to  work  towards 
harmonising  the  presentation  of  management  and  internal  control  systems  and  better 
explaining  the  consequences  of  the  reservations  expressed  by  the  Directors-General.  It  will 
also continue developing indicators by on legality, regularity and sound financial management 
"families"  of  services.  The  presentation  of  Director-Generals'  assurance  at  the  level  of  the 
individual Member States is already Commission practice in cases were reservations refer to 
control weaknesses in particular Member States. 

By  adopting  the  synthesis  report,  the  Commission  assumes  its  political  responsibility  for 
management by its Directors-General and Heads of service, on the basis of the assurances and 
reservations  issued  by them  in  their  annual  activity  report.  A  synthesis  report  signed  by  the 
Secretary General  of  the Commission, as recommended by the  European Parliament, would 
not increase the accountability of the Commission as it would create confusion and possible 

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overlapping in the different tasks and responsibilities. The Commission's 2000 reform centred 
on ensuring Authorising Officers by Delegation were solely responsible for the execution of 
their activities. The division of management responsibilities between Authorising Officers by 
Delegation  and  the  collegiate  structure  cannot  be  reconciled  with  the  possibility  of  one 
Director-General judging the reliability of another's work. 

The  Commission  will  continue  the  implementation  of  its  Transparency  Initiative.  It  has 
already  launched  a  number  of  initiatives,  such  as  the  publication  of  information  on 
beneficiaries of EU grants. 

B) SECTORAL ISSUES 

Revenue (Commission working document, points 41-42) 

The  reservations  on  items  in  Member  States'  annual  VAT  statements  are  placed  by  the 
Commission in its control reports. The Commission continues to examine with the Member 
States, both individually and in the Advisory Committee on Own Resources, how they may be 
helped  to  provide  more  rapidly  the  information  that  the  Commission  needs  in  order  to  lift 
reservations. 

As regards  the  GNI own resource, the Commission  will  perform  more  direct  verification  of 
selected  national  aggregates  during  the  2007-2009  round  of  GNI  verification  missions. 
Concerning Financial Intermediation Services Indirectly Measured (FISIM), the Commission 
will present a proposal for including allocated FISIM in GNI for own-resource purposes when 
it  considers  that  all  Member  States  are  able  to  implement  this  adjustment  in  a  uniform 
manner. This is expected to be the case in 2008. 

Common Agricultural Policy (Commission working document, points 43-45) 

Like the European Parliament, the Commission welcomes the Court's acknowledgement that, 
suitably  applied,  the  Integrated  Administrative  Control  System  (IACS)  constitutes  an 
effective monitoring system  for reducing the risk of error or of irregular expenditure within 
the Common Agricultural Policy (CAP). The Commission is continuing its efforts to monitor 
the full and correct application of the IACS in all Member States. In case of deficiencies, the 
Commission will not hesitate to impose financial corrections.  

The  ex-post  checks  are  carried  out  on  the  basis  of  Regulation  (EEC)  No.  4045/89  which 
provides  for  an  ex-post  control  system  which  is  a  complement  to  the  sectoral  pre-payment 
systems  for  a  range  of  CAP  measures.  The  system  constitutes  an  extra  layer  of  control  that 
provides an assurance that transactions have been carried out in conformity with the rules or 
otherwise allows recovering any unduly paid amounts detected.  

The Commission has taken steps to correct the problems identified in checks relating to the 
rural  development  and  the  export  refund  sectors.  The  Commission  has  also  addressed  the 
deficiencies  found  in  the  olive  oil  sector,  and  the  clearance  of  accounts  procedures  are 
ongoing.  The  major  part  of  the  olive  oil  production  has  been  integrated  into  the  single 
payment scheme. Aid is thereby no longer paid on the basis of the quantity produced but is 
based  on  area  and  controlled  within  the  framework  of  the  IACS.  This  should  significantly 
reduce any risk of error. 

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Structural measures (Commission working document, points 46-51) 

The Commission is taking all the action recommended by the European Parliament. It carries 
out  its  supervisory  role  on  an  ongoing  basis  through  audit  work,  coordination  activities  and 
the  dissemination  of  guidance  and  good  practice.  Where  it  finds  weaknesses  in  Member 
States’ systems, it makes recommendations for improving them and, in serious cases, agrees 
remedial  action  plans  which  it  closely  monitors.  If  the  weaknesses  persist,  it  will  suspend 
payments  to  the  programme  or  Member  State  concerned.  In  April  2007,  the  Commission 
suspended ERDF payments to certain programmes in England. It will consider suspensions in 
other  cases  where  appropriate.  To  correct  past  expenditure  that  has  been  affected  by  the 
system deficiencies the Commission asks the Member State to check this expenditure and to 
make corrections.  

In  keeping  with  its  supervisory  role,  the  Commission  is  focusing  on  bringing  about 
improvements  in  the  systems  and  on  making  the  control  system  as  a  whole  more  effective. 
The  Action  Plan  towards  an  Integrated  Internal  Control  Framework  has  given  further 
momentum  to  this  process.  The  annual  activity  reports  of  the  Directorates-General  provide 
their assessment of the effectiveness of the control systems in different Member States based 
on  the  Commission’s  extensive  audit  work  and  indicate  the  cases  where  the  Community 
budget  is  seriously  at  risk.  For  Member  States  and  programmes  on  which  reservations  are 
entered in the Director-General’s annual declarations, and for other systems showing serious 
deficiencies, the Commission monitors closely the implementation of agreed action plans. 

Internal policies, including research (Commission working document, points 52-67) 

The  Commission  fully  shares  the  concerns  expressed  by  Parliament  on  the  persistence  of 
problems detected in earlier years. It continues to improve its control systems in the context of 
the Action Plan towards an Integrated Internal Control Framework. A multi-annual approach 
to mitigating the inherent risk of reimbursement of overstated costs has been introduced in the 
research area, including a substantial increase in the number of ex-post audits. Furthermore, 
"agreed upon procedures" have been developed to provide a compulsory set of procedures for 
the certificates on the Financial Statements and the certificates on the methodology described 
in the model grant agreement for the Seventh Research Framework Programme (FP7). These 
actions  are  expected  to  lead  to  a  reduction  in  the  error  rate  through  improved  prevention, 
detection and correction. 

Under  FP7  steps  have  also  been  taken  to  simplify  the  rules  for  reimbursement  of  costs, 
including the use of lump sums for International Cooperation Partner Countries within grant 
agreements for indirect actions. The requirements for time recording of researchers are clearly 
specified  in  the  terms  of  reference  for  the  certificates  of  financial  statements  and  on 
methodology annexed to the Grant Agreement and have to be certified by the auditors. The 
Commission has also in 2007 published guidance for beneficiaries. 

In relation to National Agencies the decisions establishing the new generation of programmes 
in the fields of education, training and youth provide for a comprehensive set of checks and 
controls regarding respect of procedures and internal control mechanisms in order to ensure 
and  verify  the  regularity  and  legality  of  transactions  as  well  as  the  reality  and  eligibility  of 
activities. 

The  Commission's  detailed  replies  to  the  European  Parliament's  recommendations  in  the 
specific policy areas under internal policies can be found in the attached working document. 

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External actions (Commission working document, points 68-80) 

The  Commission  is  aware  of  the  risks  at  project  implementing  organisation  level  and  has 
taken a number of measures over the past years to mitigate its potential effects. These include 
the  use  and  improvement  of  standard  contract  provisions.  In  early  2006,  for  instance,  the 
standard grant and fee-based service contracts were revised. They now include standard terms 
of  reference  for  auditors  to  perform  expenditure  verifications  to  be  submitted  by  the 
beneficiaries of Community funds prior to final payments. These new terms of reference have 
been  revised  so  as  to  reinforce  the  verification  of  compliance  with  the  contract  terms, 
including  those  relating  to  public  procurement  procedures.  EuropeAid's  Common  Relex 
Information  System  (CRIS)  allows  relevant  analyses  to  be  performed,  including  by  type  of 
implementing  organisation  or  management  mode.  The  system  is  being  constantly  improved 
and refined, in line with evolving management needs. 

The  European  Parliament’s  2005  discharge  resolution  also  contains  a  number  of 
recommendations on development policy and external relations. The Commission’s replies to 
these  recommendations  can  be  found  in  the  attached  working  document  under  the  points 
concerning external actions and the European Development Funds. 

Pre-accession strategy (Commission working document, points 81-84)  

As  recommended  by  the  European  Parliament,  the  Commission  will  continue  to  monitor 
closely  the  effective  functioning  of  the  national  supervisory  and  control  systems  for 
programme  expenditure  under 
the 
SAPARD/IPARD  paying  agencies.  Moreover,  when  establishing  joint  projects  with 
international  institutions,  the  Commission  is  particularly  attentive  to  the  expertise  and  the 
added value that those institutions or the Commission can provide and to the full respect of 
the Financial Regulation. 

the  pre-accession  strategy, 

in  particular  within 

Administrative  expenditure  and  issues  concerning  the  agencies  (Commission  working 
document, points 85-96 and 150-163)  

The  Commission  is  satisfied  that  the  Court's  audits  found  no  significant  error  affecting  the 
legality  and  regularity  of  administrative  expenditure.  As  regards  the  cost  of  maintaining  its 
buildings,  the  Commission  will  prepare  a  renovation  planning  forecast,  which  will  be 
transmitted to the European Parliament and the Council. The Commission will also examine if 
it has fallen victim to the elevators cartel mentioned by the European Parliament. Moreover, 
the  Commission  confirms  that  invalidity  pensions  are  granted  and  extended  on  medical 
grounds only. 

On  27  June  2007  it  adopted  reports  on  the  progress  made  by  Bulgaria  and  Romania  on 
accompanying  measures  following  accession  (COM(2007)377  and  COM(2007)378), 
including in the areas of judicial reform, fight against corruption and organised crime, which 
have been transmitted to the Council and to the European Parliament.  

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The  European  Parliament  has  made  a  number  of  recommendations  to  the  Commission 
concerning the regulatory agencies in the discharge resolution for the general budget as well 
as in the discharge resolutions for the individual agencies6. 

for 

framework 

the  operating 

The  Commission  shares  the  European  Parliament's  concerns  about  good  governance  and 
better regulation of the agencies. It considers that the adoption of  the draft interinstitutional 
agreement  on 
the  European  Regulatory  Agencies 
(COM(2005)59)  would  go  a  long  way  towards  accommodating  the  recommendations  of 
Parliament  on  issues  such  as  impact  assessment,  cost-benefit  considerations,  evaluation  and 
annual reporting. The Commission therefore hopes that the Council can make further progress 
on  this  important  issue  in  the  near  future.  Whilst  fully  respecting  the  autonomy  of  the 
regulatory  agencies,  the  Commission  in  the  meantime  continues  to  provide  extensive 
guidance and support to these agencies. The Service Level Agreements drawn up with many 
regulatory agencies in 2006 in different areas of administration and training7 are an important 
example of this.  

C) SPECIAL REPORTS ISSUED BY THE COURT OF AUDITORS 

The  European  Parliament  has  made  recommendations  to  the  Commission  concerning  ten 
special  reports  published  by  the  Court  of  Auditors  in  2005  and  2006.  The  Commission’s 
replies to these recommendations can be found in the Commission working document (points 
97-131). 

II - EP DISCHARGE ON EDF 

The Commission has taken action or intends act on  most  of  the issues  raised by Parliament 
concerning the European Development Funds (EDFs). Detailed information is included in the 
Commission working document (points 132-149), but the Commission would like to highlight 
the following points: 

Accounts 

The  Commission  informs  Parliament  on  a  regular  basis  about  the  modernisation  of  its 
accounting system, including the IT platform for the accounts of the European Development 
Fund (see COM(2007)343 of 21.6.2007). After the migration, full information will be sent to 
the  Court  of  Auditors  and  Parliament.  The  EDF  annual  accounts  for  2005  and  2006  were 
drawn  up  in  compliance  with  accrual-based  accounting  principles  despite  the  delay  in  the 
migration. 

Supervisory and control systems  

The Commission's main supervisory and control systems have been continuously improved in 
recent years, inter alia on the basis of the recommendations made by the Court. The quality of 
the  already  extensive  control  checks  at  the  level  of  project  implementing  organisations  has 

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The discharge resolution for the general budget and the discharge resolutions for the individual agencies 
contain recommendations to the Commission both on horizontal matters concerning the agencies and on 
specific  issues  for  individual  agencies.  The  Commission's  replies  to  these  recommendations  can  be 
found in points 87-93 and 150-163 of the working document. 
See also the other examples mentioned in point 152 of the working document. 

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been  further  improved,  notably  through  the  use  and  improvement  of  standard  contract 
provisions. This includes, for instance, standard Terms of Reference and reporting model for 
external auditors to perform expenditure verifications to be submitted by the beneficiaries of 
Community  funds  prior  to  final  payments,  for  grant  and  fee-based  service  contracts.  These 
terms of reference have been revised so as to reinforce the verification of compliance with the 
contract terms. If need be, these actions will be followed by a review of EuropeAid's current 
audit strategy. 

Cooperation with Member States  

The  new  Financial  Regulation  will  help  to  intensify  cooperation  and  co-financing  with 
Member  States  and  increase  the  emphasis  on  aid  effectiveness.  The  Commission  already 
makes widespread use, in the implementation of its actions, of private enterprises which are 
selected on the basis of tendering procedures and whose technical and financial capacities are 
verified during the selection process. 

III – RECOMMENDATIONS IN THE RESOLUTIONS CONCERNING INDIVIDUAL AGENCIES 

The  European  Parliament  has  made  a  number  of  recommendations  to  the  Commission 
concerning the regulatory agencies in the discharge resolution for the general budget as well 
as in the discharge resolutions for the individual agencies. A summary of the Commission’s 
replies  to  some  of  the  horizontal  issues  concerning  the  agencies  is  given  above  under  the 
general  budget.  The  Commission’s  replies  to  the  recommendations  on  other  horizontal 
matters and to recommendations addressed to it concerning individual agencies can be found 
in the Commission working document (points 87-93 and 150-163). 

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