Commission staff working document - Annex to the report from the Commission - Member States' replies to the Court of Auditors' 2007 Annual Report {COM(2009) 96}
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 
SEC(2009) 257 

COMMISSION STAFF WORKING DOCUMENT 

Annex to the  

REPORT FROM THE COMMISSION 

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

{COM(2009) 96} 

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The  European  Court  of  Auditors  (ECA)  published  its  Annual  Report  on  the 
implementation  of  the  budget  concerning  the  financial  year  2007  (2007  Annual 
Report)  on  10  November  20081.  In  the  report,  the  ECA  presented  its  Statement  of 
Assurance (DAS) and the supporting information, including observations concerning 
management in Member States. 
As  required  by  the  Financial  Regulation2,  the  Commission  sent  a  letter  to  each 
Member State immediately, informing them of the ECA's observations as well as the 
errors attributed by the ECA to their country. The Commission also asked Member 
States  to  fill  in  a  questionnaire  which  focused  on  Member  States'  follow-up  of  the 
ECA's findings.  

This  Commission  Staff  Working  Document  accompanies  the  summary  report  on 
Member  States'  replies  to  the  Court  of  Auditors'  2007  Annual  Report  and  presents 
Member  States'  replies  to  the  questionnaire  in  more  detail.  Contributions  from 
Member  States  have  been  shortened  in  some  cases  so  that  only  main  issues  are 
presented. 

The questionnaire contained 3 parts. 

Part  A  included  a  question  on  the  SPS  (single  payments  system)  in  the 
Agriculture/Natural resources chapter. Member States were invited to state whether 
they had addressed improvements in this area. There were also, questions related to 
the  Cohesion  chapter,  where  the  Court  found  weaknesses  in  the  supervisory  and 
control system, mainly related to the 1) Managing authorities 2) Paying authorities 3) 
Audit bodies. Member States were invited to reply focusing on the shortcomings in 
the  supervisory  and  control  systems,  and  action  taken  by  them  to  address  these 
shortcomings.  Finally  there  were  two  general  questions  concerning  the  overall 
number  of  errors  identified  by  the  Court,  the  tripartite  discussions  with  the 
Commission,  the  Court  of  Auditors  and  the  Member  States  and  finally  the 
Commission's supervisory role in shared management. 

Part  B  offered  Member  States  the  opportunity  to  make  any  general  remarks  on  the 
2007 Annual Report or general issues relating to the discharge procedure. 

Part C contained a list of all observations in the 2007 Annual Report relating to the 
specific Member States as well as a list of DAS errors attributed by the ECA to the 
Member State. For each observation/error, the Member State was invited to indicate: 
1) if action had been or would be taken, 2) the timing of any action taken, and 3) the 
content of action taken or (if no action) the reason for not taking action. 

Member States were required to submit their replies by 15 December 2008.  

The  Commission  received  replies  from  almost  all  Member  States,  cf.  table  1.  The 
overall quality of replies was generally good and no Member State failed to submit a 
reply. 

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2 

The  report  was  published  in  the  Official  Journal  C  286  of  10.11.2008.  It  is  available  on  the  ECA 
website: www.eca.europa.eu. 
Article  143(6)  in  The  Financial  Regulation  applicable  to  the  general  budget  of  the  European 
Communities, Council Regulation (EC, Euratom) No 1605/2002 of 25.6.2002. 

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Even if the approach of the Member States was generally cooperative, some of them 
did not reply to all parts of the questionnaire or only replied partially to part A and 
part C. Where appropriate, the Commission sent reminders to Member States. 

Table 1. Replies received by the Commission from Member States. 

Part A 

Part B 

Austria 

Belgium 

Bulgaria 

Cyprus 

Czech Republic 

Denmark 

Estonia 

Finland 

France 

Germany 

Greece 

Hungary 

Ireland 

Italy 

Latvia 

Lithuania 

Luxembourg 

Malta 

Netherlands 

Poland 

Portugal 

Romania 

Slovakia 

Slovenia 

Spain 

Sweden 

United Kingdom 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Comment provided 

No comment 

Comment provided 

No comment 

No comment 

Comment provided 

No comment 

Comment provided 

Part C 
(Ref) 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Comment provided 

Partial reply 

Comment provided 

Reply 

Comment provided 

Partial reply 

Comment provided 

Comment provided 

Reply 

Reply 

Partial reply 

Comment provided 

Partial reply 

Reply 

Reply 

Reply 

Reply 

No comment 

No comment 

Comment provided 

Comment provided 

Reply 

Reply 

Reply 

Reply 

Partial reply 

No comment 

Partial reply 

Reply 

No reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Comment provided 

Reply 

No comment 

No comment 

No comment 

Comment provided 

No comment 

No comment 

Comment provided 

Partial reply 

Reply 

Reply 

Reply 

Reply 

Reply 

Reply 

A  detailed  overview  of  general  comments  made  by  Member  States  (part  B)  is 
provided in table 2 whereas Member States' reactions to specific observations made 
by the ECA in the 2007 Annual Report (part C) is presented in table 3.  

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Member State 

Bulgaria 

TABLE 2. GENERAL REMARKS 

Reply 

Bulgaria's institutions are paying close attention to the findings of the European Court of Auditors. Measures are being considered 
to remedy shortcomings, to improve management and control systems and to address the Report's other findings. 

We  are  pleased  with  the  new  structure  of  the  Annual  Report.  It  guarantees  an  appropriate  degree  of  concordance  between  the 
Report and the object of the Report, namely the EU budget. It makes the EU institutions' examination and adoption of the Report's 
findings faster and clearer, and it makes it easy for the public to obtain information on the financial management of EU funds.  

The report is of crucial importance for the discharge procedure. The Court examines all accounting transactions in the course of 
the year and draws up a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying 
transactions. It thereby enables the European Parliament to exercise one of its powers, namely that of approving or rejecting the 
manner in which the Commission manages and spends the EU budget.  

We  would  point  out  that  the  translation  of  the  Annual  Report  is  unclear  in  places,  which  is  an  obstacle  to  its  being  fully 
understood and to the adoption of optimal measures to remedy the shortcomings identified. 

Denmark 

Annual report for 2007 

Denmark  is  happy  to  see  that  every  year  since  the  statement  of  assurance  was  introduced,  with  effect  from  1994,  the  Court  of 
Auditors has, with some reservations, considered the EU’s accounts to give a true and fair view of the Communities’ revenue and 
expenditure and financial position. On the whole, therefore, this part of the statement of assurance has been positive every year 
and is again unblemished for the financial year 2007 (with no reservations at all). 

However, Denmark considers it clearly unsatisfactory that the Court of Auditors has, for the 14th year running, given a negative 
statement of assurance (with reservations) about the legality and regularity of underlying payments for most areas of expenditure 
in  the  EU  budget  (errors  in  over  2%  of  payments  in  55%  of  EU  spending  sectors).  There  is  no  question  of  the  situation  being 
unchanging  and  thus  static  since,  despite  its  repeated  reservations  in  parts  of  the  statement  of  assurance,  the  Court  of  Auditors 
again acknowledges the progress that has been made in recent years in the financial management and internal control of the EU 

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TABLE 2. GENERAL REMARKS 

budget. In the Court's annual report for 2007 this mainly concerned improvements in the control systems.  

Denmark welcomes the fact that the Court of Auditors puts forward a number of recommendations in its annual report for 2007. 
The main recommendations are: Political decision-making on acceptable risk levels for the financial control of the implementation 
of the EU budget; continued improvement of controls and control reports; and, not least, simplification of complicated rules and 
regulations. The Court of Auditors has for several years recommended that the current rules and regulations should be simplified 
as  much  as  possible,  reducing  the possible risk  of  error.  The  recommendations  are  put  forward  with  particular  emphasis  in  the 
annual  report  for  2007,  in  which  the  political  authorities  are  called  on  to  consider  simplified  legislation  in  fields  such  as  rural 
development and research.  

The Danish authorities would like careful consideration and detailed examination of the Court's recommendations as part of the 
Council's discharge procedure.  

In the current situation Denmark considers that the most important contribution to continued progress in the financial management 
and internal control of the EU budget should come from the following measures: 

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Continued  implementation  and  follow  up  of  the  Commission’s  Action  Plan  towards  an  Integrated  Internal  Control 
Framework in respect of the implementation of the EU budget. In particular, this concerns control of the Cohesion Fund and the 
establishment of acceptable levels of error for the implementation of the budget. 

• 
Provision of better and more comprehensible information on the use of financial corrections, penalties, etc., and amounts 
recovered  and  amounts  outstanding  in  the  latest  financial  years,  broken  down  by  country,  sector,  etc.  The  Commission  should 
report to the Council and to Parliament on this subject at least once a year. The Member States should of course contribute to this 
with the necessary reports. 

Continued close cooperation between the Court of Auditors and the supreme national audit authorities (the National Audit 

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Office in Denmark) through the exchange and reciprocal use of audit findings, etc.  

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Simplification  of  rules  and  provisions  (see  above  in  connection  with  the  Court  of  Auditors'  recommendations).  The 
possibilities  for  simplification  should  be  examined  in  greater  detail.  The  Court  of  Auditors  should  clarify  its  position  and  the 
Commission  should  also  propose  practical  changes  to  legislation,  etc.,  to  facilitate  the  management  and  control  of  the  way  EU 

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TABLE 2. GENERAL REMARKS 

assistance is used.  

Discharge procedure 

The  Council’s  discharge  procedure  should  be  supported  by  an  extended  and  more  regular  treatment  of  questions  of  financial 
management and control throughout the year.  

The Council – and thus the Member States – should involve themselves more with the sound financial management of the EU 
budget, i.e. the regularity as well as the effectiveness and efficiency of budget implementation. The Council’s Budget Committee 
in particular should deal more regularly with issues in connection with the financial management, control and evaluation of budget 
implementation. In the current situation this calls for continued discussion of the Commission’s action plan and recovery issues 
(see above).  

In future the Council’s Budget Committee should also discuss the following annual documents:  

• 
The Court of Auditors’ special reports which typically deal with the extent to which EU citizens get “value for money”. 
The  special  reports  are  now  discussed  only  by  the  appropriate  sectoral  committee,  which  does  not  appear  satisfactory.  For  its 
discussions  on  both  the  drafting  and  the  current  implementation  of  the  budget,  the  Council’s  Budget  Committee  should  once  a 
year gain a general view of the main points of the special reports together with the Council's conclusions. This could strengthen 
the  link  between  the  Council's  establishment  of  the  budget  and  the  Court's  management  audit.  The  Budget  Committee's 
comprehensive  examination  of  the  special  reports  should  take  place  before  the  Commission  presents  its  proposal  for  the  new 
budget for the following year. 

The  Commission’s  synthesis  management  report  containing,  for  instance,  lists  of  the  statements  of  assurance  of  the 

• 
individual Directors-General in their areas of responsibility (with detailed reservations). 

The Commission’s report on the Member States’ replies to the Court of Auditors’ Annual Report. This important report – 
• 
which represents a regulatory part of the discharge procedure – should, at least, be presented by the Commission and commented 
on by the Court of Auditors at a special meeting of the Budget Committee. 

If  the  Council’s  Budget  Committee  does  not  have  the  capacity  needed  to  expand  its  treatment  of  questions  of  financial 

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TABLE 2. GENERAL REMARKS 

management and control, the Court should consider appointing a special working party on the implementation of the EU budget. It 
should be pointed out that the Council has already appointed a special working party for combating fraud. 

Finland 

As regards the cohesion policy, the Court of Auditor's report gave examples of errors identified in the audits. Because of the large 
number  of  errors  identified  relating  to  the  legitimacy  and  regularity  of  projects,  fuller  details  of  the  audit  findings  would  be 
welcomed, to provide a more precise and representative explanation of the Court's comments. 

The background to the incorrect expenditure submitted by the final beneficiaries often contains complex rules and the high level 
of error does not necessarily mean that failure to comply with the rules was a deliberate attempt to defraud. At EU level, as part of 
its action plan to strengthen controls on the shared management of structural measures, the Commission has drawn up guidelines 
for the Member States on important issues regarding eligibility. These guidelines clarify the interpretation of the complex rules 
and  will  reduce  the  amount  of  ineligible  expenditure  in  the  future.  The  training  organised  by  the  Commission  for  the  Member 
States  on  questions  related  to  management  of  the  structural  funds  (control  of  structural  funds,  closure  of  programmes)  is 
particularly useful in this respect.  

France 

Germany  

The instructions provided by the Commission (under the format of "guidelines") on a particular issue should be more coordinated 
or consolidated from a communication to the other one, in order to allow a faster and more correct application. 

1. Germany appreciates the efforts by the Commission and the Member States to improve the budget execution. 
2. However, the ECA didn't give a positive DAS according to Article 248 EU Treaty on EU for the 14th consecutive time. On the 
basis of the current procedures, it is not foreseeable that a positive DAS will be achievable in medium term or in the long term. 
The controls, imposed by the Commission, are so extensive that they hinder the implementation of structural actions. The ECA's 
observations in the area of shared management are indicating only insignificant improvements, compared to the previous year. In 
Germany's  view  this  indicates, that  the DAS  procedure according to Article 248 EU Treaty on EU is not working. Instead, the 
budget  authorities  and  the  Commission  should  think  about  a  new  DAS  approach  and  should  agree  on  a  new  procedure  as  an 
alternative to the current DAS procedure which didn't lead to a positive DAS in the last 14 years. In this regard, Germany supports 

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the ECA's idea of tolerable risk of error for each policy area. 

Germany supports the ECA's recommendation to simplify management and control regulations. 

TABLE 2. GENERAL REMARKS 

Greece 

1)  Our  service  notes  point  1.41,  in  which  the  ECA  finds  that  ‘its  audits  in  the  areas  of  ‘Agriculture  and  Natural  Resources’, 
‘Cohesion’, ‘Research, Energy and Transport’ as well as ‘Education and Citizenship’ show that complicated or unclear eligibility 
criteria or complex legal requirements have a considerable impact on the legality and/or regularity of underlying transactions’. 

Our  service  has  repeatedly  emphasised  its  agreement  with  the  above  ECA  finding  and  maintains  that  these  ECA  observations 
should  be  taken  into  account  with  regard  to  simplification  of  the  regulatory  framework  governing  the  implementation  and 
financing of expenditure in the above areas. 

2)  Our  service  comments  that  the  broader  picture  from  the  ECA  observations  is  that  the  situation  regarding  execution  of 
expenditure from the Community budget is clearly improved in relation to previous ECA observations and that the institutions, as 
well as the Member States, are cooperating and taking corrective actions to deal with any errors identified. In particular, we note 
that the overall assessment by the ECA of the supervisory and control systems in the Cohesion area improved from ‘not effective’ 
to ‘partially effective’. 

Hungary 

We  were  glad  to  see  that  the  European  Court  of  Auditors  (hereinafter:  ECA)  issued  an  unqualified  opinion  concerning  the 
reliability of the report for the financial year 2007. In other words, according to ECA assessment, the report gives a true picture, 
from all material aspects, about the financial situation and the operating and cash-flow results of EU. 

Unfortunately,  ECA  repeatedly  gave  a  negative  opinion  concerning  the  legality  and  regularity  of  the  underlying  transactions  in 

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most areas of expenditure. 

TABLE 2. GENERAL REMARKS 

The  recommendations  included  in  the  report  identify  specific  steps  and  actions  for  the  Commission  and  for  the  competent 
authorities of the relevant member states. In our opinion, such steps and actions could be useful for the targeted elimination of the 
deficiencies present in the management and audit systems. However, we consider it important that ECA also include in the report 
or any supplementary document examples of good practice found during the audits. Not only the faults identified during the audits 
but  also  the  systems  successfully  implemented  in  practice  could  greatly  assist  the  member  states  in  the  elimination  of  their 
respective deficiencies.  

Although  the  report  mentions  that  there  was  great  progress  in  the  field  of  the  action  program  initiated  by  the  Commission,  the 
practical  impacts  of  such  progress  cannot  be  felt  yet  and,  therefore,  cannot  be  assessed  at  the  moment.  However,  the 
implementation of certain measures included in the action program would be indispensable so that the relevant processes can start 
also in the member states. For instance, the too complicated regulatory environment can be simplified at the level of member states 
only after a simplification in Community regulations. 

For the establishment of an efficient and successful management and control system it is necessary for the Commission to provide 
detailed guidelines for the member states. As in the previous year, we would again suggest that ECA should encourage – with due 
recognition of the work done so far – an improvement in further methodological guidelines and pay more attention to checking the 
content of such guidelines. 

Ireland 

Cohesion (Special EU Programmes Body) -SEUPB found the discharge procedure very useful for the reasons outlined in question 
8.  

Natural Resources  

Para 5.15 (a) Agri-Environmental Schemes: On-the-Spot checks by Auditors, farmers had not met all the eligibility conditions. 
Please see additional information for a detailed response to individual farm findings. Para 5.32 (c) Inadequate verification of the 
eligible area under agri-environmental measures in cases where this area did not correspond to the data on the IACS database. 

Land areas claimed under the REPS scheme are cross-checked and verified with the Area Aid/LPIS database. Differences between 

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TABLE 2. GENERAL REMARKS 

REPS and Single Payment Scheme (SPS) areas are systematically identified during the processing of annual REPS payments, and 
these payments are withheld until differences are resolved. When over 60,000 REPS claimed land areas were checked against the 
Area Aid Land Parcel Identification System (LPIS), minor errors were found in less than 300 cases representing 0.5% of the total 
area. From 2008, as part of an integrated REPS/SPS/DAS risk analysis, all field inspections of REPS participants include a full 
On-the-Spot verification of claimed areas. Further, all inspected REPS participants in 2007 are now the subject of an On-the-Spot 
verification  of  areas  claimed.  With  the  exception  of  one  farm  visited  by  auditors,  any  measured  LPIS  areas  were  shown  to  be 
correct and demonstrate the integrity of the Department’s LPIS database as a land area verification system. From 2009, Ireland 
will  impose  conformity  between  areas  eligible  for  payment  in  SPS  and  REPS  (previously,  some  areas  such  as  farmyards  and 
internal roadways have been elibigible for REPS payment for not for SPS, but this will no longer be the case). Fuller details will 
be provided to the Commission shortly. 

Para 5.32 (e) Inconclusive and poorly documented administrative and on-the-Spot controls 

Administrative Controls 

Administrative checks are carried out on 100% of REPs applications. Both Article 67 of Commission Regulation 817/2004 and 
Article 11 of Commission Regulation 1975/2006 afford some discretion to member states in relation to the checks to be carried 
out.  While  acknowledging  the  Commission’s  observations,  Ireland  remains  satisfied  that  previous  procedures,  involving  cross-
checking of applications with its area and animal identification databases, gave a very high level of assurance as to their validity. 
The data on Irelands’ Land Parcel Identification System are regularly updated and demonstrably accurate to a very high degree. 
The  Animal  Identification  and  Movement  System  is  also  based  on  a  framework  of  very  regular  updating,  verification  and 
validation.  Ireland  contends  therefore  that  its  systems  for  the  measurement  of  land  parcels  and  animal  numbers  are  extremely 
accurate and therefore that the risk of ineligible payment was extremely small. 

Article  67(1)  pf  817/2004  provides  that  “The  Member  States  shall  define  suitable  methods  and  means  for  verification  of 
compliance  with  the  conditions  for  granting  support.  Article  11  of  1975/2006  provides  that  “administrative  checks  on  payment 
claims shall cover all elements that it is possible and appropriate to control by administrative means. All REPS Plans are checked 
during the administrative procedure. “Effective Verification” in Ireland does not rely on assumptions of Planners though it was 
clear  from  the  inception  of  the  scheme  in  1994,  and  throughout  its  many  years  of  implementation,  that  these  Professional 

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Agronomists have a key role to play in the implementation of this complex measure. 

TABLE 2. GENERAL REMARKS 

Ireland  does  not  accept  that  the  Plan  is  not  checked  in  an  exhaustive  manner.  Checks  are  clearly  evidenced  and  outcomes 
recorded.  

Notwithstanding  Ireland’s  position  as  regards  checks  conducted  previously,  a  new  system  is  being  introduced  from  early  2009 
which requires all REPS farm plans to be prepared using the latest version of eREPS, the electronic planning system approved by 
the Department of Agriculture, Fisheries and Food (the latest version includes a number of automatic checks which will in most 
cases prevent the submission of erroneous data). 

On-the-Spot Field Inspections 

In cases that are selected for 5% on the spot inspection the administrative checks include the following:  

•Eligibility of lands: Re-check of REPS area -v- LPIS area  
•Ownership  and  Lease  documents,  Grazing  rights  &  Commonages  documents  are  all  examined  to  ensure  they  meet  REPS 
Specifications. 
•All maps are checked for compliance with the scheme specifications; 
•Nutrient Management: Ensure that the potential of grassland/tillage areas to take animals and other wastes have not exceeded the 
maximum permitted in the Specifications and that calculations are correct. 
•Soil analysis reports are checked against the Plan and the Specifications. 
•The calculation of maximum permitted chemical P and the lime requirement is checked. 
•Planned  livestock  numbers  on  REPS  Plan  are  compared  with  the  AIMS/CMMS  information  (the  Departments  animal 
identification and movement database) The Aim System has been recognised as a very reliable and accurate means of showing 
livestock movements and locations. 
•The calculation of Nitrogen (N) from animal/other wastes is checked. 
•Check that the maximum number of livestock is consistent with details of livestock enterprise on the Plan. 
•Check that the N quantities (chemical/animal waste) do not exceed the maximum permitted. 
•Check that the Plan has adequately addressed the over wintering of animals and the planned animal housing facilities. 

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TABLE 2. GENERAL REMARKS 

•Check that the Plan has adequately addressed fodder storage facilities and silage effluent storage facilities. 
•Check the planned facilities for storage of farm wastes and the diversion of clean run-off from buildings and yards. 
•Check  the  undertaking  for  specific  habitat  types  are  outlined  in  the  Agreed  Farming  Conditions  and  that  Non-Commonage 
Measure A lands comply with the specific farming conditions for the habitat type. 
•Where appropriate check that the undertaking required to achieve the conservation objectives for the particular commonage as 
outlined in the Framework Plan and that Commonage Measure A lands comply with these conditions. 
•Where appropriate the destocking calculation is checked and the maximum ewe equivalents allowed must be verified. 
•Where  appropriate  Measure  A  lands  and  Non  Commonage  Target  Area  lands,  should  meet  the  requirements  of  the  REPS 
Scheme. 
•The remaining REPS Measures detailed on the Plan are examined. 
•The annual works prescribed for the duration of the Plan are examined. 
•REPS Biodiversity Options indicated on Plan are checked to ensure the options chosen meet with the Planner Specification. 
•Supplementary Measures (if applied for) are examined. 

Ireland  is  satisfied  that  the  5%  on-the-spot  check  is  sufficiently  robust  and  was  always  sufficiently  robust  to  meet  the  control 
requirements of REPS 2 and REPS 3. We are equally satisfied that the 5% on the spot check for REPS 4 meets these requirements. 

Control Report 

The format of the control report in use for On-the-Spot checks was deemed insufficient to allow for complete verification of the 
controls. While the control report in use in 2007 did allow for a full evidencing of control of eligibility criteria, revised control 
reports were put in place from May 2008 onwards to take account of audit opinion. Para 5.32(f) Inadequate consideration of risk 
factors for the selection of sample of farmers to be controlled. 

It is acknowledged that in accordance with Commission Regulation 2419/2001 (as superseded by Commission Regulation (EC) 
No 796/2004) that the proportion of the sample selected randomly for on the spot inspections should have been 20–25% rather 
than 50%. The proportion of the sample selected randomly is now based on 20–25%. 

In relation to the risk criteria used for selecting the remainder of the sample the selection of the sample has been amended from 

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TABLE 2. GENERAL REMARKS 

2008/2009 onwards to include the additional factors: 

•the number of agricultural parcels and the area; 
•changes from the previous year. 

However,  the  Irish  authority  would  contend  that  as  ERS2  eligibility  and  payment  are  based  on  land  area  (and  Good  Farming 
Practice  applies,  not  cross-compliance),  the  two  additional  factors  specified  under  Article  19  of  Commission  Regulation 
2419/2001 (as superseded by Article 27 of Commission Regulation (EC) No 796/2004) are not relevant to ERS2. These factors 
are: 

•cases  of  non-compliance  with  Regulation  (EC)  No  1760/2000,  which  relates  to  the  identification  and  registration  of  bovine 
animals and the labelling of beef. 
•replacement  of  animals  pursuant  to  Article  58,  which  relates  to  the  time  limits  for  the  replacement  of  bovine  animals  and 
indicates  that  “Bovine  animals  present  on  the  holding  shall  only  be  regarded  as  determined  if  they  are  identified  in  the  aid 
application.” 

Italy 

(NOTE: This reply has been provided by the Ministry of Education and research and by the Authority for the ERF on the 
issues related to their competence) 

Ministry of education: 

There are some problems concerning the alignment of the amounts recorded in the last report of the Commission (Ref. REGIO 
J3/FM/djdd D (2008)) and those recorded in the Annex II of your letter. 

With regard to the determination of staff costs, the general expenses and the need of more checks on the financial operations, our 
Administration has adopted some important measures. We have detailed the conditions to evaluate the staff cost, the worked hours 
and the general charges. The calculation of the general expenses as 60% of the staff cost has been eliminated (no more than 50%, 
and this figure has to be supported by an adequate accountability documentation). We have eliminated the 5% deduction for the 
absences. Concerning the additional documentation required, we will transmit it to you as soon as possible. 

Authority for the ERF: 

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TABLE 2. GENERAL REMARKS 

With reference to the table 2.1 of the Chapter "Education and citizenship", we would like to point out the weaknesses of the 
management and control systems for the European Funds for Refugees. On the 4th December 2008, the Commission for the 
exercise 2007 has audited this Administration. The General-Director of the DG LSJ has demanded to the audit authority to do 
some additional verification on the regularity of the operations for 30% of the expenditure (instead of 10% minimum required in 
the art 7, par.2 of the Decision 2006/401/CE).  

We would like to point out that for the EFR II 2008-2013, Italy has already established a new Management and Control System 
with an annual and multiannual framework, approved by the EC with the decision C (208)7727 del 5.12.2008. 

Luxemburg 

ESPON : The programmes for the European territorial cooperation are more complicated than the national ones. It could be useful 
to go further on the formulation of appropriate specific rules which make easier such programmes  

Malta 

The European Commission adopted ‘Action Plan towards an Integrated Internal Control Framework’. This Action Plan, divided 
into 16 main points, is addressing gaps in the control systems where EU funds are concerned and is already bearing fruit. 

In areas such as ‘Administrative Payments’ and “Economic and Financial Affairs' no material errors were identified and therefore 
it was concluded the the control systems in these areas are functioning properly. On the contrary, areas such as 'Research, Energy 
and Transport’ are still suffering from material arrors. The Directorate feels that the basic principles of the control systems that are 
functioniung properly should be applied to those areas still afflicted by material errors, although it is undedrstood that in these area 
expenditure is more complex. 

Accounts for 2007 are the third set of accounts prepared on the principle of accrual accounting and one has to point out that in this 
year’s accounts there is an improvement on those of the previous two years. This is evident, for example, from the fact that there is 
a better categorisation of information about recovery of payments which should not have been made. 

Poland 

Please note that the ECA's preliminary findings of the audit mission for the Statement of Assurance for the financial year 2007 (DAS 2007) in 
respect of the Operational Programme 2004PL06GDO001 (Temporary Rural Development Instrument (Ref. PF 2565), conducted by the ECA 
in Poland from 2-6 and 23- 27 July 2007 have not been covered. 

We therefore present comments on the ECA audit (Ref. 2565) for the DAS 2007. 

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Member State 

Reply 

Ref. no. II (1) No on the spot checks prior to the decision granting aid. 

TABLE 2. GENERAL REMARKS 

In line with the findings of the STAR Committee, presented in document VI/185/250/04-rev1 Guidelines for Meeting Standards, in the case of 
projects of a value of over EUR 10 000 the Agency for the Restructuring and Modernisation of Agriculture (ARiMR) visits holdings before 
taking a Decision. These visits are part of the verification of whether the investment concerned really is necessary on the holding (i.e. whether 
there  are  not  already  suitable  premises/installations)  and  whether  investment  in  the  holding  has  already  begun  before  a  Decision  granting 
financial  aid  for  the  adjustment  of  agricultural  holdings  to  EU  standards  has  been  taken  under  the  rural  development  plan.  We  would  also 
stress that a further visit is made after submission of the statement on the farmer's implementation of the investment.  

At the same time, in the plan for the adjustment of the holding to EU standards, submission of which is a basic precondition of the aid, the 
farmer is obliged to give information concerning, above all, the installations for the storage of natural fertilisers with which the holding is 
already  equipped.  The  adjustment  plan  defining  the  state  of  the  holding  before  the  investment,  the  scope  of  the  planned  measures,  a  brief 
technical description of the measures and the target state of the holding. In the case of adjustment of dairy holdings, the need for adjustment is 
confirmed by a decision of the district veterinary officer refusing to certify that the holding complies with minimum standards of hygiene and 
animal welfare. At the farmer's request the district veterinary officer defines the scope of measures necessary to achieve minimum standards 
of hygiene and animal welfare. 

The results of the checks are entered in the system and provide the basis for further verification procedures. A simple administrative control 
has also been introduced in the ARiMR to check the data entered on the application against the data already in the database on the farmer 
concerned. 

Ref. No II (2) Actions in connection with comments made during on-the-spot checks and their impact on risk analysis. It should be clearly 
stated that Action 6 of the Rural Development Plan on the adjustment of agricultural holdings to EU standards is an action in which support is 
provided on a one-off basis and hence the results of the checks conducted cannot contribute to selection for controls in subsequent years. 

Ref. No. II (3) The managing institution relies to too great an extent on the declaration of the final recipient before authorising final payment.  

With respect to the above form, which raises the issue that the statement of the final recipient is an inadequate basis for effecting the final 
payment, we would explain that for projects of a value of less than EUR 10 000 the ARiMR conducts on-the-spot checks on a 5.5% sample of 
applicants. The complaints about the beneficiary's statement, on the grounds that is not sufficient evidence that the measures have been taken, 
is unjustified since after the statement that measures have been completed checks are carried on 5.5% of cases.  

It should be borne in mind that Article 69 of Commission Regulation (EC) No 817/2004 of 29 April 2004 laying down detailed rules for the 

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Member State 

Reply 

TABLE 2. GENERAL REMARKS 

application  of  Council  Regulation  (EC)  No  1257/1999  on  support  for  rural  development  from  the  European  Agricultural  Guidance  and 
Guarantee Fund (EAGGF) provides that on-the-spot checks are to be made in accordance with Title III of Regulation (EC) No 2419/2001. 
They are to cover at least 5% of beneficiaries each year and all the different types of rural development measures set out in the programming 
documents. 

It  should  also  be  emphasised  that  Article  72(1)  of  Commission  Regulation  (EC)  No  817/2004  of  29  April  2004  laying  down 
detailed rules for the application of Council Regulation (EC) No 1257/1999 on support for rural development from the European 
Agricultural Guidance and Guarantee Fund (EAGGF) provides that any beneficiary found to have made a false declaration as a 
result of serious negligence must be excluded from all rural development measures under the relevant chapter of Regulation (EC) 
No 1257/1999 for the calendar year in question.  

It should also be borne in mind that under Article 75(2) of the Code of Administrative Procedure, if a provision of the law does not require the 
facts  or  the  legal  situation  to  be  officially  confirmed  by  means  of  a  certificate  issued  by  the  competent  administrative  body,  the  public 
administrative  body  must  accept,  on  application  by  the  party,  a  statement  made  by  that  party,  who  is  subject  to  criminal  liability  if  the 
statement is false.  

Ref. No III (2) Administrative checks are poorly documented and do not allow conclusions to be drawn. 

The aid is a lump sum covering 100% of the value of the planned investment. It is not therefore calculated on the basis of invoices submitted. 
The aid is granted on the basis of the payment rates set out in the Regulation of the Council of Ministers of 18 January 2005 on the detailed 
rules  and  procedures  for  granting  financial  assistance  for  adjusting  agricultural  holdings  to  European  Union  standards  under  the  rural 
development plan (Dziennik Ustaw No. 17, item 142, as amended).  

In  cases  giving  rise  to  doubts,  the  control  body  may  demand  commercial  documents  confirming  the  purchase  of  necessary  construction 
materials,  although  this  means  of  verification  is  not  compulsory.  The  main  focus  of  the  analysis  of  invoices  is  to  establish  whether  the 
investment was undertaken before the decision was taken to award financial aid. This is why the result of the verification by the control body 
was a list of the dates on which the documents were issued. Under Paragraph 12 of the above Regulation, a farmer to whom a payment is 
granted  is  obliged  to  keep  documents  relating  to  the  payment  granted,  including  commercial  documents  within  the  meaning  of  Regulation 
4045/89/EEC of 21 December 1989 on scrutiny by Member States of transactions forming part of the system of financing by the Guarantee 
Section  of  the  European  Agricultural  Guidance  and  Guarantee  Fund  and  repealing  Directive  77/435/EEC,  for  five  years  from  the  day  of 
completion of implementation of the adjustment plan.  

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Member State 

Slovenia 

TABLE 2. GENERAL REMARKS 

Reply 

Managing  authority  (SVLR  –  the  Slovenian  Government  Office  for  Local-Self-government  and  Regional  Policy):  In  its 
annual  report  for  2007  the  European  Court  of  Auditors  gives  each  Member  State  the  opportunity  to  examine  the  main 
shortcomings, errors and problems that arise in the implementation of structural policies. Because of the transparency and public 
nature of the data, each Member State is able to focus beforehand on certain bottlenecks and problems in implementation.  

The  managing  authority  of  the  Republic  of  Slovenia  does  not  have  any  more  substantial  comments  on  the  European  Court  of 
Auditors report as the Court did not carry out any audits in Slovenia in 2007. However, there were a number of audits by other 
supervisory  bodies  (the  Court  of  Audit  of  the  Republic  of  Slovenia,  the  Budget  Supervision  Office  and  the  European 
Commission). The last two audits, by DG EMPL and DG REGIO, are currently in the final stages.  

Within its sphere of responsibilities, the managing authority will be more active in supervising implementation of the management 
and control system for Structural Fund and Cohesion Fund resources and start immediately on the tasks conferred on it in response 
to the needs arising from certain flaws in the system for implementing cohesion policy. 

Paying  authority  (Ministry  of  Finance,  Budget  Directorate  –  SUSEU  –  Department  for  Management  of  EU  Funds):  The 
certifying authority does not have any comments to make about the 2007 annual report. 

Ministry of Finance, Budget Directorate - Unit for cooperation on the EU budget welcomes the Commission decision on the 
introduction of proactive arrangements for the lifting of reservations concerning the VAT resource and GNI. 

United Kingdom 

1.1. 

CLG 

There  has  been  a  unique  process  in  one  particular  region  where  sub  regional  bodies  deliver  the  funding  programmes  which 
presented additional challenges. In particular, the Commission had concerns around the physical on-site checking of projects. This 
resulted in ERDF in England being affected by flat rate corrections for deficiencies in management and control systems. However, 
the issues were or are being amicably resolved and actions have been taken to improve those management and control systems. In 

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Member State 

Reply 

TABLE 2. GENERAL REMARKS 

support  of  the  actions  taken  to  improve,  the  value  of  suspension  originally  indicated  has  been  significantly  reduced  because  of 
these improvements. Additional resources have been implemented to ensure that we get in line with the EC proposed error rate of 
2%, which we believe is unreasonable and which we doubt any member state will be able to achieve.  

There  has  been  greater  emphasis  on  working  with  the  regions  to  increase  the  number  of  on-site  checks.  We  have  revised  and 
strengthened guidance on monitoring and inspection activity, additional resources have been employed. Regions are taking action 
to ensure ineligible expenditure is identified and dealt with and that any ineligible expenditure is deducted from declarations to the 
Commission.  The  ERDF  IT  system  will  automatically  deducted  any  ineligible  amounts  once  a  clawback  of  grant  has  been 
instigated. 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

CHAPTER 2 – COMMISION INTERNAL CONTROL FRAMEWORK  

2.3 

The  Commission 
acknowledges 
nevertheless  that  further  efforts  are 
to  resolve  a  number  of 
needed 
weaknesses, 
those 
in  particular 
highlighted in the reservations of the 
delegated  authorising  officers  and 
those  belonging  to  the  budget  areas 
that were not considered satisfactory 
by  the  Court  of  Auditors.  In  this 
respect  the  Court  considers  that  the 
scope  of  some  reservations  should 
be  greater  than  presented  by  the 
Commission’s Directors-General. 

transformed 

(public  procurement, 

Bulgaria:  Action  taken  in  June  2008.  Content  of 
the  action:  In 
the  period  May-October 2008 
Bulgaria reformed its systems for the management 
and  control  of  the  Cohesion  Fund  (formerly 
ISPA).  The  Republican  Road  Infrastructure  Fund 
was 
a  National  Road 
into 
Infrastructure Agency (NAPI) reporting directly to 
the  Ministerial  Council.  NAPI  has  been 
designated  an  intermediate  body,  accountable  to 
the  managing  authority  at 
the  Ministry  of 
Transport.  The  two  authorities  have  reached  an 
agreement  dividing  competences  between  them 
and  delegating  powers  for  the  implementation  of 
road  projects.  The  internal  rules  of  procedures 
the  systems'  working  have  been 
governing 
updated 
reporting  of 
irregularities,  verification  of  expenditure  and 
works,  etc.).  By  order  of  the  deputy  prime 
minister,  a  working  party  of  directors  and 
competent deputy ministers was set up to monitor 
the NAPI's activities. The communication referred 
to  in  Article 5  of  Regulation  (EC)  No 1386/2002 
was updated and sent to the Commission.  
Council 
of  Ministers  Decree  No 224 
of 10 September 2008 established a council for the 
coordination and monitoring of EU resources.  
The  National  Assembly  has  adopted:  an 
amendment  to  the  Highways  Act,  an  amendment 
to  the  Public  Procurement  Act  and  an Act  on  the 
prevention  and  detection  of  conflicts  of  interest. 
Measures  to  strengthen  administrative  capacity: 
Council  of  Ministers  Decree  No 197  of 
5 August 2008  introduced  an  incentive  system  of 
performance-related  bonuses  for  staff  managing 
EU financial assistance. A European Commission 
audit to assess the compliance of management and 
control  systems  (indicative  chart)  is  expected  in 
February-March 2009. 

Czech  Republic,  Spain:  referred  to  its  reply  to 
Table 2.1 (see above) 

Hungary:  In  2007  and  2008  Government  Decree 
360/2004  (XII.  26.)  Korm.  (on  the  elaboration  of 
the  financial 
implementation,  accounting  and 
control  systems  related  to  accepting  funds  linked 
the  Operational 
to  projects 
Programs  of  the  National  Development  Plan, 

financed 

from 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

EQUAL  Community  Initiative  and  the  Cohesion 
Fund)  was  amended  several  times  with  regard  to 
the following: handling of irregularities, first-level 
audits,  statement  from  the  directors  of  managing 
the  proper 
authorities/participating  bodies  on 
operation of internal control systems. 

Ireland:  in  relation  to  the  reserve  imposed  on 
Ireland. A response was issued to DG REGIO on 
10th  October  2008.  This  is  currently  being 
considered by the Commission and we understand 
that a further response is to issue to Ireland early 
in 2009. 

Latvia:  The  single  payment  scheme  under 
Chapter  III  of  Regulation No  1782/2003  is  not 
being  implemented  in  Latvia,  because  the  single 
area  payment  scheme  under  Article  143(b)  of 
Regulation No 1782/2003 is being implemented.  

Luxemburg:  Action  taken  in  2005,  2006  and 
2007.  Content  of  the  action:  reinforcement  of  the 
control. 

Poland:  action  taken  on  April  2007.  In  April 
20007  the  European  Commission  sent  Poland  the 
Action Plan for 2004-2006, intended to contribute 
to  improving  existing  management  and  control 
systems.  Action  taken  on  the  basis  of  this 
document  included:  checks  under  Article  4  of 
Regulation  (EC)  No  438/2001,  checks  under 
Article  10  of  Regulation  (EC)  No  438/2001, 
expanding  the  methodology  for  the  conduct  of 
controls  on  public  procurement,  improving  the 
system  for  reporting  irregularities,  completing 
work on the IT system. As a result of the EC and 
ECA audits in 2006 and 2007 and the conclusions 
in the "Action Plan for Poland for 2004-2006", no 
reservations  were  presented  concerning  the  CF 
management  and  control  system  established. 
Therefore  the  comments  presented  in  Table  2.1 
and in points 2.3 and 2.11 do not concern the CF 
management and control system in Poland. 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

Slovakia: action taken on 30.10.2006 (Opinion of 
the  Human  Resources  SOP  MA,  MA  for  SPD 
NUTS II Bratislava Objective 3: Action Plan); on 
08/2008  (Opinion  of  the  Agriculture  and  Rural 
Development  SOP  MA:  increased  number  of 
controls); on 14.11.2007 (Opinion of the Ministry 
of  Finance,  Resolution  of  the  Government  of  the 
Slovak  Republic  No  974/2007  on  an  action  plan 
further  to  findings  made  in  certification  checks, 
controls and audits for the first half of 2007). 

Sweden: the Commission’s Directors-General had 
a reservation concerning Sweden relating to 2006. 
This  reservation  is  not  maintained  in  respect  of 
2007,  which  is  why  no  further  measures  are 
planned. 

Czech Republic, Spain: See table 2.1 

Hungary, Luxemburg, Poland, Sweden: See 2.3 

Slovakia:  Action  taken  on  30/10/2006  (Opinion 
of  the  Human  Resources  SOP  MA,  MA  for  SPD 
NUTS II Bratislava Objective 3: Action Plan) and 
on  5/2008  (Opinion  of  the  Agriculture  and  Rural 
Development SOP MA: Approval of a system for 
the control and auditing of EAFRD expenditure) 

Latvia:  Latvia  has  prepared  answers  to  the 
observations by the EC auditors. The coordination 
and  discussion  process  for  the  ESF  report  is 
ongoing 

Greece:  action  taken  in  December  2008.Content 
of  the  action:  submission  of  a  new  plan  of 
corrective  actions  for  the  EAGF,  showing  the 
measures 
the  weaknesses 
concerning  approval  of  payment  applications  in 
the  IACS  that  were  noted  by  the  Certifying 
Agency. 

tackle 

taken 

to 

Czech  Republic:  Cohesion  Fund:  in  2007  DG 
REGIO  carried  out  a  "Follow-up  system  and 
the  Czech 
project  audit".  The  response  of 
authorities  to  the  report  from  this  audit  was 
dispatched on 29 August 2008. The conclusions of 
audit  missions  carried  out  by  the  Commission  do 
significant 
not 
irregularities of a systemic character in the area of 

findings 

contain 

any 

of 

the 

from 

policy 

impact  of 

Directorates-General 
and 

for 
For 
Regional 
for 
Employment,  Social  Affairs  and 
Equal  Opportunities 
total 
estimated  financial  quantification  of 
their  reservations 
the 
approximately 
increased 
140 million euro  in  2006  to  nearly 
725 million euro in 2007 (5). For the 
Directorate-General  for  Agriculture 
and  Rural  Development  the  new 
reservation 
for  2007  on  Rural 
Development  expenditure  is  based 
on  information  from  Member  States 
which  shows  an  error  rate  in  excess 
of  3 %.  However,  this  information 
had  not  been  validated  by 
the 
certification  bodies  or  accepted  by 
the Directorate-General. 

2.11 

Table 2.1 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

and 

control.  Therefore, 

the 
management 
Managing  Authority  of  the  Cohesion  Fund  is  not 
aware of any reasons why the Czech Republic was 
included among the Member States against which 
the Commission has raised certain reservations for 
year 2007. 

Hungary, 
Sweden: see 2.3 

Ireland,  Luxemburg,  Poland, 

Latvia, Greece: see 2.11 

of 

Slovakia: action taken on 30.10.2006 (Opinion of 
the  Human  Resources  SOP  MA)  et  on  12/2007 
(Opinion 
and  Rural 
the  Agriculture 
Development  SOP  MA,  Adoption  of  a  financial 
management  system  for  2007-2013  RDP  SR 
measures  financed  by  the  EAFRD,  approved  by 
the  Slovak  Government;  adoption  of  a  draft 
scheme  of  control  and  aid  from  the  EAFRD, 
approved by the Slovak Government 

Spain: action taken in February 2008. Content of 
the  action:  instructions  to  MA  and  PA  from  the 
UAFSE  to  carry  out  an  adequate  control.  With 
regard  to  the  period  1994/99,  Spain  is  working 
jointly with the Commission. 

UK:  action  taken  and  on-going.  Content  of  the 
robust 
action: 
monitoring and follow-up on findings. 

resources,  more 

additional 

CHAPTER 3 – BUDGETARY MANAGEMENT  

3.10 

13 % of the unused commitments 
(18,1 billion  euro)  concerned  the 
Cohesion  Fund,  despite  the  fact 
that it represents only around 5 % 
of  total  authorised  commitment 
appropriations  for  2007.  This  is 
an  increase  of  2,7 billion  euro  or 
about  15 %  compared  to  2006. 
The  high  level  of  outstanding 

Czech  Republic:  The  spending  expected  for  the 
individual projects will be compared with progress 
in the actual  implementation and discussed at the 
biannual  meetings  of  the  monitoring  committees. 
The reason why there were large differences in the 
previous years was lack of experience in the first 
years  of  implementation  and  the  fact  that  when 
spending  forecasts  were  made,  contracts  had  not 
yet  been  concluded  for  most  projects  and  the 
forecasts were not based on a realistic vision. 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

commitments 
budgetary 
regarding 
the  Cohesion  Fund 
represents  2,5 years  worth  of 
commitments  or  4,2 years  worth 
of  payment  at  the  2007  spending 
rate and reflects also the fact that 
this fund is not subject to the n+2 
to 
rule  (see  paragraphs  3.12 
3.17).  The  spending  rate  for  the 
Cohesion  Fund  was  less  than 
expected,  especially  for  projects 
in  Spain,  Czech  Republic  and 
Slovenia.  An  amending  budget 
reduced 
payment 
the 
appropriations  by  0,67 billion 
euro (14 %). 

in 

Spain:  The  remarks  of  the  Commission  are 
accepted: because the eligibility in the projects of 
the  Fund  of  Cohesion  spreads  until  2010,  some 
the 
proposed  modifications 
organisms 
establishment  of  the  decisions  for  delays  in  the 
projects.  Also,  during  2007,  the  information 
requests  from  the  EC  have  increased,  principally 
in  case  of  the  requests  of  the  balance  (last 
payment)  of  the  projects.  This  has  generated  a 
delay  in  the  received  income  diminishing  the 
percentage of payment of the Fund of Cohesion in 
2007 and carried over in 2008. 

CHAPTER 4 – REVENUE  

4.5 

The  Court  audited  a  random 
sample  of  30  import  declarations 
in each of six Member States (4). 
It  also  carried  out  an  assessment 
of 
control 
systems  in  those  Member  States 
as well as at the Commission.  

supervisory 

and 

(4) The Court selects Member States 
for detailed audit on a cyclical basis, 
with  the  largest  contributors  being 
examined more frequently. For 2007 
the  countries  audited  were  Bulgaria, 
Denmark, Germany, Spain, Romania 
and Portugal. 

Bulgaria:  The  Bulgarian  customs  administration 
did  not  receive  an  opinion  from  the  ECA  under 
this audit.  

Spain:  in  this  paragraph,  the  Court  just  declared 
the scope of the inspection. 

Denmark: action taken in May 2008. The court's 
audit  findings  are  also  described  in  the  National 
Audit Office's statement on the audit of EU funds 
in Denmark. See pages 129-131 (points 630-632) 
of  the  National  Audit  Office's  report  No  19/2007 
to  the  State  auditors  on  the  audit  of  the  State 
accounts for 2007. 

4.7 

specific 
Furthermore, 
examination 
customs 
warehousing was performed both 
at  the  Commission  and  in  seven 

a 
on 

Belgium:  Action  taken  on  12/2006  and  06/2005. 
Content  of  the  action:  payment  to  the  European 
Commission  as  a  result  of  the  legal  action. 
Adaptation of the OWN RES files. 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

Member States. (6). 

(6)  Belgium,  Czech  Republic, 
France,  Italy,  Slovakia,  Sweden 
and United Kingdom. 

Czech  Republic:  four  of 
the  original  nine 
findings  of  the  ECA  (PF  2503/07)  have  been 
settled and the Commission has closed them. The 
the 
Permanent 
comments of the Directorate-General for Customs 
on the remaining five findings to the Commission 
in letter 5062/2008-SZEU/FÚ. 

Representation 

submitted 

Italy: Observations already presented with a letter 
to  BUDG/B/03/KPS/sa  D(08)59078,  on 
the 
27/12/2008. 

with 

the  management 

Sweden: Action taken in 2007, going on in 2008. 
-  The  results  of  controls  in  connection  with 
management  of  authorisations  are  documented  in 
a  checklist  for  controls  carried  out.  Applications 
for  authorisation  for  storage 
in  a  customs 
warehouse  are  accompanied  by  a  description  of 
procedures  which  must  be  approved  by  the 
customs  authority before authorisation is granted. 
A  control  strategy  for  monitoring  recently  issued 
authorisations  has  been  established.  A  number  of 
physical checks of storage sites are carried out in 
of 
connection 
authorisations.  Revision  and  reassessment  of 
conditions  for  authorisations  granted  after  1  July 
2001,  in  accordance  with  Annex  67  of  the 
implementing  rules.  Updating  of  control  strategy 
for  customs  warehouses.  The  following  types  of 
customs  warehouse  are  now  given  priority  for 
checks:  warehouses  with  deficient 
inventory 
records,  warehouses  which  handle  goods  subject 
to  the  highest  tariffs,  warehouses  storing  high-
value  goods,  warehouses  whose  operator  has 
infringed 
other 
authorisations  issued  by  the  customs  service.  An 
increase in the number of documentary checks of 
customs  warehousing  declarations.  A  check  that 
the correct procedure code is used in the removal 
declaration  and  that  warehouse  book-keeping 
contains  mandatory  information  is  part  of  the 
follow-up  of  authorisations.  Subsequent  checks 
are  carried  out  and  include  a  review  of  customs 
warehouse activities. 

conditions 

applicable 

to 

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Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

UK:  Actions  to  address  concerns  about  the 
frequency  and  depth  of  assurance  activity  were 
already  being  drawn  up  at  the  time  of  the  ECA 
audit in December 2006, following findings from 
a national project and prior European Commission 
audit.  Two-thirds  of  the  action  plan  has  already 
been  implemented.  We  expect  the  remainder, 
covering  the  development  of  new  training,  to  be 
completed during 2009. The action plan contains a 
number  of  activities  including  issuing  enhanced 
guidance, 
risk 
methodology, issuing a new operational assurance 
strategy for customs warehousing and developing 
enhanced training for assurance staff.  

developing 

improved 

an 

in 

Slovakia:  action  taken  immediately.  Opinion  of 
the  Customs  Directorate  SR:  authorization 
modified 
accordance  with  Community 
legislation,  addition  of  written  document  ‘Report 
on  an  inspection  and  the  resultant  assessment’, 
authorizations  include  detailed  handling  methods 
with the application of Article 533 of the Customs 
Code  Implementing  Regulation,  production  of 
national  guidelines,  -  document  DV1  was  added 
immediately  SADs  were  rechecked  and, 
in 
individual 
supporting 
documents were added, ECA recommendations on 
physical  checks,  based  not  on  a  set  number  of 
checks,  but  on  risk  factors,  were  accepted. 
Regulation  of  the  SR  CD  DG  No  43/2008 
adopted, 
the  Slovak  Customs  Administration 
subsequently  prepared  an  amendment  of  Section 
of  Act  No  199/2004,  the  Customs  Act,  which, 
following approval in the legislative process at the 
Slovak  Customs  Directorate,  is  ready  for  further 
procedure  consistent  with  the  legislative  process 
in the Slovak Republic. 

the  missing 

cases, 

4.10 

On  7  June  2007  the  Council 
adopted  a  new  Decision  on  the 

Germany: actions from the Member State are not 
required 

EN 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

of 

the 

introduced 

European 
system 
resources 
Communities’  own 
(2007/436/EC,  Euratom) 
(9), 
which  will  come,  retroactively, 
into  effect  from  1  January  2007. 
This  Decision 
a 
uniform rate of call for the VAT-
based own resource (0,30 %) and 
brought 
additional 
about 
reductions in the VAT- and GNI-
based  contributions  of  certain 
Member  States  for  the  period 
2007-2013  (10)  .  Accordingly, 
the  2007  Member  States’  VAT 
and GNI-based contributions will 
be recalculated retroactively upon 
completion  of 
the  ratification 
procedure,  which  is  expected  to 
occur in early 2009. 

4.13 

(9) OJ L 163, 23.6.2007, p. 17. 

(10)  Reduced  VAT  rates  of  call 
for  Austria,  Germany, 
the 
Netherlands  and  Sweden  and 
the  GNI-
gross  reductions 
based 
the 
Netherlands and Sweden. 

in 
contributions 

of 

economic 

Concerning  the  A  account,  in 
Denmark  the  data  input  in  the 
electronic  clearance  system  by 
the 
operators 
frequently  did  not  reflect  the 
reality of the import and therefore 
were not reliable. This has led to 
the 
a  net  underpayment 
Commission. 
the 
duties  collected  under  enforced 
recovery  are  accounted  for  and 
to 
made 
the 
available 
Commission  with 
systematic 
delay. 

to 
In  Portugal 

Sweden:  action  will  be  taken  in  Spring  2009.  A 
number of changes to our calculation system will 
be made after the formal decision has been taken. 

Portugal:  action  taken  in  January  2007.  No  IT 
system  has  been  introduced  in  2009  to  overcome 
the  communication  problems  between  DG  AIEC 
and DG CI regarding enforceable recovery, but a 
weekly  control  procedure  has  been  used  since 
January  2007  and  this  has  significantly  reduced 
the time lag between effective recovery and entry 
in the accounts. 

Denmark: action taken on 18 June 2008. This is 
internal  memo  of 
an  ongoing  action.  The 
28 September  2007  concerning  the  treatment  of 
output  – 
following 
procedures”A  list  of  firms'  drafts  is  drawn  up 
daily  for  each  Tax  Centre.  Each  Tax  Centre  with 
customs  responsibility  follows  up  its  list  after  a 
specific objective evaluation The data input by the 

list  C  describes 

the 

EN 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

4.20 

Reservations are a device to keep 
doubtful  elements  in  the  VAT 
statements  submitted  by  Member 
States  open  for  correction  after 
the  statutory  time-limit  of  four 
years.  Of  the  35  reservations 
lifted in 2007(16), nine related to 
1997 or earlier. 21 reservations in 
respect  of  1997  or 
earlier 
(including  two  relating  to  1989 
and  1993)  remained  open  as  at 
31 December 2007. 

(16)  In  addition  there  were  six 
cases, three in Germany and three 
in  Italy,  where  a  reservation  was 
partially lifted. 

economic operators does not reflect the reality of 
imports; which is not at all the intention as firms 
are able to store their own "drafts" on data space 
in SKAT’s Import system 

Austria:  referred  to  its  reply  to  Table  4.2  (see 

below) 

Belgium: The opened reservation since 1989 will 
be  lifted  before  the  end  2008.  We  will  deal  with 
the  other  reservations  during  the  year  2008.  The 
EC  will  be  doing  a  control  on  this  issue  at  the 
beginning of February 2009.  

(an 
in  VAT 

Bulgaria: At this stage the European Commission 
instrument 
has  entered  no 
reservations 
returns 
whereby  contested  entries 
submitted by the Member States can be corrected) 
obliging  Bulgaria  to  take  appropriate  measures. 
Bulgaria  prepared  and  presented  by  the  deadline 
fixed by the European Commission (31 July 2008) 
a  report/declaration  on  the  national  VAT  base  in 
2007 
the  European 
Communities'  own  resources.  The  information 
was  prepared  in  accordance  with  the  European 
Commission's  methodological 
technical 
requirements.  

the  purposes  of 

and 

for 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

2) 

for 

the 

rata 

calculation 

the  compensation  for  building 
pro 

Cyprus:  Measures  were  taken  in  2007  on  the 
three reservations regarding Cyprus: 1) calculation 
land  and 
of 
of 
buildings; 
non-deductibility 
intermediate 
consumption of exempt industries and gross fixed 
capital formation; 3) the reservation raised by DG 
TAXUD  of  the  European  Commission  regarding 
implementation of the system for travel agencies’ 
profit  margin.  The  two  reservations  regarding 
calculation  of  the  compensation  for building land 
and  buildings  and  implementation  of  the  system 
for travel agencies’ profit margin were removed in 
2008 (10-14/11/08 following and audit by officials 
from  DG  BUDG  of  the  European  Commission). 
Efforts  have  been  made  to  address  the  third 
reservation since 2007 and will continue in 2009. 
As regards the calculation of the compensation for 
building  land  and  buildings,  a  new  calculation 
method has been applied, which has been deemed 
satisfactory  by  officials  from  DG  BUDG  of  the 
European 
regards 
implementation of the system for travel agencies’ 
profit margin, please note that the 2005, 2006 and 
2007  VAT  base  statements  used  the  usual  15% 
VAT  rate  (in  accordance  with  the  EU  Directive), 
even  thought  this  is  not  provided  for  by  the 
legislation.  National 
relevant  national  VAT 
amended  on  20 June 2008 
legislation  was 
(Regulatory  Administrative  Act  242/2008) 
to 
bring it into line with Directive 2006/112/ΕC. The 
audit  carried  out  on  Cyprus  in  January  2006  by 
DG  BUDG  of  the  European  Commission  raised 
two  reservations  (see  reservations  1  and  2  in 
question  3).  A  further  reservation  was  raised  by 
DG TAXUD (see reservation 3 in question 3). 

Commission. 

As 

Czech Republic: see table 4.2 

Denmark:  Previous  reservations  related  only  to 
the  methods  used  for  the  statement  of  the 
calculation 
authorities 
base.  The  Danish 
subsequently  adjusted  the  method  in  agreement 
with the Commission. 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

own 

is  based 

compensation.  The 

Finland:  Action  taken  after  the  Commission's 
inspection  visit  on  29  September  2007.  The 
Commission  conducted  an  inspection  visit  in 
Finland  from  24  to  28  September  2007  and 
examined  Finland's  VAT 
resources 
statements  based  on  the  VAT  base  for  2004  – 
2005.  Existing  reservations  were  also  discussed, 
some  of  which  were  deleted,  but  others  were 
added.  After  the  visit  there  were  still  eight 
reservations.  The  oldest  reservation  concerns 
1995, for which both Finland and the Commission 
reservation 
reservations.  Finland's 
still  have 
concerns  the  turnover  to  be  used  to  calculate  the 
compensation; the problem will be resolved on the 
basis  of  a  decision  pending  in  a  comparable  case 
concerning  Austria's  non-physical  gold.  The 
Commission's  reservation  concerns  the  place  of 
the supply of services and the place of the supply 
of  goods  on  ships,  i.e.  how  the  Member  States 
legal 
calculate 
should 
the  Commission's 
interpretation  on  which 
reservation 
is  still  uncertain.  The 
Commission's  legal  experts  have  examined  the 
possible  interpretations  of  two  key  judgments  by 
the  ECJ.  The  first  of  these  is  the  Köhler  case, 
which  concerns  the  definition  of  the  place  of  the 
supply  of  goods  and  the  second  is  the  Faaborg-
Gelding  case  which  concerns  the  place  of  the 
performance  of  services.  The  reservations  since 
1998  concerning  own-use 
the 
construction 
associated 
and 
compensation, and calculation of the average rate 
of taxation, are to be deleted because Finland has 
approved 
their 
calculation  and  these  reservations  should  be 
deleted by the next Commission visit at the latest. 
The Commission also has a reservation from 2002 
concerning  non-VAT  paid  on  car 
tax.  The 
decisions  of  the  Court  on  car  tax  and  non-VAT 
lay  down  only  the  necessary  judgments  on  the 
calculation  of  the  average  rate  of  taxation  and 
compensation;  the  reservations  concerning  them 
can  be  deleted.  From  2003,  the  Commission  has 
had  a  reservation  concerning  travel  agents.  An 
infringement  procedure  is  under  way  and  a 
decision is pending. 

the  Commission  views  on 

taxation 
the 

sector 

in 

EN 

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Observation in the 2006 Annual 
Report 

Member State reply 

France:  the  reservations  concern  the  differences 
between  the  national  legislation  and  the  rules  for 
the  calculation  of  the  harmonised  VAT.  On  the 
31st  December  2007,  the  oldest  reservations  for 
France  concern  motorway  tolls  (since  1993)  and 
calculation of TMP (since 1999). 

the  11/07/2008. 
taken  on 
Germany:  action 
Content  of  the  action:  Several  corrections  of  the 
basis of the VAT-based resources. 

Greece: Following submission of the Commission 
observations (expected in December 2008) further 
to the audit that took place in September 2008. 

Hungary:  Hungary  has  no  reservation  for  the 
period  before  1997  as  it  was  not  an  EU  member 
state yet at that time. 

Ireland:  Of  the  12  reservations,  6  of  these  apply 
to  the  C.S.O  and  6  apply  to  the  Revenue 
Commissioners. The C.S.O action began in April 
2008.  While  the  Revenue  Commissioners  have 
started  actions  on  a  number  of  the  outstanding 
reservations.  The  Revenue  Commissioners  would 
expect a number of the outstanding reservations to 
be 
to 
the Commission  report  of  their  visit  to  Ireland  in 
2008. Content of the action: a number of changes 
have  been  made  to  the  calculations  used  in  the 
statements  of  previous  years  at  the request  of  the 
Commission. 

resolved  by 

responses 

Irish 

the 

taken  after  EC 

letter  with 
Italy:  action 
observations  on  22/09/2008.  Content  of 
the 
action: presentation of a document with the Italian 
proposition to lift the outstanding reservations for 
the  years  1996-2006.  This  document  will  be  sent 
to the EC. 

Latvia: In 2008, letter No. TAXUD D3 LV/fd D 
(2008) 28073 dated 22 August 2008 was received 
from  DG  TAXUD  announcing  that  the  European 
Commission  has  decided  to  close  infringement 
proceedings No 2006/2558 concerning the special 
VAT  regime  for  travel  agencies.  The  European 
Commission's  DG  Budget  in  turn,  has  not  yet 
lifted the reservation made in relation to the above 
infringement  procedure.  In  our  opinion,  this 

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Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

could  be  discussed  with 

the 
reservation 
representatives  of 
the  European  Commission 
during  the  next  control  mission  of  VAT  own 
resources. 

Malta:  action  taken  in  2008.  The  statements  that 
are  being/are  going  to  be  sent  will  take  in 
consideration the factors that led to the creation of 
reservations, ex. penalties and interest. 

Poland:  does  not  concern  the  period  in  which 
Poland has been a member of the EU. 

Spain: on the occasion of the visit of examination 
of the declarations presented by Spain concerning 
the own resources based on the VAT 2004-2006, 
realized  in  accordance  with  the  article  11  of  the 
Regulation  1553/89,  the  necessary  documents 
appeared  to  lift  4  of  6  outstanding  reservations. 
After  the  control  visit  of  VAT-basis  realized  in 
2008,  4  of  six  reservations  were  lifted.  Two  are 
still  outstanding  (one  from  2001  and  the  other 
from  2003)  because  of 
the  differences  of 
interpretation of the 6th Directive. 

is 

Sweden: Prior to the inspection visit in June 2007, 
Sweden had nine reservations. One concerning the 
years  1997-1998,  which  was  lifted  following  the 
visit.  Three  concerning  the  years  1995-2005 
which  were  lifted  after  the  visit.  One  concerning 
the years 1995-2005 which will be lifted after the 
next visit in 2009 once the underlying material has 
been  verified.  One  concerning  the  years  2004-
2005 which will be discussed during the next visit 
lifted.  Three 
and 
to  be 
then  expected 
reservations  concern  unresolved 
interpretation 
issues,  where  the  Swedish  and  the  Commission 
interpretations  differ.  (One  concerns  the  years 
1995-2005  and  charitable  organisations,  one 
concerns the years 1999-2005 and Äland, and one 
concerns  the  years  2001-2005  and  transfer  of 
tenancy rights). The Ǻland issue will be discussed 
at  a  management  meeting  in  Sweden  in  2009, 
when  it  is  hoped  that  the  Commission  will  agree 
with us on a solution. 

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Observation in the 2006 Annual 
Report 

Member State reply 

UK:  The  UK  reservations  are  currently  under 
review  and  will  be  lifted  in  due  course.  In  one 
case,  a  source  of  information  is  being  sought  to 
enable the WAR to be adjusted. For the others, we 
are  in  dispute  with  the  Commission  and  cannot 
provide  a  date  of  resolution  at  this  stage.  The 
information  in  Table  4.2  is  correct.  At  the 
reservations 
the  UK  had  5 
31/12/2007, 
outstanding  and  1998  is  the  oldest  one.  For  your 
information,  we  were  audited  in  November  2007 
and  the  Report  was  issued  on  28/02/2008.  As  a 
result  of  the  audit,  1  new  reservation  was  placed 
and 2 were lifted leaving a balance of 4. 

Greece:  Taking  account  of  the  provisions  of  the 
decision on the system of own resources, the VAT 
resource  paid  by  Greece  is  calculated  on  the 
adjusted VAT basis; given the agreed  revision of 
Greece’s GNI, it became  necessary to recalculate 
the VAT resource. 

Greece:  action  taken  on  the  22/10/2008.  Content 
of  the  action:  New  GNP/GNI  questionnaire.  A 
new  GNP/GNI  questionnaire  was  sent  with 
corrected information, which was accepted by the 
GNI Committee. 

4.22 

4.28 

During  2007  the  changes  to  the 
EU-27  VAT  base  following  the 
Commission’s  control  work  in 
Member  States  resulted  in  an 
increase  in  the  aggregate  VAT 
resource of about 50 million euro. 
In  addition  the  upward  revisions 
to 
(see 
the  GNI  of  Greece 
paragraph  4.28),  which  in  turn 
had  an 
impact  on  capping, 
resulted  in  an  increase  in  that 
Member 
VAT 
around  300 
contribution  of 
million euro. 

State’s 

The  data  included  in  the  GNP 
/GNI  Questionnaire  2007  of 
Greece  showed  a 
retroactive 
increase  of  between  8,5  %  and 
9,9 % for the years 1995 to 2005. 
In  the  GNP/GNI  Questionnaire 
2006  Greece  had 
transmitted 
revised data showing increases of 
between  13  %  and  26  %, 
exceptionally 
an 
representing 
significant 
it 
revision.  As 
considered  that  it  did  not  have 
sufficient 
the 
revised  data  and  the  underlying 
methodological  changes  reported 
by  Greece,  the  GNI  Committee 
the 
the  view 
had 

information  on 

taken 

that 

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Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

unrevised  GNP/GNI 
existing 
series  should  be  used  for  own 
resources  purposes,  until 
the 
Commission  had  fully  verified 
the  new  data  and  reported  the 
results  of  its  verification  to  the 
GNI Committee (22). 

(22)  See  paragraphs  4.24  to  4.26 
of  the  Court’s  Annual  Report 
financial  year 
concerning 
2006. 

the 

Greece:  action  taken  on  the  14/12/2007.  Content 
of  the  action:  GNP  corrections.  Greece  agrees 
with Commission's reply. 

Greece: see 4.29 

4.29 

4.30 

a 

In 2007 Greece transmitted only a 
summarized 
GNP/GNI 
Questionnaire  with  no  GNP/GNI 
short 
and 
components 
explanatory  note  instead  of  a 
Quality  Report.  Although 
the 
GNI  Committee  considered  that, 
taking due account of the existing 
reservations, 
the  new  Greek 
GNP/GNI  data  notified  in  2007 
were  adequate  for  own  resources 
purposes  (see  paragraph  4.27),  it 
invited 
the  Greek  National 
Statistical  Institute  (NSI)  and 
their 
Eurostat 
cooperation 
outstanding 
on 
issues,  including  on  some  more 
detailed calculations. 

continue 

to 

The  Commission  had  carried  out 
beforehand  on-the-spot  visits  in 
to 
June  and  September  2007 
verify  the  Greek  inventory  and 
calculated  estimates  of  revised 
GDP 
the 
reference  year  2000.  The  total 
increase  was  consistent  with  the 
revision 
the 
included 
GNP/GNI Questionnaire 2007. 

figures 

(23) 

for 

in 

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Paragraph 

Observation in the 2006 Annual 
Report 

(23) Gross domestic product. 

Member State reply 

4.31 

4.32 

Greece: see 4.29 

the 

importance 

the 
total 
linked 

The  Commission  and  the  Greek 
NSI  set  up  an  action  plan  for 
further  work  to  be  carried  out  in 
order to finalize the calculation of 
national accounts components. In 
November  2007  the  Commission 
stressed 
of 
reconciliation 
checking 
and 
between 
changes 
specific 
reservations  as  well  as  the  need 
for the Greek NSI to provide full 
them.  The 
documentation  on 
action  plan  also  required 
the 
Greek  NSI  to  send  the  official 
detailed  figures 
in  accordance 
with  ESA95’s  transmission  of 
national accounts data (24) by 10 
December 2007. 

revisions 
to 

(24)  Regulation 
(EC)  No 
the  European 
1392/2007  of 
Parliament  and  of  the  Council  of 
13  November  2007  amending 
(EC)  No 
Council  Regulation 
2223/96  with 
the 
to 
transmission of national accounts 
data (OJ L 324, 10.12.2007, p. 1). 

respect 

In  the  absence  of  the  complete 
information 
GNP/GNI 
on 
required  by  the  GNI  Regulation 
(see  paragraph  4.29)  and  as  the 
details  on  GNP/GNI  components 
on 
and 
documentation 
the 
reservations 
action  plan  (see  paragraph  4.31) 
were  not  available  by  February 

required  by 

Greece: see 4.29 

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Observation in the 2006 Annual 
Report 

Member State reply 

covered 

the  calculation  of 

2008,  the  Court  was  not  able  to 
review 
the 
GNP/GNI  for  the  years  1995-
2006  nor  to  check  whether  GNP 
components  revised  by  Greece 
are 
specific 
reservations  set  for  the  period 
1995-2001.  As  a  consequence, 
the  Court  could  not  assess  the 
accuracy of the adjustments to the 
GNI  balances  for  these  previous 
years. 

by 

 4.33 

lifted 

At  the  beginning  of  2007,  there 
were  43  open  specific  GNP/GNI 
reservations relating to the period 
1995  to  2001.  During  2007,  the 
Commission 
18 
reservations  leaving  a  balance  of 
25  at  the  year  end.  These  open 
reservations  relate  either  to  out-
of-date sources underlying certain 
estimates  or  to  methodological 
and 
aspects. 
Excluding  the  case  of  Greece, 
most  of  the  issues  underlying 
reservations  have  already  been 
addressed  by  Member  States 
through  the  transmission  of  the 
annual  GNI  data  in  2007  or 
previous years. 

compilation 

Austria:  referred  to  its  reply  to  Table  4.3  (see 
below) 

Denmark:  Previous  reservations  related  only  to 
the  methods  used  for  the  statement  of  the 
calculation 
authorities 
base.  The  Danish 
subsequently  adjusted  the  method  in  agreement 
with the Commission. 

Germany: we are not affected 

Ireland: no reservations outstanding. 

taken 

Luxemburg:  action 
in  2006  as  a 
consequence  of  the  revision.  All  the  outstanding 
reservations  (1995  to  2001)  have  been  lifted  in 
June 2008. Content of the action: reinforcement of 
the control. 

Spain: in this paragraph the Court only observed 
the  elimination  of  5  reservations  to  Spain  on  the 
subject of RNB. 

Sweden:  No  action  foreseen.  Sweden  has  no 
outstanding reservations. 

UK:  there  is  no  specific  UK  reference  in  this 
paragraph,  which  relates  to  the  outstanding  GNI 
reservations  shown  in  Table  4.3.  No  action 
required. 

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Report 

Member State reply 

4.35 

4.38 

Greece: action taken on the 8/09/2008. Content of 
the  action:  new  GNI  Questionnaire.  Briefing  by 
the  GNI  Committee  that  6  out  of  7  reservations 
will be withdrawn 

Spain: we presented the documentation to the EC 
in order to eliminate the fifth reservation. For this 
reason,  we  agree  with 
the  Commission's 
contestation. 

Denmark:  previous  reservations  related  only  to 
the  methods  used  for  the  statement  of  the 
calculation 
authorities 
base.  The  Danish 
subsequently  adjusted  the  method  in  agreement 
with the Commission. 

Austria:  Action  taken  in  2008.  Content  of  the 
action: the BNE inventory had to be reduced and a 
further  version  of  the  BNE  chart  had  to  be 
produced.  A  first  BNE  audit  from  Eurostat  has 
been done in September 2008. 

in 

Bulgaria:  Action  taken  in May  2008.  Content  of 
the  action:  participation 
the  Phare 2006 
multinational  programme  for  the  preparation  of 
the  inventory  of  the  sources  and  the  methods  for 
the  measurement  of  GNI.  The  project's 
implementation period is expected to be extended 
to  May 2009.  Participation  of  a  representative  of 
Bulgaria's  NSI  in  a  Eurostat  fact-finding  visit  to 
to 
the  Czech 
28 November 2008  concerning  the  description  of 
GNI prepared by the Czech Republic. 

from  24 

statistical 

service 

Cyprus:  The  GNI  inventory  (except  process 
tables)  was  drawn  up  within  the  year  and  sent  to 
Eurostat  in  October  2007.  Work  on  the  process 
tables was completed at the beginning of the years 
to  Eurostat  on 
and 
9 January 2008. Content of the action: preparation 

tables  were  sent 

the 

It 

that 

The Court examined a sample of ten 
specific  reservations  lifted  in  2007, 
to  Spain,  Denmark  and 
relating 
France. 
the 
found 
Commission’s  work  to  enable  the 
lifting  of 
involved 
reservations 
neither  desk  checks  to  corroborate 
the  reliability  of  the  information 
provided  by  Member  States  through 
comparison  with  external  sources, 
to 
nor  on-the-spot  control  visits 
perform 
of 
national  accounts’  aggregates.  For 
these  reasons,  the  Court  considers 
that these checks were not sufficient 
to  provide  reasonable  assurance  of 
the  accuracy  of  the  underlying  data 
amended. 

verification 

direct 

Some  Member  States  (28)  did  not 
provide  the  Commission  with  the 
complete  version  (including  process 
tables)  of  updated  or  new  GNI 
inventories  by  the  end  of  2007,  even 
though the deadline was 31 December 
2006  (29).  This  delay  had  an  impact 
on  the  planning  of  the  Commission’s 
on-the-spot 
verification  missions 
foreseen for the period 2007 to 2009. 
three 
Visits  were  carried  out 
Member  States  (Greece,  Malta  and 
Estonia) in 2007. 

in 

(28)Luxembourg  did  not  send  its 
inventory and process tables; Austria, 
Cyprus,  France,  Malta  and  United 
Kingdom  did  not  send  the  process 
tables. 

(29)  31.11.2007  for  Sweden  (which 
sent  its  inventory  and  process  tables 
at  the  end  of  January  2008)  and 
and 
31.12.2009 
Bulgaria. 

for  Romania 

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Observation in the 2006 Annual 
Report 

Member State reply 

and sending of process tables. 

France: The process tables have been provided to 
Eurostat in June 2008. 

Greece:  This  observation  does  not  concern 
Greece,  which  had  sent  the  Commission  the 
relevant  information  within  the  prescribed  time-
limit. 

Luxemburg:  action  taken  in  June  2008.  The 
inventory  of  sources  and  methods  GNP  was 
transmitted  to  the  EC.  The  process  tables  will  be 
transmitted before the end of the year. 

later 

i.e.  not 

time-frame, 

Malta:  The  Statistics  Office  point  out  the  DGN 
inventories  were  sent  to  Eurostat  within  the 
than  31 
required 
December  2006.  In  addition,  Malta  reached  an 
agreement with Eurostat to send its process tables 
not  later  than  April  2008  and  in  fact  Malta  has 
honoured this agreement and sent them within the 
agreed 
the  European 
Court’s  remarks  that  Malta  did  not  send  its 
process tables are incorrect. 

time-frame.  Therefore, 

Romania:  action 
in  February  2008. 
taken 
Content of the action: Review of the inventories of 
sources and methods relating to GNI for 2006 

Sweden:  no  action  foreseen.  Despite  the  slight 
delay  concerning  Sweden’s  GNI  inventory  and 
process  tables,  the  verification  visit  to  Sweden 
will be settled in 2008. 

UK: The UK sent an updated version of its GNI 
inventory  on  2  July  2007.  Eurostat  were  advised 
in  advance  that  the  UK  would  not  meet  the  31 
December  2006  deadline  as  it  coincided  with  a 
resource  conflict  created  by  the  modernisation 
process  being  implemented  by  the  Office  of 
National Statistics.  

4.39 

In  2007  direct  verification  on  GNI 
aggregates was only performed in the 
particular  case  of  Greece.  The 

Greece:  This  observation  does  not  concern 
Greece since, as moreover noted by the European 
Court  of  Auditors,  direct  verification  of  GNI 

EN 

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Observation in the 2006 Annual 
Report 

Member State reply 

objective  of  the  visits  to  Malta  and 
Estonia  was  principally  to  obtain 
clarification  on 
the  sources  and 
methods  used  for  the  calculation  of 
GNI. The Court has in the past urged 
the  Commission  to  undertake  direct 
verification 
to  obtain 
in  order 
assurance  that  Member  States  really 
do use the procedures they describe in 
their GNI inventories (30). 

(30)  See  Annex  4.1  of  the  Court’s 
Annual  Report 
the 
financial year 2006.  

concerning 

The  updated  figures  for  Greece  did 
not  include  the  detail  necessary  for 
the Court to verify the accuracy of the 
adjustments  to  the  GNI  balances,  in 
particular  for  the  period  1995-2001 
(paragraph 4.32). 

4.44 

Table 4.2 

aggregates was undertaken. 

Greece: see 4.29 to 4.32 

Austria:  Action  taken  in  November  2007.  In 
November  2008  the  Commission  announced  they 
will  drop  reservations  as  a  result  of  2006/07 
controls.  In  addition,  the  management  review  of 
2008 will lead to the lifting of reservations which 
exist since 1995 

Belgium: See 4.7 

Bulgaria: At this stage the European Commission 
instrument 
reservations 
has  entered  no 
whereby  contested  entries 
returns 
submitted by the Member States can be corrected) 
obliging Bulgaria to take appropriate measures. 

(an 
in  VAT 

Cyprus: Action taken in 2007 and continuing into 
2009. 

Czech  Republic:  Action  taken  in  2006.  Content 
of the action: improving data base quality through 
consultations  with  the  specialised  departments  of 
the  ministries  concerned.  The  Czech  Republic 
received only an unofficial observation (contained 
in the summary report on the 2004 audit mission). 
This definitely was not a reservation. 

Denmark,  Finland,  Latvia,  Germany,  Greece, 

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Observation in the 2006 Annual 
Report 

Member State reply 

Ireland, Malta, Spain, Sweden: See 4.20 

Hungary:  action  taken  following  the  receipt  of 
the Summary Report on the audit visit of 29 May - 
2  June  2006.  For  the  first  reservation,  in  the 
summer  of  2006  the  Central  Statistical  Office 
(KSH), responsible for the calculation of weighted 
average  rates,  contacted  directly  the  Eurostat 
auditors  in  order  to  clarify  the  methodology. 
Several letters have been exchanged since that. It 
is  expected  that  Eurostat  will  make  a  decision 
during or after the 2009 audit. For the calculation 
of  average  rates  in  2004  the  data  of  year  n-2  i.e. 
2002  had  to  be  used.  However,  the  Simplified 
Business  Tax  (EVA)  did  not  exist  yet  in  2002. 
Although  KSH  used  the  estimation  methods  in 
accordance  with  a  former  Eurostat  guideline,  it 
gave  rise  to  problems  of  interpretation.  For  the 
second reservation, It will be possible to eliminate 
it as soon as reservation no. 4 can be released. For 
the third reservation, if the Commission approves 
the  applied  methodology  and  data  then  this 
reservation can be released as early as during the 
2009 audit. Based on border traffic data and using 
the  established  estimation  method,  we  have 
already  calculated  in  subsequent  reports  with  the 
income 
in 
fourth 
Hungarian 
reservation,  as  it  is  a  complex  one, only  a  partial 
release  or  division  into  several  elements  can  be 
expected  in  the  near  future.  a)  Our  attempts  to 
registered 
obtain  adequate  data  on  newly 
passenger cars from the database managed by the 
Central  Office  for  Administrative  and  Electronic 
Public  Services  have  been  unsuccessful  yet.  b) 
the  Commission’s  policy 
We  are  expecting 
position  on  how  to  take  open-end  leasing  into 
consideration.  c)  We  are  also  expecting  the 
Commission’s policy position on how to take the 
into 
positive  element  of  second-hand  cars 
consideration. d) In an attempt to clarify fuel data, 
we  have  tried  to  find  an  alternative  data  source 
(Hungarian  Petroleum  Association).  However,  as 
the  consumption  of  private  individuals  is  not 
separated there, we are still using the current data 
source  (Energiaközpont  Kht.).  For 
the  fifth 
reservation,  if  the  Commission  approves  the 
this 
applied  methodology 
reservation can be released as early as during the 

realized  by 
road 

foreign  companies 

sections.  For 

and  data 

then 

the 

EN 

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Observation in the 2006 Annual 
Report 

Member State reply 

2009  audit.  As  from  2008  the  new  VAT  Act 
already  stipulates  harmonized  rules  for 
tour 
operation activities. We have quantified the VAT 
base  implications  for  2004-2006  and  forwarded 
the  detailed 
the  calculation, 
methodology,  to  the  Commission.  The  2007 
calculation  will  be  completed  in  2009,  probably 
before the annual audit. 

together  with 

comments 

taken  as  soon  as 
on 

Lithuania:  Measures  to  resolve  the  reservations 
relating to VAT statements about which Lithuania 
was  notified  were 
the 
Lithuania's 
Commission's 
observations  were 
received  on  6 June 2006, 
following  the  Commission's  VAT  own  resources 
control  visit  in  April  2006.  This  document  also 
indicated two reservations. A VAT own resources 
control  visit  to  Lithuania  is  planned  by  the 
Commission  in  June  2009,  during  which  the 
Commission  is  due  to  assess  actions  taken  in 
respect  of  reservations  and  it  will  be  possible  to 
resolve these reservations. The reservations about 
which Lithuania was notified have been discussed 
in  detail  and  were  taken  into  account  when 
drawing  up  subsequent  VAT  own  resources  base 
statements. 

Poland:  action  taken  in  2007.  New  calculations 
were  sent  to  the  Commission  in  June  2008;  they 
will  be  discussed  during  the  control  visit  in 
September  2009.  Content  of  the  action:  new 
calculations carried out. 

immediately  after 

reservations.  We  will  start 

Slovenia:  no  action  taken.  Slovenia  has  still  not 
received  the  definitive  final  Commission  report 
containing  the  reservations  and  grounds  for  these 
reservations and is therefore unable to start lifting 
the 
the 
reservations 
the 
Commission's  final  report  and,  in  any  event, 
before  the  next  visit.  Slovenia  welcomes  the 
Commission's  more  active  approach  to  lifting 
reservations concerning the VAT report and GNI, 
contacts 
also 
(“management meetings”) which do not form part 
of the regular inspection visits. 

form  of  bilateral 

lifting 
receiving 

the 

in 

UK:  table  4.2  is  a  list  of  outstanding  VAT 
reservations  which  will  be 
the  subject  of 
continuing  discussion  between  HM  Revenue  and 

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Observation in the 2006 Annual 
Report 

Member State reply 

Table 4.3 

Annex 4.2 

5.3 

Customs  and  the  European  Commission.    No 
specific action is required.     

Austria: no reservations for Austria 

Denmark, Germany, Greece, Sweden: see 4.33 

Ireland: see 4.20 

Spain: see 4.35 

UK:  table  4.3  is  a  list  of  outstanding  GNP/GNI 
the  subject  of 
reservations  which  will  be 
continuing  discussion  between  HM  Revenue  and 
Customs  and  the  European  Commission.    No 
specific action is required.     

Germany: action taken in 2004, since then several 
reports to the Commission on clarifying the case, 
the  latest  report  has  been  sent  on  25/09/2008. 
Content of the action:  Clarifying the case, already 
provided  own  resources  (328.670,02  €)  and 
default  interests  (486.005,20  €),  as  well  as  an 
explanation  why  further  contributions  are  not 
justified.  We  are  waiting  for  Commission's 
reaction and appraisal. 

Greece:  We  agree  with  the  Commission’s  reply 
and await the drawing up of a joint revision policy 
by Eurostat. 

CHAPTER 5 – AGRICULTURE AND NATURAL RESOURCES 

The  Single  Payment  Scheme  (SPS) 
financed  by  EAGF:  the  SPS  was 
introduced in order to break the link 
between  agricultural  production  and 
the  payments  made 
farmers 
(“decoupling”).  In  order  to  qualify 
under  the  SPS  farmers  must  first 
obtain  "entitlements".  The  number 
farmer's 
and 

value 

each 

of 

to 

Malta:  Payments  under  the  Single  Payments 
System were made by the Agency in June 2008 in 
accordance with the legal requirements. At present 
the  Directorate  of 
Internal  Auditing  and 
Investigations  is  carrying  out  a  certification  audit 
for  the  year  ending  15  October  2008.  This  audit 
also covers the Single Payments System. 

EN 

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Member State reply 

good 

agricultural 

entitlements  was  calculated  by  the 
national authorities according to one 
of the models provided for under EU 
legislation  (3).  Every  entitlement, 
together with one hectare of eligible 
land declared by the farmer and kept 
in 
and 
environmental  condition  (GAEC), 
gives rise to an SPS payment at least 
until 2013. SPS has been growing in 
importance  and  now  constitutes 
55 % 
expenditure 
(28 199 million euro)  compared  to 
12 %  (6 260 million  euro)  paid  for 
direct  coupled  payments  and  10 % 
(4 869 million euro)  for  intervention 
measures  in  agricultural  markets.  It 
is  applied  in  17  MemberStates  with 
the  remaining  10  (4)    scheduled  to 
apply 
from  2010 
scheme 
onwards. 

the 

of 

the 

(3)  Under  the  historical  model  each 
farmer is granted entitlements based 
the  average  amount  of  aid 
on 
received and area farmed during the 
reference  period  2000 
to  2002. 
Under 
regional  model  all 
entitlements  of  a  region  have  the 
same flat-rate value and the farmer is 
allocated  an  entitlement  for  every 
eligible  hectare  declared  in  the  first 
year  of  application.  The  hybrid 
model 
the  historical 
element with a flat rate amount and, 
the  historical 
if 
component decreases each year until 
it becomes a predominantly flat rate-
system. 

is  dynamic, 

combines 

it 

(4)  The  Member  State  which  joined 
the EU in 2004 and 2007 except for 
Slovenia  and  Malta,  currently  apply 
a  simplified  version  of  SPS  called 
the  Single  Area  Payments  Scheme 
(SAPS)  as 
the  farmers  did  not 
receive  EU  subsidies  during  the 
reference period. 

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Observation in the 2006 Annual 
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Member State reply 

Spain:  in  this  paragraph,  the  Court  just  declared 
the scope of the inspection 

UK: The reference to the UK in Paragraph 5.9 is 
simply  in  respect  of  them  being  one  of  the 
Member  States  whose  control  systems  in  respect 
of the Single Payment Scheme had been examined 
by the Court in 2007.    

Germany: Audit in Bavaria 

Spain: see 5.9 

Greece:  Evaluation  and  mainstreaming  of  the 
findings  is  undertaken  via  the  secondary  checks 
and supervisory checks carried out by OPEKEPE 
(Payment  and  Control  Agency  for  Guidance  and 
Guarantee  Community  Aid).  Total  secondary 
checks  account  for  2%  of  OPEKEPE  checks  and 
5%  of  the  sample  of  the  Directorates  of  Rural 
Development. 

5.9 

5.10 

its 

regards 

assessment  of 
As 
supervisory and control systems, the 
Court  has  conducted  an  extensive 
audit  of  the  establishment  of  SPS 
related 
the 
and 
entitlements 
payments 
in  all  Member  States 
applying SPS, with the exception of 
Slovenia  and  Malta.  During  2007  it 
the 
examined 
supervisory  and  control  systems 
applicable 
to  Single  Payment 
Scheme  claims  in  selected  paying 
agencies in Finland, France, Greece, 
the  Netherlands, 
Italy,  Portugal, 
Sweden,  Spain  (Andalucia)  and  the 
United Kingdom (England) (7). 

reliability  of 

the 

(7)  The  ten  Member  States  which 
first  applied  SPS  were  audited  in 
2006.  See 
the  Annual  Report 
concerning the financial year 2006, 
paragraphs 5.15 to 5.38. 

The Court has also tested the 
supervisory and control systems for 
direct coupled payments in 
6 Member States (8). The audit 
covered an assessment of the 
functioning of the administrative 
controls of all claims and the 
selection and execution by the 
paying agencies of on-farm 
inspections for a sample of a 
minimum of 5 % of the claims, 
depending on the scheme. In 
addition, the Court’s auditors 
conducted a number of re-
performances of controls on-the-
spot. 

(8) Germany (Bayern), Italy 
(AGEA), and Portugal which have 
introduced SPS in 2005; France, 
Greece and Spain (Castilla y Leon) 
which have introduced SPS in 2006. 

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Observation in the 2006 Annual 
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Member State reply 

5.14 

in 

identified  by 

were 
resulting 

In  the  EAGF,  the  following  errors 
were 
the  Court’s 
sample: 
SPS: farmers overclaimed and/or the 
wrongly 
entitlements 
calculated, 
incorrect 
payments. 
SPS:  overpayments  to  certain  olive 
oil  claimants  as  a  result  of  being 
allocated extra entitlements from the 
national reserve when they were not 
eligible  to  receive  them  (Spain);the 
beneficiary  audited  was  paid  an 
amount considerably in excess of the 
average  payment  over  the  reference 
period (1999-2002) but did not meet 
the 
investment  criteria  of 
the 
programme  under  which  the  extra 
entitlements were awarded. 
SPS: 
in 
its  Annual  Report 
year 
concerning 
financial 
the 
2006(10), the Court pointed out that 
in  Greece,  Spain  and  Italy  the  olive 
cultivation  GIS  data,  was  neither 
complete  nor  reliable,  and  could 
have an impact on the integration of 
the  olive  oil  production  aid  scheme 
into  the  system.  These  weaknesses 
persist  in  Italy  and  Greece  where 
four  out  of  five  transactions  audited 
contained  errors,  some  of  which  led 
to significant overpayments. 
Payments: 
Direct 
significant overpayments were found 
as  a  result  of  area  discrepancies  for 
nuts  and  dried  grapes  (Spain  and 
Greece)  and,  in  one  case,  large 
unexplained  differences  were  noted 
between 
sheep 
recorded  in  the  farmer’s  register, 
upon  which  EU  aid  was  paid,  and 
the actual number identified (Spain). 
Other  schemes  (Non  IACS):    errors 
relate  to  illegal  deductions  from 
payments  to  farmers(11)and  failure 
to  charge  interest  on  debts  (various 
Member  States),  weaknesses 
in 
export refund controls (Portugal) and 
missing  quantities  of  rice  from 
public storage (Greece). 

the  number  of 

Coupled 

Portugal:  action  taken  immediately  after  the 
Court's  mission.  From  1  January  2007  with  the 
introduction of STADA – export and link up with 
SSA  (automated  system  of  customs  declaration 
selection), authorisation for release of goods is not 
required  until  the  end  of  the  period  indicated  in 
the box for entry of the final date of loading if the 
accompanying  document  authorising  the  goods' 
movement  is  available.  This  problem  has  been 
drawn  to  the  attention  of  the  Alverca  customs 
office in order to avoid similar situations. As part 
of  the  process  of  standardisation  of  procedures 
DG  AIEC's  internal  rules,  which  have since  been 
published, cover these situations to ensure stricter 
compliance with regulations. This was an isolated 
case  which  was  not  covered  by  usual  procedures 
and the conclusion reached in point 5.14 that there 
was  insufficient  control  of  export  refunds  is 
considered to be unreasonable. 

Spain:  The  Paying  Authority  disagrees  with  the 
Court's observations. 

Greece:  action  taken  on  2007.  An  administrative 
check  is  made  on  100%  of  applications  that 
include  sheep  and  goats,  during  which  the  latest 
entry  of  the  register  submitted  together  with  the 
application is compared with the declared animals 
in the single application. The results of this check 
are recorded in the system and taken into account 
for payment. During the on-the-spot checks by the 
inspectors  a  comparison  is  made  between  the 
animals  identified  and  the  holding  register  and 
only  those  animals  correctly  recorded  in  the 
register are counted as eligible. The results of this 
control  are  recorded  in  the  system  and  taken  into 
account  for  payment.  The  farmer  himself  is 
responsible  for  completing  the  application.  He 
must  en-sure 
the  data  concerning  him 
(personal data), as well as the detailed information 
about  the  land  parcels  he  is  declaring,  are 
completed  within  the  deadline  and  correctly,  as 
precisely  requested  in  the  various  fields  of  the 
application,  with-out  gaps,  erasures  or  omissions. 
With regard to cases where he mistakenly declares 
areas different from the actual ones and where his 
application  does  not  re-quest  correction  of  the 
declared data, the services are not able  make  any 
possible corrections on their own initiative, based 

that 

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Observation in the 2006 Annual 
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Member State reply 

(10) Paragraphs 5.82 to 5.84. 
(11) Ref. Article 23 of Commission 
Regulation (EC) No 1227/2000 (OJ 
L 143, 16.6.2000, p. 1), according to 
which the payments due shall be 
made in full to the beneficiaries. 

5.15 

the  Court  found 

With  regard  to  rural  development 
operations, 
the 
following types of error: 
a)  agri-environmental  schemes-  in 
nine out of thirteen cases audited the 
farmers had not met all the eligibility 
conditions (France and Ireland); 
b) 
the 
subsidies: 
rate 
procedures in place do not ensure an 
adequate  audit  trail  with  the  result 
that the regularity of the payment of 
final 
the  EU  subsidies 

interest 

the 

to 

through 

on  the  results  of  the  on-the-spot  check,  so  as  to 
offset the negative with the positive discrepancies 
in  the  on-the-spot  checks.  Moreover,  the  method 
of  calculating 
the  discrepancies,  and,  by 
extension,  the  penalties  imposed  for  the  crop 
groups; in no case entail a charge for the Fund. As 
regards  land  parcels  which  the  administrative 
cross-check identifies as being declared twice, the 
payment corresponding to the disputed land parcel 
is blocked in order for the actual beneficiary to be 
ascertained 
the  appeals  procedure, 
following  an  administrative  and/or  on-the-spot 
check. Finally, with regard to the comment by the 
auditors 
regards  non-automatic 
blocking  of  payment  of  aid,  there  is  a  risk  of 
payments  being  made  before  completion  of  the 
that 
necessary  checks’,  we  would  clarify 
processing  of  payments  is  only  undertaken  after 
completion  and  recording  of  the  results  of  the 
administrative  and  on-the-spot  checks.  However, 
in individual cases in which correction is made to 
the  application  data  (appeal,  manifest  error)  after 
issue of the payment, the payment software offsets 
the ‘new’ positive or negative amounts that result 
the  producer. 
in  a  subsequent  payment 
Consequently, no risk results for the Fund. 

‘…as 

that 

to 

After  weighing  the  product  the  quantities  that 
exceeded  the  tolerance  limit  were  listed  for  the 
intervention  agencies.  There  are  no  further  rice 
stores  in  Greece  from  the  2008  financial  year. 
Each  year  volume  measurement  is  carried  out  on 
100% of stores in the annual inventory. There are 
no  further  rice  stores  in  Greece  from  the  2008 
financial year. 

to 

base 

system 

perform 

includes 

France:  on  this  point,  France  admits  that  the 
existent 
imperfections. 
Nevertheless,  France  plans  to  set  up  an  unique 
reference 
a 
allowing 
rapprochement  between  databases  of  CNASEA 
and  those  of  the  banks,  and  it  for  the  improved 
loans  set  up  till  the  end  of  2006.  Eventually,  this 
device  will  allow  to  pass  to  an  invoicing  by 
CNASEA  of  expenses  as  the  supply,  and  so  to 
control  real-time  bills  issued  by  banks.  In  this 
way,  the  tracing  of  the  loans  of  the  bank  to  the 
final beneficiary will be more obvious. 

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Observation in the 2006 Annual 
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beneficiaries  cannot  be  verified 
(France);  additionally,  irregularities 
through  Member  State 
detected 
inspections  were  not 
into 
account  in  the  computation  of  the 
payment  claims  to  the  Commission 
resulting 
the  declaration  of 
unjustified  expenditure  which  was 
charged to the EU accounts. 

taken 

in 

5.16 

5.22 

a disease eradication 

projects financed through 

As regards environment, fisheries, 
and health and consumer protection, 
the payments audited revealed the 
following errors:  
(a) 
the LIFE instrument included 
ineligible expenditure;   
(b) 
inadequate documentation 
was presented to demonstrate that 
the invoiced work had actually been 
performed (Spain); 
(c) 
programme payment was made 
without adequate supporting 
documentation; in addition, there 
was a non respect of ceilings per test 
for eligible costs and failure to 
undertake recommended technical 
checks (Germany). 
As  an  illustration,  the  following 
shortcomings,  whose 
significant 
to 
is  difficult 
financial 
estimate,  were 
the 
in 
calculation of the entitlements:  
(a)in the United Kingdom (England) 
the  four  entitlements  audited  were 
erroneously calculated mainly due to 
failure to take account of changes in 
land  parcels;  while  these  errors  did 
not  have  a  significant  impact  on  the 
2007  payments, 
since  England 
applies  the  "dynamic"  model  (16), 
these 
initial  entitlements,  unless 
corrected,  will  result  in  significant 
over/underpayments in future years; 
(b)The 
initially 
Netherlands 
allocated  entitlements  in  excess  of 
the  national  ceiling  of  4,9  million 
euro and have carried out individual 

identified 

impact 

Ireland:  referred  to  its  comment  on  the  Table  2 
General remarks (see above) 

Germany:  Audit  in  Spain  –  German  payment 
authorities are not affected 

Spain: see 5.14 

Netherlands:  The  second  linear  reduction  based 
on  Article  42(7)of  Regulation  1782/2003  was 
1.5%. The Netherlands authorities took a decision 
to this effect on 10 August 2007, to be backdated 
to  18  January  2007.  The  amounts  overpaid,  i.e. 
1.5%  per  entitlement,  have  been  or  will  be 
recovered,  except  for  amounts  smaller  than  €100 
(application  of  Article  73(8)  of  Regulation 
796/2004). The Netherlands authorities fail to see 
how  this  finding  applies  to  them.  The  instruction 
at  that  time  stated  that  livestock  which  did  not 
meet the premium conditions could not be counted 
as  “animals  determined”  and  thus  could  not  be 
taken  into  consideration  in  the  calculation  of 
payment  entitlements  either.  The  Netherlands 
authorities  will  take  up  this  finding  with  the 
Commission  in  the  light  of  the  inspection  visit 
conducted  by  the  Commission  from  22  to  26 
September  2008  and  the  ongoing  discussion  of 
this matter. 

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the 

ceiling, 

reference  amounts 

payments on this basis. Although the 
total  payments  made  were  less  than 
the  national 
individual 
farmers  were  overpaid.  At  the  time 
of  the  Court’s  visit  (January  2008) 
no  formal  recovery  action  had  been 
taken. 
(c)when  calculating 
farmer's 
reference  amounts,  the  Dutch  and 
Greek  authorities  included  bovine 
animals  which  were  not  eligible  for 
premium  in  the  reference  period; 
furthermore  the  Greek  authorities 
allocated 
to 
farmers of arable land without taking 
into  account  the  reductions  that  had 
the  reference 
been  made  during 
period; 
(d)when  calculating  the  number  of 
entitlements,  the  Greek  and  Spanish 
systematically 
authorities 
disregarded forage area requirements 
for farmers that benefited during the 
reference  period  exclusively  from 
premia that did not require any land 
and  allocated  special  entitlements 
(17) 
the 
entitlements  based  on  areas  (18)  , 
thereby  generating  much  higher 
a 
payments  per  hectare, 
consequent 
areas 
required to be subject to GAEC; 
(e)unjustified 
entitlements, 
potential 
(Greece). 

of 
depriving 
aid 
of 

thereby 
beneficiaries 

instead  of 

withdrawal 

reduction 

them 

and 

in 

to 

(16)  Under  this  model  the  payment 
for  each  entitlement  consists  of  two 
elements:  i)  an  amount  based  on  an 
historic  reference  period  for  each 
farmer,  and  ii)  a  flat  rate  amount 
which is the same for all farmers. In 
2005  the  ratio  was  90:10  but  each 
year  the  flat  rate  increases  and  will 
reach  100  %  in  2012.  If  too  many 
entitlements  have  been  given  to  the 
farmer  he  will  receive  more  and 
more  money  under  the  flat  rate 
component which outweighs the loss 

UK:  action  taken  on  6/6/2008.  The  UK  have 
recalculated the entitlements that were incorrectly 
calculated.  

Spain: see 5.14 

Greece:  no  action  foreseen.  OPEKEPE,  under 
Decision  No  324032/24.12.05  of  the  Minister  for 
Rural  Development  and  Food,  was  designated  as 
the  competent  agency 
for  calculating  and 
managing  single  payment  entitlements.    Annex  1 
to  Joint  Ministerial  Decision  No  292464/27-07-
2005  on  ‘Supplementary  administrative  measures 
to  apply  and  calculate  the  number  and  value  of 
entitlements  for  beneficiaries  of  single  payment 
pursuant  to  Council  Regulation  (ΕC)  1782/2003 
and  Commission  Regulation  (EC)  No  795/2004’ 
states that the reference amount for olive oil is the 
four-year  average  of  the  total  payment  amounts 
granted  to  the  farmer  in  the  marketing  periods 
1999/2000, 2000/2001, 2001/2002 and 2002/2003. 
The  average  payment  granted  to  olive  producers 
was  determined  from  the  computerised  payment 
files  of  OPEKEPE,  physical  payment  files  and 
Tables X. Greece chose to calculate the reference 
amount for olive oil on the basis of the payments 
actually  made  to  each  producer  and  not  by 
combining quantities at the determined price. This 
is  because  the  price  at  which  the  payments  had 
been calculated differed from the determined price 
by  0.8%  and  concerned  the  fees  of  the  producer 
organisations.  Account  was  also  taken  of  the 
following:  These  payments  corresponded  fully 
with 
the  producers  had 
that 
produced  in  recognised  olive  oil  mills  and  for 
which  payment  applications  had  been  submitted 
and had also been declared eligible. Consequently, 
the  Greek 
taking  account  of 
authorities  were  certain  that  the  quantities  for 
which  aid  had  been  paid  were  those  that,  for  the 
producers,  had  to  be  added  in  for  the  reference 
period.  Olive  oil  production  during  the  reference 
period had suffered major disasters (fires of 2000, 
frosts of 2000, 2001 and 2002) and the anticipated 
applications for revision of single payment interim 
entitlements  by  means  of  a  request  for  exclusion 
of years from the reference period was leading to 
the  olive  oil  component,  and,  by  extension,  the 

the  payments, 

the  quantities 

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on the individual component. 
(17) Payment entitlements subject to 
special  conditions  are  set  by  article 
47  and  48  of  Regulation  (EC)  No 
1782/2003  mainly  for  cases  when 
the  farmer  was  granted  livestock 
premiums but had no hectares or the 
entitlement  per  hectare  results  in  an 
amount higher than 5 000 euro. 
(18) Regulation (EC) No 1782/2003, 
Chapter 3, section 1. 

if 

the 

those  calculated 

national  ceiling,  being  significantly  exceeded. 
Otherwise, 
reference  amounts  were 
calculated on the basis of the quantities produced 
by  a  producer,  the  Greek  authorities  had  to  face 
serious risks. There were quantities that had been 
excluded  from  the  aid  as  ineligible  for  various 
reasons  and  there  was  a  risk,  with  the  new 
calculation  method,  of  exceeding  the  approved 
quantity of olive oil for aid for each olive-growing 
period  and  exceeding  the  ceiling  on  the  olive  oil 
component.  Secure  checking  of  the  olive  oil 
pressing documents that would be supplied by the 
olive  producers  in  revision  applications  was 
impossible  because  these  documents  were  not 
always  computerised  and  the  data  held  by  the 
producer groups could not be used by OPEKEPE 
with  certainty.  It  is  noted  that,  as  found  by  the 
ECA  auditors,  the  reference  amounts  calculated 
on  the  basis  of  the  payments  made  to  olive 
producers  were  below 
in 
accordance  with  Annex  VII  to  Regulation  (ΕC) 
1782/2003.  Greece,  in  order  to  com-ply  with  its 
national limit, applied a linear reduction of 2.72% 
to all producers when, in calculating the reference 
amount for olive oil, it took account of payments 
made  and  not  quantities.  If  the  quantities  eligible 
for  aid  to  olive  oil  at  the  deter-mined  aid  price 
were taken into account to calculate the reference 
amount,  the  result  would  be  application  of  a 
higher percentage linear reduction in order, in any 
case,  to  comply  with  our  national  limit.    The 
above shows that, in essence, no practical problem 
was created for olive producers. The strictness of 
the action was aimed at safeguarding Community 
inputs in Greece. As regards supply of supporting 
documents  for  consideration  of  the  samples,  we 
note  the  following:  In  the  sample  most  of  the 
producers  checked  were  olive  producers.  The 
reference  period  for  the  olive  oil  scheme  covers 
four  years,  the  first  year  being  1999.  OPEKEPE 
was  set  up  in  2001  and  did  not,  therefore,  have 
direct  access  to  the  primary  data  concerning  the 
olive-growing  periods  1999/2000  and  2000/01, 
given  that  the  primary  data  was  kept  at  the 
Directorates  for  Rural  Development  and  the 
Unions  of  Rural  Cooperatives.  Nevertheless, 
activities  were  undertaken  and  the  data  collected 
were provided for all the producers, supplying, in 
the case of some producers, payment applications 
for the years in the reference period, in the case of 

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some producers, payment lists and, in the case of 
some producers, both payment applications for the 
years  in  the  reference  period  and  payment  lists. 
Any deficiencies noted concern the olive-growing 
period  1999/00,  when  the  time  that  elapsed 
between  granting  of  the  payment  for  olive  oil 
production  and  February  2008,  when  the  control 
took place, was considerable.  

5.24 (a)  

the 

the 

use 

The  audit  found  several  weaknesses 
national 
of 
in 
reserve:various  instances  of  misuse 
of the national reserve (France): two 
ineligible  programmes 
(totalling 
42,4 million euro), failure to respect 
the  statutory  deadline  for  four  other 
programmes, 
of 
investments  based  on  short  term 
to 
failure 
rented 
systematically 
apply  mandatory 
to  new  farmers  who 
provisions 
the 
commenced 
to  an 
reference  period 
overallocation of 20,8 million euro. 

farming  during 
leading 

equipment, 

acceptance 

France:  The  legal  basis  of  the  programme  is  the 
article 42.5 of the regulations (EC) n°1782 / 2003 
of the Council. Indeed, French agriculture (France 
corresponds  to  a  zone  as  pointed  in  the  article 
42.5), would have been able, of the simple fact of 
the implementation of the reform of CAP (public 
intervention  according  to  the  article  42.5),  to 
suffer  a  strong  restructuring,  consequence  of  the 
suspension  of  the  agricultural  activity  of  many 
farmers  whose 
income  would  have  strongly 
diminished  between  2005  and  2006.  The 
application  of 
the 
supplementary  programme  avoid  that  farmlands 
are left and compensate for the artificial losses of 
income from which the farmers would have been 
able  to  suffer.  Indeed,  for  many  farmers,  without 
the 
the 
payments obtained in 2006 after decoupage would 
have  strongly  diminished  in  comparison  with  the 
income of 2005, what would have jeopardised the 
viability of these farms. 

the  article  42.5  with 

implementation  of 

this  programme, 

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5.26 (a) 

As regards the management and 
monitoring of SPS entitlements, the 
following weaknesses were noted: 
incorrect application of late claim 
penalties (Netherlands, Portugal and 
the United Kingdom (England);  

for 

take 

the  view 

this  area, 

Netherlands: In reply to ECA letter PF 2720, the 
Netherlands authorities state that they do not agree 
with  the  ECA  interpretation  that  the  Netherlands 
applied  the  penalties  incorrectly  because  of  the 
untimely  submission  of 
the  applications  for 
assistance.  According  to  the  minutes  of  the 
Management  Committee 
the 
European Commission shares the opinion that the 
deadline  of  15  May  was  substantially  postponed. 
On  the  basis  of  the  attached  “MINUTES  of  the 
55th  meeting  of  the  Management  Committee  for 
Direct  Payments  14  June  2006”  the  Netherlands 
authorities 
that  Article  1  of 
Regulation  1187/2006  was  applied  correctly.  The 
document  reads  as  follows:  “Late  applications: 
Exchange of views and vote on a draft Regulation 
derogating to Article 21 of R. 796/2004 for 2006 
(DS/2006/26).  The  Commission  clarified  that 
following  Article  1  of  the  draft  Regulation  the 
reduction  of  1%  per  working  day  will  not  be 
applied  until  after  the  date  specified  (31  May  or 
15  June)  for  the  Member  State  concerned.  After 
that date, i.e. from 1 June or 16 June, the 25 days 
where  a  reduction  by  1%  per  working  day  is 
applied starts to count. 25 days after the specified 
date,  i.e.  the  25  June  or  10  July  2006,  the 
application  becomes  inadmissible  and  shall  be 
excluded.” 

its  views  on 

this  matter.  As 

Portugal:  The  Court  of  Auditors  has  only  now 
clarified 
the 
Commission  has  indicated,  PT's  interpretation  of 
the  application  of  the  derogation  provided  for  in 
Article  1  of  Regulation  (EC)  No  1187/2006, 
although  very  rigid,  does  not  pose  a  fundamental 
risk. 

5.26 (b) 

As regards the management and 
monitoring of SPS entitlements, the 
following weaknesses were noted: in 
the United Kingdom (England) the 
same parcel can be claimed by two 
“farmers” under different area 
related EU aid schemes. In 9 out of 
12 on the spot visits to "new 

UK:  barcodes  were  introduced  in  2006  for 
electronic  receipt  and  tracking.    The  system 
continues to be enhanced and is supported by full 
desk instructions. 

UK: This has been discussed at bilateral meetings 
with the Commission.  RPA is now undertaking a 
review of a sample of new entrants to SPS where 
an  RD  scheme  is  claimed  by  a  third  party, 
although  the  UK  Authorities  maintain,  as  agreed 
by  the  Commission,  that  the  Regulations  provide 
for such circumstances. Where necessary the “new 

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5.26 (c) 

beneficiaries" of EU direct aid that 
the Court had highlighted in its 
Annual Report concerning the 
financial year 2006 , the area 
declared for SPS was not eligible in 
whole or in part either because it 
was not in good agricultural 
condition, its main use was not 
agricultural or the beneficiary was 
not eligible because he did not carry 
out any agricultural activity on the 
land; 
As  regards  the  management  and 
monitoring  of  SPS  entitlements,  the 
following  weaknesses  were  noted: 
Portugal  has  allocated  entitlements 
and  paid  SPS  aid  to  farmers  who 
declared areas on “baldio” land. This 
land  is  usually  public  land  of  very 
poor  pasture  and  mostly  covered  by 
bushes and trees. There are no limits 
as  regards 
trees 
allowed on such land and there is no 
obligation  for  farmers  to  respect 
GAEC on this land. In 2007 Portugal 
paid  3,5  million  euro  for  “Baldio” 
land.  In  Italy  it  was  found  that  the 
areas accepted as permanent pasture 
for  SPS  payments  were  bigger  than 
the  eligible  part  actually  covered  by 
grass or herbaceous forage. 

the  number  of 

5.26 (d) 

As  regards  the  management  and 
monitoring  of  SPS  entitlements,  the 
following  weaknesses  were  noted: 
payments were made to 275 farmers 
in  France  and  33  farmers  in  Spain 
(Andalucia)  who  did  not  hold 
payment  entitlements;  no  recovery 
action has been taken 

beneficiaries” have been inspected and the results 
are being assessed. Any necessary corrections will 
be made. 

Portugal:  No  measures  have  been  taken  as  the 
Portuguese  authorities  consider  that  the  options 
they  have  chosen  comply  with  Community 
legislation.  The  baldio  is  a  traditional  form  of 
(common)  farming  of  forage  areas  by  local 
farming  communities.  These  areas  generally 
consist  of  extensive  pasture 
land,  usually 
containing  trees,  which  are  used  for  extensive 
grazing  for  small  ruminants  and  became  eligible 
in  2005  under  the  Single  Payment  Scheme.  The 
Portuguese  authorities  cannot  accept  the  Court's 
view  that  beneficiaries  of  direct  aid  who  farm 
these  areas  are  not  required  to  comply  with 
agricultural  and  environmental  good  conditions 
(GAEC) and Statutory Management Requirements 
(SMR). The only condition which does not apply 
to these farmers is to check there is no undesirable 
woody vegetation in accordance with Article 5 of 
Regulation  (EC)  No  1782/2003.  All  other  GAEC 
and SMR standards apply to these farmers. 

France: Population 1: for 77 dossiers representing 
247.882€,  the  amount  of  decoupled  payment  is 
zero;  a  title  of  transfer  had  been  issued  after  the 
payment  for  the  same  sum;  therefore  there  is 
coherence  between  the  absence  of  DPU  and  the 
absence  of  the  payment.  Population  2:  for  185 
dossiers representing 534.356 €, the instruction of 
the  dossier  DPU  was  not  accomplished  at  the 
moment  of  the  constitution  of  the  database  DPU 
for the auditors (March 05th, 2007) and led then to 
the  attribution  of  DPU  to  the  concerned  farmers. 
The  decoupled  payment  for  these  dossiers  is  in 
line  with  the  presence  of  DPU.  Population  3:  for 
13  dossiers  representing  178.085  €,  the  dossier 
the  computer 
jammed 
was  provisionally 

in 

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because of ongoing checks. For this reason, these 
dossiers  DPU  did  not  appear  in  the  database  of 
March  05th,  2007  transmitted  to  the  auditors. 
They  were  then  released,  without  adjournment  of 
attribution  and  of  decoupled  payment  to  the 
farmers. The list of dossiers recovering from these 
3 populations appears in 3 files Excel transmitted 
to the Court as a supplement to the answer to the 
corresponding letter of sector. 

Spain: see 5.14 

Germany: Production-linked direct payments 

are 

the 

following 

only  made 

identified  corrections 

Greece: Changes and/or corrections to application 
data 
an 
appeal/application  by  the  beneficiary  producer 
using  the  procedures  outlined  in  the  circular  on 
management of administrative operations. Thus, if 
there is no writ-ten request from the producer, it is 
not  possible  to  change  the  application  data. 
Consequently, 
to 
applications  have  been  made  using  the  procedure 
in  question.  As  regards 
the  procedure  for 
administrative checks, these are made a) on 100% 
of  original  applications  and  evidence  submitted 
with  them,  by  the  Regional  Directorates  of 
OPEKEPE, taking ac-count of any changes to the 
the 
the 
applications  within 
procedure for administrative operations and b) on 
10%  as  regards  correct  computerized  registration 
of the applications by the competent agencies. As 
regards  the  erroneous  recording  of  the  date  of 
performance  of  on-the-spot  checks  in  the  IIS,  on 
checking  this  was  found  to  be  mainly  due  to 
inadvertent error by the operator in re-cording the 
date of entry of the control results by the operator. 
As  regards  completion  of  the  results  of  2006  on-
the-spot  checks  and  in  accordance  with  the 
instructions that had been given to the inspectors, 
‘…In identifying the area of each land parcel, the 
D(eclared)  area  is  al-lowed  in  place  of  the 

framework  of 

5.27 

and 

direct 

coupled 

generally 

administrative 

reflecting 
the  IACS  for 

payments 
The 
managed  under  IACS  totalled  some 
5 500 million  euro  in  2007.  For  the 
animal-based  schemes  the  systems 
functioning 
are 
the 
satisfactorily, 
reliability  of 
this 
purpose. However, the Court found a 
number  of  systems  weaknesses  in 
administrative 
on-the-spot 
controls of  the area aids:  
a) 
controls 
weaknesses,  leading  to  errors  such 
as:  wrong  input  of  application  data 
(Greece), 
  payment  for  multiple 
incompatible  aid  schemes  on  the 
same  parcel  (Italy),  and  a  failure  to 
and 
correctly 
sanctions, 
to 
which 
overpayments  (Greece,  Italy,  Spain 
and Portugal); 
b)  lack  of  documentation  of  the 
reasons  why  certain  criteria  of  the 
risk analysis have been selected, and 
absence  of  yearly  reassessment  of 
the  risk  parameters  by  the  paying 
agencies, for the selection of the 5 % 
on-farm 
(Portugal, 
inspections 
Spain). 

penalties 
lead 

apply 

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M(easured)  area  if  the  difference  between  them 
(as  absolute  values)  is  at  most  equal  to  the  ‘al-
lowed  measurement  tolerance’,  i.e.  when  |D-M|≤ 
max  (Mx5%,  Px1.5),  when  P  is  the  perimeter  of 
the  land  parcel,  expressed  in  hectares  (area  in 
m²/10000)….The  heading  ‘Control  of  eligible 
area’  records  the  area,  either  eligible  for  the 
scheme  or  eligible  for  the  entitlements  and  equal 
to: The declared area, where the difference, as an 
absolute value, between the declared area and the 
measured  area  is  within  the  prescribed  tolerance 
limits.  The  measured  area,  where  the  difference, 
as  an  absolute  value,  between  the  declared  area 
and  the  measured  area  is  outside  the  prescribed 
tolerance  limits….’  Therefore  recording  of  the 
measurement  did  not  constitute  a  compulsory 
field. The tables of statistical data, as laid down in 
Article 76 of Regulation (EC) No 796/2004, have 
been  sent 
the  European 
the  services  of 
Commission  under  documents  Nos  45493_1.4.08 
and 93511_25.06.08. 

to 

Portugal:  action  taken  in  2007.  Content  of  the 
action:  Correction  of  the  use  of  the  average 
unitary  value  of  entitlements  for  areas  cleared 
after  penalties  now  forms  part  of  the  SPS 
clearance  system.  The  method  of  selecting 
samples has been changed. 

Spain: see  5.14 

5.28 

The  re-performances  of  controls 
carried  out  by  the  Court  found    a 

Spain: see 5.14 

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Observation in the 2006 Annual 
Report 

Member State reply 

identified 

number  of  specific  weaknesses  in 
the  on-the-spot 
the  quality  of 
controls  and 
ineligible 
areas  or    parcels  that  should  have 
the  national 
been  excluded  by 
inspectors.  (Greece,  Italy,  Spain, 
Portugal).  In  Italy,  a  farmer  had 
received aid for a parcel of pistachio 
nut trees. While the parcel had been 
subject  to  an  on-the-spot  control  by 
the  Italian  authorities  in  2005,  the 
Court’s  audit  found  the  parcel  to  be 
long  established  general  forest  land 
and, thus, not eligible for aid. 

As  indicated  at  paragraph  5.19,  the 
effectiveness  of  the  supervisory  and 
control  systems 
in 
IACS  forms  a  key  element  of  the 
overall  effectiveness  of  the  system. 
This applies to each of the main aid 
schemes covered by IACS. 

incorporated 

5.29 

Greece:  action  taken  between  end  of  2008  and 
start of 2009. Content of the action: new LPIS. 

Germany: see 5.27 

Rural 

to  verify 

for 
checks 

frame-work  of 

Greece: action taken in June 2007. Α) As regards 
the  checking  procedure,  these  checks  are  carried 
out:  on  100%  of  original  applications  and 
evidence  submitted  with  them,  by  the  Regional 
Directorates  of  OPEKEPE  or,  as  appropriate,  the 
Development, 
Directorates 
eligibility 
administrative 
conditions,  taking  account  of  any  changes  to  the 
applications  within 
the 
the 
procedure  for  administrative  operations  and  on 
10%, by the Regional Directorates of OPEKEPE, 
as regards correct computerized registration of the 
applications  by  the  competent  agencies.  On  8%, 
by  the  Regional  Directorates  of  OPEKEPE  or,  as 
for  Rural 
the  Directorates 
appropriate, 
Development,  on-the-spot  checks 
to  verify 
eligibility  conditions.  On  100%,  cross-checks. 
With  specific 
the  cross-checking 
procedure,  the  following  applies:  At  the  stage  of 
completion  of  the  applications  by  the  competent 
(Association  of  Rural  Cooperatives), 
body 
computerized 
regarding 
correctness of completion of the recorded data and 
completeness of the application fields. 

are  made 

checks 

regard 

to 

At  the  stage  of  finalization  of  the  applications  in 
the  central  system  of  the  Paying  Agency  and 
simultaneous  receipt  of  an  electronic  reference 
number,  computerized  cross-checks  are  made  at 
national  level  as  regards  the  completeness  of  the 
GNI  fields,  the  correctness  of  the  data,  the 
uniqueness  of  the  GNI,  the  compatibility  of  the 
carto-graphic  data,  and  so  on.  After  the  closing 

EN 

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Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

date for completion of applications, including the 
25  working  days,  central  computerized  cross-
checking  is  undertaken  with  regard  to  the  carto-
graphic  data  concerning  the  parcels  at  national 
level  before  issue  of  the  computerized  sample  of 
on-the-spot  checks.  Before  payment,  central 
computerized  cross-checking  is  undertaken  at 
national  level,  taking  ac-count  of  the  data  in  the 
applications  and  the  results  of  the  administrative 
and  on-the-spot  checks.  In  addition,  on  the  basis 
of  the  results  of  the  secondary  checks  and  with a 
view to improving the quality and reliability of the 
improvement 
primary  checks, 
initiatives have been undertaken: Improvement of 
the  control  forms  and  issue  of  more  detailed 
instructions 
and 
the  relevant  forms.  Training  of 
completing 
inspectors  from  both  prefectural  administrations 
and  Regional  Directorates  of  OPEKEPE  and 
evaluation  of  those  trained.  Start  of  performance 
of secondary checks immediately after the start of 
primary  checks  so  that  any  weaknesses  are 
identified 
immediate 
programming of corrective actions (e.g. provision 
of  additional  staff,  undertaking  of  checks  by 
OPEKEPE,  provision  of  training  materials  for 
control, and so on). 

undertaking 

following 

checks 

good 

time 

the 

for 

for 

in 

Netherlands: The Netherlands is adapting its plot 
register  to  ensure  that,  probably  by  2010,  it  will 
include  only  the  exact  eligible  area  for  which 
payments  are  made.  Until  the  measure  is  fully 
implemented, the Netherlands will inter alia carry 
out strict administrative and physical checks of the 
eligible  area.  This 
the 
communication on the sector. After more detailed 
analysis  of  the  findings  of  the  inspection  visit  by 
the Commission in October 2007, the Netherlands 
identified  some  gaps  in  the  LPIS-GIS.  The 
Netherlands  discussed  this  with  the  Commission 
on 24 November 2008. 

is  also  stated 

in 

Portugal: In accordance with subparagraph (d) of 
Article 12(1) of Regulation (EC) No 796/2004, the 
surface area of parcels forming an integral part of 
a particular application may be rounded up to two 
decimal  places  only  if  the  parcels  are  declared  to 
have  a  surface  area  equal  to  or  more  than  0.01 
hectares.  The Portuguese authorities consider this 
satisfies  the  condition  laid  down  in  Article  14(4) 

EN 

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Observation in the 2006 Annual 
Report 

Member State reply 

of  the  Regulation  obviating  the  need  for  national 
rules on this requirement to be published. 

5.30 (a) 

5.30 (c) 

of 

surfaces: 

Administrative  controls  to  establish 
eligibility 
the 
effectiveness  of  the  administrative 
controls  depends  on  the  quality  of 
the information recorded in the Land 
Parcel 
System 
Identification 
(LPIS(21)),  the  use  of  computerised 
geographical  information  techniques 
for  the  graphical  layer  of  the  LPIS 
which is the Geographic Information 
System  (GIS)  and  the  use  of  up-to-
date aerial or spatial orthoimagery: 
 the  administrative  controls  in  the 
United  Kingdom  (England)  do  not 
provide assurance that EU aid is paid 
out  correctly.  The  United  Kingdom 
(England) do not avail of the option 
to use aerial or spatial orthoimagery 
in  support  of  the  GIS.  The  English 
LPIS  does  not  always  contain 
information  on  eligible  area  of  the 
reference parcel;  

(21) LPIS is a database in which all 
the  agricultural  area  of  the  Member 
State  is  recorded  with  a  unique 
identification number. 

of 

surfaces: 

Administrative  controls  to  establish 
eligibility 
the 
effectiveness  of  the  administrative 
controls  depends  on  the  quality  of 
the information recorded in the Land 
Parcel  Identification  System  (LPIS), 
the 
computerised 
of 
geographical  information  techniques 
for  the  graphical  layer  of  the  LPIS 
which is the Geographic Information 
System  (GIS)  and  the  use  of  up-to-
date  aerial  or  spatial  orthoimagery: 
in  France  and  the  Netherlands    the 

use 

Spain: see 5.14 

UK: The RLR data refresh project is underway. 

single 

database 

the  data  from  digitisation  of 
of 

Greece:  action  taken  between  end  of  2008  and 
start  of  2009.  Content  of  the  action:  new  LPIS. 
The project has been completed and delivery took 
place  of 
the 
payment 
cartographic 
applications  for  2006.  During  implementation  of 
the  project  in  question,  correlation  was  also 
undertaken  with  the  base  of  existing  registers 
(vineyard and olive-growing). After digitisation of 
the  2006  files,  the  digital  files  of  single  payment 
applications for 2007 were checked and then used 
to  correct  the  cartographic  material.  It  is  planned 
to  introduce  new  orthophotomaps  from  satellite 
pictures  and  also 
the  system  for 
recognition  of  single-application  land  parcels  in 
the system. 

to  renew 

in 

their  availability 

is 
France:  The  actualisation  of  orthophotos 
conditioned  by 
IGN, 
responsible  for  orthophotos  used  to  update  RPG. 
From  2009,  IGN  should  reduce  to  5  years  the 
delay between  the  date of  the  provision  of  a new 
orthophoto and the date of the shot of the previous 
orthophoto.  This  should  allow  amore  frequent 
renovation of 

Netherlands: The Netherlands is adapting its plot 
register  to  ensure  that,  by  2010,  it  will  include 
only  the  exact  eligible  area  for  which  payments 

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Observation in the 2006 Annual 
Report 

Member State reply 

paying  agencies  do  not  sufficiently 
deduct  ineligible  features  visible  on 
orthoimages  from  the  eligible  area 
recorded  in  the  LPIS  and  do  not 
update their LPIS with the results of 
on-the-spot  inspections.  In  Portugal 
is  carried  out  with 
the  update 
significant  delays.  France 
and 
Sweden  use  orthophotos  some  of 
which are more than 5 years old; 

are made. Until the measure is fully implemented, 
the  Netherlands  will  inter  alia  carry  out  strict 
administrative and physical checks of the eligible 
area. This is  also stated in the communication on 
the  sector.  After  more  detailed  analysis  of  the 
findings  of  the  audit  visit  by  the  Commission  in 
October  2007,  the  Netherlands  identified  some 
gaps in the LPIS-GIS. The Netherlands discussed 
this with the Commission on 24 November 2008. 

Sweden:  Since  2007,  ortho-photos  have  been 
updated more often. 

5.30 (d) 

land  declared 

in  France,  Portugal  and  Sweden  the 
eligibility  of 
for 
activation  of  set  aside  entitlements 
(22)  is not reliably verified.  
(22)  Determination  of  set  aside 
entitlements  is  set  by  article  53  of 
Regulation (EC) No 1782/2003 

France: see 5.30 (c) 

Portugal: no action taken. Areas under permanent 
pasture  have  been  identified  in  accordance  with 
Community  regulations  and  this  information  is 
used  to  check  the  eligibility  of  areas  declared  to 
activate  set-aside  entitlements.  Administrative 
cross-compliance checks of aid applications based 
on  information  in  the  LPIS  database  are  affected 
electronically and cover 100% of aid applications. 

Sweden:  no  action 
foreseen.  The  Swedish 
authorities merely undertake the necessary checks 
to  ensure  that  set-aside  entitlements  are  linked  to 
parcels of land eligible for set-aside. 

5.32  

of 

some 

The imprecise definitions in national 
legislation 
eligibility 
conditions  and  the  often  complex 
rules,  particularly  those  related  to 
agri-environmental 
measures, 
adversely  affect  the  quality  of  the 
controls  carried  out  to  verify  the 
compliance  with 
the 
farmers’ 
relevant 
These 
requirements. 
controls have once again, been found  
deficient.  The  principal  weaknesses 
detected were:  
insufficient checks on the validity of 
the  bids  submitted  in  the  context  of 
private  procurement.  The  checks 
provide 
not 
do 
carried 
the 
to 
reasonable  assurance  as 

out 

France: Concerning the databases for the animals 
(rare  races),  the  French  authorities  remind  that 
DDAF  will  have  access  at  the  root  of  data 
HARASIRE  of  the  national  Hars  farms  to  prove 
the number of horses used for the PRM. Currently, 
the counting of the animals is only made in on the 
spot  controls.  Concerning  the  analysis  of  risk  for 
the selection of the samples, the French authorities 
iterate  that  controls  of  place  lean  on  a  procedure 
of reliable selection with the aid of secured tools, 
for the analysis of risk in zone of remote sensing, 
tested  and  founded  on  5  main  criteria  of  risk 
described in R. (EC) n°796 / 2004. This procedure 
allows 
the 
to  prove  good 
installation  of  controls  and 
management  and  use  of  public  funds.  Finally, 
concerning the official report of break of the audit 

respect  principles  governing 

to 

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Observation in the 2006 Annual 
Report 

Member State reply 

the 

legality  of  the  required  tendering 
procedure  which  may  consequently 
affect the eligibility of the project as 
a whole (Romania); 
lack of cross checks with the specific 
animal  databases  (rare  breeds)  to 
validate 
the  number  of  animals 
declared  by  the  farmer  which  is  the 
agri-environment 
for 
basis 
payments (France); 
 inadequate  verification  of 
the 
eligible area under agri-environment 
measures  in  cases  where  this  area 
did not correspond to the data in the 
IACS  database.  As  a  consequence, 
not all the conditions for granting the 
support could be checked (Ireland); 
lack of systematic verifications as to 
whether  detailed  agri-environment 
commitments  tailored  to  the  farm 
fulfil the overall requirements of the 
measure 
the  maximum 
(e.g. 
permitted level of chemicals); 
inconclusive and poorly documented 
on-the-spot 
administrative 
controls  with  an  over  reliance  on 
beneficiaries’  declarations  before 
approving final payments (Ireland); 
inadequate  consideration  of  the  risk 
factors  stipulated  in  EU  legislation 
for  the  selection  of  a  sample  of 
farmers  to  be  controlled  on-the-spot 
(France and Ireland); 
inadequate 
the 
verification 
existence  of  private  co-financing. 
approved 
Projects  were 
without the required certificate from 
a financial institution , increasing the 
risk  that  EU  funds  are  paid  to 
beneficiaries  who  are  unable  to  pay 
their 
investment 
(Romania); 
the inadequate audit trail for projects 
rate  subsidies 
receiving 
made it impossible to trace the final 
beneficiaries who benefited from EU 
funding.  Consequently,  the  auditors 
the 
could  not  verify  whether 
amounts  declared  were  correct  or  if 
beneficiaries  respected  all  eligibility 

share  of 

interest 

often 

and 

the 

of 

trail, France considers that difficulties of the Court 
constitutes a formal error due to the absence of the 
file  of  the  Credit  agricole  corresponding  to  loans 
chosen  for  the  mission  of  audit,  and  not  in  a 
substantial and systematic error. In this regard, the 
French authorities want to remind that during the 
audit  carried  out  diligently  by  the  services  of  the 
Commission in October, 2008 ( n°2008 / 16), the 
auditors  could  retrace  correctly  the  audit  trail  of 
the  selected  samples  and  certify  the  regularity  of 
the EU payments. 

Ireland:  referred  to  its  comment  on  the  Table  2 
General remarks (see above). 

level  were 

in  accordance  with 

Romania:  The  procurement  tender  procedure  for 
private beneficiaries, which was accredited by the 
European Commission (EC), took place before the 
conclusion  of  financing  contracts  between  the 
private  beneficiaries  and  the  Paying  Agency  for 
Rural  Development  and  Fisheries  (PARDF).  No 
measures have been taken to improve/change this 
procedure, since contraction of the funds under the 
SAPARD Programme has been finalised. Both the 
selection  of  tenders  by  private  beneficiaries  and 
the  approval  of  the  procurement  dossiers  at 
the 
PARDF 
European  Commission's  accredited  procedures. 
We therefore consider that these procedures were 
compliant.  The  Note  at  the  end  of  the  table 
contains  details  concerning  the  selection  and 
evaluation  of  the  tenders.  The  PARDF  procedure 
accredited  by  the  European  Commission  requires 
the beneficiary, in order to guarantee the provision 
of private co-financing, to submit a "bank account 
statement approved and dated by the bank at least 
five  working  days  before  the  date  for  submission 
of the financing application, where co-financing is 
(self-
to  be  provided  by  private 
financing)". We consider that the projects comply 
with  this  condition,  in  accordance  with  the 
procedure.  Furthermore,  all  four  projects  referred 
to  in  the  Court  of  Auditors'  preliminary  audit 
report  have  been  completed,  which  demonstrates 

sources 

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Observation in the 2006 Annual 
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Member State reply 

requirements. 

that  the  beneficiaries  had  the  capacity  to  ensure 
their own financial contribution to implementation 
of the projects. 

5.40 

three 

financial 

On  30  April  2008  the  Commission 
took 
clearance 
decisions  for  the  expenditure  made 
under EAGF, EAFRD and TRDI and 
cleared all paying agencies accounts.  
These  decisions  are  based  on 
certificates  provided  by  independent 
auditors  (certifying  bodies).  The 
audit  did  not  detect 
Court’s 
expenditure 
the 
cleared 
Commission  which  should  have 
been 
the 
financial clearance decisions. 

(disjoined) 

refused 

by 

in 

Austria: see annex 5.3 

Belgium: Wallonia contests the materiality of the 
error  under  EAFRD  in  a  letter  of  30/01/2007 
(p.84). Further explications have been provided to 
the EC on the 15th of April. Flanders: action taken 
the  1/04/2008.  Content  of  the  action:  more 
dossiers tested for EAGF. 

Finland:  Action  taken  in  2009.  Content  of  the 
action:  Supplementing  the  work  of  the  certifying 
authority. 

funds, 

the  EAFRD 

Germany:  For 
the 
Commission  didn't  clear  the  accounts  of  the 
in  Bavaria  and  Baden-
payment  authorities 
Württemberg,  related  to  the  key  date  30/4/2008 
for 
the  financial  year  2007.  This  happened 
because  the  certifying  authorities  didn't  make  a 
the 
fault 
materiality  limit  was  exceeded.  In  the  meantime 
the  work  by  the  certifying  authorities  has  been 
completed.  The  Commission  send  an  email  in 
which it said that the work which has been done is 
sufficient  and  that  a  clearing  decision  can  be 
expected in the beginning of 2009. 

localisation  despite 

that 

fact 

the 

Malta: action taken in 2008. The Commission did 
not  approve  the  amount  in  question  because  the 
Payment Agency was put in a state of provisional 
accreditation.  The  Maltese  Competent  Authority 
and  Payments  Agency 
together  with  Italian 
experts  which  are  taking  part  in  the  Twinning 
Light  project  together  with  the  Maltese,  held 
meetings with the Commission on the factors that 
led  to  the  Agency  not  being  granted  with  full 
accreditation. In addition, in the certification audit 
for  the  year  ending  15  October  2008  that  the 
Directorate of Internal Auditing and Investigations 
is  at  present  carrying  out  is  also  considering 

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Observation in the 2006 Annual 
Report 

Member State reply 

whether  there  were  any  improvement  in  those 
factors  that  led  to  the  Agency  not  being  granted 
with full accreditation.   

5.43 

Despite the Spanish paying agencies 
making  payments  for  the  first  time 
under  the  SPS  during  the  year,  the 
Spanish  certifying  bodies  did  not 
include  the  required  verification  of 
entitlements in their work.  

Annex 5.1.1 

Netherlands:  the  Commission  has  reviewed  the 
EU conformity of the certification operations. All 
concerned  are  satisfied  with  the  outcome.  The 
Netherlands 
the  decision 
still  awaiting 
approving the 2007 EAGF account. 

is 

instruction  from 

the 
Greece:  Following  an 
European  Commission,  the  Certifying  Agency 
carried  out  a  supplementary  check  on  2007 
expenditure and issued a new certificate. We were 
informed that financial closure for 2007 and 2008 
will be examined in April 2009. Closure will take 
place after evaluation of the supplementary report. 

Spain: see 5.14 

Germany: referred to its observation to 5.27 (see 
above) 

Portugal: action taken in 2007. Although Portugal 
does  not  agree  with  the  Court's  conclusions, 
procedures have been adopted to clarify concepts, 
including  the  detailed  conditionality  rules  to  be 
observed  in  controls  and  these  have  been  sent  to 
inspectors.  The  inclusion  of  models  for  area  and 
animal checks in a standard model will remedy the 
situations identified by the Court. 

Spain: see 5.14 

Greece:  In  line  with  the  Integrated  Action  Plan 
for Greece, the following applies: The project has 
been  completed,  as  has  the  delivery  of  the  data 
from  digitisation  of  the  cartographic  data  base  of 

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Observation in the 2006 Annual 
Report 

Member State reply 

for  2006. 

In 
single  payment  applications 
implementing  the  project  in  question,  correlation 
with  the  base  of  the  existing  registers  (vineyard 
and  olive-growing)  also 
took  place.  After 
digitisation  of  the  2006  files,  the  digital  files  of 
single  payment  applications  for  2007  were 
checked and then used to correct the cartographic 
material. 

regarding 

the  correctness  of 

It  is  planned  to  introduce  new  orthophotomaps 
from  satellite  pictures  and  also  to  renew  the 
system  of  land  parcel  recognition  for  single 
payment  in  the  system  by  the  end  of  2008. 
Additionally,  the  recommendation  concerning  the 
orthophotomaps  showing  the  layout  and  position 
of the land parcel is made by the producer. Within 
the  framework  of  the  computerised  cross-checks 
performed  in  the  system,  the  land  parcels  are 
checked 
their 
cartographic code and, if a land parcel is found to 
have  a  duplicate  or  non-existent  or  incompatible 
code  or  to  exceed  the  island,  its  payment  is 
automatically blocked. Changes and/or corrections 
to  application  data  are  only  made  following  an 
appeal/application  by  the  beneficiary  producer 
using  the  procedures  out-lined  in  the  circular  on 
management of administrative operations. Thus, if 
there is no written request from the producer, it is 
not  possible  to  change  the  application  data. 
Consequently, 
to 
applications  have  been  made  using  the  procedure 
in  question.  As  regards 
the  procedure  for 
administrative checks, these are made a) on 100% 
of  original  applications  and  evidence  submitted 
with  them,  by  the  Regional  Directorates  of 
OPEKEPE,  taking  account  of  any  changes  to  the 
the 
the 
applications  within 
procedure for administrative operations and b) on 
10%  as  regards  correct  computerised  registration 
of the applications by the competent agencies. As 
regards  the  erroneous  recording  of  the  date  of 
performance  of  on-the-spot  checks  in  the  IIS,  on 
checking  this  was  found  to  be  mainly  due  to 
inadvertent error by the operator in re-cording the 
date  of  entry  of  the  control  results.  As  regards 
completion  of  the  results  of  2006  on-the-spot 
checks  and  in  accordance  with  the  instructions 
that  had  been  given  to  the  inspectors,  ‘…In 
identifying  the  area  of  each  land  parcel,  the 
D(eclared)  area  is  allowed  in  place  of  the 

identified  corrections 

framework  of 

the 

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Observation in the 2006 Annual 
Report 

Member State reply 

M(easured)  area  if  the  difference  between  them 
(as  absolute  values)  is  at  most  equal  to  the  ‘al-
lowed  measurement  tolerance’,  i.e.  when  |D-M|≤ 
max  (Mx5%,  Px1.5),  when  P  is  the  perimeter  of 
the  land  parcel,  expressed  in  hectares  (area  in 
m²/10000).…The  heading  ‘Control  of  eligible 
area’  records  the  area,  either  eligible  for  the 
scheme  or  eligible  for  the  entitlements  and  equal 
to: The declared area, where the difference, as an 
absolute value, between the declared area and the 
measured  area  is  within  the  prescribed  tolerance 
limits.  The  measured  area,  where  the  difference, 
as  an  absolute  value,  between  the  declared  area 
and  the  measured  area  is  outside  the  prescribed 
tolerance  limits….’Therefore  recording  of  the 
measurement  did  not  constitute  a  compulsory 
field. The tables of data, as laid down in Article 76 
of  Regulation  (EC)  No  796/2004,  have  been  sent 
to the services of the European Commission under 
documents 
and 
93511_25.06.08. 

45493_1.4.08 

Nos 

Annex 5.1.2 

France:  The  French  authorities  contest 
the 
assessment  made  by  the  Court  of  the  IACS 
relating to the SPS. 

Netherlands:  The  findings  in  Annex  5.1.2  affect 
the  LPIS-GIS  on  the  one  hand  and  eligibility  on 
the  other.  The  contents  of  the  measures  (where 
relevant) are specified in this letter in the findings 
on the 2007 Statement of Assurance. 

Portugal:  no  action  taken.  In  accordance  with 
subparagraph  (d)  of  Article  12(1)  of  Regulation 
(EC)  No  796/2004,  the  surface  area  of  parcels 
forming an integral part of a particular application 
may be rounded up to two decimal places only if 
the  parcels  are  declared  to  have  a  surface  area 
equal 
than  0.01  hectares.  The 
Portuguese  authorities  consider  this  satisfies  the 
condition  laid  down  in  Article  14(4)  of  the 
Regulation  obviating  the  need  for  national  rules 
on this requirement to be published. 

to  or  more 

Spain: see 5.14 

Sweden: see 5.30 

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Paragraph 

Annex 5.2 

Annex 5.3 

TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Observation in the 2006 Annual 
Report 

Member State reply 

Germany:  The  backlogs  in  completing  checks 
according 
to  Council  Regulation  4045/89, 
reminded  by  the  Commission,  occurred  in  the 
payment  authority  in  Lower  Saxony  and  have 
been  cleared  in  the  meantime.  Therefore,  the 
Commission  has  suspended  the  audit  without 
accusing any financial impact. 

Netherlands:  The  Netherlands 
is  currently 
examining  the  Commission's  findings  from  the 
audit of 22-26 October 2008 on the establishment 
of  payment  entitlements.  The  Commission's 
findings are very similar to those of the ECA. 

Spain: see 5.14 

Sweden: see 5.30 

Austria: Action taken, additional documents sent 
to EC on 2/6/2008 

Belgium, Germany, Netherlands: See 5.40 

Malta: action taken in 2008. The Commission did 
not  approve  the  amount  in  question  because  the 
Payment Agency was put in a state of provisional 
accreditation.  The  Maltese  Competent  Authority 
together  with  Italian 
and  Payments  Agency 
experts  which  are  taking  part  in  the  Twinning 
Light  project  together  with  the  Maltese,  held 
meetings with the Commission on the factors that 
led  to  the  Agency  not  being  granted  with  full 
accreditation. In addition, in the certification audit 
for  the  year  ending  15  October  2008  that  the 
Directorate  of 
Internal  Auditing  and 
Investigations  is  at  present  carrying  out  is  also 
considering whether there were any improvement 
in  those  factors  that  led  to  the  Agency  not  being 
granted with full accreditation.   

the 

CHAPTER 6 – COHESION 

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TABLE 3. SPECIFIC OBSERVATIONS IN THE 2006 ANNUAL REPORT 

Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

6.28 

on 

findings 

The  Court's 
the 
management  and  supervisory  systems 
in  the  Member  States  for  the  16 
it 
operational  programmes  which 
assessed are set out in Annex 6.1. In 11 
cases,  the  Court  rated  management 
systems as 'partially effective', in three 
cases as 'not effective' and in two cases 
as 'effective'. The continued high level 
of  error 
the  Court's 
testing  of  underlying 
substantive 
that 
transactions  similarly  suggests 
systems  in  general  in  the  Member 
States  were  only  partially  effective  in 
managing  the  risk  of  illegality  and 
irregularity in reimbursements. 

identified  by 

focusing  on 

Czech  Republic:  Action  taken  in  September 
2008.  Content  of  the  action:  When  carrying 
on−the−spot  checks,  a  checklist  is  used  to  verify 
the  transparency  of  the  selection  of  contractors. 
Training 
the  performance  of 
on−the−spot checks, destined for all employees of 
the  OPIE/OPEI  implementation  structure.  An 
external  company  has  been  hired  to  help  reduce 
the 
the  error  rate  and  subsequent  risks 
and 
verification  of 
the  project  progress 
performance  of  on−the  –spot  checks; 
this 
company  exercises  supervision  before  payments 
are authorised. 

in 

Denmark:  The  Court  of  Auditors  considers  that 
the supervisory and control systems for the Social 
Fund in Denmark (objective 3) are effective. 

France: we will provide a further reply. 

Greece: with regard to the Court's observations on 
the  Greek  ESF  audit,  the  matter  was  closed 
following 
the  Greek 
authorities. 

reply 

from 

first 

the 

Ireland: action taken in July 2008. Content of the 
action:  project  has  been  advised  25%  penalty 
likely.  MA awaiting Commission confirmation. 

in 

Portugal: Portugal disagrees with the findings of 
the  Court  regarding  the  PO  Norte.  The  Court 
failed  to  take  on board  the  facts  presented  by  the 
IGFSE  at  the  tripartite  meeting  in  Luxembourg. 
The  Court's  arguments 
the  consultation 
procedure were based on inaccurate and incorrect 
facts,  as  was  shown  by  supporting  documents 
during 
the  contradictory  procedure.  Portugal 
disagrees  with  the  Court's  finding  that  Article  4 
and  Article  9  controls  do  not  work.  Furthermore, 
the  EC  carried  out  a  more  comprehensive  audit 
than the Court's on PO Norte (systems audit report 
No 1999PT161PO017 PONORTE), a few months 
after  the  audit  of  the  ECA,  auditing  the  period 
from  2000  to  2007  (including  the  period  of 
analysis  of  the  Court  –  2007),  and  issued  an 
unqualified  opinion  on  the  existing  management 
and control systems (exercised by the IGFSE and 
manager  of  PONORTE)  and  established  an  error 
rate of close to 0%.  

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Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

Slovakia:  action  taken  on  1/08/2007.  Opinion  of 
the Ministry of Finance, the body under Article 10 
of Commission Regulation (EC) No 438/2001: the 
document ‘Procedures for the financial control of 
the  Structural  Funds  and  the  Cohesion  Fund  – 
Version  3’  was  published  together  with  a  guide, 
and  the  sample  checks  under  Article  10(1)  (b)  of 
Council Regulation (EC) 438/2001 are carried out 
more  rigorously.  Building  on  an  amendment  to 
Act No 502/2001 on financial control and internal 
auditing, 
for 
government  auditing  of  the  Structural  Funds,  the 
Cohesion Fund and the European Fisheries Fund’, 
effective  as  of  20  August  2008,  was  published. 
This  document  lays  down  uniform  procedure  for 
the  performance  of  systems  audits  and  sample 
checks  (audits  on  operations)  for  the  2004-2006 
and  2007-2013  programming  periods.  Guidelines 
(effective as of 1 October 2008) were published in 
connection with this document.    

‘Procedures 

document 

the 

Spain:  action  taken  in  June  2008.  Content  of  the 
action:  revision  of  all  management  systems  in 
order to address the shortcomings. As a follow-up 
to  the  Court's  observations  on  the  Spanish  ESF 
audit, Spain took action in July 2008 to bring in an 
apportionment  method  that  complies  fully  with 
national  and  Community  rules,  to  implement  a 
sub-contracting 
the 
applicable rules and in October 2008 proposed the 
application of standard costs to validate real costs. 
Measures have been introduced to prevent double 
financing and intermediate bodies have received a 
manual and guidance on management and control. 
The  IGAE  (audit  body)  will  revise  its  work 
programmes  with 
extending 
verifications as regards subcontracting.  

system  compliant  with 

view 

to 

a 

Annex 6.1 

Czech Republic: referred to its reply to 6.28  

Germany:  action  taken  in  2nd  half  of  2008. 
Actions  are  taken  to  comply  with  the  procedures 
which were aligned with the ECA 

Ireland, Spain: see 6.28 

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Observation in the 2006 Annual 
Report 

Member State reply 

UK:  action  taken  and  on-going.  Content  of  the 
action:  revised  &  strengthened  guidance  plus 
additional resources. Closer co-operation between 
those  involved  to  increase  the  number  of  on-site 
checks. 

CHAPTER 8 – EXTERNAL AID, DEVELOPMENT AND ENLARGEMENT 

8.12 

8.33 d 

However,  in  Bulgaria  it  was  found 
that  in  spite  of  EDIS  accreditation 
having been given (thus waiving the 
the 
Delegation’s  ex-ante  control) 
contain 
question 
in 
systems 
significant  weaknesses. 
two 
In 
implementing  agencies 
that  had 
received  EDIS  accreditation  in  June 
there  were  weaknesses 
2007 
concerning  respect  of  the  applicable 
tendering 
award 
procedures, as well as the fulfilment 
implementation 
of 
conditions. This has been confirmed 
by the Commission services and has 
given  rise  to  a  reservation  in  DG 
Enlargement’s  Director  General’s 
Annual Declaration. 

contractual 

contract 

and 

of 

and 

fixing 

supervision 

Bulgaria:  Action  taken  on  the  3rd  March  2008. 
Content  of  the  action:  adopting  a  detailed  action 
plan, 
assigning 
deadlines 
responsibilities,  for  implementation  under  the 
the  National 
day-to-day 
Authorising  Officer.  Priority  was  given 
to 
sensitive  issues  of  great  importance  such  as 
transparent  public  procurement,  strengthening 
administrative capacity, improving the handling of 
irregularities  and  barring  contractors  involved  in 
irregularities  under  contracts  co  financed  by  the 
EU,  reinforcing  the  supervisory  functions  of  the 
National  Authorising  Officer  and  improving  the 
system of reporting to the European Commission. 
Detailed replies were sent to the EU in our letters 
of  31 March 2008,  16 June 2008,  1 July 2008  and 
15 October 2008 presenting the measures taken to 
implement the action plan. 

order 

to  mitigate 

these 
In 
weaknesses,  the  Court  recommends 
that  further  steps  should  be  taken 
urgently to correct the weaknesses in 
the  management  of  EU  funds  in 
Bulgaria, 
necessary 
monitoring maintained in Turkey; 

and 

the 

Bulgaria:  action  taken  on  26  March  2008.  On 
26 March 2008  the  Council  of  Ministers  adopted 
an  action  plan  of  corrective  measures  when 
carrying  out  EU  pre-accession  programmes  and 
structural  instruments,  implementation  of  which 
came to an end in June 2008. Measures were taken 
to: 
(cid:57)  strengthen administrative capacity; 
(cid:57) improve interdepartmental coordination;  
(cid:57) prevent corruption and conflicts of interest; 
(cid:57) upgrade rules and procedures; 
(cid:57) carry  out  a  policy  of  greater  publicity  and 
transparency  with  the  active  involvement  of 
civil society. 

(2)  In  follow-up  to  the  report  on  Bulgaria's 
progress  published  by  the  European  Commission 
in  July 2008,  on  7 August 2008  the  government 
adopted  an  action  plan  containing  practical 
measures  to  tackle  the  shortcomings  identified  in 
the management of EU resources, namely: 
(cid:57) 
to manage EU resources; 

strengthening  the  administrative  capacity 

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Observation in the 2006 Annual 
Report 

Member State reply 

improving 

supervision 

abolishing  existing  or  potential  networks 

(cid:57) 
of conflicts of interest; 
(cid:57) 
and 
the 
transparency of public procurement procedures at 
central, regional and local levels; 
(cid:57) 
increasing  control  of  the  legality  and 
regularity  of  expenditure  by  conducting  real  and 
regular on the spot checks and audits; 
(cid:57) 

building  on  the  initial  steps  taken  in 
improving  co-ordination  between  ministries, 
between  the  various  stakeholders  as  well  as 
between central, regional and local authorities.  

into 

transformed 

(3) The following measures have been taken: 
-  the  Republican  Road  Infrastructure  Fund  has 
been 
the  National  Road 
Infrastructure Agency;   
- the staffing of the OP managing authorities and 
the Phare intermediate bodies has been increased; 
-  Council  of  Ministers  Decree  No 197  of 
5 August 2008 has introduced an incentive system 
of performance-related bonuses for staff managing 
EU financial assistance; 
-  Council  of  Ministers  Decree  No 131/2005 
defining  the  role  and  functions  of  the  National 
Authorising  Officer  has  been  amended  to  extend 
his  powers  to  guarantee  and  strengthen  his  key 
role in the management of Phare resources; 

and 

control 

transparency 

(4) Council of Ministers Decree No 224/2008 has 
established  a  council  for  the  coordination  and 
monitoring of EU resources; 
- the Public Procurement Act has been amended to 
include specific provisions aimed at strengthening 
of 
the 
public 
procurement  procedures, 
those  for 
projects co financed by the EU; 
-  an  Act  on  the  prevention  and  detection  of 
conflicts of interest has been adopted; 
-  a  Council  of  Ministers  Decree  has  transformed 
the  Ministry  of  Finance's  Audit  of  EU  Funds 
Directorate into an Audit of EU Funds Executive 
Agency  at  the  Ministry  of  Finance.  The  Decree's 
publication in the Official Gazette is pending. 

including 

8.34 

follow-up 

A  summary  of  the  results  of  the 
Court’s 
key 
observations in recent Statements of 
Assurance  may  be  found  in  Annex 
8.2. 

of 

Romania:  action  taken  on  the  2nd  of  April  2007. 
EDIS  accreditation  was  obtained 
the 
Ministry  for  Employment,  the  Family  and  Equal 
Opportunities.  All  three  PHARE  implementing 

from 

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Paragraph 

Observation in the 2006 Annual 
Report 

Member State reply 

agencies  obtained  EDIS  accreditation.  EC 
Decision (C (2007) 1281 final) of 2.4.2007. 

CHAPTER 9 – EDUCATION AND CITIZENSHIP  

9.20 (b) 

9.21 

in 

supervisory 

and 
line  with 

The  assessment  by  the  Commission 
is  based  on  information  sent  by 
Member  States  and  is  still  ongoing 
in  the  form  of  monitoring  visits  to 
Member  States.  Its  value  as  an 
instrument  to  ensure  that  Member 
States 
control 
the 
systems  are 
regulatory framework is reduced by: 
the  limited  number  of  monitoring 
visits to Member States (10 Member 
States out of the 26 had been visited 
by the end of 2007) and the fact that 
most  of  them  were  not  performed 
within 
period 
following submission of the systems' 
descriptions as required by EU rules. 

12  month 

the 

As  descriptions  of 
the  Member 
control 
supervisory 
States 
and 
systems  for  the  External  Borders 
Fund (EBF) were only provided (12) 
to the Commission in the last quarter 
of  2007,  the  Commission  could  not 
assess  the  Member  States’  systems 
by  the  end  of  the  year  2007.  As  a 
consequence  there were no transfers 
responsible 
of 
authorities  in  Member  States  during 
the financial year 2007 (13). 

funds 

the 

to 

(12) With the exception of Italy, 
Luxembourg and Malta who had not 
provided the required documents by 
December 2007. 

(13) The payment appropriations for 
2007 amounted to 95 million euro 

Denmark:  Denmark  does  not  participate  in  the 
European Refugee Fund II. 

Italy:  action  taken  in  June  2007.  Content  of  the 
action:  the  system  of  Management  and  Control 
has  been  completed.  The  description  of  this 
system  has  been  sent  to  the  EC  (DG  JLS)  to  be 
approved. 

Luxemburg: action taken in November 2008. The 
detailed  description  of 
the  management  and 
control  system  was  presented  to  the  EC  in 
November,  2008.  The  multi  annual  plan  2007-
2013  as  well  as  the  annual  plan  for  2007  was 
approved  by 
the  Commission.  The  financial 
assistance  for  2007  is  46  116  euro,  the  public  co 
financing is 15.372 €. 

Malta: action taken in July 2008. The Programme 
the 
Implementation  EU  Funds  Unit  within 
Ministry  for  Justice  and  Home  Affairs  sent  the 
description of the monitoring and control systems 
of  the  External  Borders  Fund  to  the  Commission 
in July 2008. 

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ANNEX 

Questions put to Member States concerning Agriculture/Natural resources 
and Cohesion 

In the 2007 report, the Court has again expressed concerns (previously expressed in the 2006 report) 
about the reliability of payments made under the SPS (single payments system). The Court identified 
the most urgent issues to be addressed as: 

Improving identification, registration and management of entitlement 

• 
•  Eliminating from the database ineligible areas and beneficiaries and ensuring up to date 

information on land parcels 

•  Clarifying and simplifying the rules underpinning the measures-in particular the case of the 

National Reserve 

Question  1:  Please  state  whether  in  the  last  year  you  have  addressed  any  one  or  all  of  the  above 
mentioned. 

In the Cohesion chapter, the Court found that in some cases the supervisory and control systems were 
partially  effective  and  in  a  certain  number  of  cases  they  were  not  effective.  The  main  weaknesses 
identified were related to:  

•  Managing Authorities- insufficient day-to-day checks of the reality of expenditure, failure to 
identify  expenditure  declarations  not  supported  by  appropriate  evidence  and  failure  to 
identify weaknesses in tender procedures; 

•  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. 

It  would  be  helpful  to  be  informed  of  the  measures  taken  by  your  Member  State  to  address  these 
shortcomings. In particular:  

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Question 2: Have any new members of staff joined managing authorities and paying authorities in the 
last 12 months? (total staff increased by  % in managing authority/paying authority)                
Question  3:  In  the  case  of  managing  authorities,  have  members  of  staff  been  trained  in  financial 
management and control in the last year? If yes, can you state the number of authorities benefitting 
from the training programmes and the number of employees trained? (% of staff trained last year) 
Question  4:  In  the  case  of  paying  authorities,  have  members  of  staff  been  trained  in  financial 
management/control in the last year. If yes, can you state the number of authorities benefitting from 
the training programmes and the number of employees trained? (% of staff trained last year) 
Question 5: Do Managing Authorities provide a starter pack containing documents and guidelines for 
new staff members? If yes, please indicate which of the following documents are included. 
(5a)  Checklists 
(5b)  Guidance notes on control strategies 
(5c)  Guidance notes on reporting control findings and error rates 
(5d)  Digest of eligibility rules for checking claims 
(5e)  Public procurement rules 
(5f)  Final payments-rules and checks to be made 
(5g)  Irregularities-the consequences 
(5h)  Any other procedure manuals 
Question 6: The Court cites failure on the part of the audit bodies to carry out sufficient checks. This 
occurs as a result of: 
(6a) Guidelines not systematically provided to audit bodies 
(6b) Scope of audit too limited 
(6c) Auditee cooperation questionable 
(6d) Any other reasons 
Question 7: Has there been an overall reduction (compared to last year) in the number of errors 
identified by the Court for your country? ( % reduction in number, % reduction in financial impact)        

Question 8: Please indicate whether you participated in the tripartite discussions with the Court of 
Auditors and the Commission in May/June this year before the contradictory procedures? Did you 
consider these discussions useful? 
Question 9: Can you indicate any areas in which the Commission could improve its supervisory role 
in shared management? 

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