Special report No 5/2007 on the Commission's Management of the CARDS programme together with the Commission's replies
Date: 2007-11-27
Institutions: European Court of Auditors
Subjects: EU aid, EU programme, Western Balkans, audit, cooperation policy, economic reconstruction, institutional reform, management, project evaluation

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COURT OF AUDITORS

SPECIAL REPORT No 5/2007

on the Commission’s Management of the CARDS programme together
with the Commission’s replies

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

(2007/C 285/01)

CONTENTS

Paragraph

Page

ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

AUDIT SCOPE AND APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weaknesses in strategic guidance in the programming process . . . . . . . . . . . . . . . . . . . .

CSPs too broadly formulated, MIPs without clear priorities, lack of effective guidance
of aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weaknesses in strategic guidance lead to implementation problems . . . . . . . . . . . .

I-VIII

1-7

8-10

11-60

11-27

11-19

20

Redirecting assistance from investment support to institution building . . . . . . . . . .

21-27

Efficient management structures ensured speedy delivery of aid but national administra-
tive capacity challenged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management structures not always appropriate . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aid delivered rapidly but without taking sufficiently into account recipient countries’
absorption capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commission’s management approach not conducive to increasing the responsibility of
recipient countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Limited recipient country responsibilities in the project identification and tendering
phases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lack of country ownership of donor coordination . . . . . . . . . . . . . . . . . . . . . . . . . .

Inconsistent approach to monitoring and evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28-41

28-37

38-41

42-54

45-52

53-54

55-60

3

4

5

5

6

6

6

7

7

9

9

11

12

12

14

14

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Paragraph

Page

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

61-70

How effective was the Commission’s management of the CARDS programme? . . . . . . .

61

How far was the strategic guidance directing the programmes appropriate and
coherent? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How far were the management approaches established and used by the Commission
appropriate and efficient? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

To what extent did the projects financed encourage recipient country ownership? . . . . .

How far was monitoring and evaluation effective in identifying weaknesses and dissemi-
nating information, and was timely subsequent action taken by the Commission? . . . . .

62-64

65-67

68-69

70

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

15

15

15

15

16

16

19

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ABBREVIATIONS

ADF

BiH

Albanian Development Fund

Bosnia and Herzegovina

CARDS

Community Assistance for Reconstruction, Development and Stabilisation

CFCU

Central Finance and Contracting Unit

CSP

Country Strategy Paper

DG ELARG

Directorate-General for Enlargement

DG RELEX

Directorate-General for External Relations

EAR

EC

European Agency for Reconstruction

European Commission

ECPA

EC Police Assistance mission in Albania

EU

European Union

EURALIUS

European Assistance Mission to the Albanian Justice System

FRY

Federal Republic of Yugoslavia

FYROM

Former Yugoslav Republic of Macedonia

HQ

IPA

Headquarter

Instrument for Pre-Accession

KFOR

NATO led Kosovo Force

MIP

Multiannual Indicative Programme

OSCE

Organization for Security and Cooperation in Europe

OVI

ROM

SAI

SAp

SR

UN

Objectively Verifiable Indicators

Result Oriented Monitoring

Supreme Audit Institution

Stabilisation and Association process

Special Report of the European Court of Auditors

United Nations

UNMIK

United Nations Mission in Kosovo

WB

World Bank

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SUMMARY

I.
The main objectives of the ‘Community Assistance for Reconstruction, Development and Stabilisation’
(CARDS) programme are to contribute to the recipients’ participation in the Stabilisation and Association Pro-
cess (SAp) and to increase the responsibility of the western Balkan countries and entities in relation to that pro-
cess. CARDS was designed to encourage sustainable and EU compatible reform, consolidate stability and to
bring the region closer to the European Union. For the period of 2000 to 2006 the programme has had a bud-
get allocation of more than 5 000 million euro (see paragraphs 1 to 7).

The Court audited the CARDS programme to conclude on the effectiveness of the Commission’s man-

II.
agement. This was done by assessing (see paragraph 8):

(a) whether the strategic guidance directing the programme was appropriate and coherent;

(b) whether the management approaches established and used by the Commission were appropriate and

efficient;

(c) whether projects financed by the programme encouraged recipient country ownership; and

(d) whether monitoring and evaluation were effective in identifying weaknesses and disseminating their find-

ings, and the subsequent action taken by the Commission was timely.

III.
The Commission’s strategic guidance was very general. This was adequate for the reconstruction phase
but not for the more challenging institution building objectives. The country strategy papers did not provide
sufficient orientation, particularly as they were not supported by timely sectoral strategies. The multi-annual
indicative programmes did not prioritise between or within the different areas of intervention. The European
partnerships introduced in 2004 were not used to improve guidance for selection of actions (see paragraphs 11
to 27).

IV.
In the past the EU assistance to the western Balkans suffered from the co-existence of three different
legal bases, slow implementation of programmes and excessive centralisation. The CARDS Regulation unified
the legal bases. The Commission was also successful in ensuring that aid was delivered quickly although this
was sometimes at the expense of the capacity of the recipient countries to benefit from the aid. The Commis-
sion used four different management approaches. The two main approaches — devolved Delegations and the
European Agency for Reconstruction (EAR) — were mostly effective and appropriate (see paragraphs 28
to 41).

V.
While recipient country ownership was considered a priority by the Commission, there was no con-
sistent approach to achieving this aim and the management approaches used did not encourage such owner-
ship (see paragraphs 42 to 54).

VI.
Monitoring and evaluation was good in parts, but inconsistencies exist between the Delegations and
the EAR. An absence of adequate project indicators compromised the effectiveness of monitoring (see para-
graphs 55 to 60).

The Court concludes that the Commission’s management of the CARDS programme was largely suc-
VII.
cessful in contributing to stabilisation and reconstruction in the recipient countries. However, the aid was less
effective in improving administrative capacities, due to an initially low concentration on institution building
and insufficient recipient country capacity to absorb the assistance provided (see paragraphs 61 to 70).

VIII.
The CARDS Regulation came to an end in 2006 and the new Instrument for Pre-accession Assis-
tance came into effect in 2007. The Court recommends that the Commission: improves its strategic guidance;
ensures that implementation speed takes full account of beneficiaries’ ability to absorb the assistance; estab-
lishes an effective strategy for ensuring recipient country ownership; and extends best practice in monitoring
and evaluation (see paragraphs 61 to 70).

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INTRODUCTION

1.
CARDS is the acronym for ‘Community Assistance for
Reconstruction, Development and Stabilisation’. The CARDS pro-
gramme (1) covers the following countries of the western Balkans:
Albania, Bosnia and Herzegovina, Croatia, the Federal Republic of
Yugoslavia (FRY) and the former Yugoslav Republic of Mace-
donia. Concerning the assistance to the FRY and its successor the
State Union of Serbia and Montenegro (2), the CARDS pro-
gramme was split into three annual programmes: Serbia (3),
Kosovo and Montenegro.

2.
CARDS is part of the European Union’s Stabilisation and
Association strategy towards the western Balkans, which emerged
in response to the wars in former Yugoslavia during the 1990s.
The Stabilisation and Association strategy marked the end of the
military conflict, the start of physical reconstruction and eco-
nomic re-launch of the countries (i.e. stabilisation) and increas-
ingly closer ties with the European Union (i.e. association). The
European Council meeting in June 2000 was explicit that this
integration could ultimately mean membership of the European
Union.

3.
The preamble of the CARDS Regulation describes the
main objective of the assistance: ‘The existing Community assistance
should be expanded and redirected to adjust it to the European Union’s
political objectives for the region and, particularly, to contribute to the
stabilisation and association process and increase the responsibility of the
recipient countries and entities in relation to that process’. Also, accord-
ing to the Regulation the regional dimension of Community assis-
tance should be given special attention.

In the period from 2000 to 2006 the CARDS programme
5.
had a total budget of over 5 000 million euro, mainly for invest-
ment support and institution building. The total population in the
western Balkans region is around 24 million. Thus the CARDS
allocation represents an annual support of 30 euro per capita
demonstrating the political importance that the EU attaches to
the region (4).

The main areas of intervention of the CARDS programme

6.
are:

(a)

reconstruction, democratic stabilisation, reconciliation and
the return of refugees;

(b)

institutional and legislative development, including harmoni-
sation with European Union norms and approaches, the
underpinning of democracy and the rule of law, human
rights, civil society and the media, and the operation of a free
market economy;

(c)

sustainable economic and social development,
structural reform;

including

(d) promotion of closer relations and regional cooperation
among countries and between them, the EU and the (then)
candidate countries of central Europe.

In the European Commission the management of the
7.
CARDS programme, until early 2005, was the joint responsibil-
ity of the Directorate-General for External Relations (DG RELEX)
and the EuropeAid Co-operation Office. DG RELEX had the
responsibility for political relations and strategic development
such as preparation of the country strategy papers and multi-
annual
indicative programmes. The EuropeAid Co-operation
Office was responsible for the management of the annual pro-
grammes. In early 2005 the Directorate-General for Enlargement
(DG ELARG) took over the responsibility for the full project
cycle from policy formulation and programming to the
implementation.

4.
The Stabilisation and Association process (SAp) is a pro-
gressive partnership in which the EU offers a mixture of trade
concessions (Autonomous Trade Measures), economic and finan-
cial assistance (CARDS Programme) and contractual relationships
(Stabilisation and Association Agreements).

AUDIT SCOPE AND APPROACH

8.
The purpose of the European Court of Auditors audit was
to assess on the effectiveness of the Commission’s management
of the CARDS programme. The main objectives of the audit were
to conclude on the extent to which:

(1) Council Regulation (EC) No 2666/2000 (OJ L 306, 7.12.2000, p. 1).
(2) In February 2003 the FRY was restructured into a State Union of two
republics ‘Serbia and Montenegro’. The Constitutional Charter
allowed, after three years, either republic to hold a referendum for
their independence. Montenegro held an independence referendum in
the spring of 2006 in line with international standards. The vote for
severing ties with Serbia exceeded the 55 % threshold, allowing Mon-
tenegro to formally declare its independence on 3 June 2006. Two
days later, Serbia declared that it was the successor state to the union
of Serbia and Montenegro.

(3) Throughout the report reference to Serbia therefore excludes the prov-

ince of Kosovo.

(a)

the strategic guidance directing the programme was appro-
priate and coherent;

(b)

the management approaches established and used by the
Commission were appropriate and efficient;

(4) By way of comparison the Tacis Regulation covering the same period
as CARDS foresees an amount of less than 2 euro per capita per
annum.

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(c)

the projects financed by the programme encouraged recipi-
ent country ownership;

(d) monitoring and evaluation were effective in identifying weak-
nesses and disseminating their findings, and the subsequent
action taken by the Commission was timely.

9.
The audit work included a review of strategy and planning
documents, guidelines and reports. In addition a judgemental
sample of CARDS projects (Annex) over the period 2002 to 2005
was examined.

The audit also examined the relevant evaluation reports,
10.
prepared on behalf of the Commission — including the mid-term
evaluation of the CARDS programme (1), which was completed in
June 2004 — as well as the follow-up actions taken by the Com-
mission. The Court concluded that they provided a sufficient basis
to use the results as corroborative evidence for its own audit
findings (2).

OBSERVATIONS

Weaknesses in strategic guidance in the programming process

CSPs too broadly formulated, MIPs without clear priorities,
lack of effective guidance of aid

11.
The CARDS regulation provides the legal basis for the
main strategy papers used for CARDS assistance: ‘The Community
assistance should be governed by a strategy framework and by annual
and multi-annual programming, which will be put to the management
committee set up by this regulation for an opinion’.

(1) Article 13 of the CARDS Regulation established that ‘not later than
30 June 2004, the Commission shall submit to the Council an evalu-
ation report, together with proposals for the future of this Regulation
and for any amendments to be made to it.’

(2) The main conclusions of the evaluation of the assistance to Balkan
countries under CARDS Regulation (EC) No 2666/2000 (contract
No B7-6510/2002/005) were:
(a)

the CARDS programme was highly relevant for ensuring finan-
cial and technical support to the Stabilisation and Association
process;
the centralised nature and approach might become an obstacle
to the programme ownership and effectiveness;
balancing support for institution building and development
investment was a key challenge;
the regional dimension of the programme was weak.

(b)

(c)

(d)

The Court assessed the extent to which the CARDS pro-
12.
gramme was governed by adequate strategic guidance and
directed towards the specific need of the countries involved while
being coherent with the regulatory-defined objectives of the pro-
gramme and the SAp in its wider sense.

In accordance with the CARDS regulation the Commis-
13.
sion defined a strategy framework for the western Balkan coun-
tries, with country strategy papers (CSPs) for each individual
country, and a regional strategy paper, drafted taking into account
all the recipient countries. As required by the regulatory frame-
work the Commission has produced two multi-annual indicative
programmes (MIPs), one for each country and one for the regional
inter-state programme
the periods 2002 to 2004
and 2005 to 2006.

for

14.
In 2004 — at the end of the first MIP period — Euro-
pean partnership documents were approved by the European
Council covering Albania, Bosnia and Herzegovina, the former
Yugoslav Republic of Macedonia, and Serbia and Montenegro
including Kosovo (3), with the aim of intensifying the stabilisation
and association process (4). The partnerships were drawn up for
each country in the region and identified areas for action and
obligations to be fulfilled by the partner countries in order to
move them closer to the European Union. EU assistance was to
be directed towards the priorities set out in the partnerships.

The audit revealed weaknesses in the strategic guidance
15.
of CARDS programming mechanisms. Strategies as described in
Country Strategy Papers (CSPs), although formally compliant
with the Commission CSP guidelines, were too broadly formu-
lated to be useful for the programming exercise. CSPs were not
updated to reflect major changes such as the Council’s European
partnership documents.

16.
The MIPs did not prioritise between and within sectors as
required by Commission guidelines (5) nor indicated timing for
the foreseen actions. The first European partnership in 2004
offered an opportunity for the Commission to focus its actions
more precisely in the MIP covering 2005 to 2006 (6). Even
though the MIPs for 2005 to 2006 contained references to the
European Partnership priorities, they still gave insufficient guid-
ance for the selection of actions to be financed.

(3) On the basis of Council Regulation (EC) No 533/2004(OJ L 86,

24.3.2004, p. 1).

(4) The European Partnership for Croatia was approved by Council

Decision 2004/648/EC (OJ L 297, 22.9.2004, p. 19).

(5) Reference made to point 3.1.4 of the guidelines for implementation

of the common framework for country strategy papers.

(6) Since becoming a candidate country in 2004, Croatia has benefited
from the pre-accession instruments. A revision of the CARDS MIP for
2005 to 2006 was therefore not necessary.

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As provided in the CARDS Regulation the CARDS Man-
17.
agement Committee (1) was required to give its opinion on the
CARDS programming guidelines, the Multi-annual Indicative Pro-
grammes and the Annual Programmes, with the intention of
enhancing strategic guidance in the programming process. In
reality no evidence was found that the Committee’s work contrib-
uted to improving the quality of the proposed documents.

18.
Detailed sectoral analyses by the Commission and/or
recipient country national strategies mostly did not exist or were
produced too late to enhance the strategic guidance. As a result,
projects were not selected on the basis of objective criteria and,
in certain cases, they were selected in response to the beneficia-
ries’ ad hoc request.

19.
Although the identification process was complex, it did
not involve a clear methodology for optimising project selection.
For instance, there was no cost-benefit analysis (2) or other com-
parative analysis of possible alternative projects before selecting
the projects. Some projects were simply continuations of earlier
support. There were no guidelines to help decide which interven-
tion would best support the stabilisation and association process.

Weaknesses in strategic guidance lead to implementation
problems

Case 2: The European Commission Police Assistance mission in Albania

The project fiche of the Justice and Home Affairs sector in Albania for
the programming year 2002 envisaged for the Police and Public
Order component ‘to contribute to the establishment of rule of law
and to the establishment of a functioning police force able to con-
tribute to democratic stability’. It established the following:
‘The
project will be executed through supporting the EC Police Assistance
Mission (ECPA), training and related investment support’. Out of the
8 million euro allocated to the Police and Public order component,
4 million euro were planned for institution building support (financ-
ing ECPA mission), 2,5 million euro for training and support com-
ponent and 1,5 million euro for the investment component.

In reality the project fiche was completely disregarded. Not one euro
was spent in order to finance the ECPA mission. 4,7 million euro
were spent on a Data Communication Network, 1,9 million euro
were spent on the power supply equipment and 1 million euro were
spent on a grant to the United Nations in order to support the Secu-
rity Sector Reform programme.

Redirecting
institution building

assistance

from investment

support

to

20.
The audit identified differences between the planned and
implemented projects. There were essential projects not imple-
mented due to the resistance of the recipient country or projects
for which the initial plans were disregarded (Box 1).

Because the recipient countries were recovering from war
21.
the early years of the CARDS programme focused more on recon-
struction (through investment projects) than institution building.
However, as the programme matured a shift towards more insti-
tution building was required.

Box 1

Examples of non-implemented projects

Case 1: No political support to the Serbian Supreme Audit Institution (SAI)

As early as 2001 the EAR had identified the necessary building blocks
for significant government institutional reform in Serbia, including
support to the treasury, the internal audit function as well as a project
concerning the creation of a Supreme Audit Institution. However, the
necessary backing of the Serbian Parliament did not materialise for
the SAI and the project was not taken forward until the 2006 pro-
gramme.

22.
The redirection of assistance was of interest to the dis-
charge authority. In its report on the European Agency for Recon-
struction (EAR) published in May 2002, the European Parliament
considered that the EAR should significantly increase EU assis-
tance in the two countries (i.e. the Federal Republic of Yugoslavia
and the former Yugoslav Republic of Macedonia) in favour of
institution building.

(1) The CARDS Management Committee is composed of the representa-

tions of the Member States and chaired by the Commission.

(2) Cost-benefit analysis allows a measure of the economic efficiency of
the programme or project, as well as providing a basis for compari-
son with alternatives.

23.
The Court analysed the CARDS projects in order to
determine and assess the proportion of institution building
projects compared with investment projects (see Graph 1).

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Proportion of institution building projects in Delegations and in the EAR by programming year (1)

Graph 1

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

2001

2002

2003
YEAR

2004

2005

DEL

EAR

(1) Projects of each programming year n are implemented in the year n and the following years.

24.
In general between 2001 and 2005 the emphasis on
institution building projects increased. From the very beginning
the focus on institution building was more pronounced in coun-
tries where assistance was managed by the Delegations (1) than in
countries where it was managed by the EAR (2).

26.
As the countries of western Balkans recovered from the
war, the draft programmes and the related Project Fiches (5) as well
as the projects under implementation took into account the Par-
liament’s request to increase the EU assistance from investment
support to institution building. However,
in some cases the
changes to the planned projects led to decreased emphasis on
institution building (see Box 2).

When strengthening the administrative capacity of a
25.
country, twinning is recognised as an important instrument (3).
However, twinning had a slow start in the western Balkans par-
ticularly in the former Yugoslav Republic of Macedonia where the
EAR only started to use twinning in 2005. An EAR evaluation of
twinning (4) concluded that there was sometimes only limited
support from the Agency’s Programme Managers for twinning
and that EAR staff were not always trained sufficiently in the use
of that instrument.

(1) The EC Delegations are implementing CARDS programmes in Alba-

nia, Bosnia and Herzegovina and in Croatia.

(2) The EAR has operational centres in former Yugoslav Republic of

Macedonia, Kosovo, Montenegro and Serbia.

(3) The Commission launched twinning as the principal tool of pre-
accession assistance for institution building already in May 1998. The
Thessaloniki Summit, in June 2003 underlined the significance of
twinning in the western Balkans.

(4) Reference made to EAR evaluation EU/13/040/05 of November 2005.

Box 2

Redirecting an institution building project — Integrated Border
Management in the former Yugoslav Republic of Macedonia

The Annual Programme for CARDS 2003 in the former Yugoslav
Republic of Macedonia envisaged, among other things, to strengthen
control of the green border and allocated 2,8 million euro for this
purpose. According to the Annual Programme, there were a number
of short-term actions needed in this area: (1) set-up a dedicated bor-
der guard service, (2) improve recruitment procedures, (3) provide
basic training and in-depth course on border control and (4) supply
equipment for detection of forged or falsified documents and for
high-tech vehicle searches, together with corresponding training
tools.

(5) A project fiche is a short description (4 to 5 pages in average) without
specific terms of reference. The initial description includes the fore-
seen project intervention logic, project objectives, results and activi-
ties. It assesses the project risks and defines objectively verifiable
indicators (OVIs) and means to verify these indicators.

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(1) To enhance the
Objectives for this initiative were twofold:
co-operational capacity of government border services within the
existing organisational framework, to fulfil immediate requirements,
and (2) to develop a new organisational structure for the border police
and operational capacities in compliance with European Union stan-
dards.

Instead of consistently addressing the above needs, objectives and pri-
orities, the EAR used the whole amount to purchase vehicles.

The Court found no evidence of on-going monitoring of
27.
projects by the Management Committee after the approval stage.
In other words the Management Committee did not concern itself
with changes to projects once implementation had started.

Efficient management structures ensured speedy delivery of aid
but national administrative capacity challenged

Management structures not always appropriate

28.
In July 1998 the Court published Special Report No 5/98
on reconstruction in former Yugoslavia (period 1996 to 1997).
The audit covered two countries: Bosnia and Herzegovina and to
a lesser extent Croatia. The report criticised that despite the EU’s
clear declarations of intent, the Commission was not successful in
deploying sufficient human resources to the task of reconstruc-
tion in former Yugoslavia, neither at its headquarters nor in the
areas under reconstruction. The Court concluded the following:

(a)

Implementation of the appropriations allocated by the EU for
reconstruction was slowed by the lack of an implementation
programme, shortage of staff, excessive headquarter centrali-
sation and the institutional weaknesses of
the local
authorities.

To overcome the deficiencies in EU aid delivery, the
29.
Court recommended the Commission should devolve manage-
ment for its aid effort to its Delegations and focus on a smaller
number of sectors.

30.
While taking into account the above-mentioned weak-
nesses, the Court’s current audit assessed the extent to which the
CARDS management structures were efficient and whether the
aid was delivered with sufficient rapidity.

31.
The audit revealed significant improvement in the effi-
ciency of EU operations in the western Balkans since 1998. Major
changes took place. Firstly, the CARDS regulation unified the
legal basis for similar operations. Secondly the devolution pro-
cess was introduced to improve the speed and quality of EC exter-
nal aid (1). Thirdly the Commission delegated part of
the
implementation of the assistance to a new organisation specially
created for this purpose the European Agency for Reconstruction.
All these actions speeded up aid delivery and improved the effi-
ciency of the assistance (see Box 3).

Box 3

Example of high contracting rates under CARDS

EAR was created as a response to the need to act quickly and effi-
ciently when addressing the urgent post-conflict needs of the popu-
lation in Kosovo in the immediate aftermath of the 1999 crisis. The
Court has in its earlier audits concluded that EAR actions in Kosovo
immediately after the crisis met the ambitious objectives in the fields
of basic services. The high contracting rates have been maintained in
Kosovo throughout the CARDS programme. As of November 2006,
the EAR has in Kosovo managed over 1 100 million euro on behalf
of the Commission, some 91 % of that money has been contracted
and some 86 % disbursed. Along with the KFOR troops, the EU’s
assistance helped normalise life in Kosovo.

(b)

In 1997, the disbursement rate of the EU’s reconstruction
programme (29 %) was relatively low compared with the
average of other donors (52 %).

32.
In total CARDS was implemented using four different
methods and structures (see Graph 2), most of which left little
room for involvement of the recipient states. This was done in
order to ensure speedy delivery of aid and reflected the weak-
nesses of the national administrations.

(c) The co-existence of three separate regulations governing the
budget articles used to finance the reconstruction measures
hampered the Commission’s management.

(1) As a result of devolution EC Delegations are responsible for project
preparation, contracting, and financial and technical implementation.
As a consequence the role of the central services in Brussels evolved
away from direct management of projects towards monitoring and
supporting Delegations.

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Graph 2

CARDS management structures

CARDS management methods

COMMISSION

Centralised management

Devolved management

from HQ in 
Brussels

— Regional pr.
— Customs
— Other

Delegations in

— Albania
— Bosnia H.
— Croatia

Decentralised 
management

—  Albania 
(ADF)
—  Croatia 
(CFCU)

EAR

Indirect 
Centralisation

Operational
Centres in

— FYROM
— Kosovo 
— Montenegro
— Serbia

The main characteristics of the different management

33.
structures are as follows:

(a) Centralised management by DG Enlargement (and earlier
EuropeAid): DG ELARG manages the regional programmes
directly from the headquarters. Regional programmes focus
on strengthening administrative capacity e.g. in customs, the
fight against organised crime and supporting civil society.

(b) Devolved management: The EC Delegations in Albania, Bos-
nia and Herzegovina and Croatia were devolved (1). As a
result of devolution, Delegations became responsible for
project preparation, contracting, and financial and technical
implementation.

34.
The Court found that devolved and indirect centralisation
(EAR) ensured efficient delivery of aid, whereas weaknesses were
noted with the other
centralised
and decentralised) (4).

two structures

(i.e.

In both Delegations and the EAR, the speed of project
35.
management benefited from the increased capacity in the opera-
tional units and from having finance and contracts staff available
on the ground. The increased contacts with the beneficiary and
other relevant parties and better understanding of local condi-
tions, risks and opportunities improved performance while reduc-
ing the time needed to solve problems (5).

(c) Decentralised implementation: involves the Commission del-
egating implementation of some programmes to the recipi-
ent country Government in Albania and in Croatia.

36.
The two other implementation structures — although
less significant in monetary terms — were less effective. For cen-
tralised management — centrally managed regional inter-state
programme — there were several shortcomings:

(d)

Indirect centralised management: The European Agency for
Reconstruction (EAR) (2), an independent agency of the EU,
manages the programme in Kosovo (3), Serbia, Montenegro
and in the former Yugoslav Republic of Macedonia. The EAR
is administratively accountable to the European Council and
to the European Parliament, but not
to the European
Commission.

(1) The devolution process had started in Bosnia and Herzegovina in
1998, even before the Commission announcement in May 2000 of
the major reform of the management of its external aid programme.
The Delegation in Croatia was devolved in 2001 and the Delegation
in Albania in 2003.

(2) The EAR was established in February 2000, its predecessor, the task
force for Kosovo, started operation in 1999. In 2001, the agency’s
mandate was extended to Serbia and Montenegro and in 2002 to the
former Yugoslav Republic of Macedonia.

(3) Kosovo is presently under UNMIK administration as defined by UN

Security Council Resolution 1244.

(a)

funds allocated to regional cooperation comprised a very
small proportion of total expenditure (around 5 %). Some of
this was managed at national rather than regional level, e.g.
integrated border management;

(b)

similarly most of the refugee return programmes which, by
definition, have cross-border characteristics were managed
separately in each country;

(4) The shortcomings are also confirmed by the mid-term CARDS evalu-

ation.

(5) Reference is made to Special Report No 10/2004 concerning the
devolution of EC external aid to the Commission delegations (OJ C 72,
22.3.2005).

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(c) while steps were taken in 2003 to involve beneficiary coun-
tries more in the programming of CARDS regional alloca-
tions,
sufficient
information of the regional projects.

countries generally did not

receive

The decentralised implementation structures in Albania

37.
and in Croatia also had problems:

(a)

in Albania, programmes involving the Albanian Develop-
ment Fund (ADF) continued without the Commission hav-
ing assessed whether the ADF was capable of meeting its
responsibilities, according to the provisions of the Financial
Regulation applicable in 2003. Due to the problems encoun-
tered with the ADF, the Commission decided to strongly
reduce the decentralised part of the Albanian CARDS pro-
gramme and devolved it to the Delegation;

(b)

in 2002, in Croatia, specific steps were taken towards formal
decentralisation. However, the speed at which EuropeAid
considered it appropriate to decentralise did not take into

account practical operational realities in the Croatian Minis-
try of Finance. As a result the decentralisation process was
halted between 2003 to 2005. Once the CARDS programme
moved from EuropeAid to DG ELARG in early 2005, the
Commission re-evaluated the situation and decided in Feb-
ruary 2006 to restart decentralisation in Croatia (1).

Aid delivered rapidly but without taking sufficiently into
account recipient countries’ absorption capacity

38.
The European Court of Auditors has in its reports con-
cerning external actions (for instance Special Report No 6/2006
on the environmental aspects of the Commission’s development
cooperation (2)) repeatedly criticised the Commission of delays in
contracting and implementation. In contrast the CARDS pro-
gramme had a very high contracting speed (see Graph 3) in
Kosovo, Bosnia and Herzegovina, and Serbia but due to the back-
log of earlier programmes a relatively slow start in Albania and
Croatia.

Graph 3

Contracting rates in CARDS countries

Commitments 2002-2004 contracted within one year

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Albania

Bosnia H.

Croatia

FYROM

Kosovo

Serbia

(1) Reference made to Article 2 in Commission Decision C(2006) 264
(E/148/2006): ‘For CARDS, this Decision shall apply to a number of
projects agreed between the Commission and Croatia in the CARDS
Financing Agreement 2003 (signed on 2 September 2003) and in the
CARDS Financing Agreement 2004 (signed on 29 November 2004).’

(2) OJ C 235, 29.9.2006.

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In Albania the need to compensate this delay led, later
39.
on, to a very high concentration of contract signatures: 63 % of
the CARDS contracts signed in the period from 2001 to 2005
were signed in 2004, thus leading to the simultaneous implemen-
tation of a high number of contracts and an increased challenge
to the beneficiaries’ absorption capacity (1) (see Box 4). Delays in
the 2001 annual programme meant that in Croatia two annual
programmes were implemented at the same time.

Box 4

Overstretched national administrative capacity in Albania

In Albania in addition to high concentration of projects in a short
period of time, most of the assistance was concentrated in the Justice
and Home Affairs sector. At the time of the audit, there were at least
48 different, simultaneously on-going projects in the Justice and
Home Affairs’ area. 13 of them were financed by the EU and 35 by
other donors.

For example in the Euralius project in Albania (European Assistance
Mission to the Albanian Justice System), the audit found out that the
level of ambition of the project design was very high. Ten specific
objectives had to be achieved involving 15 different types of project
partners simultaneously. Each of the ten objectives involved numer-
ous different project partners. As a result, the Ministry of Justice, the
principal beneficiary, would be dealing with 78 different foreseen
activities.

40.
One of the main unintended side effects of the high con-
tracting speed, encouraged by the Commission was that benefi-
ciaries might not fully benefit from the projects, thus reducing
their effectiveness and impact.

To ensure project effectiveness Community assistance
41.
under the stabilisation and association process is conditional and
failure to respect the conditions could lead the Commission to
take appropriate measures. However, there are projects which
were implemented in cases where conditionalities were not
respected by the beneficiary, thus providing less added value than
originally expected. An example in this respect was the support
to the Croatian Court System described in Box 5.

Box 5

Support to the Croatian Court System

The Twinning project financed by the 2002 programme was imple-
mented despite the fact that none of the conditionalities defined in the
project form were fulfilled at the time of the project start-up. One of
the conditionalities presumed the existence of a strategy for the
reform of the judiciary. Given that the project was an absolute prior-
ity for the Commission, it was imposed on the recipient. For the
above reasons recommendations made to the recipient, although
accepted and recognised by the Croatian Ministry of Justice, have not
produced major actions in all areas.

Commission’s management approach not
increasing the responsibility of recipient countries

conducive

to

In addition to the contribution to the SAp, the preamble
42.
of the CARDS Regulation describes the other main objective of
the assistance as:
‘The existing Community assistance should …
increase the responsibility of the recipient countries and entities in rela-
tion to that [SAp] process.’

As set out in paragraph 31, the main reason behind the
43.
management structures established was to ensure quick delivery
of aid. The downside of this approach is reduced recipient state
involvement. This approach was appropriate in the reconstruc-
tion phase but less so as the assistance moved from infrastruc-
ture projects to institution building projects.

44.
The regulation does not define any specific responsibili-
ties for the recipient countries. Despite the apparent political will
to bring the countries as rapidly as possible into the European
Union, this has not been matched by any increase in the coun-
tries’ management responsibilities. The Court did not find any
indication of a formal aid management strategy on the Commis-
sion’s part — general or country specific — to increase progres-
sively the responsibility of the recipients.

Limited recipient country responsibilities in the project
identification and tendering phases

(1) The Albanian contracting peak of 2004 is at least partly a conse-
quence of a Commission HQ devolution verification mission carried
out in December 2003. The mission concluded that the final confir-
mation of the devolution sub-Delegation was conditional to achiev-
ing a tender target of 25 million euro within a delay of six months.

45.
The Court assessed to what degree the Commission’s
management of the CARDS programme contributed to increas-
ing the responsibility of recipient countries in certain critical steps
of the project cycle management, and assessed the consequences
of insufficient ownership.

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The Commission’s guidelines for the identification of
46.
projects and subsequent drafting of the Annual Programmes (1)
did not promote beneficiary participation in the decision-making.
The instructions issued by EuropeAid for the 2001 and 2002
annual programming did not specify any kind of beneficiary
involvement. The guidelines for the 2003 and 2004 annual pro-
grammes specified some involvement — albeit limited — requir-
ing initial contacts to be taken with potential beneficiaries during
the preparatory work, and draft project fiches to be sent by the
Delegation or EAR to the beneficiaries at least two weeks before
finalising the annual programme. The audit assessed the extent of
the involvement of the beneficiaries through on-the-spot inter-
views with around 30 beneficiaries.

The innovative feature of the implementation of the project was the
use of a ‘Grant Agreement’. Through this arrangement the responsi-
bility for the planning, including the definition of the technical speci-
fications and management of the project was entrusted to the
beneficiary, the Serbian electricity utility.

The technical specifications were checked and approved by the con-
tracted supervisor and the tendering procedure and control of pay-
ments was maintained by the Agency. All parties, including the
beneficiary, were very satisfied with the arrangement and thus it can
be concluded that the ownership was as complete as can be expected
under the present arrangements.

47.
The Court found some examples, especially in Bosnia
and Herzegovina, Croatia and Serbia, where the Commission and
the Agency had tried to increase recipient country ownership (see
Box 6).

However, in most cases the Commission was not consis-
48.
tent in promoting recipient country responsibility when develop-
ing the so-called project fiches and later the terms of reference.
Participation varied from country to country on the basis of ini-
tiatives taken by the Delegations or the EAR depending on the
capacities of the countries concerned. While the Court noted
increasing input from recipient countries, ownership remained
limited.

Box 6

Example of good practices in ownership

Case 1: Strengthening the Directorate of European Integration in Bosnia and
Herzegovina (BiH)

The decision-making process for the CARDS 2006 programming in
BiH is a good illustration of ownership and accountability develop-
ment. Already in the CARDS 2004 and 2005 annual programme, the
Commission started to build capacity with the recipient country, for
example by introducing senior programming officer posts in BiH line
ministries and agencies and by supporting the Directorate for Euro-
pean Integration. Because of the efforts made, in the last year of the
CARDS programme, project fiches were prepared by the BiH authori-
ties.

Case 2: Nikola Tesla project in Serbia

Although the Agency’s legal framework (i.e. indirect centralised man-
agement) is not the most appropriate for enhancing the ownership of
the recipient country, the Agency was still able to find an innovative
solution in the case of a power plant project in Serbia (Nikola
Tesla A5).

The co-financing of projects with national funds is one
49.
indicator of recipient country ownership and interest. Although
the CARDS Guidelines
the use of national
encourage
co-financing, it was hardly used (2). A positive exception, i.e. the
only one out of the 31 non-grant projects audited, in this respect
is the Croatian land cadastre project, which was significantly
co-financed and where the donor coordination was effectively led
by the Croatian authorities. Similarly the commitment of the ben-
eficiaries of grants was also high (3).

50.
One way of increasing recipient country ownership is to
involve national authorities in tender evaluation committees.
However, the EuropeAid instructions binding the Delegations and
acting as guidance for the EAR, require that the majority of the
voting members of the evaluation committees represent the Com-
mission (see Box 7). This contrasts with many other areas of
external actions where the Commission is not represented as a
voting member on evaluation committees, but retains the right of
veto.

(1) The annual programmes contain a detailed list of projects — so called
project fiches — to be financed and specify the relevant amounts.
Since 2005 project fiches are being grouped and consolidated in sec-
tor fiches. Formally the project fiches were not part of the Commis-
sion financing decision therefore not legally binding unlike to sector
fiches.

(2) Except with the grant contracts where the co-financing is an obliga-
tion. A grant is a direct payment of a non-commercial nature by the
European Community to a specific beneficiary to implement an action
forming part of EU policy.

(3) Projects audited included for example a tourist centre in the Travnik
fortress in Bosnia and Herzegovina and a mobile library in the city of
Zadar in Croatia.

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Box 7

Box 8

Composition of tender evaluation committees

Donor co-ordination in Albania

The Court assessed 177 tender evaluation committees covering 2002
to 2005. On average 55 % percent of the voting members were task
managers from the Delegations or EAR operational centres and 13 %
of the voting members were independent external experts. The aver-
age representation of beneficiary organisations was 32 % with the
exception of Croatia, where the percentage increased significantly
to 52 % and Bosnia and Herzegovina where the trend of beneficiary
voting members decreased to 24 %.

In order to improve donor coordination in Albania, the four multi-
laterals (EC, OSCE, UN and WB) set up a sectoral coordination
mechanism in December 2003. They agreed on the division of
responsibilities between themselves in four thematic areas. In order to
manage the coordination process, they formed the Donor Technical
Secretariat. This contributes to a more effective complementarity and
more effective division of labour. The donors are expected to make
use of their respective comparative advantages at sector level and to
delegate authority to the assigned lead donors for the execution of
programmes.

51.
The EuropeAid instructions require evaluation commit-
tees to comprise a minimum of four EC Delegation/EAR staff (i.e.
chairman, secretary and two evaluators) for one external evalua-
tor and an additional two EC Delegation/EAR staff for every addi-
tional beneficiary evaluator. This draws excessively on the human
resources of the Delegations while preventing improved country
ownership.

The donor community contributed to establishing an Integrated Plan-
ning System, which was launched by the Government of Albania in
2005 and which should help the country to lead its own development
process. This aims to integrate the various policy frameworks into a
single medium-term development plan in 2007 and to set up a new
architecture for donor coordination and management of external
assistance.

52.
One of the obstacles to decentralisation was a lack of
knowledge by recipient countries of the European Commission’s
contract procedures. In Croatia, representatives from national
authorities were systematically invited by the Delegation to par-
ticipate in the evaluation committee meetings as non-voting
observers. This represented good practice by allowing national
authorities to become familiar with the detailed tendering proce-
dures, but was not applied systematically in other countries. For
example, in Albania, the former Yugoslav Republic of Macedonia
and Serbia the practice was applied only in very rare cases.

Lack of country ownership of donor co-ordination

According to the CARDS guidelines all CARDS support
53.
should be co-ordinated with other donors. Donor co-ordination
is particularly challenging in the western Balkans because of the
high number of donors and the existence of two agendas: the
accession agenda of the EU; and the development, poverty-
reduction agenda of the World Bank, UN and some agencies of
EU Member States.

54.
The ‘Paris Declaration on Aid Effectiveness’ (1) confirmed
the principle that the recipient countries themselves should take
the lead in coordinating aid at all levels, while the donors should
pledge to respect partner country leadership. In the CARDS coun-
tries the audit found almost no evidence of such leadership by the
recipient countries or of any actions by donors to encourage ben-
eficiary country leadership. The only initiative was visible in Alba-
nia (see Box 8).

(1) The Paris Declaration on Aid Effectiveness was signed after the High
Level Forum which was held in Paris in March 2005. Among the par-
ticipants there was the European Commission and 91 countries, two
of which represented the CARDS area (Albania and Serbia-
Montenegro).

Inconsistent approach to monitoring and evaluation

Delegations and the EAR have different monitoring

55.
procedures:

(a)

the Commission HQ and Delegations use outsourced moni-
toring services following a standard methodology called
Result-Oriented Monitoring (ROM). It includes the use of a rat-
ing system for the performance of the projects, but does not
provide a formal record of the follow-up;

(b)

the EAR has its own monitoring teams in each Operational
Centre, as well as a coordinator in the HQ. These teams used
the ROM system from the beginning of 2005. The follow-up
is formally recorded in the monitoring documents.

56.
Effective monitoring requires projects to have objectives
and objectively verifiable indicators (OVIs) to monitor against.
However, OVIs are either not provided, or when provided, they
are not measurable or time-bound. For instance in a Police Acad-
emy project one of the OVIs was ‘adequate teaching of staff’ with-
out specifying the number of participants foreseen or the
curriculum. In another project, there were indicators such as
‘enhanced operational capacity’ without specific criteria.

57.
In accordance with the CARDS regulation the Commis-
sion evaluated the programme by the end of June 2004. Accord-
ing to the evaluation terms of reference, its objective was to
provide the European Commission with an independent and reli-
able assessment of the assistance strategy under CARDS and its
It covered the
evolution with its wider political setting.
2001 to 2003 period (see also paragraph 10).

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In order to improve financial management a critical part
58.
of the evaluation process is the follow-up on the recommenda-
tions made. In principle, the Commission has one year to report
on its follow-up actions. In this case the Commission reported
over two years later. This may have been partly due to the Com-
mission not being satisfied with the quality of some of the rec-
ommendations made.

The country strategy papers were broadly formulated
63.
with the result that they provided insufficient orientation at a
detailed level, particularly as they were not supported by timely
sectoral strategies. The multi-annual indicative programmes —
which form the basis for annual planning and the identification
of projects — did not prioritise between or within the different
areas of intervention. As such there was no basis for optimising
project selection resulting in a number of uncoordinated and iso-
lated projects.

59.
While there was no formal requirement to evaluate indi-
vidual projects or sectors, this is good practice as it would allow
focused results and recommendations. The EAR systematically
carried out evaluations at sector and project level. Both mid-term
evaluations and ex-post evaluations were made. The executive
summaries of these evaluations were published on the EAR web-
site, thus contributing to a dissemination of the findings. In con-
trast
the Delegations rarely carried out project or sector
evaluations and the few reports carried out by the Delegations
were not published on their websites.

The dissemination of the results of monitoring and evalu-
60.
ation exercises also differs between the Delegations and the EAR.
The EAR organises regular meetings and workshops for the Task
and Programme Managers from different operational centres in
order to exchange experience. However, the same level of dis-
semination does not take place between Delegation countries.
There are some contacts between Delegations and EAR staff but
these are not systematic.

CONCLUSIONS AND RECOMMENDATIONS

Early in the programmes, aid was mostly directed
64.
towards reconstruction investment-type projects, rather than
institution building. As the programmes progressed, the focus
naturally changed towards institution building which now repre-
sents the large majority of expenditure. The Court notes that from
the very beginning the focus on institution building was more
pronounced in countries where assistance was managed by the
Delegations than in countries where it was managed by the EAR.
In the latter case it delayed the introduction of twinning projects.

Recommendation 1

The strategic guidance for implementing the new Instrument
for Pre-Accession Assistance (IPA) (1) should give sufficient
attention to individual areas of intervention to ensure an
appropriate focus of aid, a systematic approach to key areas
and an appropriate basis for prioritising and selecting projects.

How effective was the Commission’s management of the
CARDS programme?

How far were the management approaches established and used
by the Commission appropriate and efficient?

The Court concludes that the Commission’s management
61.
of the CARDS programme was largely successful in contributing
to stabilisation and reconstruction in the recipient countries.
However, the aid was less effective in improving administrative
capacities, due to an initially low concentration on institution
building and insufficient recipient country capacity to absorb the
assistance provided.

The management approaches used by the Commission
65.
were largely, but not always, appropriate for recipient countries’
circumstances and needs. They were effective in ensuring quick
delivery of aid, but gave insufficient consideration to maximising
the benefit from the aid.

How far was the strategic guidance directing the programmes
appropriate and coherent?

62.
The Commission’s strategic guidance was very general
and not targeted at specific areas. It was adequate for the recon-
struction phase, but not for the more challenging institution
building objectives.

Four different management approaches were used, with
66.
the aim of reflecting the circumstances of the recipient countries
concerned. Two of the approaches (i.e. devolved Delegations and
the EAR) — covering the majority of expenditure — were mostly
effective and appropriate. The other two (i.e. centralised and
decentralised management) were less efficient and responsive to
the specific needs.

(1) Council Regulation (EC) No 1085/2006 (OJ L 210, 31.7.2006, p. 82).

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The Commission was successful in responding to previ-
67.
ous criticisms of slow implementation by ensuring that aid was
delivered quickly. This was of particular advantage during the
reconstruction phase. However, for institution building, the focus
on speed was not balanced by sufficient consideration of the abil-
ity of recipient countries to maximise the benefit from the aid or
comply with all preconditions.

Recommendation 3

For the IPA programme the Commission should address the
important aspect of recipient country ownership through spe-
cific strategies in all areas of management and implementa-
tion, in particular tendering.

Recommendation 2

The Commission should maintain its focus on rapid imple-
mentation of aid, but also pay sufficient attention to aspects
of effectiveness such as the ability of beneficiaries to fully
absorb the assistance provided (particularly in the context of
institution building projects).

To what extent did the projects financed encourage recipient
country ownership?

How far was monitoring and evaluation effective in identifying
weaknesses and disseminating information, and was timely
subsequent action taken by the Commission?

70.
Monitoring and evaluation was good in parts, but of
inconsistent quality. Monitoring procedures differed between the
Delegations and the European Agency for Reconstruction,
although a common methodology was applied from 2005. An
absence of adequate project indicators compromised the effective-
ness of monitoring. An evaluation of the CARDS programme was
carried out as foreseen, but the follow-up by the Commission was
late. Unjustified inconsistencies exist between the Delegations and
the EAR in respect of the intensity of project or sector evaluations
and the dissemination of the results of monitoring and evaluation.

68.
While recipient country ownership was considered a pri-
ority by the Commission, there was no consistent approach to
achieving this aim and the management approaches used did not
encourage such ownership.

Recommendation 4

Recipient countries had only a limited involvement in the
69.
project identification and tendering phases. Towards the end of
the programme the input from recipient countries increased,
although ownership remained limited. Despite the recipient coun-
tries committing themselves to co-ordinating the many different
donors in the area — an important indicator of ownership — the
audit found no evidence that such coordination had taken place.

Monitoring and evaluation practices should be harmonised,
including extending to the Delegations the EAR’s practice of
evaluating individual projects/sectors and of disseminating
results and lessons learnt.

The Commission should ensure that it follows up evaluations
promptly.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 28 June 2007.

For the Court of Auditors
Hubert WEBER
President

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ANNEX

CARDS PROJECTS AUDITED (33 in total)

Local Community Development Fund

EURALIUS — European Assistance Mission to the
Albanian Justice System

PAMECA II — Police Assistance Mission of the European
Community to Albania

Korça and Vlora Courts of Appeal

ASYCUDA II — Technical Assistance and Training

Annual
Programme

ALBANIA

2002

2002

2004

2003

2002

Date of signature

Sector

EUR

10/2003

Regional Development

7 400 000

05/2005

Judiciary and Police

4 498 686

12/2004

Judiciary and Police

3 800 000

05/2005

Judiciary and Police

04/2005

Judiciary and Police

1 630 395

399 815

Total

17 751 366

BOSNIA AND HERZEGOVINA

Constructing of Karakaj Border Crossing Point

Technical Assistance to the Establishment of Single
Economic Space II

Basic Functional and Financial Audit of the Institutions of
BiH

Training of Prosecutors in BiH on the new Criminal
Procedure Codes

Assessment, design, supervision of blocking illegal border
crossings towards Croatia

Rebuild part of the Travnik fortress for educational
tourism (part of EU-RED)

Modernisation of state border surveillance

Support to land cadastre and land registry reform

Registration of maritime domain

Agriculture and Food products

Support to the Croatian court system. Assistance in the
court reform

Supply for Equipment for the Criminal Intelligence System

Zadar City-Mobile Library

2001

2002

2001

2002

2001

2002

CROATIA

2004

2002

2003

2002

2002

2002

2002

02/2004

Integrated Border
Management

3 427 967

04/2003

Economic Development

1 939 802

04/2003

Public Administration

146 513

04/2003

Judiciary and Police

146 255

04/2003

Integrated Border
Management

144 900

12/2004

Regional Development

57 433

Total

5 862 870

05/2005

Integrated Border
Management

05/2003

Economic Development

02/2004

Economic Development

03/2005

Agriculture

5 000 000

5 000 000

2 000 000

1 749 864

02/2004

Judiciary and Police

1 000 000

12/2004

Judiciary and Police

07/2005

Democratic Stabilisation

248 944

238 630

Total

15 237 438

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Local self-governance. Construction of local roads in
9 municipalities

Provision of vehicles for border police — Lot 1

Development of operational capacity to combat money
laundering

Development of administrative capacity of the Courts

TA to support the implementation of IBM

2004

2003

2002

2003

2002

11/2004

Regional Development

3 474 623

10/2004

Integrated Border
Management

09/2004

Judiciary and Police

09/2004

Judiciary and Police

11/2004

Integrated Border
Management

2 486 726

700 000

148 495

55 540

Total

6 865 384

1

2

3

4

5

1

2

3

4

5

6

1

2

3

4

5

6

7

1

2

3

4

5

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1

2

3

1

2

3

4

5

6

7

Public Administration Reform — Municipal Development
and Social Infrastructure, Technical Assistance

Programme for minority rights and returns —
Reintegration programme in Prizren municipality (Prizren
615 000 EUR)

KOSOVO

2003

12/2004

Economic Development

11 200 000

2004

08/2004

Refugees and IDPs

5 000 000

Institutional support to the Ministry of Trade and Industry

2003

04/2004

Economic Development

2 235 760

Major Overhaul of Nikola Tesla Unit A5 Power Plant
(Grant agreement)

Supporting the National Strategy for the Closure of
Collective Centres in Serbia

Strengthening Quality Management, Capabilities and
Infrastructure in the State Union

Assistance in Establishing an Electricity Market in Serbia

Internal Audit and PIFC Phase 2

Assistance to European Integration Office

Support of Cross Boundary Initiatives for the IDPs from
Kosovo

SERBIA

2003

2004

2003

2004

2003

2002

2004

Total

18 435 760

12/2003

Energy

42 721 021

12/2004

Refugees and IDPs

4 443 000

12/2003

Public Administration
Reform

01/2005

Energy

04/2005

04/2002

Public Administration
Reform

Public Administration
Reform

3 559 520

2 723 637

1 870 680

1 500 000

08/2004

Refugees and IDPs

449 983

Total

57 267 841

OVERALL TOTAL

121 420 659

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THE COMMISSION REPLIES

SUMMARY

I.

Introduction to the Commission replies

The western Balkans were devastated by a conflict which ended in the late 1990s. The European Union’s post-
war assistance to the countries of the region began with emergency assistance under a legal instrument adopted
in 1996 and evolved into reconstruction, in the form of both institution-building and investment, with a
greater degree of recipient country ownership, as far as the political and economic circumstances allowed.

The Stabilisation and Association process launched in 2000 led to the adoption of the Community Assistance
for Reconstruction, Development and Stabilisation (CARDS) programme and other measures. Countries
emerged from conflict and system changed in different ways, and that is, as the report shows, reflected in the
implementation of the programmes.

The Multiannual Indicative Programmes (MIP) for the western Balkans countries contains references to

III.
the European Partnership priorities which clearly guided the programming.

The unification of the legal bases and the implementation of the CARDS regulation have allowed sig-

IV.
nificant improvement to the delivery of the aid to the western Balkans countries.

V.
The CARDS regulation does not set out specific responsibilities for the recipient countries. Therefore
most of the CARDS programme has been implemented through centralised management either by the Com-
mission or the European Agency for Reconstruction (EAR). Whenever possible, the management responsibili-
ties have evolved towards allowing beneficiaries to be closely involved in programming of activities, tender
evaluations and in monitoring and evaluation.

Since the Commission and the EAR are two separate bodies different Monitoring and Evaluation meth-
VI.
odologies exist. However, under the Instrument for Pre-Accession Assistance (IPA), the same methodology will
be used in all the countries.

The countries of the western Balkans were, and still are, in different states of transition and develop-
VII.
ment. While for Serbia, former Yugoslav Republic of Macedonia and Kosovo assistance focused initially on
emergency needs, for Croatia the efforts were directed to improve the administrative capacity.

VIII.
Under IPA, the strategic guidance will be improved thanks to the establishment of a multi-annual
indicative planning document, where, for each beneficiary country, the main areas for interventions are defined
and assistance under the different IPA components is coordinated.

The existence of a single legal basis and the three-year rolling forward system chosen for the financial plan-
ning under IPA allows for more flexibility than with the previous instruments and enables the Commission
services to take better account of the absorption capacity factor.

The intention is, for all beneficiaries, to manage EC funds in a decentralised way, which would greatly
strengthen the beneficiary country’s ownership. This is why a strategy towards decentralised management will
be developed also in potential candidate countries, so as to allow them progressively to take responsibility and
ownership of the implementation process.

OBSERVATIONS

Regular assessments were made of the CSP’s, inter alia in view of
the Partnerships, in order to identify whether changes in the situ-
ation of the country would have merited a revision of the strategy.

15.
Given the fast changing environment of the western Bal-
kans, the right balance needed to be found in terms of strategic
programming. Too specific Country Strategy Papers (CSPs) might
have being less useful in the strategic programming.

16.
The MIP for the western Balkan countries contains clear
references to the European Partnership priorities which clearly
guided the programming.

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The CARDS Management Committee’s comments were

17.
taken into account when finalising the documents.

Sectorial analyses were encompassed in a range of pro-
18.
gramming documents: MIP, European partnerships, as well as
previous annual programmes. Planned and implemented in close
cooperation with beneficiary country governments and donors,
particularly the EU Member States, the programmes mirror pri-
orities of the European Partnership, as reflected in the MIP.
Annual programmes build on previous phases of EC assistance to
the beneficiary countries.

19.
The Commission agrees with the need to develop a
clearer methodology which could help in the prioritisation pro-
cess between alternative projects.

Box 1 — Examples of non-implemented projects

Case 1: No political support to the Serbian Supreme Audit Institution
(SAI)

The work of the EAR focused first on relieving the emer-
24.
gency and getting basic services back on track. This was particu-
larly the case in the post-conflict situations of Kosovo, Serbia and
to an extent in the former Yugoslav Republic of Macedonia.

The quick delivery of this assistance encouraged evolution to the
later reform process.

25.
The administration in the former Yugoslav Republic of
Macedonia was not ready to take on a Twinning initiative until
recently. Actually, in order to launch twinning contracts with the
former Yugoslav Republic of Macedonia, the EAR needed the
recipient administration to prepare twinning fiches. Due to the
lack of administrative capacity in the line Ministries to prepare the
necessary documentation, the step-over from traditional techni-
cal assistance to twinning took longer than in other candidate
countries.

In line with the political mandate of the Thessaloniki Agenda of
June 2003, Twinnings were increasingly incorporated into the
work of the Agency. The Commission meanwhile actively put
know-how and training at the disposal of the Agency’s pro-
gramme managers.

Since the audit some evolutions have taken place. A law aiming
at establishing the SAI was adopted in November 2005 and the
body of the institution is in the process of being established.

Box 2 — Redirecting an institution building project —
Integrated Border Management
in the former Yugoslav
Republic of Macedonia

Case 2: The European Commission Police Assistance mission in Albania

Against a background of rapid change in Albania and in the con-
text of a considerable time lag between programming and imple-
in some cases,
mentation, projects originally planned were,
reoriented to better reflect the needs of the beneficiary and to
coordinate activities with other donors, which explains that in
some cases the measures taken and the results achieved could not
be completely in line with the project fiche.

21.
The national authorities of the recipient countries and the
Commission together, from early 2002, encouraged an evolution
towards projects and programmes giving a greater emphasis on
institution building. Nonetheless, parts of the region still greatly
needed investment for infrastructure of roads, transport, and
energy as the recipient countries were emerging from conflict and
years of underinvestment.

22.
With regard to institution building (establishment of
democratic institutions, public administration reform (civil ser-
vice, administrative capacity, budget and fiscal management …),
reform of local government, consolidating the rule of law through
judicial and police reforms, etc.), sectoral allocations were pro-
vided by the Commission in strategy documents such as the MIP.
the Agency’s programmes indeed increasingly
After 2002,
focused on institution building.

The objectives of the project covered: the set up of a Border Police
Service and transfer of operational responsibilities in line with the
Integrated Border Management (IBM) strategy objectives.

Allocated funds were indeed used to purchase vehicles for border
police. In the period between the fiche drafting and implementa-
tion, developments urged for a review of priorities:

— A Police Reform Project covered recruitment procedures;

— OSCE assistance addressed the Border Police training;

— Equipment for detection of falsified documents, which at the
time of implementation was not yet fully in use, was supplied
under an earlier Phare 2000 project. Provision of additional
similar equipment was hence inappropriate.

The Border Police Service (including the transfer of operational
responsibilities from the Defence to the Interior Ministry in line
with IBM strategy) was created by the national authorities under
national funding. The newly created service was, however, entirely
without operational equipment and could not fulfil its opera-
tional responsibilities.

In view of the above, the procurement of the vehicles was deemed
appropriate.

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36.

Box 5 — Support to the Croatian Court System

(a) The Regional Annual Action Programme 2002 and 2003
had an Integrated Border Management project which was
managed at a regional
from Commission HQ in
Brussels.

level

The CARDS 2002 project had two conditionalities: (i) existence
of the strategy for reform of judiciary and (ii) implementation of
the CARDS 2001 judiciary project must have been well underway.

(b)

It was considered more efficient to manage most of the refu-
gee return programmes at national level.

At the moment of start of the project political dialogue and draft-
ing of the strategy on the reform of judiciary were sufficiently
advanced to justify the start of the project.

(c) The Regional Programmes are planned by Commission HQ
together with Delegations and administrations of the benefi-
ciary countries.

37. (a) The Commission assessed the capacity of the Albanian
Development Fund positively in accordance with the
Financial regulation that applied when the action began
in 2002.

39.
The Financing Agreement with regard to the CARDS
2001 Annual Programme for Albania was signed in March 2002,
and the de-concentration of the CARDS programme started there-
after. The implementation of the CARDS 2001 and 2002 Annual
Programmes could only begin in 2003, and, as a consequence,
the speed of implementation went up as from 2004.

In Croatia, the 2001 and 2002 programmes have indeed been
implemented at the same time, but, as a matter of rule, there is
always a period of three years of simultaneous implementation of
two sequential programmes.

Box 4 — Overstretched national administrative capacity in
Albania

The concentration of projects in the Justice and Home Affairs sec-
tor properly reflected needs identified and the high priority given
to this sector by the EU and other donors.

This project was the very first of the kind. The structure of the
judicial system in Albania, as in any country, involves multiple
project partners and beneficiary institutions. Moreover, its impact
depends very much upon the political will of the beneficiaries to
act on the recommendations of the project team. In this context,
the political instability of Albania affected implementation. An
evaluation report published in April 2007 also acknowledged
that the project design was very ambitious.

44.
Even though, as the Court says, the Council regulation
doesn’t define any specific responsibilities for the recipient coun-
tries, the Commission has, as far as possible, increased progres-
sively the countries management responsibilities. There has been
an evolution of management responsibilities allowing beneficia-
ries to be closely involved in programming of activities, tender
evaluations and in monitoring and evaluation. Part of the CARDS
programme in Croatia is now being managed by the country itself
in line with the Decentralised Management System.

While the promotion of beneficiary involvement is gen-
46.
erally a clear method for improving the effectiveness of EU assis-
tance, the involvement of the beneficiaries in programming and
implementation under a centralised management system is much
more difficult to ensure than under a decentralised management
system.

The Commission, within the framework defined by the
48.
CARDS regulation has promoted recipient country responsibility
whenever possible taking into account the capacities of the coun-
tries concerned.

49.
In most of the beneficiary countries, the situation of the
local public financial resources was that difficult that no resources
could be set aside by them for the co-financing of the projects.

52.
The national authorities have benefited from local train-
ing on the tendering procedures, organised by the Commission.

The Paris Declaration on Aid Effectiveness was signed in
54.
2005, and at the time of the audit its principles could not have
had any significant impact on the management of CARDS.

40.
The fact that there is a wide variety and large number of
beneficiaries, even within one particular sector, indeed increases
difficulty but does not imply that the impact of projects is neces-
sarily reduced.

In Croatia, the Commission took the lead in establishing the
mechanism of EU Donor Co-ordination in 2000. Ownership of
the co-ordination process by the Croatian authorities (NAC
administration) was strongly encouraged, but was unfortunately
not very effective.

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The Agency closely coordinated with other donors present in the
region notably in the framework of the regular coordination
meetings hosted within the Agencies operational centres. More-
over, the beneficiaries are playing an ever increasing leading role
in these meetings.

59.
Systematic evaluations of CARDS projects by the Delega-
tions could be improved. However, the responsibility of conduct-
ing independent evaluations is conferred to HQ and the EAR, and
the Delegation are not submitted to such requirement.

assessment of the challenges, needs and relative importance of the
priorities for assistance, and the way this translates into strategic
choices under each IPA component. A description of the major
areas for intervention under each component, the results antici-
pated and indicative financial allocations are also provided in the
MIPDs. This will allow the strategic part of the implementation to
be significantly reinforced under IPA.

The choice of a combination of several management
65.
approaches was made in order to ensure speedy delivery of aid
and reflected the weaknesses of the national administrations. In
such a context, it appeared impossible to ensure the maximisa-
tion of the benefit of the aid in all circumstances.

CONCLUSIONS AND RECOMMENDATIONS

61.
The CARDS assistance in the western Balkans countries
and especially Kosovo had to focus on pressing emergency needs
supply of clean water, heating, house and road reconstruction.

67.
In many cases beneficiaries reacted well to a fast roll out
and evolution of assistance. However, all necessary elements were
not always in place to guarantee a satisfactory absorption of the
assistance.

Nonetheless, assistance from 2002 increasingly began to focus on
reform efforts and therefore also on institutional building within
CARDS.

Recommendation 2

The Commission’s strategic guidance has been formu-
62.
lated in the European Partnership documents and has been based
on needs’ analyses in the Annual Progress reports.

The CSP guidelines could not have been formulated oth-
63.
erwise taking into account the fast changing environment in the
western Balkans. Furthermore, in view of the Partnership, regular
assessments of the CSP were made in order to identify whether
changes in the situation of the country would merit a revision of
the strategy.

64.
The countries covered by the EAR after 2000 were
emerging from a conflict situation. In line with EC programmes
the work focused first on relieving the emergency and getting
basic services back on track.

This quickly delivered assistance both allowed the reform process
to progress, and the assistance to evolve towards institutional
building. The use of twinning is however not a sign of progress
in itself.

Prior to 2004 many prerequisites were not yet in place, for the
optimal use of Twinning, but the picture has changed since and it
is now widely used. In 2007 most Twinnings take place in coun-
tries where the EAR is managing assistance.

Under IPA, the objective is to provide targeted and efficient assis-
tance to all beneficiary countries. This is why despite the continu-
ous focus on rapid implementation of aid, the IPA Commission
regulation
towards
a
decentralisation.

progressive

provides

path

for

Absorption capacity is one of the criteria for the allocation of
funds to beneficiary countries within the Multi-annual Indicative
Financial Framework (MIFF).

68.
Since 2000 recipient country ownership has markedly
and visibly increased — in terms of coordination, input, techni-
cal capacity.

The level of ownership in each of the involved Countries reflected
different traditions, capacity, history recipient country-specific
demands and needs.

69.
Over the last six years recipient country ownership has
markedly and visibly increased — in terms of coordination, input,
and technical capacity.

This positive evolution takes many forms — in programming
through discussion and debate, through monitoring and evalua-
tion, but also increasingly through donor coordination.

Recommendation 1

Recommendation 3

The strategic guidance under IPA is given by country specific
multi-annual indicative planning documents (MIPD) and a multi-
beneficiary MIPD. The country documents include a consolidated

Under IPA, much emphasis will be put on ownership of the whole
implementation process by the beneficiary country.

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Therefore, decentralised management is the objective whenever
applicable. For this, specific structures and systems, which need
to be put in place by the beneficiary country, are required. Under
IPA, stricter conditions and requirements are foreseen for the con-
ferral of management powers by the Commission to the benefi-
ciary country.

Finally, to ensure ownership from the national authorities, the
national programmes are adopted by the Commission on the
basis of project proposals submitted by the beneficiary countries.

70.
Since the Commission and the EAR are two separate
bodies different Monitoring and Evaluation methodologies exist.
However, under IPA, the same methodology will be used in all the
countries as the EAR will be phased out by 31 December 2008.

Recommendation 4

The Commission has scheduled a review of the evaluation prac-
tices and has meanwhile provided for harmonised practices for
the Delegations through the Guide on Self Evaluation including
arrangements for disseminating results and lessons learned. This
self evaluation at project level will complement the independent
evaluation at programme level performed by the Unit in charge.

A system has been put in place a for systematic follow-up of
evaluations including organising a debriefing meeting within a
month following the issuing of sector evaluation reports with a
subsequent issuing of a follow-up table by operations on the rec-
ommendations. In addition, reporting arrangements on follow up
of the evaluation recommendations involve that operations
reports one year later on what actions have been taken. The Com-
mission reviews the extent that follow up actions have been taken.