REPLY OF THE COMMISSION TO CHAPTER 6 OF THE ANNUAL REPORT 2009 EXTERNAL AID, DEVELOPMENT AND ENLARGEMENT
Date: 2010-09-09
Institutions: European Commission
Subjects: activity report, aid policy, cooperation policy, development aid

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EUROPEAN COMMISSION 

Brussels, 9.9.2010 
SEC(2010) 1008 final 

REPLY OF THE COMMISSION TO CHAPTER 6 OF THE ANNUAL REPORT 2009 

EXTERNAL AID, DEVELOPMENT AND ENLARGEMENT 

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REPLY OF THE COMMISSION TO CHAPTER 6 OF THE ANNUAL REPORT 2009 

EXTERNAL AID, DEVELOPMENT AND ENLARGEMENT 

INTRODUCTION 

6.8. Most of the actions under the IfS involve responding to situations of crisis or emerging 
crisis, as well as pre- and post-crisis capacity building. 

6.10.  In  cases  where  the  unstable  political  environment  creates  an  increased  level  of  risk, 
mitigating  measures  are  put  in  place  such  as  ex-post  control  missions  to  be  carried  out  by 
Headquarters  or  Delegations  in  addition  to  the  mandatory  external  audits  organised  by  the 
beneficiaries in the framework of their contractual requirements. 

6.17. 

(a) The Commission notes that significantly more final payments were included in the 2009 
sample than was the case in previous years.  

6.18.  The  Commission  welcomes  the  increase  in  the  ‘frequency’  of  transactions  which  the 
Court  judges  to  be  entirely  ‘regular’  (at  87 %)  in  comparison  with  the  figures  for  2008  and 
2007. 

6.20. EU Delegations are responsible for the vast majority of payments on the Commission’s 
external aid portfolio. For EuropeAid, 79 % of the EU budget’s ongoing portfolio (outstanding 
commitments) was managed by Delegations in 2009. 

6.21. The Commission believes that detective and corrective measures prior to final payments 
(e.g. submission of reports, external audits, expenditure verifications and transactional checks 
by Commission staff) are effective. In addition, potential irregularities can still be corrected 
ex-post  through  the  launching  of  ex-post  audits  and  appropriate  recoveries.  Nevertheless, 
controls cannot realistically reduce the risk of financial error to zero.  

6.22. The Commission believes that the multi-annual supervisory and control systems for the 
External aid, Development and Enlargement policy group 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.  

6.23.  The  Commission  welcomes  the  Court’s  observation  that  ‘EuropeAid  has  set  up  a 
comprehensive  control  strategy’  and  that  ‘in  2009  EuropeAid  continued  to  bring  significant 
improvements to the design and implementation of its supervisory and control systems’ (see 
paragraph 54 of the Annual Report 2009 on the EDFs).  

6.24. The Commission welcomes the Court’s acknowledgement of the improvements recently 
introduced. 

6.26.  The  new  proposal  for  the  revision  of  the  Financial  Regulation  includes  the 
acknowledgement that Article 56 assessments can only be undertaken progressively due to the 
specific nature of these missions which are created ad hoc and ex nihilo.  

Regarding the CFSP procurement checklists, these have been finalised and are already in use. 

6.27. The Commission has indeed taken measures regarding the closure of old files (both for 
the RRM and the CFSP) already in 2009. These efforts will be continued throughout 2010. 

6.28.  The  Director-General  of  DG  RELEX  established  an  Action  Plan  to  follow-up  on  the 
reservation issued in the AAR 2009 and to improve the quality of assurance for 2010. 

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6.29.  The  Commission  welcomes  the  Court’s  acknowledgement  of  the  improvements 
introduced which have continued in 2010. The measures taken this year include an improved 
methodology for on the spot controls, the provision of training as well as improved guidelines 
for the documentation of results of ex-post controls. 

6.31.  The  Commission  considers  the  ex-ante  controls  both  at  headquarters  and  in  the  EU 
Delegations to be effective. As acknowledged by the Court, the Commission further improved 
its internal systems and completed the set of instructions. In the Annual Report 2008, the ex-
ante controls were assessed as effective. 

6.32.  In  2009,  DG  ELARG  continued  to  ensure  compliance  by  the  national  authorities  in 
Croatia  and  Turkey  with  the  conditions  of  the  (partial)  conferral  of  management  powers.  It 
maintained the ex-ante controls by the Delegation in order to mitigate the risks. 

Moreover  the  substantive  transaction  testing  of  the  Court  did  not  reveal  any  significant 
shortcomings  beyond  some  lack  of  audit  trail  to  explain  fully  the  decisions  taken  by 
delegations. 

(a) As more countries are getting ready to apply for conferral of  management,  DG ELARG 
has  updated  its  internal  guidance  note  of  2008  to  take  account  of  lessons  learned  from 
conferrals  of  management  in  2008  and  provided  further  guidance  in  2009  to  all  actors 
involved in the process. A full 'Conferral of Management guidance' document is currently in 
preparation in time for the applications which will be received in the next couple of years.  

(b)  The  role  of  the  Head  of  Delegation  endorsing  a  request  for  funds  is  clearly  specified  in 
internal instruction notes issued by DG ELARG. The checks to be performed according to his 
instructions provide the necessary basis for endorsing a specific request for funds. 

6.33. The points raised by the Court relate in essence to possible improvements of the audit 
trail  but  not  to  material  errors  in  applying  the  rules.  Most  of  them  were  dealt  with  at  the 
beginning of 2010 through internal instructions and clarification notes.  

6.34. Since the Financial Regulation and the Implementing Rules were modified in 2003, DG 
ELARG  has  always  applied  a  procedure  for  clearance  of  accounts  as  required  by  this 
amended  Financial  Regulation.  This  procedure  has  been  regularly  updated  and  is  now 
replaced by a more substantial consolidated "Policy for clearance of accounts in decentralised 
management – Phare and Transition Facility" adopted in June 2010, which elaborated in much 
more detail how flat rate corrections for system weaknesses could be applied where needed 
(such  as  for  the  clearance-of-account  of  programmes  under  extended  decentralised 
management). 

In  2009  alone,  DG  ELARG  closed  375  Final  Declarations,  i.e.  a  much  higher  number  than 
new programmes launched. There remain some cases for which the contradictory procedure 
takes time and the closure may take several years to complete. 

6.38. The Commission considers that the ex-post controls for decentralised management are 
fully effective. It accepts that the ex-post control function for centralised management has not 
yet been fully launched.  

These  further  ex-post  audits  carried  out  by  a  separate  horizontal  unit  and  addressed  in  this 
section are only intended to provide the Authorising Officer by Delegation with an additional 
assurance over and above the requirements of the Financial Regulation. 

6.39.  This  new  strategy  adds  an  additional  layer  to  give  further  assurance  without  being 
required by the Financial Regulation.  

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6.42.  The  audit  results  are  available  for  and  used  in  partner  assessments.  The  partners’ 
accreditation  also  receives  input  gathered  from  the  monitoring  of  projects  undertaken  and 
gives  consideration  inter  alia  to  financial,  legal  and  operational  aspects  of  the  partner.  The 
assessment  and  audits  often  result  in  recommendations  for  the  partners  to  improve  their 
systems of internal control. Therefore, many audit reports have directly led to changes in the 
status  accorded  to  partners’  control  systems.  The  current  system  of  audits  and  partners’ 
assessment put in place by DG ECHO has resulted in a control system that gives a balanced 
and effective view of the partners’ internal control systems that aids the prevention of errors 
and irregularities. 

6.43. Although fully sufficient for the establishment of a financing decision, the objectives as 
set  out  in  funding  decisions  for  Humanitarian  Aid  must  be  seen  together  with  the  detailed 
information on identified needs, the proposed strategy for and the necessary components of a 
convincing response which are contained in the supporting document of the decision.  

With regard to the complexity of crises situations, the multitude of needs and the availability 
of other donors, the detailed needs to be addressed together with the specified response is set 
out in the proposals submitted by DG ECHO's partners pursuant the Commission's financing 
decision. The Commission considers that the project selection procedures put in place by DG 
ECHO reflects the specificities of humanitarian aid and provide high guarantees with regard 
to the quality of the aid delivered by ECHO partners. Nevertheless, the Commission accepts 
that  the  documentation  of  the  proposal  evaluation  can  be  further  improved,  streamlined  and 
standardised. 

6.44. The Commission welcomes the Court's overall conclusion.  

Concerning  Humanitarian  Procurement  Centres  (HPC)  the  Commission  welcomes  the 
recognition of their overall usefulness.  

6.45.  The  Commission  welcomes  the  Court’s  assessment  and  confirms  its  commitment  to 
continuing improvement of its follow-up procedure.  

6.48. The Commission carried out a survey to identify the success factors which influence the 
quality  of  annual  activity  reports.  As  a  response  to  the  factors  identified,  a  number  of 
measures  were  implemented  in  order  to  improve  the  quality  of  the  evidence  presented  in 
support  of  the  assurance  and  the  readability  of  the  reports.  The  Commission  therefore 
welcomes  the  Court’s  positive  assessment  of  the  annual  activity  reports  and  will  continue 
working towards improving them as a source of evidence for the DAS. 

6.50.  The  Commission  welcomes  the  Court’s  finding  that  the  EuropeAid  Annual  Activity 
Report is ‘clear and informative, in particular through its use of quantitative indicators’ (see 
EDF  report,  paragraph  50).  The  Commission  believes  that  the  qualitative  and  quantitative 
indicators  set  out  in  the  four  ‘assurance’  building  blocks  of  the  EuropeAid  Annual  Activity 
Report do indeed provide the necessary evidence to underpin the Director-General’s statement 
of  reasonable  assurance  and  give  an  accurate  assessment  of  financial  management  in 
EuropeAid in relation to regularity.  

CONCLUSIONS AND RECOMMENDATIONS 

6.52. The Commission has designed its controls to cover the full lifecycle of its multiannual 
projects.  It  believes  that  these  supervisory  and  control  systems  for  the  External  aid, 
Development  and  Enlargement  policy  group  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’. 

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6.53.  

(a) The Commission accepts the recommendation of the Court and would like to specify that 
it  is  already  taking  measures  to  address  all  recommendations  received  regarding  ex-post 
controls in DG RELEX.  

(b) The Commission agrees with the Court and would highlight that considerable efforts were 
already undertaken in 2009 in order to clear the backlog of old projects to be closed. In fact, 
75 %  of  all  RRM  contracts  open  at  the  beginning  of  2009  were  closed  by  year-end.  These 
efforts will continue throughout 2010. 

(c) As more countries are getting ready to apply for ‘conferral of management’, DG ELARG 
has  updated  its  internal  guidance  note  of  2008  to  take  account  of  lessons  learned  in  2008 
conferrals  of  management  and  provided  further  advice  in  2009  to  all  actors  involved  in  the 
process.  

(d) The Commission has already taken  the necessary steps to ensure that the checks carried 
out by staff in the operational and the finance and contract sections are documented in more 
detail.  

(e) There are regular checks on the quality of data in CRIS, in particular ahead of extracting 
relevant information for the Annual Activity Report. The IT management tool where data is 
entered also contains embedded controls of data quality. Moreover, the Commission is putting 
great emphasis on training of CRIS users. 

(g)  Closures  have  been  a  priority  for  DG  ELARG  since  2007.  In  2009  alone,  DG  ELARG 
closed 375 Final Declarations. 

(h)  The  Commission  is  already  working  to  further  improve  and  harmonise  the  centralised 
documentation  of  its  assessment  of  proposals. The introduction of  a standardised  evaluation 
report is one of the options considered. 

(i) Although the Court’s suggestion is useful the current priorities and resource constraints do 
not allow this recommendation to be pursued in the near future. 

6.54. In response to the Court’s recommendations EuropeAid will: 

consider  possible  methodologies  for  an  indicator  of  the  estimated  financial  impact  of 

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residual error; 

assess the cost-effectiveness of its  controls in the context of the review of the Tolerable 

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Risk of Error; 

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finalise and disseminate a Financial Management Toolkit for implementing organisations; 

continue efforts to ensure correct and timely recording of audit information; 

strive to improve the information technology systems supporting its audit work; 

improve  the  design  and  screening  of  budget  support  payment  criteria  through  revised 

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guidelines and peer review processes (Quality Support Group); 

implement a revised public finance management monitoring and reporting framework for 

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budget support payments. 

Follow-up  of  Special  Report  N°  3/2006  on  the  Humanitarian  Aid  Response  to  the 
Tsunami 

6.65. Design of the Cost of Observed Results (COR) model will start in 2011 once it has been 
built into an IT tool (Hope/e-tool). Following testing and data input it is expected that use of 
the model can be planned to start in 2012. 

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6.66.  The  Commission  has  fully  supported  the  Court’s  requests  for  obtaining  necessary 
supporting  evidence  from  UN  organisations,  and  this  principle  is  clearly  stipulated  in  the 
Financial  and  Administrative  Framework  Agreement  (FAFA).  Where  the  Commission  is 
informed  by  the  Court  of  difficulties  encountered  in  this  respect,  it  can  approach  its 
counterparts  at  the  UN  in  order  to  find  a  solution  and  to  ensure  that  the  Court  receives  the 
information required. 

6.67.  

(a)  The  Commission’s  mid-term  review  of  the  Consensus  action  plan  is  ongoing  and  final 
results should be available by year-end 2010. 

(b) Integration of the MIC is already giving rise to synergies such as the availability of real-
time  information  at  the  onset  of  natural  and  other  disasters  and  closer  cooperation  between 
DG ECHO’s technical experts on the ground and Member State experts despatched for Civil 
Protection activities. 

(c)  The  Commission  welcomes  the  Court’s  recognition  of  the  contribution  of  the  new 
instruments  to  the  transition  process.  To  reinforce  these  efforts  the  Commission  has 
established an interservice group on transition in order to foster a common view, coordinated 
approaches and common positions on policies for ‘transition situations’ where humanitarian, 
development and stabilisation instruments are present. The aim is to improve both policy and 
implementation  of  programmes  on  the  ground  and  to  contribute  to  the  international  policy 
debate on transition situations. 

(d) The Commission agrees with this statement by the Court and intends to be in a position to 
provide first results by the end of 2011. 

Follow-up  of  Special  report  N°  6/2006  on  the  Environmental  Aspects  of  the 
Commission’s Development Cooperation 

6.71.  The  delay  in  preparing  the  strategy  was  due  to  a  change  in  priorities  whereby  the 
environment strategy was no longer to be issued as a stand-alone communication, but as an 
annex  to  a  wider  communication  on  mainstreaming  all  cross-cutting  issues  (not  only 
environmental),  scheduled  to  be  adopted  by  the  end  of  2008.  This  approach  was  proposed 
with  a  view  to  reducing  the  number  of  Commission  communications.  However,  this  new 
approach  was  eventually  dropped  because  of  difficulties  in  putting  different  mainstreaming 
subjects together in one document and out of recognition of the need to have a more focused 
approach  on  the  environment.  A  meeting  with  the  Member  States  (and  civil  society)  took 
place in September 2009 to jointly start the preparation of the new strategy. 

6.72. Key quantitative indicators in relation to the existing environmental integration strategy 
were put in place — as requested by the Court — and have been subject to monitoring since 
2006. These indicators relate to the application of tools such as environmental profiles in the 
preparation  of  country  and  regional  strategies,  and  environmental  assessments  in  relation  to 
programmes and projects, the amount of training offered and number of staff trained. As far 
as  qualitative  indicators  to  evaluate  environmental  integration  in  project  formulation  are 
concerned, these were defined and applied in a first  pilot, ex-post assessment  carried  out in 
2009. 

6.73. In the context of the Commission’s ‘zero growth’ staffing policy, and as acknowledged 
by  the  Court,  EuropeAid  has  put  the  emphasis  on  strengthening  non-specialist  staff  skills 
rather than carrying out a specific review of its in house capacity. It has been implementing 
this approach consistently during the reference period. 

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6.74.  The  ex-post  review  —  which  was  a  pilot  exercise  —  was  part  of  a  drive  towards 
continuous improvement at the project formulation stage.  

6.75.  Environmental  mainstreaming  training  is  now  compulsory  for  all  EuropeAid 
Headquarters  operational  staff  and  for  all  EuropeAid  operational  staff  departing  for 
delegations. This was  one of the best-attended training courses during 2009 with more than 
400  participants.  A  large  programme  of  training  seminars  has  been  carried  out  since  2005, 
including  some  50  regional  seminars  held  in  cooperation  countries  and  a  larger  number 
delivered at Headquarters.  

6.76. An evaluation of environmental mainstreaming in development cooperation is planned 
for 2011. A central database of individual project evaluations is currently under development 
and  will  be  operational  in  2011.  Result-oriented  monitoring  (ROM)  assessment  reports 
focusing  on  environmental  projects  were  carried  out  for  Latin  America  in  2005  and  2009. 
Country-wide evaluations of EC cooperation have addressed environmental aspects as part of 
cross-cutting issues. 

6.77. EuropeAid has improved its capacity to identify and track expenditure on environmental 
projects,  but  it  remains  a  very  complex  task  to  calculate  exact  amounts  allocated  to 
environmental objectives within actions that primarily target other policy goals. Discussions 
with OECD/DAC are ongoing to see how qualitative data based on Rio markers can best be 
turned into financial data. 

6.78. The quality of Country Environmental Profiles (CEPs) and their influence on Country 
Strategy Papers (CSPs) is indeed still variable but some CEPs are being updated on the basis 
of the environment integration guidelines and in order to better address climate change issues, 
while  the  guidelines  for  the  mid-term  review  have  also  led  to  greater  consideration  of 
environment and climate change issues in the CSPs, especially in the countries covered by the 
Development Cooperation Instrument. 

6.79. New Budget Support guidelines will be issued in 2011 and will include new guidance on 
cross-cutting  issues.  However,  notwithstanding  the  inclusion  of  specific  environmental 
indicators, policy dialogue on environmental issues takes place in many countries within the 
Joint  Donor  Frameworks  that  follow  General  Budget  Support  operations.  Strategic 
Environmental  Assessments  require  consideration  of  local  context  and  the  engagement  of 
partner countries in order to be effective and therefore cannot be imposed. 

6.81.  EuropeAid  has  developed  information  notes  and  guidance  documents  which  make 
references  to  supporting  community-based  natural  resources  management  among  other 
aspects.  A  number  of  EC  programmes  have  promoted  natural  resources  management 
initiatives  at  local  level.  The  Thematic  Programme  for  the  Environment  and  Sustainable 
Management  of  Natural  Resources,  including  Energy,  makes  specific  reference  to  working 
with local communities and this was taken up in calls for proposals inviting concept notes that 
took  into  account  ‘securing  tenure  and  rights  of  local  communities,  including  indigenous 
populations’ in the context of forest governance. 

6.84.  EuropeAid  has  developed  a  number  of  information  notes  to  promote  sustainable 
development  with  emphasis  on  community-based  approaches.  In  addition,  the  Environment 
Thematic  Programme  makes  specific  reference to working with local communities, and this 
was among other things taken up in calls for proposals inviting concept notes that took into 
account ‘securing tenure and rights of local communities, including indigenous populations’ 
in the context of forest governance.  

6.85. The EC study on sector-wide approaches in environment and natural resources has now 
been completed in close cooperation with a number of EU development agencies and a few 

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EC sector policy support programmes in this area are now under way. This is clearly a new 
development with respect to the past. The establishment of EU Trust Funds may now become 
possible  under  the  proposal  for  a  revision  of  the  Financial  Regulation  and  Transfer 
Agreements  have  been  put  in  place  to  allow  EU  Member  State  contributions  to  the  EC-
managed Global Climate Change Alliance (GCCA). Innovative financing mechanisms for the 
environment also include the establishment of private-public partnerships and the blending of 
loans and grants. 

6.86. The Commission has continued to make use of Member States’ and private companies’ 
expertise in implementing its environmental strategy. 

6.87.  The  Commission  welcomes  the  recognition  of  the  significant  progress  made  in 
mainstreaming environmental issues in the Commission’s external aid portfolio. The ex-post 
review — which was a pilot exercise — was part of a drive towards continuous improvement. 
This  process  included  the  revision  of  the  peer  review  (Quality  Support  Group)  procedures 
introducing  clearer  indications  on  addressing  environmental  aspects  in  the  preparation  of 
project proposals. 

6.88.  The  Commission  and  EU  Member  States  are  working  jointly  to  produce  a  first  draft 
environment strategy at the beginning of 2011, for adoption in the second half of 2011.  

The Commission intends to carry out further work on indicators to monitor the effectiveness 
of a new environment strategy and to assess environmental integration in its operations. An 
overall evaluation of environmental mainstreaming in development cooperation is planned for 
2011. If the results of the evaluation are available on time, they will be fed into the design of 
the  new  EU  strategy.  New  Budget  Support  guidelines  are  also  planned  for  2011  and  will 
include new guidance on cross-cutting issues. In carrying out this work the Commission will 
continue to seek close coordination and harmonisation with EU Member States, in support of 
the aid effectiveness agenda. 

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