Report from the Commission - Member States' replies to the Court of Auditors' 2007 Annual Report {SEC(2009)257}
Date: 2009-02-24
Institutions: European Commission
Subjects: EU Member State, European Court of Auditors, activity report, agricultural expenditure, common agricultural policy, financial management, financial year, management audit, structural expenditure

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.2.2009 
COM(2009) 96 final 

REPORT FROM THE COMMISSION 

Member States' replies to the Court of Auditors' 2007 Annual Report  

{SEC(2009)257}

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TABLE OF CONTENTS 

1. 

2 

3. 

4. 

5. 

6. 

7. 

Scope of the Report...................................................................................................... 3 

Executive Summary ..................................................................................................... 3 

General 2007 DAS findings and DAS findings in shared management ...................... 4 

Follow up of errors....................................................................................................... 6 

Actions taken by member states to address shortcomings in cohesion and 
agriculture/natural resources ........................................................................................ 7 

Helping member states to improve management of eu funded projects .................... 10 

Conclusion ................................................................................................................. 11 

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1. 

SCOPE OF THE REPORT 

The  European  Court  of  Auditors  (ECA),  the  European  Union's  external  auditor, 
provides a statement of assurance (the DAS) in the annual report on the reliability of 
the accounts and the legality and regularity of the underlying transactions. The main 
aim  of  the  DAS  is  to  provide  an  audit  opinion  as  to  whether  EU  income  and 
expenditure is accurately recorded in the accounts and has been raised and spent in 
accordance with all contractual and legal obligations.1 

The  Commission  is  required  to  inform  Member  States  of  the  details  of  the  ECA 
annual report that relate to the management of funds for which they are responsible 
as soon as the report has been transmitted and the Member States have an obligation 
to reply within sixty days.2 On 11 November 2008, the Commission duly transmitted 
these findings and invited the Member States to fill in a three part questionnaire. The 
Member  States  had  already  received  the  Court's  findings  for  their  respective 
countries  and  had  discussed  them  with  the  Court  and  the  Commission  prior  to  the 
adoption of the Court's report. The summary of Member States replies is presented in 
a Commission report (accompanied by the Commission Staff Working Document) to 
the ECA, the Council, and the European Parliament before 28 February 2009. 

2 

EXECUTIVE SUMMARY 

The  2007  ECA  annual  report  is  significant  for  two  reasons.  Firstly  the  Court  has 
modified  the  structure  of  the  report  and  it  now  closely  reflects  the  new  financial 
framework. Secondly, this is the final DAS to be presented under this Commission's 
and this Parliament's mandate. 

The results of the Commission's efforts to further improve the control framework are 
becoming  visible  in  the  ECA  results.  The  Court  has,  for  the  first  time,  given  an 
unqualified  (clean)  opinion  on  the  reliability  of  the  accounts.  The  Court  has  also 
given unqualified opinions on the legality and regularity of transactions in Revenue, 
commitments and payments for Economic and Financial affairs, and Administrative 
expenditure. The Court notes that the supervisory and control systems in those areas 
taken as a whole function effectively. By contrast, shared management is dominated 
by  the  Court's  adverse  opinions  on  the  legality  and  regularity  of  transactions.  In 
addition, the  supervisory and control systems  in these areas are reportedly  partially 
effective.  For  Agriculture  and  Natural  Resources  the  Court  has  concluded  that  the 
transactions underlying the expenditure for the policy area as a whole were affected 
by  a  material  level  of  error,  but  for  EAGF-  which  represents  85%  of  agricultural 
expenditure- the error rate is slightly below the materiality threshold. The Cohesion 
policy  area  was  identified  by  the  Court  as  the  area  most  affected  by  error  with  an 
estimated 11% of the total amount that should not have been reimbursed. The main 
weaknesses were identified in day to day checks by managing and paying authorities 
as  well  as  in  the  work  of  audit  bodies.  It  is  worth  noting  that  the  vast  majority  of 
transactions audited by the ECA relate to the 2000-2006 programming period. 

1 
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European Court of Auditors- Annual Report 2007 EU Budget-Information note pg7 
Financial Regulation Article 143.6 

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In  November  2008,  one  day  after  the  presentation  of  the  annual  report,  the 
Commission  duly  provided  each  Member  State  with  details  of  errors  following  the 
ECA  audits  carried  out  in  each  particular  country.  The  majority  of  Member  States 
replied to the Commission within an acceptable deadline and with sufficient detail.  

The  Court  classifies  errors  as  either  "quantifiable"  or  "non  quantifiable".  Member 
States are responsible for more than 90% of the total number of quantifiable errors in 
shared  management.  In  their  replies  to  the  actions  taken  in  the  light  of  the 
quantifiable error findings, 15 out of the 17 Member States concerned provided some 
information  on  the  actions  taken  and  the  likely  outcome.  The  Commission  will 
monitor these actions in its follow-up of the Court's error findings. 

Member  States  were  also  requested  to  respond  to  six  specific  questions  on 
Agriculture and Cohesion. For Agriculture, the Court expressed concerns about the 
reliability of payments made under the Single Payments Scheme – SPS. Almost all 
Member  States  replied  to  this  question  and  indicated  that  some  improvements  had 
been  made.  The  questions  on  Cohesion  were  based  on  the  levels  of  staffing  and 
training  for  staff  in  managing  and  paying  authorities.  Several  Member  States 
indicated in their replies that new staff members had joined the managing and paying 
authorities  in  the  last  12  months.  Over  70%  of  Member  States  replied  that  staff  in 
both  managing  and  paying  authorities  was  trained  in  financial  management  and 
control in the last 12 months.  

Member  States  were  also  requested  to  reply  to  two  general  questions.  The  first 
question  related  to  the  tripartite  discussions  which  were  held  between  the 
Commission, certain Member States and the ECA on the individual error findings in 
May-June 2008. Six Member States stated that they had taken part in these tripartite 
discussions. The replies showed satisfaction with this initiative. 

The second question asked how the Commission could improve its supervisory role 
in  shared  management.  The  main  improvements  suggested  were:  simplification  of 
rules  and  regulations,  improvements  in  monitoring  and  guidance  in  public 
procurement matters. 

3. 

GENERAL 2007 DAS FINDINGS AND DAS FINDINGS IN SHARED MANAGEMENT  

The results of the Commission's efforts to further improve the control framework are 
becoming  visible  in  the  ECA  results.  Although  this  trend  has  been  noted  by  some 
Member  States,  others  underline  the  fact  that  for  the  14th  consecutive  year,  the 
Commission has failed to obtain a positive DAS. In this context, a reconsideration of 
the current DAS approach has been suggested and the Court's recommendation to set 
a level of tolerable risk of error, striking a balance between the cost and benefits of 
controls has been welcomed. 

The  Court's  audit  opinion  on  the  underlying  transactions  was  very  similar  to  that 
presented in 2006. Although the estimated error rates have fallen in two policy areas 
formerly  covered  under  Internal  policies  and  External  actions,  this  has  not  affected 
the  overall  picture.  However,  the  Court  gave  an  unqualified  (clean)  opinion  on  the 
reliability of the accounts. In addition, the Court has given unqualified opinions on 
the  legality  and  regularity  of  transactions  in  certain  areas-namely  Revenue, 

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commitments, and payments for Economic and Financial affairs, and Administrative 
and other expenditure. The supervisory and control systems in those areas taken as a 
whole  function  effectively  and  the  sample  of  transactions  selected  have  been 
declared free of any material error.  

The  overall  picture  in  shared  management  is  dominated  by  the  Court's  adverse 
opinions on the legality and regularity of transactions. The Court concludes that these 
areas are to varying degrees still affected by a material level of error.  

Table 1.1 below provides a summary of the DAS results per chapter on the legality 
and regularity of underlying transactions. 

Table 1.1 - Summary of 2007 DAS results on the legality and regularity of 
underlying transactions3 as interpreted by the Commission 

Revenue 

Estimated error rate  

Below 2% 

Agriculture and Natural Resources – EAGF* 

Below 2 % 

 Agriculture and Natural Resources -non 
EAGF* 

Cohesion 

Aboie 5% 

Above 5 % 

Research, transport & energy 

Between 2% and 5% 

External actions 

Between 2 % and 5 % 

Education & citizenship 

Between 2 % and 5 % 

Economic & financial affairs 

Administration 

EDF 

Below 2 % 

Below 2 % 

Between 2% and 5% 

*This is a breakdown of Chapter 5 in the Court's annual report. 

The higher error rates estimated by the Court are to be found in the areas of Cohesion 
and  Rural  development.  In  the  biggest  spending  area,  Agriculture  and  Natural 
Resources, the Court concluded that the transactions underlying the expenditure for 
the policy area as a whole were affected by a material level of error. The Court also 

3 

Annual Report of the Court of Auditors on the implementation of the budget concerning the financial 
year 2007, together with the institutions' replies OJC 286 of 10.11.2008 p29 

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stated  that  the  supervisory  and  control  systems  were  partially  effective.  While  the 
EAGF  expenditure  representing  around  85%  of  all  expenditure  for  Agriculture  had 
an error rate which was slightly below 2%, Rural development accounted for a large 
part  of  the  overall  error  rate.  In  addition,  as  in  the  previous  year  2006,  the  Court 
noted that the Integrated Administration and Control System (IACS) was effective in 
decreasing  the  risk  of  irregular  spending,  where  properly  implemented  and 
conditional on the accuracy and reliability of data entered into the system. The Court 
therefore  recommended 
identification,  registration  and 
management of entitlements. 

improvements 

the 

in 

The  Cohesion  policy  area  was  identified  by  the  Court  as  the  area  most  affected  by 
error.  The  Court  estimated  that  at  least  11%  of  the  total  amount  reimbursed  to 
Cohesion  policy  projects  should  not  have  been  reimbursed.  The  Court  rated  the 
supervisory  and  control  systems  (Commission  and  Member  States)  in  Cohesion 
policy as partially effective for the first time in 2007. The transactions audited by the 
ECA in the Cohesion policy area all related to the 2000-2006 programming period. 
In 2007 the Court again identified the main weaknesses in first level controls as well 
as within audit bodies. They were as follows4: 

the  reliability  of 
Managing  authorities-insufficient  day 
expenditure, failure to identify expenditure declarations not supported by appropriate 
evidence and failure to identify weaknesses in tender procedures 

to  day  checks  of 

Paying authorities-failure to identify when managing authorities had not carried out 
adequate day to day checks 

Audit  bodies-failure  to  carry  out  sufficient  checks  to  obtain  assurance  on  the 
effective functioning of the control systems. 

The Court cited complex or imprecise legal requirements as having a serious impact 
on the legality and regularity of transactions in Rural development and Cohesion. 

Spending in the area of Education and Citizenship is partly managed through shared 
management.  The  Court  concluded  that  the  payments  underlying  this  policy  area 
were affected by a material level of error. The supervisory and control systems were 
also judged to be partially effective. 

4. 

FOLLOW UP OF ERRORS 

In its letter, the Commission duly provided each Member State with details of errors 
following the ECA audits carried out in each particular country. The Member State 
was then asked to provide details of actions taken to rectify the errors as well as the 
timing, content and expected outcome. The majority of Member States provided the 
information  requested  within  an  acceptable  deadline.  Moreover,  the  quality  of  the 
replies  in  general  was  good  with  certain  countries  providing  very  detailed 
information  on  actions  taken  for  audit  findings.  The  Commission  will  monitor  the 
actions taken as part of its routine follow-up of all Court reports. 

4 

Annual Report of the Court of Auditors on the implementation of the budget concerning the financial 
year 2007, together with the institutions' replies OJC 286 of 10.11.2008 p150 

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Definition and treatment of errors 

According to the ECA "errors may relate to a condition of payment" or to an "other 
compliance  issue".  The  Court  now  classifies  errors  as  either  "quantifiable"  or  "non 
quantifiable".5  Only  quantifiable  errors  are 
into  consideration  when 
determining  the  financial  impact  of  errors  for  the  whole  audit  population  and  the 
overall error rate to be published. 

taken 

Member States are responsible for more than 90% of the total number of quantifiable 
errors in shared management (100% in the Cohesion Policy area). All Member States 
provided at least a partial reply with regard to all quantifiable errors with 100% error 
rate.  In  each  case  they  stated  whether  the  error  had  been  accepted  or  rejected  and 
what  actions  had  been  taken.  Several  Member  States  (Czech  Republic,  Germany, 
Ireland, Spain, Greece and UK) accepted most of the errors indicated by the Court. In 
their replies to the actions taken in the light of the quantifiable error findings, 15 out 
of the 17 Member States concerned provided some information on the actions taken 
and  the  likely  outcome.  Some  Member  States  highlighted  the  fact  that  recoveries 
were  either  initiated  or  had  already  taken  place  and  amounts  recovered  were 
mentioned. In the case of one Member State -Greece- in each case of accepted error 
the Community contribution was reduced to zero.  

5. 

ACTIONS  TAKEN  BY  MEMBER  STATES  TO  ADDRESS  SHORTCOMINGS  IN  COHESION 
AND AGRICULTURE/NATURAL RESOURCES 

The  questionnaire  sent  to  Member  States  included  one  question  on  the  Agriculture 
and  Natural  Resources  chapter  based  on  improvements  to  the  SPS.  The  Court  had 
expressed concerns in the 2007 report about the reliability of payments made under 
the  SPS.  According  to  the  Court,  the  most  urgent  issues  to  be  addressed  were 
entitlements, information on land parcels and clarification and simplification of rules 
underpinning  the measures, in particular the  use of the  national reserve.  Almost all 
Member  States  replied  to  this  question  and  indicated  that  some  improvements  had 
been made. Several new Member States stated that they were currently not applying 
the SPS. However, those who did have such a system in place indicated that it had 
recently  been  audited  and  approved  by  the  competent  national  authority.  All  the 
issues mentioned by the Court had been taken into account. Several of the Member 
States  already  applying  the  system  mentioned  that  improvements  were  continually 
being  made,  particularly  in  the  field  of  ortho-photography  and  entitlements.  In 
addition, data bases were being updated and restructured in several cases. 

The four questions on Cohesion were based on the levels of staffing and training for 
staff in managing and paying authorities. The majority of Member States replied to 
the question on the number of new staff members joining the managing and paying 
authorities  in  the  last  12  months.  New  staff  was  taken  on  in  a  context  of  re-
structuring and in certain cases for the closure of the 2000-2006 programming period 
as  well  as  to  cover  the  programmes  for  the  new  2007-2013  period.  New  Member 

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Annual Report of the Court of Auditors on the implementation of the budget concerning the financial 
year 2007, together with the institutions' replies OJC 286 of 10.11.2008 pg 28 

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States in particular displayed overall a pattern of high staff increases – in the case of 
Bulgaria up to 88%. 

Over  70%  of  Member  States  replied  positively  that  staff  in  both  managing  and 
paying  authorities  was  trained  in  financial  management  and  control  in  the  last  12 
months.  Most  countries  had  some  statistical  record  of  staff  trained  and  several 
countries  highlighted  the  fact  that  ongoing  training  in  financial  management  and 
control,  programme  and  contractual  management  in  the  form  of  seminars, 
information  sessions  and  conferences  were  standard  features  of  their  training 
programmes.  Induction  courses,  (in  one  case  lasting  up  to  three  days)  and  starter 
packs  were  an  integral  part  of  most  Member  States'  training  package.  In  addition, 
starter packs for new staff members were available in 80% of Member States. These 
packs were made up of several basic documents including checklists, guidance notes 
and  procedure  manuals.  Several  Member  States  stated  that  managing  and  paying 
authorities  had  websites  and  that  use  of  the  intranet  for  disseminating  information 
was  standard  practice.  In  a  few  cases  public  procurement  documentation  was  not 
readily available and Lithuania stated that more Commission support was necessary 
in  this  area.  Difficulties  with  public  procurement  and  the  resulting  problems  with 
tender procedures lead to one of the most frequent errors as observed by the ECA.  

Question 6 was based on the Court's observation on audit bodies6. It was intended to 
identify  the  reasons  for  the  failure  on  the  part  of  the  audit  bodies  to  carry  out 
sufficient checks. Nearly all Member States interpreted the term "audit body" as the 
National  Supreme  Audit  Body  and  stated  that  this  institution  was  independent  and 
that the work carried out by it was of a very high quality. However, the Court was 
referring  to  the  other  audit  entities  carrying  out  audit  functions  in  the  context  of 
project management and control as indicated in point 6.29 of the ECA annual report. 
It is therefore not possible to exploit the replies provided by Member States. 

Finally,  question  7  focused  on  the  overall  reduction  of  errors  identified  in  each 
country in the last year. Most Member States were unable to make the comparison as 
audits were not carried out by the ECA in the same country in two consecutive years. 
However, four countries- Hungary, UK (Scotland), Poland and Spain noted that there 
had been an overall decline in errors compared to past audit years. 

Table  1.2  below  provides  a  summary  of  the  total  number  of  replies  to  the 
questionnaire,  with  details  of  staff  increases,  staff  training  and  starter  pack 
documentation available in Member States. 

Table 1.2 

Question 

Total number of 
replies 

Total number of 
replies not provided 

1) Agriculture 

2) Staff increase in Managing 

24 

25 

3 

2 

6 

See footnote 4 above 

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and Paying authorities 

% staff increase(when quantification was provided) 

5-24% 

25-49% 

50-100% 

4 

8 

5 

3) Training in Managing 
authorities 

24 

% staff trained (when quantification was provided) 

5-24% 

25-49% 

50-100% 

3 

5 

5 

4) Training in Paying authorities 

24 

% staff trained (when quantification was provided° 

5-24% 

25-49% 

50-100% 

1 

2 

9 

5) Content of starter pack 

22 

3 

3 

5 

yes 

no 

no reply 

Checklists 

Guidance 
strategies 

notes 

on 

control 

Guidance  notes  on 
control findings and error rates 

reporting 

Digest  of  eligibility  rules 
checking claims 

for 

Public procurement rules 

20 

17 

20 

19 

19 

2 

5 

2 

3 

3 

5 

5 

5 

5 

5 

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Final payments-rules and checks to 
be made 

Irregularities-the consequences 

Any other procedure manuals 

20 

19 

19 

2 

3 

3 

6) Audit bodies 

7) Reduction of errors 

8) Tripartite discussions 

23 

23 

24 

5 

5 

5 

4 

4 

3 

6. 

HELPING MEMBER STATES TO IMPROVE MANAGEMENT OF EU FUNDED PROJECTS 

In order to discern how the Commission could further contribute to the improvement 
of  Member  States  management  of  EU  funded  projects,  two  general  questions  were 
included in the questionnaire.  

The first question was based on the tripartite discussions which were held between 
the  ECA,  certain  Member  States  and  the  Commission  prior  to  the  contradictory 
meetings in July 2008.The meetings were held to discuss the Court's error findings 
on audited programmes and projects as a basis for the contradictory meetings and the 
question  focused  on  how  useful  the  Member  States  concerned  considered  these 
discussions.  The  second  question  asked  how  the  Commission  could  improve  its 
supervisory role in shared management. 

Tripartite meetings  

Six  Member  States  stated  that  they  had  taken  part  in  the  tripartite  discussions.  The 
replies indicated that although the outcomes of the meetings were not always entirely 
favourable  for  the  Member  State  concerned,  nonetheless,  overall  there  was 
satisfaction with this initiative and it was regarded as very useful by Ireland, Greece, 
Slovakia and the Czech Republic. In particular, Ireland stated that "This procedure 
and  experience  was  extremely  helpful  for  both  the  Managing  Authority  and  the 
Member State" for the following reasons: 

Understanding of ECA processes and procedures. 

Incorporation of ECA checks into own member state checks and controls. 

Face  to  face  communication  resulted  in  an  agreement  on  many  more  points  than 
written communication could have achieved. 

The reasons for the points which remained in the report were fully explained by the 
ECA and understood and agreed by the Member State. 

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This enabled all outstanding issues to be resolved and the final report to be issued in 
a timely and efficient manner." 

Improving the Commission's supervisory role 

Member States generally indicated that they were satisfied with the way in which the 
Commission performed its supervisory role, and two countries cited the Contracts of 
Confidence  which  had  been  signed  with  the  Commission  in  the  Regional  and 
Cohesion Funds. Moreover, Member States welcomed the fact that the Commission 
had  strengthened  its  role  by  issuing  guidelines  in  the  2007-2013  programming 
period. However, just over half the Member States and in particular the new Member 
States suggested that the Commission could improve its role. Some of the areas for 
improvement which were highlighted included:  

•  Rules  and  regulations:  the  provision  of  guidelines,  best  practices  and  training 
for  managing  and  paying  authorities;  simplification  of  rules  and  regulations  in 
order to promote more efficient project implementation. 

•  Monitoring: improvements in the monitoring role of the Commission with more 
information  on  the  methodology  used  for  the  inspection  missions  undertaken  by 
the Commission. 

•  Public  Procurement:  more  supervision  in  the  field  of  public  procurement  and 

training in Community law; Guidelines for public procurement. 

7.  CONCLUSION 

•  The  Commission  is  generally  satisfied  with  the  quality  of  the  replies  to  the 
questionnaire received from the Member States, and the fact that the tight deadline 
was respected in almost all cases. In addition, some Member States also provided 
extensive documentation concerning the corrective measures employed. 

•  Member  States  remarked  on  the  improvements  in  the  DAS  2007,  which  for  the 
first time provided an unqualified opinion on the reliability of the accounts. In the 
field  of  shared  management  Member  States  are  continuing  to  make  efforts  to 
improve their systems and reduce errors. The replies to the questionnaire show an 
overall  positive  attitude,  with  improving  staff  levels,  with  high  levels  of  staff 
increase  and  staff  training  in  managing  and  paying  authorities.  The  errors 
identified  by  the  Court  are  often  accepted  by  the  Member  States  and  in  a  large 
number of cases, actions have already been taken. They will be followed up by the 
Commission. 

•  Member States generally indicated that they were satisfied with the way in which 
the  Commission  performed  its  supervisory  role.  They  pointed  out  the  need  for 
simplification, with regard to rules and regulations. In addition, there are requests 
for  the  Commission  to  strengthen  and  further  develop  the  guidelines  and 
assistance  provided.  Finally,  Member  States  request  clarification  from  the 
Commission and the Court of Auditors, with regard particularly to best practices. 

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