REPLY OF THE COMMISSION TO CHAPTER "EDF" OF THE ANNUAL REPORT 2009 EUROPEAN DEVELOPMENT FUNDS
Date: 2010-09-09
Institutions: European Commission
Subjects: European Court of Auditors, European Development Fund, activity report, audit, financial control, financial management, financial year

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EUROPEAN COMMISSION 

Brussels, 9.9.2010 
SEC(2010) 1011 final 

REPLY OF THE COMMISSION TO CHAPTER "EDF" OF THE ANNUAL REPORT 
2009 

EUROPEAN DEVELOPMENT FUNDS 

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REPLY OF THE COMMISSION TO CHAPTER "EDF" OF THE ANNUAL REPORT 
2009 

EUROPEAN DEVELOPMENT FUNDS 

INTRODUCTION 

5.  The  EDF  is  designed  to  help  countries  which  are,  by  definition,  in  difficulty,  and 
development aid policies must ensure that national authorities are in charge of development 
strategies. The National Authorising Officer plays a key part in this process. In order to ensure 
compliance  with  the  applicable  procedures  and  rules,  a  training  programme  specifically 
designed for staff in the offices of National Authorising Officers has been run for a number of 
years. 

Chapter I - Implementation of the eighth, ninth and tenth EDFs 

Financial implementation 

6.  Although  each  EDF  covers  a  period  of  around  five years, the implementation  of  projects 
and  programmes  and  the  related  payments  may cover  a  longer  period  which  is  nevertheless 
limited by the regulations. 

9. The exceptional performance in relation to global and individual commitments testifies to 
the success of the policy adopted by the Commission to speed up programme implementation. 

The  increase  in  outstanding  payments  in  2009  is  explained  by  the  particularly  high  level  of 
commitments in 2007 and by the EDF project cycle, which lasts on average three years, with 
the biggest payments generally being made in the first year and at the end of the final year. 

Reliability of the accounts 

15. In some cases migration to the new IT system for project management may have caused 
confusion  in  the  encoding  of  dates.  EuropeAid  has  organised  a  large  number  of  training 
courses in Delegations and at headquarters to improve use of this system. 

At  the  end  of  2009  EuropeAid's  central  services  also  set  up  a  department  to  monitor  the 
quality of information encoded in CRIS, which should further  improve the reliability of the 
data used to prepare the annual accounts. 

As the Court points out, this had no material impact on the annual accounts. 

17.  The  Commission  accepts  this  observation  and  the  Authorising  Officer  has  recorded  the 
necessary corrections in 2010.  

The Commission notes that the Court found a single error of 3.5 million euro identified in a 
sample of 39 contracts which was extrapolated.  

18.  The  Commission  accepts  the  observation,  but  notes  that  the  Court  found  a  single  error 
identified in a sample of 39 contracts which was extrapolated. 

21.  The  Commission  would  stress  that  no  payment  was  made  without  the  coverage  of 
financial  guarantees.  The  Commission  welcomes  the  finding  that  budget  support  eligibility 
was demonstrated in a formalised and structured manner. 

24. The Commission would point out that all the errors in calculating the reimbursement of 
advances were rectified before the end of the contract. 

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25.  The  Commission  welcomes  the  observation  that  a  substantial  improvement  in  the 
demonstration  of  eligibility  can  be  discerned  under  10th  EDF  owing  to  clearer  assessment 
frameworks that are now routinely used. 

In  order  to  underpin  this  improvement  and  eliminate  such  errors,  the  Commission 
acknowledges the need to further reinforce the structured approach to demonstrating progress 
in  public  financial  management.  The  Commission  has  therefore  developed  a  revised 
framework  for  monitoring  and  reporting  progress  in  public  financial  management  which 
focuses  on  results  achieved  against  initial  baseline  expectations.  This  revised  format  was 
finalised  in  June  2010  and  country  reports  using  this  revised  approach  will  be  the  basis  on 
which  eligibility  will  be  assessed  for  disbursements  for  the  remainder  of  2010  and  beyond. 
Against  this  background,  the  Commission  expects  to  be  able  to  demonstrate  continued 
improvement  in  the  level  of  non-quantifiable  errors  related  to  this  issue  in  future  DAS 
exercises.  

For the emergency instruments referred to (Vulnerability (V) FLEX facility and Envelope B) 
the  Commission  maintained  a  rigorous  approach  to  assessing  eligibility  as  evidenced  by  a 
number of such programmes where disbursements were not made. 

28. EuropeAid has designed its controls to cover the full lifecycle of its multiannual projects. 
It  believes  that  these  supervisory  and  control  systems  are  effective  and  have  significantly 
improved  year  on  year  as  reflected  in  the  increase  in  the  proportion  of  entirely  regular 
payments found by the Court in its sample. The recommendations made by the Court in past 
years have been implemented and many of these improvements have been recognised by the 
Court, resulting in significant elements of the key control systems being judged ‘effective’. 

30  The  Commission  provides  continuous  training  for  staff  at  headquarters  and  in  the 
Delegations  under  an  extensive  training  programme  tailored  to  the  needs  of  external  aid 
management. 

32.  The  Commission  welcomes  the  Court's  recognition  of  a  sustained  improvement  in  the 
clarity of the assessment frameworks for the general eligibility conditions. 

The  Commission  recognises  the  importance  of  similar  clarity  for  specific  conditions  and 
performance-based disbursements. Where appropriate, the Commission is seeking to formally 
address the specific observations made by the Court in this regard by means of revisions to 
the respective Financing Agreements. At the same time, this issue is receiving closer attention 
during EuropeAid's peer review process (Quality Support Group) for the consideration of new 
programmes. 

33.  The  Commission  welcomes  the  acknowledgement  by  the  Court  of  these  two  important 
contributions to ensuring budget support is delivered in a more structured and formalised way. 

35.  In  addition  to  the  support  and  technical  assistance  provided  by  Delegations  to  National 
Authorising Officers, EuropeAid runs a large number of training courses each year for staff in 
the offices of National Authorising Officers and specialised ministries. Extensive information 
on procedures is also available on EuropeAid's website. 

36. The Commission notes that the control tools and procedures established in recent years are 
bearing  fruit.  Nevertheless,  it  promises  to  continue  its  efforts  to  train  staff  and  disseminate 
information on management and control tools. 

a) The Commission expects that the Financial Management toolkit for the beneficiaries to be 
made  available  towards  the  end  of  2010.  The  main  purpose  of  the  Financial  Management 
toolkit is to provide basic practical guidance in an easy-to-use format to help beneficiaries to 
comply with the financial management rules in EC financed external aid actions.  

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37.  Delegations  conduct  a  large  number  of  additional  checks  to  offset  the  weaknesses  of 
National Authorising Departments. 

39. The Commission is pleased that the Court appreciates the measures taken by EuropeAid in 
following up audits and carrying out monitoring missions. 

40.  In  the  zero  growth  environment  for  Commission  posts  until  2013,  EuropeAid  is 
addressing  staffing  matters  in  Delegation  with  an  active  human  resources  policy  within  the 
limits of its competences. The issue of vacancies mainly concerns contract agents; it is not the 
high turnover as such but rather a matter of finding staff with the appropriate expertise. Their 
selection,  previously  managed  by  HQ,  has  now  been  delegated  to  Heads  of  Delegation  to 
shorten  this  lengthy  process.  Simultaneously,  EuropeAid  continues  to  request  regular  new 
reserve lists with an adequate number of candidates to allow recruitments for all profiles and 
for every category of country. 

44. More than 95% of the 2009 audit reports by the framework contractors were presented in 
the 'post 1 October 2007' format as opposed to about 40% in 2008. (see AAR footnote 38 in 
section 3.1.2.1.2.) 

45. While it is true that staffing constraints can have a negative impact on the length of the 
audit  clearance  process,  the  vast  majority  of  audit  reports  must  be  received  before  the 
Commission  makes  final  payment  and  therefore  the  risk  that  funds  become  irrecoverable  is 
extremely limited. 

In  2009  EuropeAid  continued  its  efforts  in  the  audit  field  and  ran  six  EDF  training  courses 
covering  15  Delegations  which  were  attended  by  180  Delegation  staff  members  and  220 
outside  staff  (staff  from  the  offices  of  Authorising  Officers,  ministries,  project  managers, 
NGOs and audit firms). 

46.  Delegations  are  regularly  reminded  of  the  need  for  timely  updating  of  CRIS  Audit 
records,  including  during  audit  seminars  and  training.  Since  February  2010,  whenever  a 
contract  is  signed  for  an  audit  (CRIS  Contract),  the  date  of  signature  is  automatically 
transferred to CRIS Audit. Also, the new results screen is more complete and easier to fill in, 
and an audit cannot be closed if  this field is not completed. This includes the audit opinion 
and the amount of ineligible expenditure. Information on recovery orders issued as the result 
of  audits,  is  included  in  CRIS  Recovery  Order  module.  Some  improvements  could  be 
considered  with  a  view  to  consolidation,  but  would  require  further  IT  developments. 
Information is available on the amount of final ineligible expenditure detected and corrected 
at the time of final payment. In 2009 this represented 0.7% by value of invoiced amounts. 

47.  The  Commission  considers  that  AIDCO's  internal  audit,  despite  the  disruption  of  its 
operational capacity in 2009, was effective during  that year.Despite the post of Head of the 
IAC Unit being vacant between 1 July and 15 November the unit finalised 9 follow-up audits 
(in relation to the 8 planned). As for new audits, out of the four planned for 2009, one final 
audit report and two draft audit reports (equivalent to 85 % of a final audit report according to 
IAS' methodology) were submitted in 2009. 

50. The Commission believes that the qualitative and quantitative indicators set out in the four 
'assurance' building blocks of the Annual Activity Report do indeed provide the evidence to 
underpin the Director General's statement of reasonable assurance. Nevertheless, EuropeAid 
recognises  that  further  work  could  be  done  to  develop  specific  indicators  in  relation  to  the 
multiannual  control  framework,  and  work  started  in  2010  on  consideration  of  possible 
methodologies for the estimated financial impact of residual error. 

54. EuropeAid has designed its controls to cover the full lifecycle of its multiannual projects. 
It  believes  that  these  supervisory  and  control  systems  are  effective  and  have  significantly 

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improved  year  on  year  as  reflected  in  the  increase  in  the  proportion  of  entirely  regular 
payments found by the Court in its sample. The recommendations made by the Court in past 
years have been implemented and many of these improvements have been recognised by the 
Court, resulting in significant elements of the key control systems being judged ‘effective’. 

(a)  The  Commission  started  work  on  the  consideration  of  possible  methodologies  for  the 
development of a key indicator for the estimated financial impact of residual errors in 2010, 
as set out in the Commission replies to the 2008 Annual Report. 

(b) The Commission started work on the review of its control strategy in early 2010, as set out 
in  the  Commission  replies  to  the  2008  Annual  Report.  The  Commission  will  produce  a 
Communication on the Tolerable Risk of Error in the field of external aid in 2010. 

(c) The Financial Management toolkit will be finalised in 2010 and due consideration will be 
given to the issues raised by the Court. 

(d) EuropeAid will continue its efforts to ensure that information is encoded in CRIS Audit 
accurately and in good time. 

(e) The amount of ineligible expenditure must be introduced in CRIS Audit before closing an 
audit record (mandatory field since February 2010). Information on recovery orders issued as 
a result of audits, is included in CRIS Recovery Order module. Some improvements could be 
considered  with  a  view  to  consolidation  but  this  would  require  further  IT  developments. 
Information is available on the amount of final ineligible expenditure detected and corrected 
at the time of final payment. In 2009 this represented 0.7% by value of invoiced amounts. 

55. 

(a)  The  Commission  recognises  the  importance  of  greater  rigour  in  defining  performance 
targets, calculation methods and verification sources. This issue is receiving greater attention 
during EuropeAid's peer review process (Quality Support Group) for the consideration of new 
programmes. 

(b)  The  Commission  has  developed  a  revised  framework  for  monitoring  and  reporting  on 
progress  in  public  financial  management  which  focuses  on  results  achieved  against  initial 
baseline  expectations.  This  revised  format  was  finalised  in  June  2010  and  country  reports 
using  this  revised  approach  will  be  the  basis  on  which  eligibility  will  be  assessed  for 
disbursements for the remainder of 2010 and beyond. 

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