Commission staff working document accompanying the Report from the Commission to the Council on the follow-up to 2007 discharge procedure {COM(2009) 682}
Date: 2009-12-10
Institutions: European Commission
Subjects: budgetary discharge, financial year, general budget (EU), impact study, implementation of the budget

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 10.12.2009 
SEC(2009) 1700 final 

COMMISSION STAFF WORKING DOCUMENT 

accompanying the REPORT FROM THE COMMISSION TO THE COUNCIL on the 
follow-up to 2007 discharge procedure 

{COM(2009) 682} 

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TABLE OF CONTENTS 

INTRODUCTION...................................................................................................................... 1 

Council Recommendation on the 2007 discharge...................................................................... 2 

Introduction....................................................................................................................... 3 

Chapter 1 - The Statement of Assurance (DAS) and supporting information.................. 5 

Chapter 2 - Commission internal control system.............................................................. 6 

Chapter 3 - Budgetary Management............................................................................... 12 

Chapter 4 - Revenue ....................................................................................................... 16 

Chapter 5 - Agriculture and Natural Resources.............................................................. 17 

Chapter 6 - Cohesion ...................................................................................................... 20 

Chapter 7 - Research, Energy and Transport.................................................................. 23 

Chapter 8 - External aid, Development and Enlargement .............................................. 26 

Chapter 9 - Education and Citizenship ........................................................................... 32 

Chapter 10 - Economic and Financial Affairs ................................................................ 35 

Chapter 11 - Administrative and other expenditure........................................................ 37 

Special Report No. 6/2007 on the effectiveness of technical assistance in the context of 

capacity development ....................................................................................... 41 

Special Report No. 7/2007 on the control, inspection and sanction systems relating to 

the rules on conservation of Community fisheries resources ........................... 42 

Special Report No. 9/2007 concerning "Evaluating the EU Research and Technological 
Development (RTD) framework programmes - could the Commission's 
approach be improved?" ................................................................................... 44 

Special Report No. 1/2008 concerning the procedures for the preliminary examination 
and evaluation of major investment projects for the 1994-1999 and 2000-2006 
programming periods........................................................................................ 47 

Special Report No. 2/2008 on Binding Tariff Information ............................................ 48 

Special Report No. 3/2008 on the European Union Solidarity Fund.............................. 49 

Special Report No. 4/2008 concerning the implementation of milk quotas in the 

Member States which joined the European Union on 1 May 2004.................. 50 

Special Report No. 5/2008 "The European Union's agencies: Getting results" ............. 51 

Special Report No. 6/2008 "European Commission Rehabilitation Aid following the 

Tsunami and Hurricane Mitch" ........................................................................ 53 

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European Development Funds........................................................................................ 55 

Requests concerning individual agencies ....................................................................... 57 

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INTRODUCTION 

This Commission Staff Working Document completes the Report from the Commission to the 
Council  on  the  Follow-up  to  2007  Discharge  decisions  {COM(2009)  682}.  It  presents  in 
detail  the  answers  to  the  90  specific  requests  made  by  the  Council  in  the  comments 
accompanying its Recommendations on the 2007 Discharges.1 

1 

For  each  specific  recommendation  a  reference  is  given  to  the  relevant  Council  document.  The 
references for recommendations 1 to 65 are all for Council document 5587/09 "Discharge to be given to 
the Commission in respect of the implementation of the budget for the financial year 2007". 

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Council Recommendation on the 2007 discharge 

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Introduction 

1. 

The  Council  stresses  the  importance  of  further  simplification  of  legislation  without 
diluting the level of assurance provided by improved controls in order to continue to 
make progress towards achieving an unqualified DAS in all areas of the budget. In 
this  context,  the  Council  invites  the  Commission  to  make  proposals  aiming  at 
simplification  of  the  procedures  including  the  general  rules  governing  the 
programmes  and  specific  rules  concerning  the  particular  characteristics  of  the 
programmes. (§ 2, page 5) 

Commission's response: 

The Commission has proposed measures to simplify some of the present rules and 
is exploring the scope for further simplifications, as explained in detail below. 

the  Commission  proposals  for  further 
The  procedure  for  acceptance  of 
modifications to the 2007-2013 regulations to include provisions for flat rates and 
lump sums is now finalised for the Structural Funds. Furthermore, the amended 
Commission  Regulation  was  adopted  in  September  2009.  It  introduces  important 
simplifications  in  financial  reporting,  publicity  and  audit  requirements.  In 
addition,  the  Commission  is  working,  with  the  assistance  of  external  experts,  to 
find  areas  of  further  simplification  in  the  working  methods  for  the  period  2007-
2013.  

The 7th Framework Programme (FP7) in the Research area has brought about a 
number of important simplifications already. The introduction of the participants 
guarantee fund considerably reduced the numbers of ex-ante financial checks, the 
use  of  protective  measures  and  the  number  of  required  audit  certificates.  The 
unique  registration 
to 
beneficiaries  and  improves  data  quality  and  coherence  in  all  grant  management 
systems.  The  project  reporting  was  streamlined, 
including  reduced  data 
requirements,  simplified  reporting  guides  and  longer  reporting  periods.  Further 
improvements  will  be  achieved  by  the  gradual  introduction  of  fully  electronic 
exchange  systems  for  the  whole  chain  of  proposal  and  grant  management 
processes in the frame of the e-FP7 initiative. 

for  participants  avoids  repeated  requests 

facility 

The CAP Health Check agreement brings further simplification (e.g. reducing the 
types of entitlements, possibility to merge entitlements). The Commission has also 
taken  action  in  several  ways  to  improve  the  situation  in  rural  development:  The 
Council  Regulation  1290/2005  gave  way  for  the-post  2007  period  to  align  the 
management  and  control  system  for  the  expenditure  under  the  newly  created 
European  Agricultural  Fund  for  Rural  Development  (EAFRD)  with  the  EAGF 
system. Thus, the advantages of the EAGF system that are largely recognized will 
also cover the rural development expenditure. In addition, the Commission issued in 
October  2009  a  report  with  the  reactions  to  the  39  simplification  suggestions  which 
Member  States  jointly  submitted  to  the  Commission  in  April.  The  working  document 
provides information on the outcome of the assessment process and a state-of-play on the 
progress  made  since  March  2009.The  report  will  be  discussed  during  the  Agriculture 
Council in December. 

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The Commission will also consider the scope for introducing further simplification 
of eligibility rules in the triennial revision of the Financial Regulation which it will 
propose  in  2010.  It  could  focus  in  particular  on  grants,  in  particular  eligibility 
rules; management methods, whose provisions have become increasingly complex 
and  which  are  crucial  to  improve  the  efficiency  and  delivery  of  external  aid  in 
particular;  and  control  measures.  It  will  also  study  principles  for  further 
simplifying sectoral legislation for the next round of basic acts, those to come into 
force from 2014. 

2. 

The  Council  awaits  the  presentation  of  the  "Impact  report  on  the  Commission's 
Action plan towards an Integrated Internal Control Framework" introduced in 2006. 
The  Council  acknowledges  that  the  Commission  has  been  able  to  demonstrate  a 
consistently high degree of implementation on internal control standards since 2004 
and  that  by  the  end  of  2007,  it  had  implemented  more  than  two  thirds  of  the  sub-
actions in its "Action plan towards an Integrated Internal Control Framework". The 
Council welcomes the progress achieved through the action plan and looks forward 
to the impact report due by the beginning of February 2009. (§ 3, page 5 and § 3, 1st 
paragraph, page 11) 

Commission's response: 

An  impact  report  on  the  action  plan  towards  an  integrated  internal  control 
framework  was  adopted  by  the  Commission  in  early  2009  (COM(2009)43).  As  of 
year  end  2008,  13  of  the  16  original  actions  had  been  completed,  whereas  three 
could  not  be  implemented  or  were  taken  forward  in  other  ways.  The  report 
presented  an  assessment  of  the  impact  based  on  specific  quantitative  and 
qualitative  indicators,  action  by  action.  It  should  be  noted  that  the  impact  of  all 
these  actions  must  be  assessed  in  a  mid  to  long  term  perspective  and  that  the 
impact of individual actions on error rates is difficult to isolate from the impact of 
other initiatives to improve control systems. 

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3. 

4. 

Chapter 1 - The Statement of Assurance (DAS) and supporting information 

The  Council  encourages  the  Commission  to  assure  that  [the]  high  quality  of 
Community  accounts  is  maintained,  […]  invites  it  to  continue  removing  the 
weaknesses  in  the  accounting  system  that  still  put  at  risk  the  quality  of  financial 
information and to continue improving the information in the notes in the accounts 
on  the  correction  mechanisms  concerning  undue  payments.  As  regards  the 
consolidated balance sheet as at 31 December 2007 and the consolidated economic 
outturn  account,  the  Council  calls  on  the  Commission  to  pay  due  attention  to  the 
remarks presented by the Court in order to improve the completeness and accuracy of 
the basic accounting data. (§ 1, 1st-3rd paragraphs, page 7) 

Commission's response: 

The Commission always considers the remarks and recommendations of the Court 
so as to improve its financial systems and  ultimately its accounts. With  regard to 
the  information  on  financial  recoveries,  a  new  IT  tool  was  put  in  place  during 
2008 to improve the reliability and completeness of such information. 

As  regards  the  progress  made  towards  an  effective  Community  Internal  Control 
Framework,  the  Council  invites  the  Court  and  the  Commission  to  continue  to 
cooperate  towards  a  common  understanding  on  the  probability  of  correction  of 
payments  within  multiannual  programmes  during  the  programme  period.  (§  3,  3rd 
paragraph, page 9) 

Commission's response: 

The Commission has stepped up its action to work to secure reliable information 
from Member States on financial corrections and recoveries they carry out. It has 
taken actions to ensure that Member States fulfil their obligations concerning the 
quality  of  reporting  on  recoveries  and  financial  corrections.  It  has  significantly 
increased  the  volume  of  financial  corrections  relating  to  2000-2006  programmes 
and  projects  applied  in  2008  for  ERDF,  ESF  and  Cohesion  Fund  –  from  288 
million  EUR  in  2007  to  over  1,5  billion  in  2008.  The  Commission  has  provided 
quarterly  reports  in  2008  on  the  implementation  of  the  action  plan  to  strengthen 
the Commission's supervisory role under shared management of structural actions 
(COM(2008) 97), including information on corrections and recoveries imposed by 
the Commission, and reported results of the Action Plan in January and October 
2009, (COM(2009)42 and SEC(2009)1463).  

Furthermore,  the  Commission's  accounting  system  was  revamped  to  allow,  from 
2008,  full  reporting  on  the  correction  of  errors  found  by  the  Commission, 
including  those  relating  to  payments  of  earlier  years.  This  information, 
retroactively encoded for all recoveries and adjustments to cost claims launched in 
2008, has been reported in the 2008 accounts, presented in March 2009. This will 
allow, inter alia, the year in which an error occurred to be compared with the year 
of  detection  and  will  be  a  basis  for  assessing  the  effectiveness  of  multi-annual 
recovery systems. 

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Chapter 2 - Commission internal control system 

5. 

As  regards  the  Synthesis  report  of  the  Commission,  the  Council  notes  that  the 
Commission itself acknowledges that further efforts are needed to resolve a number 
of weaknesses and therefore it encourages the Commission to take all the necessary 
remedial  measures  and  strongly  supports  its  enhanced  efforts  to  address  the 
remaining deficiencies effectively. The Council strongly encourages the Commission 
to  continue  to  improve  the  annual  activity  reports,  in  particular  regarding  the 
identification of continuing weaknesses in the assessments provided in the reports of 
some DGs. (§1, 1st-2nd paragraphs, page 10) 

Commission's response: 

The Commission delivered on the commitments undertaken in the 2007 Synthesis 
Report.  It  took  further  steps  to  ensure  that  reports  and  declarations  present  a 
consistent assessment of supervisory and control systems, with clear explanations 
made  of  the  reasons  and  control  processes  leading  to  the  absence,  presence  or 
removal  of  reservations.  For  the  first  time,  preliminary  meetings  between  central 
services  and  operational  departments  took  place  prior  to  the  formal  peer-review 
process, in order to identify problematic issues at an early stage and offer guidance 
in  a  timely  way.  During  the  peer-review  process,  weaknesses  identified  were 
addressed  at  the  appropriate  level.  Also,  for  the  first  time,  Commission  services 
were explicitly required to draw a conclusion on the effectiveness of their internal 
control  systems  in  the  annual  activity  reports.  Almost  all  services  included  a 
specific conclusion on the overall effectiveness of their internal control system and 
where  relevant  identified  actions  to  address  weaknesses.  These  actions  concern 
both Commission services and implementing partners (notably the Member States). 
In order to improve the quality of annual activity reports further, in the Synthesis 
Report  2008  the  Commission  has  instructed  the  Secretariat-General  and  the 
Directorate-General for Budget to carry out an assessment of the factors affecting 
the  quality  of  annual  activity  reports  and  to  promote  measures  to  improve  their 
quality in time for the report on 2009 activities. 

6. 

As regards annual summaries of available audits and declarations, the Council notes 
the  Court's  conclusion  that  the  annual  summaries  do  not  yet  provide  a  reliable 
assessment  of  the  functioning  and  effectiveness  of  the  supervisory  and  control 
systems. The Council joins the Court in encouraging the Commission to add value to 
the  process  by  identifying  common  problems,  possible  solutions  and  best  practices 
and using this information in its supervisory role. (§2, 2nd paragraph, page 11) 

Commission's response: 

The Commission is taking the requested action. 

In  the  revised  guidance  note  it  issued  for  the  2008  Annual  Summaries  the 
Commission  encouraged  Member  States  to  increase  the  added  value  of  the 
summaries by analysing their systems, identifying common problems and solutions 
and  describing  best  practices.  It  also  recommended  Member  States  to  provide  a 
statement  of  assurance  on  their  systems.  Some  Member  States  followed  these 
recommendations  in  their  2008  Summaries.  As  the  analysis  in  the  Directorates’ 

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General  Annual  Activity  Reports  shows,  while  only  a  few  attached  statements  of 
assurance,  a  considerable  number  provided  some  degree  of  analysis  of  their 
systems.  

The  Commission’s  departments  use  the  information  provided  in  the  Summaries 
together with that from other sources in arriving at the assessments of the quality 
of  Member  States’  systems  for  using  EU  funds  which  the  Directorates  General 
publish in their Annual Activity Reports.  

The  Commission  has  again  revised  the  guidance  note  to  Member  States.  In  the 
updated  note,  the  Commission  simplifies  the  reporting  by  taking  out  some 
information already provided in other reports, it builds up the part on the overall 
analysis  and  explains  the  incentives  for  using  this  option.  Despite  the  weak  legal 
framework, the Commission will continue to encourage Member States to make a 
genuine  contribution  to  building  up  its  assurance  on  the  effective  functioning  of 
systems. 

7. 

The Council acknowledges that, as stated by the Commission, any simplification of 
the rules, and all improvements to the Commission's controls, will take time to have 
an effect on the prevention, detection and correction of errors. Nonetheless, it calls 
on the Commission to take all the necessary measures for a further improvement of 
control systems including all control levels and to ensure that the measures contained 
in the "Action plan on the Integrated Internal Control Framework" have a real impact 
on the supervisory and control systems. (§ 3, 1st paragraph, page 12) 

Commission's response: 

An  impact  report  on  the  action  plan  towards  an  integrated  internal  control 
framework  was  adopted  by  the  Commission  in  early  2009  (COM(2009)43).  As  of 
year  end  2008,  13  of  the  16  original  actions  had  been  completed  whereas  three 
could  not  be  implemented  or  were  taken  forward  in  other  ways.  The  report 
presented  the  assessment  of  the  impact  based  on  specific  quantitative  and 
qualitative indicators, action by action. 

The  Commission  is  also  taking  forward  other  actions  to  improve  the  supervisory 
and  control  systems,  such  as  the  action  plan  to  strengthen  the  Commission's 
supervisory  role  under  shared  management  of  structural  actions.  A  report 
(COM(2009)42)  on  the  implementation  of  the  structural  funds  action  plan  was 
adopted  in  early  2009.  The  Commission  adopted  in  October  2009  a  follow-up 
report  on  the  actions  carried  out  in  2009  and  will  publish  a  report  on  the  first 
impact of the Action Plan at the beginning of 2010.  

The  Commission  is  continuing  its  efforts  to  improve  the  supervisory  and  control 
systems.  The  2008  Annual  Activity  Reports  of  the  Commission  services  contain 
action plans to improve the effectiveness of specific internal control systems. 

8. 

The  Council  recalls  the  utmost  importance  of  training  for  the  staff  involved  in 
controls, at all levels, and it invites the Commission to implement all the appropriate 
measures in order to strengthen their capacities. (§ 3, 2nd paragraph, page 12) 

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9. 

Commission's response: 

In  the  area  of  Cohesion  policy,  the  Commission  has  invested  considerably  in 
providing  guidance  and  training  to  Member  States  both  for  the  2000-2006  and 
2007-2013 periods, for example on day-to-day checks by management bodies and 
supervision by certifying bodies. 

The  Commission  has  also  organised  training  sessions  in  the  area  of  internal 
control for Member States, including a seminar in June 2008 which was attended 
by over 500 delegates from Member States. The Commission will continue to work 
on  improving  the  effectiveness  of  the  first  level  controls  on  national  and  sub-
national  level.  Following  the  seminar  organised  in  2008  for  the  managing  and 
certifying  authorities,  the  Directorates-General  for  Regional  Policy,  and  for 
Employment,  Social  Affairs  and  Equal  Opportunities  organised  in  June  2009  a 
similar  seminar  aimed  at  training  on  implementation,  but  also  audit  and  control 
issues  specific  to  the  managing  and  certifying  authorities.  The  objective  of  the 
seminar was to train assigned individuals who will then go back to their Member 
State to train their colleagues ("train-the-trainer" seminar). 

Within  the  Commission,  an  extensive  training  programme  is  delivered  to  staff 
involved  in  control  activities.  Advice  on  control  issues  is  also  available  via  the 
Central Financial Service of the Directorate-General for Budget. 

The Council urges the Commission to work closely with the Court of Auditors and 
the  Member  States  when  establishing  guidelines  and  various  procedures  for  the 
implementation of programmes in order to achieve a common understanding of rules 
and  procedures  and  a  common  approach  for  their  implementation.  The  Council 
invites  the  Commission  to  intensify  its  communication  and  cooperation  with  the 
Court  in  order  to  promote  common  understanding  of  legal  provisions  and  to  avoid 
differences  in  interpretation  between  the  two  institutions  particularly  for  the 
compilation  of  management  and  control  reports.  Such  a  dialogue  is  particularly 
important at the beginning of a programming period and could contribute to reducing 
the  level  of  error.  In  addition,  the  Council  encourages  the  Commission  to  share 
experience  of  best  practice  with  regard  to  the  correct  implementation  of  legal 
to  prevent  any 
provisions  with  and  between  Member  States 
misinterpretation. The Council considers that rules applying to a given programming 
period  should  not  be  applied  retroactively  to  previous  periods  and  also  that  the 
interpretation must be based on the logic and principles applicable to the respective 
programming period. (§ 3, 2nd-4th paragraphs, page 12) 

in  order 

Commission's response: 

The Commission is taking the requested action. 

The Commission works closely with the Member States and the Court of Auditors 
on  the  guidance  it  issues  on  the  rules  and  procedures  governing  the  use  of 
Cohesion  policy  funding.  It  routinely  consults  Member  States  on  guidance 
documents through the various management and technical committees. The Court 
is invited to attend such meetings as well. On important issues or new procedures 
the Commission seeks the Court’s opinion specifically, as it is doing for example 
on  the  new  provisions  for  simplified  cost  options  such  as  flat  rates.  The 

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Commission also organises training events for Member States to help disseminate 
guidance  and  spread  good  practices.  An  example  was  the  “Train  the  trainers” 
seminar,  with  various  specialised  workshops,  which  was  held  in  Brussels  on  9 
June 2009.  

The  Commission  and  the  Court  of  Auditors  have  put  their  cooperation  on  a 
permanent  footing  with  so-called  ”inter-institutional  colloquia”  at  which  they 
discuss  questions  of  mutual  concern  such  as  audit  methodology  and  assessment 
and  interpretation  issues.  Such  colloquia  are  held  on  average  twice  a  year.  The 
most recent one took place on 26 March 2009.  

Some  of  the  issues  discussed  are  prepared  by  joint  working  groups.  Such  a 
working  group  developed  a  harmonised  systems  assessment  methodology,  which 
lays down the criteria to be applied in arriving at opinions on the quality of systems 
in system audits. Member States' audit authorities have been encouraged to apply 
the  same  methodology.  There  is  also  a  standing  working  group  on  interpretation 
questions.  This  attempts  to  resolve  differences  of  interpretation  that  arise  in  the 
discussion  of  the  audit  findings  underlying  the  Court’s  annual  report.  Topics 
currently being discussed include the provisions on taking account of revenue and 
overheads in the 2000-06 period. Since last year the DAS findings reported in its 
annual report have been discussed beforehand in tripartite meetings involving the 
Court, the Commission and the Member State. 

The Commission endeavours always to judge actions by the standards applicable at 
the relevant time. 

10. 

The Council invites all actors involved to work towards common audit standards and 
coordinating  audits  and  reciprocal  acceptance  of  results  between  Commission  and 
Member States, based on the single audit model and bearing in mind the principles 
behind the contracts of confidence, within the current legislative framework and with 
due respect to the differences in the systems of Member States and the independence 
of their audit institutions, at all levels. (§ 3, 5th paragraph, page 12) 

Commission's response: 

The Commission is taking the requested action. 

The  legislation  for  Cohesion  policy  in  the  2007-13  period  has  made  progress  in 
several areas towards common audit standards and procedures permitting reliance 
on  the  results  of  audit  work  done  by  the  Member  States.  A  standard  audit 
methodology based on statistical sampling is laid down for their work, which can 
be  adjusted  to  national  circumstances  and  systems.  The  Member  States  have  to 
issue an annual audit opinion based on this work and to report on the results in a 
standard  format  stating  the  error  rate  detected.  The  timing  of  the  annual  audit 
work and of the report on the results  has been changed to allow the report to be 
taken  into  consideration  in  the  Commission’s  assessments  of  Member  States’ 
systems  in  the  Directorates’  General  Annual  Activity  Reports.  Annual  bilateral 
audit  coordination  meetings  are  continuing  as  in  the  2000-06  period,  but  on  the 
basis of more recent results arrived at by harmonised methods and with reference 
to  the  assessment  of  the  compliance  of  the  systems  with  regulatory  requirements 
carried out at the beginning of programme implementation. In addition, there are 

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two  technical  meetings  with  the  Member  States’  audit  authorities  every  year  to 
discuss general issues. 

The key guidance documents for control and audit work are being collected into an 
Audit Reference Manual, the last chapter of which was presented to the Member 
States in May 2009. 

These  developments  will  allow  the  Commission  to  rely  on  Member  States’  audit 
work, in line with the single audit model, more readily than in the 2000-06 period. 
It  will  be  able  to  concentrate  its  finite  audit  resources  on  high-risk  areas,  while 
applying the “contract of confidence” approach of reliance on national audit work 
to other Member States and programmes. 

11. 

The  Council  recalls  that  the  controls  and  the  assurance  they  provide  should  be 
improved  by  building  on  existing  control  structures  and  promoting  simplification 
with a view to improving the cost-benefit ratio and urges the Commission to assess 
the costs of control by area of expenditure. In addition, the Council reiterates the fact 
that it is essential that the whole process aimed at reducing the level of error should 
not  necessarily  mean  that,  as  a  result,  there  is  an  increase  in  administrative  and 
control costs. (§ 3, 1st paragraph, page 13) 

Commission's response: 

The  results  from  the  study  on  the  costs  of  controls  in  cohesion  policy  and  rural 
development  were  incorporated  in  the  methodology  used  in  the  Commission's 
communication to the European Parliament, the Council and the European Court 
of Auditors "Towards a common understanding of the concept of tolerable risk of 
error" (COM(2008) 866). 

Further data-gathering will be needed to underlie firm proposals on tolerable risk. 
The  nature  of  the  work  required  and  timing  will  vary  according  to  the  different 
policy  areas  and  will  be  focused  on  expenditure  governed  by  2007-13  legislation. 
As the statistics on the costs of control from this programming period will become 
progressively  available  over  the  next  two  years,  the  Commission  plans  to  provide 
analyses of the tolerable risk of error, for the different policy areas, progressively 
in the time period until the end of year 2012.  

The  Commission  is  well  aware  that  the  purpose  of  introducing  the  concept  of  a 
tolerable risk of error is not to increase control costs, but rather to define the cost 
effective level of control taking account of risk. 

12. 

To achieve well functioning supervisory and control systems, the Council encourages 
the  Commission  to  pursue  its  efforts  to  ensure  that  its  supervisory  and  control 
systems address the risks effectively on all levels of implementation and mitigate the 
risk  that  the  control  systems  in  the  Member  States  do  not  collect  all  unduly  paid 
amounts. The Council takes note of the communication from the Commission to the 
European  Parliament,  the  Council  and  the  Court  of  Auditors  "Towards  a  common 
understanding of the concept of tolerable risk of error" and considers it an element 
for a thorough discussion to be held with the European Parliament, the Commission, 
the  Court  of  Auditors  and  all  relevant  actors,  once  the  Council  has  defined  its 
position. (§ 3, 2nd-3rd paragraphs, page 13) 

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Commission's response: 

The  Commission  is  continuing  to  take  action  to  improve  the  supervisory  and 
control  systems  in  the  area  of  Cohesion  policy,  following  the  action  plan  to 
strengthen  the  Commission's  supervisory  role  under  shared  management  of 
structural  actions.  A  report  (COM(2009)  42)  on  the  implementation  of  the 
structural funds action plan was adopted in early 2009. The Commission adopted 
in  October  2009  a  follow-up  report  on  the  actions  carried  out  in  2009  and  will 
publish a report on the first impact of the Action Plan at the beginning of 2010. It 
is  expected  that  the  full  impact  of  those  actions  on  the  error  rates  will  become 
visible in the medium- to long-term. 

Outside the 2008 structural funds action plan, the Commission is also continuing 
its  efforts  to  improve  the  supervisory  and  control  systems.  The  2008  Annual 
Activity  Reports  of  the  Commission  services  contain  action  plans  to  improve  the 
internal  control  systems.  The  new  elements  of 
effectiveness  of  specific 
simplifications  introduced  in  the  regulatory  framework  for  the  2007-2013  period 
should also increase effectiveness  and help reducing the number of errors in the 
implementation of the Structural Funds. Furthermore, the Structural Funds' Joint 
Audit  Strategy  aims  at  implementing  the  single  audit  principle  as  defined  by  the 
European  Court  of  Auditors.  This  should  contribute  to  an  increase  of  the 
efficiency of the supervisory and control systems implemented by the Commission.  

The Commission considers that a future introduction of the concept of a tolerable 
risk  of  error  will  provide  a  clear  view  on  the  cost-effectiveness  of  the  overall 
control system, and is taking this forward in the light of the positive reaction in the 
2007 Discharge resolution. The nature of the work required and timing will vary 
according  to  the  different  policy  areas  and  their  multi-annual  execution:  for 
Cohesion policy the aim will be to study 2010, the first year when the majority of 
expenditure will be governed by the strengthened control provisions in the 2007-13 
legislation. 

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Chapter 3 - Budgetary Management 

13. 

While  recalling  the  joint  declaration  on  Implementation  of  the  Cohesion  Policy 
adopted at the conciliation meeting on 21 November 2008, the Council calls on the 
Commission  to  make  every  effort  to  avoid  delays  in  the  examination  of  major 
projects  and  the  management  and  control  systems  which  could  have  an  adverse 
impact on the future implementation of the budget. (2nd paragraph, page 14) 

Commission's response: 

The Commission is taking the requested action. DG REGIO has put in place well-
defined  procedures  to  perform  the  quality  checks  of  major  project  applications 
within  the  time  required  by  the  General  Regulation  (1083/2006).  It  uses  specific 
ICT  tools  to  monitor  the  work  flow  in  treating  major  projects  submitted  by  the 
Member States. 

The  Commission  examines  the  compliance  assessment  reports  and  opinions 
submitted  by  Member  States,  which  are  due  within  12  months  of  programme 
approval, in order to confirm that the management and control systems set up by 
the  Member  States  for  the  2007-2013  programming  period  fully  comply  with 
regulatory  requirements.  Until  the  Commission  has  approved  the  assessment,  it 
will not reimburse interim payment claims. 

By  the  end  of  September  2009  the  Commission  had  received  compliance 
assessment  reports  from  Member  States  covering  405  programmes,  representing 
more  than  93%  of  the  total  programmes.  It  had  accepted  the  compliance 
assessments for 74% of the programmes received and rejected 19% which have to 
be re-submitted after correction by the Member States. The remainder have been 
interrupted  or  are  still  subject  to  examination.  The  conclusion  is  that  the 
Commission guidance issued in 2007 has generally been followed. The reasons for 
rejection  and  interruption  are  related  in  particular  to  the  failure  to  provide 
adequate  information  on  certain  mandatory  key  elements,  and  inconsistencies 
between the findings in the report of the compliance assessment body and the final 
opinion. Few cases have raised fundamental structural or capacity problems. The 
Commission is actively following up the cases, which have been rejected or not yet 
submitted, with national authorities in order to have them approved by the end of 
the year. 

14. 

While noting that the budgetary surplus continues to decrease, the Council reiterates 
that a realistic and sufficient budgeting from the stage of the preliminary draft budget 
onwards, which limits to the largest extent possible the need to recourse to amending 
budgets to reduce appropriations for payments, remains an essential element of good 
budgetary management. (3rd paragraph, page 14) 

Commission's response: 

The Commission will take the requested action. For instance, the Commission, in 
order to achieve a realistic and sufficient budgeting, is yearly making a synthesis 
on the under-implementation in the context of the Budget Forecast alert procedure 
(Chapter "Lessons to be learned" of the Information note). 

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15. 

The Council notes that the accuracy of Member States' expenditure forecasts in the 
area of "Structural Funds" continues to improve and encourages the Commission and 
the Member States to cooperate closely in view of improving accuracy even further, 
thus  making  these  forecasts  a  useful  tool  for  budgeting  purposes.  (4th  paragraph, 
page 14) 

Commission's response: 

The Commission is taking the requested action. It is continuing to analyse Member 
States’ forecasts against the outturns, to report on the results in its annual report 
on  budgetary  execution  of  the  Structural  Funds,  and  to  take  up  major 
discrepancies with the Member States concerned with a view to reducing the gaps. 

16. 

Notwithstanding  that  2007  is  the  first  year  of  the  new  programming  period,  the 
Council  notes  with  great  concern  that  the  overall  level  of  outstanding  budgetary 
commitments  (RAL)  continues  to  increase.  The  Council,  nevertheless,  notes  with 
satisfaction a decrease of RAL for Structural Funds for the 2000-2006 programming 
period  and  calls  on  the  Commission  to  continue  with  its  efforts  so  as  to  avoid  any 
delays in the closure of these programmes which could have a negative impact on the 
implementation of the approved programmes for the new programming period. (1st 
paragraph, page 15) 

Commission's response: 

The Commission is taking the requested action. It has done considerable work to 
prepare for closure of 2000-06 programmes. It issued guidelines on the closure of 
Structural Fund programmes in 2006 and for Cohesion Fund projects in 2008. In 
September  2008  it  organized  a  large  seminar  “Towards  a  successful  closure  of 
2000-06 programmes,” which was attended by over 700 delegates from all Member 
States. It published answers to the numerous questions asked at the seminar about 
aspects  of  closure  in  January  2009.  On  11  December  2009  a  technical  meeting 
with  Member  States'  winding-up  bodies  is  planned,  with  the  specific  subject  of 
preparation for closure 2000-2006. The Directorates General concerned have also 
put  in  place  their  internal  procedures  in  readiness  for  the  surge  of  closure 
documentation which will occur in the autumn of 2010, following the extension of 
the  eligibility period  for  2000-06 programmes until June 2009 for many Member 
States. 

17. 

As regards the analysis of the data referring to RAL, the Council shares the Court's 
view  that  further  improvements  are  possible  and,  consequently,  calls  on  the 
Commission  to  improve  its  report  on  budgetary  and  financial  management.  (1st 
paragraph, page 15) 

Commission's response: 

The Commission has taken the requested action. In the Report on budgetary and 
financial  management  2008,  the  outstanding  commitments  (RAL)  were  analysed 
together  with 
the  relevant  Community 
programmes.  The  distinction  of  the  RAL  between  the  current  and  the  previous 
financial  programming  periods  was  made,  as  recommended  by  the  Court  of 
Auditors. 

implementation  of 

the  cumulative 

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18. 

The  Council  acknowledges  that  the  "n+2"  rule  has  had  the  intended  effect  of 
encouraging  the  timely  liquidation  of  commitments.  The  Council  notes  the  Court's 
observation  on  the  risk  concerning  the  legality  and  regularity  of  underlying 
transactions if the  accelerated payment  process to reduce outstanding  commitments 
were to be achieved by applying less strict internal control procedures. Therefore, the 
Council calls on the Commission and the Member States to take full account of this 
risk. In this respect, the Council also calls on the Member States to give additional 
attention  to  ensuring  timely  liquidation  of  commitments  in  line  with  the  relevant 
procedures  foreseen  by  the  legislation  and  without  compromising  the  quality  of 
control procedures. (2nd paragraph, page 15) 

Commission's response: 

The requested action has been taken. The Commission discourages Member States 
from  declaring  expenditure  without  carrying  out  the  usual  controls  in  order  to 
avoid  de-commitments  under  the  n+2  rule.  For  example,  in  connection  with 
projects  included  in  programming  retrospectively,  the  Commission  continuously 
reminds Member States to ensure that projects fulfil the normal selection criteria, 
that  the  use  of  EU  funding  is  publicised  and  that  the  projects  are  subject  to  the 
normal checks. Other means of avoiding automatic de-commitments under the n+2 
rule, such as front-loading the payment of grants in the early years of projects, are 
also strictly regulated. 

19. 

In respect of information on the implementation of the budget, the Council shares the 
Court's  view  that  the  figures  mentioned  in  the  different  documents  are  not  fully 
consistent and vary slightly. Consequently, it encourages the Commission to increase 
transparency,  consistency  and  comparability  of  the  information  on  implementation 
and surplus from now on by providing clear definitions and explanations of concepts 
and  calculation  methods  used.  The  Council  considers  it  appropriate  to  present  all 
information  needed  to  calculate  different  utilisation  rates  throughout  the  whole 
budgetary  procedure,  from  the  preliminary  draft  budget  to  the  total  authorised 
appropriations. (3rd paragraph, page 15) 

Commission's response: 

The Commission has taken the requested action. The implementation reporting of 
the  annual  accounts  and  the  Report  on  budgetary  and  financial  management  is 
now  standardised.  Concepts  like  current  (unused)  reserve,  carryovers,  assigned 
revenue, other institutions are treated exactly in the same way. 

Utilisation  rates  most  often  refer  to  final  appropriations  which  are  generally  the 
most  relevant  for  analysing  the  budgetary  management.  Nevertheless,  the 
appropriations  of  the  year  (initial  budget)  are  transparently  presented  in  all 
Commission reports. 

20. 

The  Council  acknowledges  the  substantial  efforts  made  and  the  important 
improvements  achieved  by  the  Member  States  and  the  Commission  in  providing 
complete,  accurate  and  timely  information  on  financial  corrections  and  recoveries. 
However,  it  notes  the  Court's  observations  on  the  remaining  deficiencies  in  the 
overall  information  available.  The  Council  shares  the  Court's  opinion  that  the 
Commission's initiative to record complete data on recoveries in the central financial 

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and  accounting  system  as  from  2008  is  a  positive  development.  The  Council 
encourages the Member States and the Commission to further improve, in line with 
the Court's recommendations, the completeness and accuracy of information with the 
aim of providing reliable evidence allowing the Court to assess the effectiveness of 
the multiannual correction mechanisms for EU spending. (1st paragraph, page 16) 

Commission's response: 

Changes  have  been  made  to  the  ABAC  financial  system  in  2008  to  allow  the 
tracing of recoveries to specific errors or irregularities detected. This has allowed it 
to  already  present  more  complete  and  reliable  recovery  figures  in  the  2008 
accounts.  Thus  the  Commission  will  continue  to  include  in  the  notes  to  the 
accounts its own financial corrections. The Commission commits itself to continue 
the efforts to improve the quality of information produced by the Member States on 
financial corrections, withdrawals and recoveries. This information is included in 
Annex to the annual report on the implementation of the Structural Funds. It will 
continue to report to the budgetary authority on this issue. 

Furthermore, the Commission will pursue ongoing efforts and will not hesitate to 
proceed to financial corrections where necessary. Within the legal framework, the 
Commission  has  taken  steps,  under  the  Action  plan  of  19  February  2008  to 
strengthen its supervision of Member States in relation to shared management of 
structural actions, to ensure that irregularities found in the implementation of the 
Structural  Funds  are  dealt  with  as  soon  as  they  are  detected  and  financial 
corrections are applied promptly. 

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Chapter 4 - Revenue 

21. 

As  regards  long-outstanding  reservations  in  particular  regarding  the  VAT  own 
resources,  the  Council,  while  noting  that  the  Commission  has  adopted  an  approach 
that  categorises  the  reservations  in  a  framework  which  allows  priorities  to  be 
identified,  encourages  the  Commission  to  continue  its  efforts  towards  an  effective 
implementation, in cooperation with the Member States, in order to speed up its work 
on lifting VAT reservations. (§ 2, 1st paragraph, page 17) 

Commission's response: 

In their annual report the Court of Auditors specifically referred to 34 reservations 
which  had  been  outstanding  too  long.  Beginning  in  mid-2008  the  Commission 
categorised all outstanding reservations according to risk criteria including those 
cases  specifically  mentioned.  Management  visits  were  introduced  to  progress  the 
most critical items. As a result of this action 11 of those oldest reservations have 
been lifted. A further 10 are considered low-risk at present and will be pursued via 
the bi-annual control cycles or other ad-hoc contacts. Turning to the remainder of 
those specified cases; action is already underway with the relevant Member States 
with a view to finalising or significantly advancing the items for a further 6, and 
two  more  management  reviews  will  be  considered  in  early  2010  to  deal  with  the 
remaining 7 items. 

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Chapter 5 - Agriculture and Natural Resources 

22. 

The  Commission  and  the  Member  States  should  continue  to  make  efforts  in 
strengthening  their  supervisory  and  control  systems,  which  the  Court  again  found 
only partially effective, thus further reducing the error rates. The Council urges the 
full  implementation  of  controls  and  checks  under  IACS  in  all  Member  States  and 
calls on the Commission to thoroughly follow-up in the conformity clearance all the 
errors noted in its audits. Mechanisms ensuring effective and rapid recovery actions 
against  beneficiaries  having  received  irregular  payments  should  also  be  reinforced. 
(1st paragraph and § 1, 3rd paragraph, page 19) 

Commission's response: 

The Commission has taken the requested action.  

The  Commission  has  taken  action  in  the  rural  development  area,  where  most  of 
the  errors  appear  (the  EAGF  part  of  agriculture  expenditure  has  an  error  rate 
below materiality). 

Member  States  are  obliged  to  ensure  that  all  rural  development  measures  are 
verifiable  and  controllable.  Member  States  must  also  make  sure  that  the  rules 
concerning eligibility are respected.  

Council  Regulation  1290/2005  provides  for  the-post  2007  period  to  align  the 
management  and  control  system  for  the  expenditure  under  the  newly  created 
European  Agricultural  Fund  for  Rural  Development  (EAFRD)  with  the  EAGF 
system.  Thus,  in  the  future,  the  advantages  of  the  EAGF  system  that  are  largely 
recognized will also cover the rural development expenditure.  

Regarding IACS Greece has now complied with its action plan and has created a 
new, operational LPIS. The new system will be used by the Greek authorities for 
the first time during the 2009 claims procedure. The Commission will continue to 
closely  monitor  the  IACS  procedure  in  Greece.  Also,  the  ongoing  conformity 
clearance  procedures  covering  the  financial  risks  resulting  from  deficiencies  for 
the years 2006-2008 will continue. For the future, the Commission confirms it will 
apply appropriate measures proportionate to the eventual weaknesses. 

Concerning  recoveries,  the  new  50/50  rule  enshrined  in  Article  32(5)  of  Council 
Regulation (EC) No 1290/2005 is a strong incentive for Member States to ensure 
an  expeditious  and  effective  recovery  of  irregular  payments  from  the  final 
beneficiaries.  

However,  where  recovery  from  final  beneficiaries  is  not  possible  because  the 
problems identified only relate to deficiencies in the Member States' management 
and control systems the financial corrections imposed on Member States through 
the  conformity  clearance  mechanism  are  an  important  incentive  for  Member 
States  to  improve  these  systems  and,  thus,  to  prevent  or  detect  and  recover 
irregular  payments  to  final  beneficiaries.  The  conformity  clearance  thereby  also 
contributes to the legality and regularity of the transactions at the level of the final 
beneficiaries. 

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23. 

As  regards  rural  development,  the  Council  strongly  calls  for  a  simplification  of 
complex rules and more precise definitions of eligibility criteria, especially for agri-
environmental  schemes,  at  Commission  level  first,  but  also  at  national  level,  in  the 
context of the rural development plans. This effort should lead to the establishment 
of a set of verifiable indicators, keeping in mind the need to guarantee the substance 
of  existing  commitments.  The  transmission  of  more  comprehensive  and  clear 
instructions and guidelines to all stakeholders, as well as the organisation of training 
actions  are  crucial  in  view  of  streamlining  the  application  and  harmonising  the 
interpretation and the scope of the existing rules. (§ 2, 4th-5th paragraphs, page 20) 

Commission's response: 

The requested action has been taken in the rural development area, where most of 
the  errors  appear  (the  EAGF  part  of  agriculture  expenditure  has  an  error  rate 
below materiality). 

-  Member  States  are  obliged  to  ensure  that  all  rural  development  measures  are 
verifiable  and  controllable.  Member  States  must  also  make  sure  that  the  rules 
concerning eligibility are respected.  

- These issues were discussed intensely between the Commission and the National 
Authorities  before  the  rural  development  programmes  for  2007-2013  were 
approved. 

-  The  Commission  has  given  extra  guidance  to  Member  States  on  how  to 
implement agri-environment measures. 

- Audit missions will take a closer look at the origin of higher error rates in agri-
environmental measures. 

-  The  higher  error  rates  in  rural  development,  in  particular  agri-environmental 
measures seem to be due to the complex nature of the policy rather than problems 
in the controls. 

The Council Regulation 1290/2005 provides for the-post 2007 period to align the 
management  and  control  system  for  the  expenditure  under  the  newly  created 
European  Agricultural  Fund  for  Rural  Development  (EAFRD)  with  the  EAGF 
system. Thus, the advantages of the EAGF system that are largely recognized will 
also cover the rural development expenditure. 

24. 

As  regards  the  Commission's  clearance  of  accounts,  the  Council  encourages  the 
Commission to pursue its efforts in following up the application of the "50/50 rule" 
(specified in Article 32(5) of Regulation (EC) No. 1290/2005). In the context of the 
conformity clearance, the Council emphasises once again the importance of financial 
corrections which contribute considerably to safeguarding the Community's financial 
interests,  acting  also  as  an  important  incentive  for  Member  States  to  improve  their 
management and control systems. The Council joins the Court in noting the fact that 
in  2007  the  certifying  bodies'  work  was  extended  and  that  opinions  on  the  paying 
agencies' Directors Statements of Assurance and on internal control procedures were 
required. It encourages the progress in the direction of improving the accountability 

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of  paying  agencies  and  increasing  the  transparency  and  ownership  of  the  control 
results. (§ 3, page 21) 

Commission's response: 

The Commission welcomes the Council's support for the application of the 50/50 
rule  -  and  that  it  provides  a  strong  incentive  for  Member  States  to  ensure  an 
expeditious  and  effective  recovery  of 
the  final 
beneficiaries,  and  the  support  for  conformity  clearance  as  a  tool  to  shielding  the 
Community budget from expenditure that should not be charged to it.  

irregular  payments  from 

The  Commission  furthermore  welcomes  the  acknowledgment  by  the  Council  on 
the improvements in the accountability  of Paying Agencies and  the  progress  that 
has  been  made.  In  line  with  this  development,  DG  AGRI  reports  in  its  Annual 
Activity  Report  for  2008  on  the  assessment  of  the  declaration  of  assurance  from 
the  different  Paying  Agencies,  and,  where  a  Member  State  has  accredited  more 
than one Paying Agency, of the annual summaries from the coordinating bodies. 

25. 

As regards the errors in the payments audited, which, in the case of "Environment", 
caused the Directorate-General for Environment to make a reservation in its Annual 
Activity Report, the Council emphasises the importance of prompt and thorough ex-
post  audits 
inadequate  supporting 
ineligible  expenditure  and/or 
documentation, in order to allow the necessary corrections. This applies particularly 
to projects financed through the LIFE instrument, although the situation matured and 
improved in 2007 with respect to the control systems and the alert mechanisms. (§ 4, 
2nd paragraph, page 21) 

to  detect 

Commission's response: 

The requested actions have been taken. The Directorate General of Environment 
has  increased  the  staff  of  its  audit  team  and  used  a  framework  contract  for 
external  auditors.  Subsequently  the  number  of  audit  reports  issued  in  2008  has 
increased from 16 to 26 and the amount of payments audited from €10,6 millions 
to €31,5 millions compared to 2007. Those fi gures are confirmed by the results at 
31/5/2009 with 15 reports and €13,9 millions of payments audited. 

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Chapter 6 - Cohesion 

26. 

The  Commission  shall,  together  with  improving  its  supervisory  systems  and 
providing  guidance  to  the  Member  States,  actively  encourage  and  facilitate 
simplification  which shall ultimately lead to  reducing  both  the occurrence of  errors 
and the administrative burden at all levels. The Council notes that further work has 
been  considered  regarding  issues  such  as  the  use  of  a  flat  rate,  partial  closure  and 
eligibility rules fixed at national level and expects to see their beneficial effects for 
future discharge procedures related to the new programming period. In this context, 
the Council welcomes the action taken regarding simplification in the framework of 
the 2008 recovery plan to reduce regulatory and administrative burdens, such as the 
clarification of provisions facilitating the launch of financial engineering instruments 
and  the  simplification  in  relation  to  broadening  the  use  of  flat  rates  and  lump  sum 
costs.  The  Council  encourages  the  Commission,  in  close  cooperation  with  Member 
States, to continue in this way and to explore new possibilities for simplification. (§ 
1, pages 22-23) 

Commission's response: 

The Commission is taking the requested action. 

A  number  of  simplifications  proposed  by  the  Commission  have  already  been 
introduced by amendment of the Council regulations (see Regulations 1341/2008 
and 396 and 397/2009. These concern revenue-generating projects and, the use of 
flat rates and lump sums for certain outputs. Simplifications were also included in 
amendments to the Council regulations to allow quicker disbursement of Cohesion 
policy  funds  in  response  to  the  economic  downturn  (Regulation  284/2009)  The 
Commission  is  about  to  propose  a  second  batch  of  amendments  to  simplify 
application  of  the  Council  regulations,  with  regard  inter  alia  to  minimum 
operating  periods  for  investments  and  partial  closure.  The  Commission  also 
amended its implementing regulation, for example to streamline the requirements 
on  reporting  irregularities  and  irrecoverable  amounts,  publicity  and  audit  issues. 
The simplification proposals have emerged from a joint working group of Member 
State  and  Commission  representatives.  Where  necessary,  the  Commission  is 
issuing  guidance  on  application  of  the  simplified  provisions,  for  example  on  flat 
rates and revenue-generating investments. 

27. 

The  Council  urges  all  actors  in  the  accountability  chain  to  further  intensify  their 
efforts  so  that  significant  progress  can  be  achieved  and  made  visible  in  the  short 
term.  The  Council  invites  them  to  make  good  use  of  all  preventive  and  corrective 
measures available, while striking the balance between the need for controls and the 
administrative  costs  they  entail.  In  this  context,  the  Council  recalls  the  joint 
declaration by the European Parliament, the Council and the Commission regarding 
the implementation of the Cohesion Policy and invites all the actors involved to do 
their  utmost  to  fully  comply  with  it.  (3rd  paragraph,  page  22,  and  §  2,  1st-3rd 
paragraph, page 23) 

Commission's response: 

The Commission is taking the requested action. 

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The approach of the Commission to improve the effectiveness of the control system 
for  Cohesion  Policy  continues  to  involve  both  preventive  and  corrective  action. 
With  regard  to  the  2000-06  programmes  now  about  to  be  closed,  the  focus  is  on 
removing irregular expenditure through financial corrections and on the work of 
winding-up  bodies  to  ensure  that  the  residual  risk  of  irregular  expenditure  in 
closed  programmes  is  low.  For  the  2007-13  period  the  preventive  phase  is 
continuing  with  the  completion  of  the  compliance  assessment  procedure  for  the 
new  programmes,  the  provision  of  guidance  and  training,  and  simplification  of 
operating  conditions.  In  the  second  half  of  2009,  the  Commission  carried  out 
sample  audits  of  the  first  expenditure  of  the  new  period.  The  results  will  be 
published in early 2010. 

The  cooperation  between  Member  States  and  the  Commission  with  regard  to  the 
new  period  programmes  has  been  intensified  compared  with  the  past.  The  full 
range  of  activities  being  carried  on  to  improve  the  situation  is  described  in  the 
report  on  the  implementation  of  the  Action  Plan  to  strengthen  the  Commission’s 
supervisory  role  in  the  shared  management  of  structural  actions  expenditure 
(COM(2009) 42). 

28. 

The  Council  regrets  the  Court's  conclusion  that  the  main  objective  of  the 
Commission's supervision to ensure that Member States establish and operate control 
systems  in  compliance  with  underlying  regulations  is  not  yet  achieved.  Though 
acknowledging that in the majority of cases the audits have been adequately planned 
and carried out and the relevant corrections applied, it notes  with concern that in a 
number  of  cases  corrective  action  has  been  taken  too  late,  thus  reducing  the 
effectiveness of the supervision procedure. In the Council's view, it is essential that 
the Commission's audit activity is effective and that the Commission puts in place an 
effective system to carry out its supervisory role. (§ 2, 4th-5th paragraphs, page 24) 

Commission's response: 

The Commission is taking the requested action. In most cases appropriate action to 
follow  up  the  results  of  audits  is  taken  in  a  reasonable  time  period.  Under  the 
Action Plan to strengthen its supervisory role, the Commission has taken action to 
speed  up  its  procedures  and  reduce  unnecessary  delays  in  the  application  of 
payment  suspensions  and  financial  corrections  following  audits.  This  has  been 
reflected  in  a  large  increase  in  the  number  of  suspension  decisions  and  in  the 
volume  of  financial  corrections  resulting  from  the  Commission's  or  the  Court  of 
Auditors'  audit  work  in  2008  compared  with  2007.  Reference  is  made  to  the 
Commission's report on the implementation of the Action Plan (COM(2009) 42).  

The  Court's  findings  indicate  that  the  Commission's  supervision  has  not  yet  had 
the  desired 
the  Member  States' 
management  and  control  systems  in  the  2007  report  represented  a  significant 
improvement from the previous year's report. 

impact.  Nevertheless, 

the  assessment  of 

29. 

The Commission should make, where appropriate, an effective use of the corrective 
instruments  at  its  disposal,  such  as  payment  suspensions,  financial  corrections  and 
recoveries. This would act as a deterrent and thus have an important positive impact 
on  the  legality  and  regularity  of  expenditure.  The  Council  underlines  that  both 
reinforced controls at the Member State level and more effective supervision by the 

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Commission  should  respect  the  principle  of  proportionality  of  controls  to  the  risks 
and  the  benefits  from  control  in  relation  to  the  costs  involved.  (§3,  1st  paragraph, 
page 25) 

Commission's response: 

The  Commission  is  taking  the  requested  action.  The  figures  for  suspensions  and 
financial  corrections  in  2008  show  a  marked  increase.  In  2008  it  took  10  formal 
payment  suspension  decisions,  as  against  only  one  in  2007.  The  volume  of 
financial corrections applied in 2008 as a result of the Commission's or the Court 
of  Auditors'  audit  work  also  rose  sharply  to  €1,587  million  from  €396  million  in 
the previous year. 

With  regard  to  the  proportionality  of  controls,  reference  is  made  to  the 
Commission's communication "Towards a common understanding of the concept 
of tolerable risk of error" (COM(2008) 866), which puts forward a framework for 
setting the level of controls by reference to their costs and benefits. 

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Chapter 7 - Research, Energy and Transport 

30. 

The  Council  stresses  the  importance  of  a  substantial  simplification  of  the  legal 
framework  which  should  be  regarded  as  a  general  guidance  principle  for  the  new 
programming  period.  The  Council  calls  on  the  Commission  to  use  all  possible 
opportunities to further simplify and clarify the rules for the calculation and reporting 
of  costs,  which  should  subsequently  reduce  the  uncertainty  about  the  eligibility  of 
expenditure  resulting  from  possible  different  interpretation  of  the  often  complex 
legal  framework.  Moreover,  the  Council  stresses  the  need  to  use  more  extensively 
financing methods which are based on lump sums and on the achievement of results, 
wherever they are suitable. (§ 1, page 26) 

Commission's response: 

The Commission agrees to the general need for more profound simplifications and 
asks  the  legislator  to  support  the  adaptations  to  the  legal  basis  (revision  of  the 
Financial  Regulation,  Framework  programme  participation  rules)  that  would  be 
necessary in this respect for the preparation of the 8th Framework Programme.  

FP7  has  brought  about  a  number  of  important  simplifications  already.  The 
introduction of the participants guarantee fund allowed to considerably reduce the 
numbers  of  ex-ante  financial  checking,  the  use  of  protective  measures  and 
replaced  the  collective  financial  responsibility  of  the  contractors  as  laid  down  in 
FP6. The introduction of the Certification on the Methodology in FP7 contributes 
to  the  reduction  of  required  certificates  and  will  limit  ex-post  controls.  Further 
improvements  will  be  achieved  by  the  gradual  introduction  of  fully  electronic 
exchange  systems  for  the  whole  chain  of  proposal  and  grant  management 
processes in the frame of the e-FP7 initiative.  

As regards the more extensive use of lump sums and flat rates, a first tangible step 
was  taken  on  4  June  2007,  when  the  Commission  decided  on  lump  sums  for 
International  Cooperation  Partner  Countries'  beneficiaries.  The  Commission 
continues  to  work  towards  a  simplification  of  the  cost  reimbursement  system, 
gradually introducing the use of flat rates and lump-sums where appropriate (for 
example for subsistence and accommodation costs). Further steps would be taken 
after careful consideration of their likely consequences and with due regard to the 
principle of sound financial management. 

31. 

The  Council  considers  that  controls  need  to  be  reinforced  to  identify  any  possible 
overstatement  of  eligible  costs  (with  particular  attention  to  personnel  and  indirect 
costs) as well as costs declared without justification or without adequate supporting 
evidence. It asks the Commission to continue its approach of an increased number of 
on-the-spot  audits,  targeted  according  to  budgetary  impact,  aiming  at  a  further 
reduction  of  the  risk  to  legality  and  regularity  and  at  the  elimination  of  systematic 
errors. (§ 2, 1st paragraph, page 26) 

Commission's response: 

The  Commission  has  devised  a  control  strategy  aimed  to  ensure  the  legality  and 
regularity of the 6th Framework Programme on a multiannual basis. It is based on 

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the detection and correction of errors which could not be identified before making 
the payment. This is achieved by ex-post auditing and recovering amounts found to 
be overpaid to the audited beneficiaries, including for non-audited contracts where 
the  same  problems  have  been  identified.  The  research  DGs  have  recently 
elaborated the control strategy for FP7. 

32. 

The  Council  underlines  the  importance  of  improving  the  quality  and  reliability  of 
external audit certificates. It invites the Commission to provide additional support to 
beneficiaries and certifying auditors on the audit work to be performed, including the 
certification  of  the  cost  methodology.  In  parallel,  the  Council  emphasises  the 
necessity  of  a  timely  explanation  of  new  methods  and  procedures  and  asks  the 
Commission  to  provide  regular  information  by  all  means  to  the  relevant  actors. 
Existing provisions  need  to  be simplified as well and, together with the guidelines, 
they have to be properly understood through appropriate training in time. (§ 2, 1st-
2nd paragraphs, page 27) 

Commission's response: 

The distinct feature of FP7 compared to FP6 is that the audit certification, both at 
the  level  of  cost  statements  and  at  the  level  of  the  cost  methodology  certification 
process  is  based  on  compulsory  certificate  models,  which  are  part  of  the  FP7 
model grant agreement. In the context of FP7, the Commission introduced agreed-
upon-procedures  on  the  basis  of  international  audit  and  accounting  standards. 
These  procedures  consist  of  a  compulsory  set  of  procedures  to  be  performed  by 
auditors involved in the certification process. Auditors are therefore not requested 
to  provide  an  assurance  opinion  anymore  but  to  perform  a  set  of  procedures  in 
order to provide an independent report on factual findings, which will be the basis 
for  the  Commission  to  assess  the  eligibility  of  costs  and/or  the  methodology. 
Moreover  the  Commission  established  in  close  collaboration  with  the  European 
Federation of Accountants FAQ and FP7 guidance notes for the beneficiaries and 
auditors involved in the audit certification. While participating in conferences and 
workshops  to  raise  awareness  on  the  FP7  certification  process,  the  Commission 
also launched in 2007 specific pages dedicated to audit and certification policy on 
CORDIS. FP7 prospective beneficiaries and certifying auditors can easily retrieve 
audit  supporting  documents  and  can  get  support  through  the  enquiry  service 
established to deal with requests on FP7 issues.  

The  Commission's  information-approach  is  largely  based  on  publication  of 
guidance  and  information  through  CORDIS,  the  functioning  of  the  "Research 
Enquiry Service" and the role of the National Contact Points. In view of the size of 
the  RTD  Framework  Programme  beneficiaries  community  (some  15.000 
organisations),  specific  training  for  the  beneficiaries  cannot  realistically  be 
envisaged with the existing resources and structures. 

33. 

The  Council  calls  on  the  Commission  to  continue  the  implementation  of  the 
measures  envisaged  in  the  framework  of  the  common  audit  strategy,  aiming  at  a 
refinement  of  certification  and  risk  evaluation  methodologies,  the  harmonisation  of 
procedures  and  a  more  effective  cooperation  between  the  different  Commission 
services. (§ 2, 3rd paragraph, page 27) 

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Commission's response: 

The  research  DGs  are  implementing  the  common  audit  strategy  for  FP6  in  a 
coordinated way and have recently elaborated the common audit strategy for FP7. 

34. 

The Council urges the Commission to ensure timely payments to beneficiaries. (§ 2, 
4th paragraph, page 27) 

Commission's response: 

The  Commission  continues  taking  appropriate  measures  to  comply  with  the 
Council's request related to delayed payments to beneficiaries and to comply with 
the time limits for expenditure operations set out in the Financial Regulation. The 
efforts made have increased the percentage of payments made on time. The issue is 
being  monitored  closely  and  receives  the  highest  attention  to  ensure  further 
improvement. 

35. 

information  on  audit  results  and 

The  Council  invites  the  Commission  to  remedy  the  persisting  shortcomings  in  the 
management 
timely  and  effective 
implementation.  It  asks  the  Commission  to  improve  the  monitoring  tools  and  the 
follow-up of detected errors, the supervision of corrective action and the recovery of 
amounts  unduly  paid  to  beneficiaries.  In  this  context,  the  Council  is  also  of  the 
opinion that more effective use should be made of the available sanction mechanisms 
and that they should be used as an incentive for beneficiaries to improve the quality 
of their cost statements. (§ 3, 2nd-3rd paragraphs, page 27) 

their 

Commission's response: 

Audit results are shared among research DGs through an internal Wiki site, which 
allows  each  DG  to  be  informed  of  each  other's  audit  results.  Regular  meetings 
among DGs are also held in order to implement the common audit strategy. 

As far as the implementation of the audit results is concerned, research DGs have 
made structural changes to improve previous shortcomings, such as, for example, 
increasing the resources dedicated to the follow-up of audits. 

Regarding sanction mechanisms, guidance for the claiming of liquidated damages 
from  beneficiaries  has  been  developed  at  the  beginning  of  2009  and  is  currently 
being implemented. 

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Chapter 8 - External aid, Development and Enlargement 

36. 

The Council, while acknowledging the Commission's continuous efforts to mitigate 
the problems identified in this area, calls on it to continue the work done, to enhance 
its efforts as well as to take all the necessary measures to decrease the material level 
of  error  significantly.  In  this  context,  the  Council  is  aware  that,  due  to  the 
multiannual  nature  of  the  programmes,  the  errors  detected  during  the  course  of  a 
project can be remedied in a year later than the one under examination. The Council 
considers that the Commission should enhance its audit strategy by ensuring a better 
coverage  of  operations  at  implementing  organisations'  level.  (3rd  paragraph,  page 
28) 

Commission's response: 

An in-depth cost/benefit analysis is needed in order to investigate possibilities for 
further  reductions  in  the  material  level  of  error.  The  Commission  will  submit  a 
report to Parliament and Council based on the findings of the tolerable risk/cost-
effectiveness  studies  for  external  action  and  a  review  of  the  AIDCO  control 
strategy will follow. As regards audit, EuropeAid's Annual Audit Plans (AAP) are 
the  main  pillars  of  the  Commission's  audit  strategy  for  external  operations.  The 
methodology  to  establish  the  AAP  underwent  a  major  revision  in  2008.  This  has 
resulted in a more coherent and transparent AAP 2009, giving a better insight into 
the composition of the portfolio of external aid contracts, audit coverage and other 
control  measures.  More  improvements  in  the  planning  process  including  further 
guidance  on  audit  coverage  are  being  prepared  and  will  become  operational  for 
the annual audit planning process 2010. 

37. 

The  Council  encourages  the  Commission  to  continue  to  closely  monitor  the 
beneficiary  countries'  systems  and  welcomes  the  action  plan  set  up  by  the 
Commission to ensure that improvements take place. (§ 1, 2nd paragraph, page 28) 

Commission's response: 

The  Commission  is  taking  the  requested  action.  The  measures  taken  by  the 
implementing  agencies  following  the  action  plans  are  closely  monitored  and 
audited to verify that they lead to the desired improvements. 

38. 

Regarding  budget  support,  the  Council  is  fully  aware  of  the  necessity  to  strike  a 
balance  between  the  achievement  of  objectives  and  the  need  for  most  precise 
conditions for payments; however, the Council encourages the Commission to pursue 
its work to strengthen the indicators in order to carry out a more rigorous assessment 
and  to  provide  a  clear  link  between  funding  and  performance,  to  achieve  a  more 
result oriented approach. (§ 1, 2nd paragraph, page 29) 

Commission's response: 

The  Commission  recognises  the  need  to  inject  further  discipline  into  the  design 
and measurement of indicators in the budget support operations. General Budget 
Support  Guidelines  are  currently  being  revised  to  improve  the  design  and 

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assessment of eligibility conditions and specific results oriented indicators in order 
to achieve a more rigorous results orientated approach. 

39. 

Regarding budget support, the Council stresses the need for additional training and 
urges the Commission to do its utmost to provide adequate support and expertise, in 
particular  to  all  staff  on  the  field  in  order  to  improve  their  performance  and  their 
capabilities. (§ 1, 3rd paragraph, page 29) 

Commission's response: 

In recent years the Commission has invested heavily in a solid training programme 
on  Budget  Support.  In  the  3  year  period  2006-2008  54  budget  support  training 
courses  have  been  delivered,  reaching  more  than  1200  staff.  Budget  support 
training delivered in the field has increased from 7 available courses in 2006 to 14 
in  2007  and  24  in  2008.  This  is  in  addition  to  HQ  training  where  the  average 
participation from Delegations is 40%. This training programme will be continued 
and where required be strengthened.  

In  addition  a  joint  learning  programme  has  been  developed  with  other  donors 
(within the context of the network Train4Dev) on Sector Wide approaches, and a 
total  of  22  training  sessions,  in  principle  taking  place  overseas,  has  reached  an 
additional 1000 staff from January 2006 to May 2009. 

40. 

The  Council  notes  with  deep  concern  the  recurrent  weaknesses  in  the  systems 
designed to ensure the legality and regularity of External actions expenditure at the 
level  of  project  implementing  organisations  and  asks  the  Commission  to  take  the 
necessary steps to remedy this situation. 

Although  noting  the  efforts  made  by  the  Commission  regarding  the  clarification  of 
the  terms  of  reference  for  audits,  and  in  particular  the  tendering  and  public 
procurements, as well as the monitoring of the compliance with them, the eligibility 
of  costs  and  the  required  documentation  for  the  allocation  of  expenditure,  the 
Council  encourages  the  Commission  to  further  enhance  its  action  and  urges  it  to 
provide  for  more  training  and  support  to  project  finance  staff  and  to  increase  the 
active  monitoring  of  their  work  by  Commission's  delegations.  (§  2,  1st-2nd 
paragraphs, page 29) 

Commission's response: 

The  availability  of  standard  terms  of  reference  ('ToR')  for  financial  and  systems 
audits since 1st October 2007 is a major step forward in the process of obtaining 
better  quality  audits  and  ensuring  the  legality  and  regularity  of  transactions. 
Guidelines  for  Audit  Task  management  became  available  in  November  2008  and 
an advanced training module was developed and delivered (twice) in 2008.However 
EuropeAid's annual review of audit reports (which echo the findings of 2006 and 
2007)  confirm  that  the  root  causes  for  financial  findings  are  weaknesses  in  the 
financial  management  and  internal  control  systems  of  EC  funds'  beneficiaries. 
EuropeAid has examined the recommendations made by the external auditors and 
has  started  work  on  response  measures  which  include  the  development  of  a 
Financial  Management  Toolkit  for  use  by  beneficiaries  of  EC  external  aid 
projects. 

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41. 

The Council invites the Commission to pursue and deepen its action to simplify and 
standardise  partnership  agreements  and  the  related  documentation;  the  Council 
expects  to  see  the  positive  effects  of  these  measures  in  the  coming  years.  (§  2,  1st 
paragraph, page 30) 

Commission's response: 

The requested action has been taken by the Commission. DG ECHO has already a 
long  tradition  of  framework  partnership  agreements  in  order  to  implement 
efficient  and  effective  Humanitarian  Aid  actions  (Framework  Partnership 
Agreement for contracts with ONGs and Financial and Administrative Framework 
Agreement  for  contracts  with  United  Nations).  The  last  framework  contract  has 
been launched from January 1st, 2008 and addresses the need to simplify and to 
increase  the  flexibility  of  the  contractual  instruments  with  our  partners.  The 
overall aim of the new FPA was to improve the implementation of humanitarian 
aid  with  a  focus  on  results-driven  approach.  Moreover,  and  wherever  possible, 
current  rules  and  procedures  were  simplified.  In  that  context,  and  to  better  take 
account  of  the  diversity  of  DG  ECHO  partners  and  establish  a  more  effective 
control  environment  as  imposed  by  the  Financial  Regulation,  the  new  FPA 
establishes  two  differentiated  control  mechanisms  of  the  humanitarian  actions: 
"Action  related  monitoring"  ("A")  and  "Prior  assessment  of  own  Procedures" 
("P") control mechanisms. 

The  appraisal  of  the  control  mechanism  to  be  applied  to  FPA-agreements  is 
decided  by  assessing  three  main  domains,  being  the  financial  strength  of  the 
organisation,  the  internal  control  and  risk  management  procedures  and  the 
procurement rules. An annual assessment of the partners is foreseen and may lead 
to a change in control mechanisms to be applied. When a partner is subject to the 
"P" control mechanism, it applies its own procurement procedures for DG ECHO 
funded  actions.  In  addition,  In  the  context  of  the  new  FPA,  a  whole  program  of 
training, guidelines and interpretative fact-sheets have been put in place as well for 
the operational desks and finance officers of the Commission as for our partners, 
in  headquarter  and  in  the  field.  This  contractual  and  administrative  framework 
evolved  to  a  real  spirit  of  partnership  and  strengthens  the  impact  of  the  EC's 
efforts in humanitarian aid. 

As  regards the  funds channelled through United Nations organisations, the Council 
insists  on  the  need  for  a  closer  control  by  the  Commission,  to  make  sure  that  the 
implementation  of  EU  funds  is  dealt  with  adequately  and  that  there  is  a  clear 
understanding  by  all  actors  of  the  rules  and  procedures  of  control  to  be  carried  out 
and  of  the  standards  to  be  met,  in  order  to  fully  achieve  the  objectives  of  the  EU 
policies and action. In this context, the Council regrets the impossibility for the Court 
to assess the full value of the verification missions carried out by the Commission in 
2007  because  of  insufficient  or  untimely  reporting.  Nonetheless,  the  Council  takes 
note of the positive evolution of the relationship between the Commission, the Court 
and  the  United  Nations  and  welcomes  the  strengthened  cooperation  developed  in 
2008  between  the  three  organisations  and  expects  to  see  its  beneficial  effects 
reflected on the ground and in the future reports. (§ 2, 2nd-3rd paragraphs, page 30) 

42. 

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Commission's response: 

The Terms of Reference for verification missions were agreed between the UN and 
the  Commission  in  April  2009  and  the  Commission  also  believes  that  the  efforts 
made  to  explain  the  operation  of  the  verification  clause  in  Contribution 
Agreements  with  the  UN  -  including  through  training  -  will  help  to  ensure  that 
misunderstanding are avoided in UN country offices and delegations. The fact that 
at the time of drafting the 2007 DAS the majority of verification reports were not 
finalised is primarily linked to the cycle of the verification annual plan. As is the 
case  for  audits,  the  verification  missions  cycle  from  programming  to  the 
finalisation  of  the  report  do  not  fit  the  annual  calendar.  The  Commission 
underlines that out of the 39 AIDCO planned UN verification missions for 2007, 
37 reports have been finalised. All EuropeAid finalised verification mission reports 
were  sent  to  the  Court.  As  far  as  ECHO  is  concerned,  all  reports  have  been 
finalised for the 18 projects verified in 2007. 

43. 

As  far  as  the  Enlargement  policies  are  concerned,  the  Council  regrets  weaknesses 
detected in some implementing organisations, while taking note of the improvements 
made  in  the  course  of  2008  to  redress  the  situation  under  the  impulse  of  the 
Commission.  The  Council  encourages  the  Commission  to  continue  its  monitoring 
and to closely follow up the evolution of this case. (§ 2, 4th paragraph, page 30) 

Commission's response: 

Further to a request of the Commission, the national authorities have taken action. 
The segregation of functions has meanwhile been implemented and staffing levels 
increased substantially. Constant monitoring and further follow-up of the systems 
remain key priorities for the Commission. 

44. 

Regarding  ex-post  controls  in  the  field of  Enlargement  policies,  the  Council  shares 
the Court's view that the procedures should be speeded up and the delays in obtaining 
final replies on closure audits should be reduced. Therefore, the Council calls on the 
Commission  to  take  all  the  appropriate  measures  and  to  provide  all  the  necessary 
supports to partners in order to shorten the delays. (§ 2, 5th paragraph, page 30) 

Commission's response: 

The Commission is taking the requested action. The Commission however stresses 
that  longer  delays  have  to  be  occasionally  accepted  due  to  the  complexity  of  the 
findings  and  as  a  consequence  of  the  need  of  accuracy  in  the  application  of 
possible financial corrections. 

45. 

The Council notes the improvements achieved in 2007 concerning the external audits 
at  project  level,  although  their  quality  is  still  not  always  sufficient,  and  encourages 
the Commission to pursue its efforts, to prevent the occurrence of such weaknesses, 
in particular for new contracts. 

As for additional risk-based projects audits, the Council calls on the Commission to 
further  develop  procedures  to  derive  full  benefit  from  it.  The  Council  invites  the 
Commission to collect and analyse the results of the whole programme of audits to 

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control  quality  and  to  make  best  use  of  lessons  learned.  (§  3,  1st-2nd  paragraphs, 
page 31) 

Commission's response: 

EuropeAid's Annual Audit Plan (AAP) is based on an analysis of the composition 
of  the  entire  population  of  external  aid  contracts  and  the  use  of  top-down  and 
bottom-up  risk-analysis  is  an  important  element  of  the  planning  process.  The 
Commission monitors the implementation of the AAPs and has carried out quality 
reviews  of  its  EDF  external  audit  reports  since  2005.  The  follow-up  to  the  main 
findings in these annual reports has led to significant improvements in the use of 
standard terms of reference for audits and the quality of audit reports. The quality 
review system is annually reviewed and it was significantly improved in 2008 and 
2009 on the basis of lessons learned. Thus the quality of audits and audit reports is 
improving steadily. 

46. 

The  Council  underlines  the  importance  of  field  audits  for  all  types  of  partners  and 
notes that the Commission has increased them in 2007. The Council underlines the 
need  to  achieve  a  better  balance  between  headquarter  and  on  the-spot  audits  of  the 
implementing  partners,  for  a  better  view  of  the  reality  of  project  expenditure.  The 
Council encourages the Commission to pursue its efforts in this field, though keeping 
in mind the principle of proportionality. (§ 3, 3rd paragraph, page 31, and §4, 3rd 
paragraph, page 32) 

Commission's response: 

The  requested  action  has  been  taken.  In  line  with  the  requirements  of  the 
Financial  Regulations,  DG  ECHO  undertakes  audits  of  partner  organisations 
adhering  to  the  FPA.  The  audit  strategy  is  risk  based  which  considers  financial 
and  operational  strengths  of  the  partners,  the  results  of  past  audits,  assessments 
and  feedback  received  from  ECHO  staff.  The  strategy  also  ensures  that  all 
partners  are  audited  over  a  2  to  3  years  cycle  depending  on  whether  the  partner 
has been classified as having 'A' or 'P' control mechanisms. The audits themselves 
follow  a  2-track  approach:  audits  are  performed  both  at  DG  ECHO  partners' 
headquarters  for  finalised  projects  (at  least  once  every  three  to  four  years  and 
more frequently where higher risk is determined or the partner receives significant 
DG  ECHO  funds)  and  in  the  field  for  ongoing  projects  (determined  by  an 
assessment of risk and the past coverage of the partner concerned). Headquarters 
audits  consist  of  two  phases.  Firstly,  an  analysis  of  partners’  internal  control 
systems and in particular the financial systems put in place to record and account 
for  expenditures  incurred  on  DG  ECHO  funded  projects.  Secondly,  a  control  of 
expenditures against supporting documents for a sample of contracts. The level of 
transactions  controlled  is  based  on  the  results  of  the  assessment  of  the  internal 
control system. The results of the audits are used for the periodic assessments of 
the  partners  and  for  ensuring  the  eligibility  of  the  funds  claimed.  The  later  may 
also lead to a recovery of funds due to the Commission. 

The number of field audits had already been increased in 2007 from 20 in 2006 to 
37  in  2007.  For  2008,  47  field  audits  were  initiated  and  31  reports  finalised.  In 
2009, 40 to 45 field audits are planned.  

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In addition to these financial audits which are carried out by external auditors, the 
monitoring  of  projects  is  also  undertaken  through  DG  ECHO  which  supervises 
projects  and  draw  up  regular  reports  (notably  through  a  worldwide  network  of 
around  100  field  experts  continuously  working  for  DG  ECHO.  These 
Humanitarian Aid specialists are permanently on the ground in order to facilitate 
and  maximise  the  benefits  of  the  humanitarian  operations  financed  by  the 
Commission).  

Moreover, since 2007, each project is supposed to be visited at least once during its 
lifetime. In 2007 and 2008, 90% of projects were directly monitored in the field, the 
remaining 10% being projects where access, security and nature of project did not 
permit direct monitoring. 

Therefore,  audits  have  to  be  appreciated  in  the  context  of  DG  ECHO's  overall 
control  strategy  which  also  includes  the  follow-up  carried  out  by  its  headquarter 
staff  and  the  analysis  of  the  information  provided  by  partners  in  their  various 
reports.  Indeed,  the  information  which  results  from  such  controls  is  used  by  the 
external auditors when audits are carried out at partners' headquarters. 

47. 

The  Council  notes  the  improvement  achieved  in  the  enlargement  field  regarding 
Extended Decentralise Implementation System (EDIS), thanks to the implementation 
by  the  Commission  of  a  close  monitoring,  however,  the  Council  shares  the  Court's 
view that the efforts at the level of national supervisory and control systems should 
continue  under  the  close  monitoring  of  the  Commission.  (§  4,  1st  paragraph,  page 
32) 

Commission's response: 

The Commission is taking the requested action. It will continue to closely monitor 
the  beneficiary  country  systems,  and  actions  plans  have  already  been  set  up  to 
ensure that improvements take place. 

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Chapter 9 - Education and Citizenship 

48. 

The  Council  calls  on  the  Commission  to  enhance  the  simplification  of  the  often 
complicated  legal  framework  by  establishing  clearer  eligibility  criteria  and  easier 
rules for the calculation of eligible expenditure, in particular personnel costs, in order 
to  reduce  the  error  rate  and  to  improve  the  correctness  of  the  declared  cost.  (2nd 
paragraph, page 33) 

49. 

50. 

Commission's response: 

The  requested  action  has  been  taken.  The  design  of  the  new  programmes  2007-
2013 has taken into account the Court of Auditors' recommendations of previous 
years to simplify the rules and to make extensive use of lump sum financing. 

The  Council  welcomes  the  Commission's  efforts  in  establishing  an  integrated  audit 
system in the areas of education and culture as well as justice, freedom and security, 
with a strong link between national agencies and the Commission and an increased 
liability  on  the  Member  States'  side.  It  invites  the  Commission  to  verify  in  further 
detail the certification of management structures carried out by national entities, with 
the  intention  of  obtaining  more  reliability  from  the  supervision  by  the  Member 
States. Furthermore, it urges the Commission to make sure that the ex-ante and ex-
post  declarations  of  assurance  by  Member  State  entities  in  respect  of  their  own 
financial management of Community expenditure constitute a real added value. (§ 1, 
1st paragraph, page 33) 

Commission's response: 

The  requested  action  has  been  taken.  All  ex-ante  and  ex-post  declarations  of 
assurance  have  been  received  and  analysed  and  open  qualifications  have  been 
followed-up systematically. 

In  addition  more  precise  guidelines  for  the  yearly  declarations  have  been  issued 
and specific meetings with the National Authorities have been organised in March 
and in November 2008. Both actions contribute to a higher level of reliability and 
to a real added value of the ex-post declarations. 

The Council notes with satisfaction that progress has been achieved by an increased 
number of monitoring visits in Member States. This has enabled the Commission to 
check in a timely manner the description and effective operation of management and 
control procedures on the spot and to ensure the application of key internal control 
features. The Council encourages the Commission to move forward in this direction 
and  to  refine  the  control  objectives.  It  stresses  the  importance  of  establishing  exact 
criteria  for  the  assessment  procedure,  to  foresee  precautionary  measures,  including 
financial  corrections,  in  the  contractual  relationship  with  national  agencies,  to 
monitor  systematically  the  progress  made  by  the  Member  States  and  to  follow  up 
scrupulously  the  implementation  of  the  necessary  remedial  actions.  (§  1,  1st-2nd 
paragraphs, page 34) 

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Commission's response: 

The  requested  action  has  been  taken.  Control  objectives  for  the  primary  controls 
are set in the "Guide for National Agencies" which is an integral part of the single 
agreement between the Commission and the National Agencies. 

Control  objectives  for  the  secondary  controls  (to  be  performed  by  the  National 
Authorities) are set in the Guidelines for National Authorities issued in 2007 and 
updated in March 2009. 

An  enhanced  follow-up  of  corrective  actions  has  been  ensured  by  using  a  rating 
method;  a  clear  link  between  the  rating  and  the  precautionary  measures  to  take 
has  been  established  and  is  effectively  applied.  Remedial  actions  are  followed-up 
during  the  assessment  of  the  declarations  of  assurance  and  during  monitoring 
visits on the spot. 

51. 

As  regards  communications  expenditure,  the  Council  asks  the  Commission  to 
reinforce  the  ex-ante  control  system,  by  improving  the  rules  and  by  increasing  the 
general  level  of  supervision,  in  order  to  achieve  a  higher  effectiveness  of  the 
controls.  In  this  context  it  notes  with satisfaction  the  Commission's  commitment  to 
provide adequate check lists to be used consistently. (§ 2, 1st paragraph, page 34) 

Commission's response:  

The  Commission  has  carried  out  the  action  required.  An  ex-ante  and  ex-post 
control  unit  was  set  up  in  November  2007  and  an  action  plan  was  drawn  up  in 
DG COMM to tighten up the top-level ex ante controls and supervision carried out 
by the authorising officers by subdelegation. All the persons involved have already 
been provided with adequate check lists. 

52. 

The Council recalls its recommendations for the Commission to ensure an efficient 
monitoring of payment times with the aim of reducing the delays in payments. (§ 3, 
1st paragraph, page 34) 

Commission's response: 

The  requested  action  has  been  implemented.  During  2008,  DG  EAC  has  taken 
further  measures  to  closely  monitor  the  development  of  payment  delays.  The 
monthly  reporting  to  management  has  been  extended  and  includes  both  the 
average  payment  delays  as  well  as  an  analysis  of  payments  made  within  the 
different contractual time limits or exceeding those limits.  

The  regular  follow-up  of  payment  delays  has  resulted  in  a  clear  reduction  of  the 
average  payment  time  (an  average  in  2007  of  38,80  days  for  procurement  and 
54,12 days for grants is down to a total average of 28,89 days in 2008). 

53. 

The Council urges the Commission to complete as soon as possible the sharing of ex-
post  audit  results  with  the  aim  of  increasing  the  efficiency  and  effectiveness  of 
audits. (§ 3, 2nd paragraph, page 34) 

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Commission's response: 

The  requested  action  has  been  taken.  The  results  of  audits  launched  from  the 
beginning of 2008 are now inserted in ABAC tracking and therefore accessible for 
other DGs. 

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Chapter 10 - Economic and Financial Affairs 

54. 

The  Council  underlines  the  importance  of  further  simplifying  and  harmonising  the 
cost  calculation  methodology  and  the  rules  for  cost  eligibility,  particularly  with 
regard to the eligibility period. In addition, the requirement to use actual cost figures 
and  the  need  to  provide  supporting  evidence  to  justify  the  claimed  cost  should  be 
pointed out more clearly. These proposed measures are aimed at a further reduction 
of the error rate, but should not result in a reduced level of control if this cannot be 
clearly justified. (2nd and 3rd paragraphs, page 35) 

Commission's response: 

The Commission agrees to the general need for more profound simplifications and 
asks  the  legislator  to  support  the  adaptations  to  the  legal  basis  (revision  of  the 
Financial  regulation,  Framework  participation  rules)  that  would  be  necessary  in 
this  respect  for  preparation  of  the  8th  Framework  Programme.  FP7  has  brought 
about  a  number  of  important  simplifications  already  and  the  Commission 
continues  to  work  towards  a  simplification  of  the  cost  reimbursement  system, 
gradually  introducing  the  use  of  flat  rates  and  lump  sums  where  appropriate.  In 
this sense, the Commission has adopted a decision in March 2009 on the use of flat 
rates  to  cover  subsistence  and  accommodation  costs  (related  to  travel  for  the 
implementation  of  a  project)  providing  the  possibility  to  do  so  is  indicated  in  the 
work Programme. Further steps will be taken to inform beneficiaries and auditors 
about frequently committed errors. 

55. 

The Council invites the Commission to further strengthen the ex-ante checks of the 
cost statements submitted by beneficiaries for interim and final payments of grants, 
taking into account cost benefit considerations, in order to support the identification 
of  errors  as  regards  not  only  accuracy  but  also  eligibility  and  occurrence  of  the 
declared cost. (§ 1, 1st paragraph, page 35) 

Commission's response: 

The  inherent  complexity  of  the  funding  mechanisms  provided  by  the  applicable 
regulatory framework limits the scope of the desk reviews that can reasonably be 
made  before  reimbursement  of  expenditure.  Therefore  the  Commission  has 
significantly  reinforced  its  ex  post  controls  and  put  in  place  a  common  audit 
strategy. The research DGs have recently elaborated the control strategy for FP7. 

56. 

The Council considers that it is essential to increase the number of on-the-spot audits 
and desk controls, with particular attention to areas of high risk or major budgetary 
impact,  to  improve  the  correctness  of  cost  statements  and  to  reduce  the  risk  to 
legality and regularity of grants to beneficiaries. (§ 1, 2nd paragraph, page 35) 

Commission's response: 

The  Commission  has  devised  a  control  strategy  aimed  to  ensure  the  legality  and 
regularity of the 6th Framework Programme on a multiannual basis. It is focussed 
on the detection and correction of any errors which could not be identified before 
making  the  payment.  This  is  achieved  by  ex-post  auditing  and  thoroughly 

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recovering any amount found to be overpaid to the audited beneficiaries, even for 
non-audited  contracts.  The  research  DGs  have  recently  elaborated  the  control 
strategy for FP7. 

57. 

The Council suggests the Commission to look into possibilities of reducing the risk 
of  double  financing  of  the  same  cost  by  the  general  budget,  as  stipulated  by  the 
Financial Regulation. (§ 2, 1st paragraph, page 36) 

Commission's response: 

Commission  proposals  for  the  basic  acts  establishing  grant  funding  indicate  that 
financing  of  the  action  can  only  come  from  one  Commission  source  (or  in 
exceptional cases where funding from different sources are possible these can only 
be applied  to  specific different types of  costs). The Financial Regulation (Art 78) 
also provides for the respect of sound financial management principles when legal 
commitments  are  made.  In  addition,  the  Commission's  audit  services  and  the 
Commission anti-fraud service (OLAF) are attentive to possible double financing 
and carry out investigations as appropriate. 

58. 

The  Council  stresses  the  importance  of  increasing  the  quality  and  reliability  of  the 
audit certificates provided by the final beneficiaries, through detailed explanation of 
the cost methodology and support of the audit certification process to be performed. 
Furthermore, it recalls the importance of the independence of the certifying auditors. 
(§ 3, 1st paragraph, page 36) 

Commission's response: 

A number of actions have been taken to improve the quality of audit certificates for 
FP6,  such  as  the  issuing  of  guidance  notes  for  the  beneficiaries  and  certifying 
auditors, the creation of a task force for the handling of audit certificates, and by 
certifying  auditors'  participation  in  workshops  and  training  courses.  When 
significant  errors  in  audit  certificates  are  detected  the  certifying  auditors  are 
informed  about  the  correct  amounts  and  methodology.  For  FP7  the  reliability  of 
audit  certificates  is  being  improved  by  means  of  the  use  of  'agreed  upon 
procedures', setting out in detail the audit work to be performed by the certifying 
auditors. 

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Chapter 11 - Administrative and other expenditure 

59. 

The  Council  is  seriously  concerned  about  the  lack  of  uniform  application  of  rules 
affecting  the  staff  across  the  institutions.  Most  notably,  the  Court's  audit  revealed 
significant  differences  in  the  application  of  the  multiplication  factor  applicable  to 
salaries as defined in the Staff Regulations. Such differences are not in line with the 
principle  of  equality  of  treatment  for  all  staff  since  staff  of  some  institutions  may 
benefit  from  an  advantage  the  others  do  not.  This  can  also  have  a  potentially  non-
negligible  impact  on  the  EU  budget.  Therefore,  the  Council  encourages  all  the 
institutions  to  agree  on  a  uniform  approach  to  the  application  of  the  Staff 
Regulations,  for  example  by  means  of  common  interinstitutional  guidelines. 
Furthermore,  the  Council  expects  all  the  institutions  to  respect  the  rulings  of  the 
Court of Justice in this respect. (§ 1, 2nd paragraph, page 37) 

Commission's response: 

The  Commission  shares  the  Council's  position  and  will  actively  support  any 
initiative taken in this direction. 

It  goes  without  saying  that  the  Commission  respects  the  rulings  of  the  Court  of 
Justice in these matters. 

60. 

The  Council  notes  the  Court's  findings  on  the  payments  on  carried  over 
appropriations and urges all the institutions to comply strictly with the provisions on 
the  principle  of  annuality  as  stipulated  by  the  Financial  Regulation.  (§  1,  4th 
paragraph, page 37) 

Commission's response: 

The  Commission  took  immediate  action  end  of  2008.  It  applies  now  fully  the 
principle of annuality in the limits foreseen by the financial regulation. 

Nonetheless, the Commission is analysing the possibility to introduce in the revised 
financial  regulation  an  amendment  allowing  some  appropriations  linked  to 
building costs to be carried over for more than one year, if necessary. 

61. 

In respect of the Communities' pension liabilities, the Council recalls its conclusions 
on the discharge for the financial year 2006 and insists that the Commission provides 
an updated estimate of annual Communities' pension expenditure at least up to 2013 
well  before  the  preliminary  draft  budget  for  the  financial  year  2010.  (§  2,  1st 
paragraph, page 38) 

Commission's response: 

This  kind  of  information  is  always  included  in  the  Preliminary  Draft  Budget 
(PDB) documents discussed with the budgetary authority. 

An  updated  estimate  of  annual  Communities'  pension  expenditure  up  to  2013  is 
included  in  Document  V  of  the  statement  of  estimates  of  the  European 
Commission for the financial year 2010 (SEC(2009)610). 

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62. 

The Council also recalls its request for regular annual information on building needs 
as  specified  in  the  Council's  conclusions  on  the  Court's  Special  Report  No.  2/2007 
concerning the institutions' expenditure on buildings. This annual information should 
be  made  available  by  all  the  institutions  each  year  before  the  presentation  of  the 
preliminary draft budget. (§ 2, 2nd paragraph, page 38) 

Commission's response: 

The Commission has already taken the requested action. Information on building 
needs  is  provided  on  two  separate  occasions:  with  the  preliminary  draft  budget 
(PDB) and for each building project with significant financial implications. 

As  a  standard  part  of  the  information  provided  with  the  PDB,  the  Commission 
gives all the details concerning the real estate situation (list of buildings including 
new  and  abandoned  buildings,  m²,  contracts,  costs).  Subsequently  to  the  EP's 
resolution  on  the  2008  Draft  budget,  the  Commission  has  forwarded  to  the 
budgetary authority the 2009-2011 planning in this area. 

Pursuant  to  Article  179  (3)  of  the  Financial  Regulation,  the  Commission  always 
informs  the  budgetary  authority  for  all  building  projects  with  a  significant 
financial implication for the budget and this information is given in advance of the 
legal commitment and contains an updated planning. Pursuant to Art. 263 of the 
Implementing  Rules,  the  Commission  informs  at  the  same  time  the  budgetary 
authority of its schedule for building projects. 

63. 

The  Council  appreciates  the  increasing  role  played  by  the  Commission  in  assisting 
and  supervising  the  financial  management  of  the  agencies  and  encourages 
Commission  and  agencies  to  continue  working  together  in  this  direction.  It  invites 
the  Commission  to  further  intensify  its  assistance  to  the  agencies,  in  particular  by 
sharing  expertise  and  by  providing  access  to  existing  accounting  systems  and 
framework contracts, with the aim of remedying the reported weaknesses. It stresses 
the importance of coordination and supervision by the Commission, in particular of 
the day to day management of funds attributed to the agencies. (§ 3, 2nd paragraph, 
page 39) 

Commission's response: 

The  Commission  provides  wide-ranging  assistance  to  agencies  in  several  areas, 
particularly regarding budgetary (notably: annual budgetary procedure, including 
activity-based  management, 
financial  management  and  accounting)  and 
administrative  issues  (for  example:  implementing  provisions  for  the  staff 
regulations and staff policy plan). 

Moreover,  the  Commission  has  improved  its  co-operation  with  the  agencies 
concerning  the  participation  of  its  representatives  in  the  Management  Boards, 
Memoranda of Understanding and services provided. 

In practice, agencies receive the same type of assistance than Commission services 
concerning budgetary and financial management issues, through the CFS Central 
Financial  Service)  helpdesk,  the  accounting  services  of  the  Commission,  internet 
tools and training, to which they have already full access.  

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In particular, detailed guidance on procurement and other financial management 
issues is made available on a dedicated website. 

Agencies  also  already  have  access  to  a  number  of  framework  contracts  of  the 
Commission,  provided  they  are  listed  as  potential  contracting  authorities  in  the 
tender  documents 
to  an 
-  as 
interinstitutional contract).  

independent  entity 

(equivalent 

for  any 

Finally,  agencies  are  encouraged  to  sign  a  number  of  service-level  agreements 
with all horizontal Commission Directorates-General for support services, notably 
those relating to buildings and security, IT systems (including ABAC where 22 out 
of 31 agencies are already using this central system, with 2 more scheduled to join 
by  the  end  of  2009  and  5  more  during  2010),  general  and  language  training, 
medical services etc. 

The  Commission  undertook  a  review  of  the  support  it  offers  to  agencies,  which 
resulted  in  a  document  mapping  all  the  services  currently  delivered  by  the 
Commission. This exercise had a twofold purpose: first, to ensure that agencies are 
aware  of  the  full  scope  of  services  that  the  Commission  offers;  and  second,  to 
identify areas where assistance can be improved and rendered more efficient. This 
mapping  exercise  was  done  in  close  cooperation  with  the  agencies  via  the 
TROIKA.  The  final  document  will  be  distributed  to  agencies  soon.  Further  steps 
can be undertaken on that basis. 

The  Commission  will  take  into  account  the  results  of  the  Interinstitutional 
Working Group in order to adjust its assistance further. 

64. 

The  Council  welcomes  the  Commission's  new  approach  to  taking  the  agencies' 
unused  appropriations  into  account  when  establishing  the  preliminary  draft  budget 
2009, and considers it as a huge improvement. It urges the Commission to continue 
with this principle also in the coming budgetary procedures, with the aim of bringing 
down  the  agencies'  annual  surpluses.  It  urges  the  Commission  as  well  to  carefully 
check,  and  if  necessary  revise,  the  requirements  of  funds  and  posts  as  proposed  by 
the  agencies  taking  into  account  proven  problems  with  implementation  and 
recruitment  with  the  aim  of  presenting  a  realistic  budget  proposal.  (§  3,  4th 
paragraph, page 39) 

Commission's response: 

The Commission has taken the requested action. 

It has taken the Council's recommendation into account when preparing its 2010 
PDB request, as explained in more detail in the dedicated PDB Working Document 
on agencies (section 2.1 decentralised agencies). 

65. 

The Council has noted with interest the Commission's Communication on European 
agencies  published  in  March  2008.  The  Council  recalls  its  declaration  of  17  July 
2008  laying  down  the  elements  on  which  the  evaluation  of  the  agencies  should  be 
based.  Moreover,  the  Council  has  committed  itself  to  actively  participate  in  the 
evaluation  process  initiated  by  the  Commission  and  recalls  in  this  respect  the  joint 
declaration regarding the creation of an Interinstitutional working group on agencies 

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adopted  on  21  November  2008  which  constitutes  a  good  basis  for  the  work  to  be 
carried  out.  The  Council  welcomes  the  decision  that  it  will  be  attributed  to 
independent external experts. It looks forward to the outcome of the evaluation and 
expects concrete proposals for improving the functioning and the transparency of the 
agencies. (§ 3, 3rd paragraph, page 40) 

Commission's response: 

The evaluation of EU decentralised agencies was launched in December 2008. The 
Terms  of  Reference  take  into  account  the  declarations  of  the  Council  and  the 
European  Parliament.  These  institutions  are  involved  in  the  evaluation  process 
through  the  Reference  Group.  The  results  of  the  evaluation  will  be  available  by 
end 2009. 

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Special Report No. 6/2007 on the effectiveness of technical assistance in the context of 
capacity development 

66. 

"The Council invites the Commission to: - inform the Council of progress made with 
the Strategy on Technical Cooperation; 

-  consider  that  local  ownership  involves  the  use  of  the  partner  countries'  public 
financial  management  and  procurement  systems  to  the  maximum  extent  possible; 
where  use  of  those  systems  is  not  feasible,  additional  safeguards  and  measures 
should be established in ways that strengthen rather than undermine those systems; 

-  examine  how  the  participation  of  technical  assistance  experts  from  public 
institutions  and  local/regional  organisations  can  be  improved  within  the  boundaries 
of existing public procurement procedures; 

-  ensure  that  a  capacity  needs  assessment,  including  an  institutional  capacity  needs 
assessment, is properly carried out in the preparation of the programmes, the process 
being led to the greatest extent possible by the partner country. (DOC 5587/09 ADD 
2, Annex 1, § 11, page 4) 

Commission's response: 

A report on the "State of progress on the implementation of the Reform on TC" 
was  issued  on  the  30th  of  March  2009,  and  Guidelines  on  "Making  Technical 
Cooperation  more  effective"  on  the  20th  May  2009.  An  updated  progress  report 
was issued in October 2009. 

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Special Report No. 7/2007 on the control, inspection and sanction systems relating to the 
rules on conservation of Community fisheries resources 

67. 

The Council notes that, in its replies, the Commission has indicated that many of the 
issues raised by the Court will be addressed in the revision of the Control Regulation 
planned for autumn 2008. The Council looks forward to receiving this Proposal and 
addressing those issues. The Council recalls that, in the context of better regulation 
and  simplification,  the  rules  of  the  CFP  should  be  simple,  enforceable  and  cost-
effective.  It  invites  the  Commission  to  take  this  into  account  when  preparing  the 
above Proposal. (DOC 5587/09 ADD 2, Annex 2, §§ 10-11, page 5) 

Commission's response: 

The  proposal  for  a  Council  regulation  establishing  a  Community  control  system 
for ensuring compliance with the rules of the CFP (Control regulation) presented 
in  November  2008,  has  been  approved  by  Council  on  19  October  2009  and  will 
enter  into  force  on  1  January  2010.  The  new  Control  regulation  answers  all  the 
recommendations  of  the  Court  of  Auditors  and  received  broad  support  from  the 
European Parliament, the Committee of the regions, and the European Economic 
and  Social  Committee.  Moreover,  in  the  light  of  the  proposed  reduction  of 
administrative  burden  the  reform  has  been  fully  supported  by  the  High  Level 
Group of Independent Stakeholders on Administrative Burdens. 

The main elements of the new Control regulation are: 

-  The  new  Control  regulation  will  make  for  uniformity  in  the  implementation  of 
control  policy,  while  respecting  and  considering  diversity  and  the  specific 
characteristics of different fleets. Control and inspection will be focused where it is 
most effective, through an approach based on systematic risk analysis. Inspection 
procedures  will  be  standardised  and  harmonised  for  all  stages  along  the  chain, 
including 
transport  and  marketing.  Use  of  modern  data-processing  and 
communications  technologies  will  be  extended.  Where  possible,  data  processing 
will  be  automated,  and  subject  to  systematic  and  comprehensive  cross-checking. 
The result will be a system which is more effectively targeted, more effective, and 
also less costly and burdensome to operate. 

- The new Control regulation ensures the establishment of a genuine level-playing 
field  for  all  operators  and  makes  sure  that  those  who  break  the  rules  no  longer 
benefit from doing so. A point system for serious infringements will be introduced, 
which  can  lead  to  fishing  licence  being  suspended,  or  even  withdrawn,  after  a 
certain  number  of  points  has  been  accumulated.  New,  more  effective  systems  for 
sharing  control  data  will  be  introduced  (including  the  establishment  of  national 
databases  for  serious  infringements,  and  for  inspection),  and  the  mandate  of  the 
Community Fisheries Control Agency will be extended, to enable it to play its role 
more effectively. 

- The new Control regulation will ensure that the Commission adheres to its core 
activity of controlling and verifying the implementation of the rules of the CFP by 
Member States, as it reinforces its capacity to intervene proportionately to the level 
of  non-compliance  by  the  Member  States.  Commission  officials  will  be  given 

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extended  inspection  powers,  allowing  them  to  carry  out  inspections  on  their  own 
initiative  without  prior  notification.  The  Commission's  powers  to  close  fisheries 
when  quotas  are  exhausted  are  strengthened.  In  the  same  vein,  the  regulation 
extends the possibility for the Commission to proceed to deduction of future fishing 
opportunities,  whenever  those  are  overshot.  This  will  convince  national  fishing 
industries  that  compliance  with  Common  Fisheries  Policy  rules  by  their  national 
administrations  is  also  in  their  interest.  The  Commission  will  also  be  able  to 
impose  financial  sanctions  on  Member  States  for  poor  management  of  their 
obligations  under  the  Common  Fisheries  Policy,  including  withholding  funding 
granted under the European Fisheries Fund or to support their control systems. 

EN 

43 

   EN 

 
Special Report No. 9/2007 concerning "Evaluating the EU Research and Technological 
Development (RTD) framework programmes - could the Commission's approach be 
improved?" 

68. 

The Council invites the Commission to pay utmost attention to the recommendations 
of the Special Report and in particular to: (a) ensure greater clarity in the intervention 
logic in the conception and implementation of framework programmes in the context 
of relevant Community decision making procedures, in particular at programme and 
project  level,  with  coherent  and  better  defined  scientific  and  socio-economic 
objectives which should be specific, measurable, achievable, relevant and timed, and 
balanced  performance  indicators,  whilst  taking  into  account  the  specific  nature  of 
RTD activities. (DOC 5587/09 ADD 2, Annex 3, § 9 (a), page 8) 

Commission's response: 

Significant progress was made with the FP7 legislation (adopted by the European 
Parliament and the Council in 2006) which provides a more explicit intervention 
logic  than  for  previous  framework  programmes.  This  is  further  reflected  in  the 
detail  of  the  FP7  work  programmes,  which  notably  provide  expected  impact 
statements. The elaboration of future framework programmes, in particular in any 
Impact  Assessments,  will  build  on  this  progress  in  setting  clear  and  robust 
objectives, supported by appropriate performance indicators. 

69. 

The Council invites the Commission to pay utmost attention to the recommendations 
of  the  Special  Report  and  in  particular  to:  (b)  establish  a  unified  and  coherent 
the 
evaluation  strategy  across 
appropriate  evaluation  methodologies  and  techniques  and,  to  this  end,  prepare  a 
manual  for  the  evaluation  of  framework  programme  activities,  and  in  this  context 
further  develop  the  use  of  evaluation  panels  with  the  assistance  of  external  experts 
with a view to ensuring the necessary level of independence. (DOC 5587/09 ADD 2, 
Annex 3, § 9 (b), page 8) 

the  relevant  Commission  services 

including 

Commission's response: 

The  Commission  has  further  developed  its  evaluation  strategy  for  FP7  based  on 
the  proposals  in  the  FP7  Impact  Assessment.  In  particular,  there  have  been  new 
evaluation  exercises  (monitoring,  FP6  ex  post);  a  wider  range  of  supporting 
evaluation  studies  (more  than  30  for  the  FP6  ex  post  evaluation);  new  types  of 
evaluation studies (network analysis, bibliometrics), stronger links with evaluation 
in the EU Member States (re-launch of the European RTD evaluation Network); 
and  improved  systems  for  routine  collection  of  data  (revision  of  the  projects' 
reporting  guidelines).  This  has  been  achieved  through  strengthened  coordination 
between  Commission  services,  such  as  the  work  which  led  to  the  FP6  ex  post 
evaluation  in  2008.  The  proposed  manual  for  evaluation  is  one  of  the  options 
under review following the recent completion of a study on tools and indicators for 
framework  programme  evaluation.  The  Commission  remains  very  supportive  of 
the role to be played by properly configured and independent panels of experts for 
evaluations,  as  was  shown  by  the  highly  effective  recent  work  carried  out  by  the 
panel in charge of the FP6 ex post evaluation. 

EN 

44 

   EN 

 
70. 

The Council invites the Commission to pay utmost attention to the recommendations 
of the Special Report and in particular to: (c) consider options for a more centralised 
evaluation  and  reinforced  coordination  between  the  relevant  Commission  services, 
including  the  possibility  of  establishing  a  joint  evaluation  office.  (DOC  5587/09 
ADD 2, Annex 3, § 9 (c), page 9) 

71. 

72. 

Commission's response: 

The Commission has previously stated and continues to hold the view that it does 
not consider it necessary to set up a joint evaluation office. It will continue to keep 
this issue under review including other means to enhance coordination both at the 
day to day and strategic levels. 

The Council invites the Commission to pay utmost attention to the recommendations 
of  the  Special  Report  and  in  particular  to:  (d)  optimise  the  collection,  analysis  and 
use  of  evaluation  data  in  such  a  way  to  better  measure  the  achievement  of 
programme  objectives  in  terms  of  outputs,  outcomes  and  socio-economic  impacts, 
whilst  avoiding  undue  administrative  burden  for  participants,  and  also  maximising 
the  usefulness  of  such  data  for  decision  making  at  European,  national  and  regional 
level. (DOC 5587/09 ADD 2, Annex 3, § 9 (d), page 9) 

Commission's response: 

Significant  improvements  have  been  instituted  under  FP7  with  new  and 
streamlined  means  for  gathering  data  systematically  from  projects  on  research 
outputs  and  outcomes.  Such  data  will  be  available  from  projects  on  their 
completion, at which time it is expected to significantly enhance the potential for 
detailed analysis and evaluation work. 

The Council invites the Commission to pay utmost attention to the recommendations 
of  the  Special  Report  and  in  particular  to:  (e)  establish  the  type  and  scope  of 
evaluation in particular to give greater attention to assessing long-term impact of past 
and  present  framework  programmes  with  a  particular  emphasis  on  European 
competitiveness;  ensure  timely  and  sufficient  information  on  the  results  to 
stakeholders  with  a  view  to  taking  future  policy  decisions.  (DOC  5587/09  ADD  2, 
Annex 3, § 9 (e), page 9) 

Commission's response: 

Work  is  in  progress  to  develop  an  evaluation  study  addressed  specifically  at 
assessing  the  long-term  impacts  of  framework  programme  research.  This  is 
expected to be available in time for input to the design and preparation of FP8. 

73. 

The  Council  invites  the  Commission  to  inform  the  Council  and  the  European 
Parliament  on  the  steps  taken  with  regard  to  the  recommendations  of  the  Court  of 
Auditors to improve the monitoring and evaluation of the framework programmes by 
end 2008, and to present the evaluation strategy for FP7 in a timely manner. (DOC 
5587/09 ADD 2, Annex 3, § 10, page 9) 

EN 

45 

   EN 

 
Commission's response: 

A  new  system  of  FP  monitoring  was  instituted  in  2008  based  predominantly  on 
indicators, and replacing the previous panel-based monitoring system. Reports are 
at 
and 
published 
http://ec.europa.eu/research/evaluations/index_en.cfm?pg=fp7-monitoring.  It 
is 
expected that this will ensure a more consistent and evolving picture of framework 
programme  implementation  and  as  such  provide  strong  support  to  future  FP 
evaluations. 

available 

annually 

are 

74. 

The Council invites the Member States and the Commission, taking into account the 
political priority given to governance in the European Research Area, to strengthen 
their  cooperation  and  the  exchange  of  approaches  and  expertise  concerning  the 
evaluation of the impact of the national participation in the framework programmes 
and the national research and innovation programmes , for example by the "European 
RTD evaluation network", in order to promote more coherence among these impact 
studies of the Commission and the Member States. (DOC 5587/09 ADD 2, Annex 3, 
§ 12, page 9) 

Commission's response: 

The  European  RTD  Evaluation  Network  has  been  re-launched,  including  two 
representatives  per  country,  and  providing  a  major  forum  for  discussions  on 
research  evaluation  between  the  Member  States,  Associated  States  and  the 
Commission.  A  new  programme  of  joint  work  has  been  agreed  which  places 
research evaluation of the ERA at the top of the agenda. 

EN 

46 

   EN 

 
Special Report No. 1/2008 concerning the procedures for the preliminary examination 
and evaluation of major investment projects for the 1994-1999 and 2000-2006 
programming periods 

75. 

The  Council  regrets  the  weaknesses  identified  by  the  Court  of  Auditors  and  agrees 
with the need to remedy the shortcomings in the preliminary examination procedures 
for  major  projects  as  identified  by  the  Court  of  Auditors  which  shall  ultimately 
contribute to increase the real added value of the approval process for major projects 
as implemented by the Commission; 

The Council stresses the importance of improvements of the system, and welcomes 
the  Commission's  will  to  find  solutions  to  problems  identified  by  the  Court  and 
invites it to continue its increased efforts on the basis of the regulatory framework set 
up for the period 2007–2013. (DOC 5587/09 ADD 2, Annex 4, §§ 6-7, page 10) 

Commission's response: 

The Commission is taking the requested action. Given their individual size, major 
projects  represent  an  important  part  of  the  regional  policy  interventions  in  the 
Member States. Therefore, the Commission considers that their specific assessment 
is  of  utmost  importance.  Under  the  2007-2013  programming  period,  several 
improvements  have  been  introduced  that  enable  a  better  and  harmonized 
assessment of major project applications submitted by the Member States:  

- standardized application forms including detailed information on the projects are 
now systematically used by Member States; 

-  the  data  concerning  all  major  projects  submitted  are  computerized,  which 
facilitates consistent assessment and ongoing checks by the Commission services; 

- a team dedicated to the assessment of major project applications has been set up 
in  the  Directorate-General  for  Regional  Policy  to  support  the  work  of  the 
geographical units; 

-  the  JASPERS  instrument  is  now  operational  and  its  staff  are  involved  in  the 
preparation of major project applications on behalf of the Member States; and 

A framework contract has been signed with external consultants to provide specific 
technical assistance. 

EN 

47 

   EN 

 
 
Special Report No. 2/2008 on Binding Tariff Information 

76. 

The  Council  considers  that  the  number  of  BTIs  which  needed  to  be  invalidated,  in 
comparison with the total BTIs issued over the period reviewed by the Court, is very 
low, and stresses that invalidation is a legitimate process related to BTIs and that the 
possible  financial  responsibility  of  Member  States,  if  any,  should  be  assessed  with 
the utmost caution. (DOC 5587/09 ADD 2, Annex 5, § 6, page 11) 

Commission's response: 

The Commission will continue to carefully examine the issue of potential financial 
responsibility where it becomes aware of incorrectly issued BTI via its inspections, 
investigations and documentary controls. 

77. 

The  Council  invites  the  Commission  to  further  improve  the  BTI  system  and  to 
monitor  its  implementation  and  application  in  the  Member  States.  (DOC  5587/09 
ADD 2, Annex 5, § 7, page 11) 

Commission's response:  

The  Commission  is  taking  the  requested  action.  The  draft  of  the  Implementing 
Provisions of the Modernised Customs Code (IPMCC) concerning the BTI system 
was  revised  during  the  meeting  with  Member  States'  representatives  in  the  BTI-
Committee  in  September  2009.  Further  consultations  of  the  IPMCC  within  the 
Commission  are  on-going  and  should  be  finalised  with  a  vote  in  the  Committee 
expected to take place in 2011. 

EN 

48 

   EN 

 
Special Report No. 3/2008 on the European Union Solidarity Fund 

78. 

The  Council  calls  upon  the  Commission  to  have  regard  to  the  remaining 
recommendations of the Special Report. (DOC 5587/09 ADD 2, Annex 6, § 6, page 
13) 

Commission's response: 

The Commission is taking the requested action. Already shortly after the adoption 
of  the  regulation  in  2002,  it  published  guidelines  for  applicant  countries  and 
explained in detail in what way it applies the provisions of the Regulation. In order 
to  simplify  the  procedure  and  to  help  avoid  delays  in  the  submission  of 
information,  the  Commission  developed  a  standard  application  form  as  well  as  a 
detailed guidance note for applications. Following the report from the Court, these 
guidelines  have  been  updated,  warning  applicant  bodies  of  possible  sources  of 
delays,  as  suggested  by  the  Court.  Both  the  standard  application  form  and  the 
guidance note are available on a special "Solidarity Fund" site (on the InfoRegio 
website), which has equally been completely revised following the report from the 
Court  of  Auditors,  and  which  now  contains  the  direct  contact  points  within  the 
Commission. This will facilitate direct contact with the body preparing the request, 
as suggested by the Court. 

EN 

49 

   EN 

 
Special Report No. 4/2008 concerning the implementation of milk quotas in the Member 
States which joined the European Union on 1 May 2004 

79. 

The  Council  recognises  that  it  is  up  to  the  Commission  and  the  Member  States  to 
continue to ensure that appropriate corrective action is taken and that proper controls 
are carried out at the most opportune time. (DOC 5587/09 ADD 2, Annex 7, § 4, page 
14) 

Commission's response: 

The  requested  action  has  been  taken.  The  Commission  services  are  continuously 
taking  all  necessary  action  to  ensure  the  effective  monitoring  of  the  milk  quota 
regime.  During  missions/bilateral  contacts,  Member  States  have  been  reminded 
that producer controls must be at least partially carried out in-year. 

EN 

50 

   EN 

 
80. 

81. 

Special Report No. 5/2008 "The European Union's agencies: Getting results" 

The  Council  underlines  the  importance  for  the  Member  States  to  take  an  active 
supervisory role in the decentralised agencies' governing bodies in order to improve 
good  governance  and  sound  financial  management  and  to  ensure  the  economic, 
efficient and effective implementation of European policies. This should also apply 
to  the  Commission  when  represented  in  those  governing  bodies.  The  Council  asks 
the  Commission  to  exercise,  with  due  respect  of  the  autonomy  of  the  decentralised 
agencies, more effective supervision and monitoring on agencies in order to ensure in 
particular  more  transparency  as  regards  staffing  levels  and  recruitment,  better 
planning of budgetary and financial management as well as an effective and efficient 
control  and  accountability  framework.  (DOC  5587/09  ADD  2,  Annex  8,  §§  9-10, 
page 16-17) 

Commission's response: 

The Commission will continue to play an active role via its representatives on the 
agencies'  Management  Boards  (when  represented)  with  a  view  to  contributing  to 
the improvement of good governance and sound financial management. 

The  role  of  the  three  institutions  (Commission,  Parliament  and  Council)  with 
regard  to  monitoring  and  supervision  over  agencies  will  be  discussed  within  the 
inter-institutional  working  group.  The  Commission  will  try  to  improve  its 
mechanisms in the light of the conclusions of those discussions. 

The Council invites the Commission, while acknowledging the considerable efforts 
already  made,  to  continue  providing  assistance  to  the  agencies  in  the  most 
appropriate form. In this context, the Council also underlines that particular attention 
should  be  paid  to  dissemination  of  best  practices,  proper  application  of  procedures 
for  awarding  contracts  and  appropriate  training  for  the  members  of  agencies' 
governing  bodies.  It  welcomes  the  commitment  of  the  Commission  in  its 
communication "European agencies - The way forward" to undertake a review of its 
internal systems governing its relations with agencies, as well as the methodology for 
conducting  impact  assessment  of  agencies.  (DOC  5587/09  ADD  2,  Annex  8,  §  11, 
page 17) 

Commission's response: 

The  Commission  fully  supports  the  idea  of  best  practice  exchange  allowing 
agencies to benefit from the experience gained by the Commission services, as well 
as from each other. Training on financial and administrative matters given by the 
respective  Commission  services  is  open  to  agency  staff,  often  upon  signing  a 
Service  Level  Agreement.  The  Commission  encourages  participation  in  those 
trainings. 

In  the  context  of  the  review  of  the  Commission's  internal  systems  governing 
relations with agencies, the Commission has undertaken a set of initiatives meant 
to  improve  cooperation.  Those  concern  the  participation  of  the  Commission 
representatives  in  the  Management  Boards,  the  scope  of  the  Memoranda  of 

EN 

51 

   EN 

 
Understanding,  a  review  of  the  services  provided  and  guidelines  on  setting-up  of 
new agencies. 

In  January  2009  the  Commission  adopted  revised  impact  assessment  guidelines. 
They  should  contribute  to  the  better  design  and  assessment  of  policy  options 
involving  the  creation  of  new  agencies,  as  well  as  the  modification  or  closure  of 
existing  agencies.  Agencies  can  also,  of  course,  use  the  Commission  guidelines 
when carrying out their own impact assessments. 

82. 

the  Commission  as  announced 

The  Council  recalls  its  statement  of  17  July  2008  in  which  it  welcomed  the 
commitment  of 
its  above-mentioned 
communication  to  launch  a  thorough  evaluation  of  the  regulatory  agencies,  by  the 
end of 2009. It expects once again that this evaluation will provide to the budgetary 
authority adequate tools and means to assess, in the context of the allocation of the 
Community  contribution  during  the  annual  budgetary  procedure,  the  comparability 
of performance targets, administrative and operational expenditure, evolution of the 
staff (types and vacancy rate) and impact of the size of the agency. (DOC 5587/09 
ADD 2, Annex 8, § 12, page 17) 

in 

Commission's response: 

The  results  of  the  evaluation  of  the  system  of  EU  decentralised  agencies  are 
expected  by  end  2009.  Once  the  evaluation  is  completed,  the  Commission  will 
report  to  Council  and  Parliament  on  its  findings,  as  announced  in  the  March 
Communication on agencies of 2008.  

The ongoing evaluation of the system of EU decentralised agencies is expected to 
improve the situation as regard the availability of comparable information across 
agencies  with  regard  to  performance  and  efficiency.  The  impact  of  agency's  size 
and staff policy will also be taken into account in the evaluation. 

EN 

52 

   EN 

 
Special Report No. 6/2008 "European Commission Rehabilitation Aid following the 
Tsunami and Hurricane Mitch" 

83. 

While  the  Council  regrets  the  significant  delays  in  the  implementation  of 
rehabilitation  aid  following  Hurricane  Mitch,  it  notes  with  satisfaction  the 
improvement  in  the  Commission  response  to  the  Tsunami.  This  improvement 
concerns,  in  particular,  the  evaluation  of  needs  in  conjunction  with  the  beneficiary 
entities, implementation times, and the usefulness and sustainability of the measures 
implemented. Progress remains to be made, however, in particular to ensure efficient 
monitoring  of  the  implementation  of  aid  and  to  strengthen  the  links  between  the 
humanitarian response, rehabilitation and development. 

The  Council  emphasises  the  importance  of  continuing  to  learn  lessons  from  past 
experience with a view to further improving Commission action in the area of post-
disaster rehabilitation aid. (DOC 5587/09 ADD 2, Annex 9, §§ 2-3, page 18) 

Commission's response: 

The Commission agrees that progress remains to be made in ensuring a coherent 
transition  between  post  disaster  humanitarian  response  and 
term 
rehabilitation  and  development  approaches.  EuropeAid  will  re-launch  the  inter-
services group working on Linking Relief Rehabilitation and Development in order 
to  identify  best  practices  and  lessons  learned  notably  on  issues  related  to  the 
comments of the European Court of Auditors. 

longer 

84. 

The  Council  invites  the  Commission  to  continue  to  build  on  its  approach  adopted 
after the Tsunami, while improving it in the light of the Court's recommendations, so 
as  to  enable  the  rapid  design  of  rehabilitation  projects  in  conjunction  with  the 
beneficiaries in order to enhance ownership and sustainability. (DOC 5587/09 ADD 
2, Annex 9, § 4, page 18) 

Commission's response: 

The  Commission  believes  that  its  response  to  the  tsunami  has  evolved  to  include 
more  rapid  design  of  rehabilitation  projects  and  better  coordination  and 
consultation with beneficiary countries at national and local level. This was noted 
by  the  European  Court  of  Auditors  (Section  III  of  the  Executive  Summary  and 
paragraphs  17  to  22).  The  Commission  also  agrees  on  the  need  to  build  on  this 
multi-donor  coordinated  approach  and  will  endeavour  to  apply  it  whenever  the 
preconditions exist. 

85. 

The  Council  also  emphasises  that  giving  consideration  to  disaster  prevention 
measures, in both the rehabilitation and development aid phases, is essential for the 
sustainability  of  the  measures  implemented.  It  reiterates  its  intention  to  adopt  in 
2008, on the basis of proposals to be presented by the Commission, an EU strategy to 
reduce the risk of disasters in developing countries. (DOC 5587/09 ADD 2, Annex 9, 
§ 5, page 19) 

EN 

53 

   EN 

 
 
Commission's response: 

The Commission adopted a proposal for an EU strategy for disaster risk reduction 
(DRR)  in  developing  countries  in  a  package  with  a  communication  on  disaster 
prevention (within the EU) on 23 February 2009. Council conclusions endorsing 
the Strategy were adopted on 18 May, requesting also an implementation plan. The 
following implementation  priorities are to be addressed by the plan: Dialogue on 
DRR; Regional Action Plans on DRR; and Integration of DRR and support for key 
DRR  investment.  Linkages  to  climate  change  adaptation  will  be  addressed  under 
all the priorities as appropriate. The Commission is supporting efforts on reducing 
the  risk  of  disasters 
through  sustainable  rural 
development,  activities  linked  to  climate  change  and  the  sustainable  development 
of natural resources (e.g. 40 millions devoted to Pakistan to strengthen sustainable 
rural development in the refugee affected and hosting areas in 2009). 

in  developing  countries 

EN 

54 

   EN 

 
European Development Funds 

86. 

The  Council  invites  the  Commission  to  continue  with  its  reform  efforts  and  to 
remedy  the  shortcomings  identified  by  the  Court  as  regards  the  reliability  of  the 
accounts. (Doc. 5047/09, ANNEX, page 6, 2nd indent) 

Commission's response:  

The  Commission  has  ordered  a  study  from  an  independent  audit  group  to  check 
the validity of the method used. The conclusions of this study show that, in the vast 
majority  of  cases,  the  assumptions  used  to  estimate  the  amount  of  invoices 
receivable are correct. However, the study recommends a different approach in a 
limited  number  of  cases.  The  study  findings  have  been  sent  to  the  Court  and  the 
Commission has undertaken to apply the recommendations in respect of the 2009 
financial year. 

87. 

The Council reiterates the importance of the fact that, in the procedures for granting 
budgetary  support  and  before  making  transfers  of  funds,  the  Commission  should 
ensure  that  the  conditions  of  the  Cotonou  Agreement  and  of  the  financing 
agreements  are  met.  In  this  respect,  it  welcomes  the  Commission  intention  of 
promoting  more  intense  dialogue  with  Members  States  on  BS,  inter  alia,  by 
organising technical seminars in the near future. (Doc. 5047/09, ANNEX, page 6, 3rd 
indent) 

Commission's response: 

The  Commission  is  fully  in  agreement  on  the  need  to  adhere  strictly  to  the 
conditions  set  out  in  the  Cotonou  Agreement  and  in  Financing  Agreements 
concerning  budget  support.  Steps  have  also  been  taken  to  improve  the  structure 
and clarity of Financing Agreements under the 10th EDF approved from 2008. In 
addition,  the  Commission  has  indeed  organised  an  ongoing  programme  of  4 
technical  seminars  on  budget  support  issues  with  EU  Member  States  since  2007, 
the most recent of which concerned a dialogue on budget support for fragile states 
in February 2009. 

88. 

the 

The  Council  stresses 
the 
Commission's evaluation of the effects of such measures, particularly as regards risk 
management,  analysis  of  the  internal  control  system,  the  audit  of  transactions  and 
budget support. (Doc. 5047/09, ANNEX, page 6, 4th indent) 

importance  of  being  regularly 

informed  on 

Commission's response: 

The  Commission  agrees  on  the  importance  of  regular  information  being  made 
available on EDF matters. The Commission gives regular updates to EU Member 
States  in  the  context  of  EDF  committees  e.g.  a  presentation  of  expected  2009 
budgetary  support  disbursements  on  the  occasion  of  the  25  March  2009  EDF 
Committee.  The  Commission's  Annual  Activity  Reports  for  EuropeAid  and  DG 
Development,  the  European  Development  Funds  Financial  Management  Report, 
the European Development Funds Financial Report and the Annual Report on the 
European  Community's  Development  and  External  Assistance  Policies  and  their 

EN 

55 

   EN 

 
Implementation  inform  the  European  institutions  and  the  wider  public  on  these 
issues on an annual basis. Moreover, the Commission intends to provide more in-
depth coverage of budget support issues in future annual reports on the 'European 
Community's  Development  and  External  Assistance  Policies  and 
their 
Implementation'.  This  should  provide  information  on  results,  analysis  and 
assessment of risk and will draw on available public finance management (PFM) 
diagnostics. 

EN 

56 

   EN 

 
Requests concerning individual agencies 

89. 

As  regards  the  European  Agency  for  Reconstruction,  the  Council  supports  the 
Court's  recommendation  concerning  the  handover  of  programmes  from  the  Agency 
to  the  Commission,  and  calls  on  both  entities  to  sign  a  Memorandum  of 
Understanding, in order to formalise and facilitate the transfer of all programmes and 
items and to ensure that all items are reflected correctly on the Agency's accounts. In 
this context, the Council draws the attention to the fact that the accumulated surplus 
shown  on  the  balance  sheet  at  31  December  2007  have  also  to  be  taken  over  and 
managed  by  the  Commission  at  the  end  of  the  Agency's  mandate.  (DOC  5588/09 
ADD 1, Annex 9, 4th-5th paragraphs, page 29) 

Commission's response: 

(a) how the unused budgetary appropriations will be implemented; 

As  the  Agency  has  managed  assistance  programmes  to  be  implemented  over 
several  years,  at  the  end  of  each  year  there  were  naturally  unused  budgetary 
appropriations corresponding to the ongoing programmes. The unused budgetary 
appropriations  shown  in  the  Agency's  balance  sheet  at  31  December  2007  have 
been  implemented  by  the  Agency  during  2008  for  the  approved  purpose,  EC 
assistance  to  western  Balkan  countries.  In  line  with  the  planned  and  approved 
schedules  of  implementation,  therefore  without  any  delays,  at  the  closure  of  the 
Agency  one  year  later,  there  were  still  some  of  these  multi-annual  programmes 
ongoing  with  some  remaining  funds  to  enable  finishing  the  implementation  of 
these programmes by the Commission Delegations.  

(b)  whether  a  memorandum  of  understanding  covering  all  items  in  the  Agency's 
balance  sheet  has  been  concluded  between  the  Agency  and  the  Commission,  or 
how the Commission has otherwise ensured the completeness of the transfer of all 
files and items; 

The question is not applicable for the balance sheet in question (31/12/2007) as the 
Agency  continued  in  activity  in  2008.  For  the  items  in  the  balance  sheet  of  the 
Agency one year later, indeed a memorandum of understanding covering all items 
has been concluded between the Agency and the Commission. 

(c)  how  the  accumulated  surplus  of  EUR  180  000  000  shown  in  the  Agency's 
balance sheet at 31 December 2007 will be managed by the Commission. 

The €180 million in the Balance Sheet of the EAR’s final accounts 2007 have been 
managed  by  the  Agency  during  2008.  The  accounting  designation  of  "surplus" 
corresponds to the open pre-financing at 31/12/2007. In simpler words, this means 
advance  payments  to  contractors  in  the  framework  of  the  projects  of  assistance. 
The  Agency  transformed  these  advance  payments  into  expenditure  during  2008 
once the services or supplies have been delivered. 

90. 

As  regards  the  European  Global  Navigation  Satellite  System  (GNSS)  Supervisory 
Authority, the Council invites the Authority and the Commission to do their utmost 
to ensure the transfer of all assets of the Galileo project to the Commission as soon as 

EN 

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   EN 

 
possible, with due respect of all the financial provisions and procedures in force, and 
it  expects  substantial  improvements  of  the  Authority's  accounts  for  2009.  (DOC 
5588/09 ADD 1, Annex 20, 5th paragraph, page 63) 

Commission's response: 

The  Commission  is  currently  working  together  with  the  European  Space  Agency 
and the European GNSS Supervisory Authority (GSA) to ensure that assets from 
the  EGNOS  system  and  the  relevant  assets  of  the  GSA  are  transferred  to  the 
Commission  and  properly  recorded  in  the  accounts.  The  transfer  of  the  assets  of 
the Galileo programme from ESA to the Commission is not foreseen to begin until 
the end of 2010. As the GSA is an independent body set up by Community law the 
Commission is not responsible for its accounts. 

EN 

58 

   EN