Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year ended 31 December 2009 , together with the replies of the Joint Undertaking
Date: 2010-10-20
Institutions: European Court of Auditors
Subjects: European Court of Auditors, European Joint Undertaking, administration of the Institutions, competence of the institution, financial control, implementation of the budget, report








C_2010342EN.01002201.xml










16.12.2010   


EN


Official Journal of the European Union


C 342/22





REPORT
on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year ended 31 December 2009, together with the replies of the Joint Undertaking
2010/C 342/04

TABLE OF CONTENTS








 



Paragraph




Page





INTRODUCTION …


1-4


23




STATEMENT OF ASSURANCE …


5-14


23




COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT …


15-18


24




OTHER MATTERS …


19-33


24




Table …


26





Replies of the Joint Undertaking …


27





INTRODUCTION







1.


The European Joint Undertaking for ITER (1) and the Development of Fusion Energy was set up in March 2007 (2) for a period of 35 years. While the main fusion facilities are to be developed at Cadarache in France, the Joint Undertaking is located in Barcelona.










2.


The Members of the Joint Undertaking are the European Atomic Energy Community (Euratom) represented by the European Commission, the Member States of Euratom and other countries which have concluded cooperation agreements with Euratom in the field of controlled nuclear fusion and have expressed their wish to become members (at 31 December 2009: Switzerland).










3.


The tasks of the Joint Undertaking are (see also Table):






(a)


to provide the contribution of Euratom to the ITER International Fusion Energy Organisation (3);










(b)


to provide the contribution of Euratom to the ‘Broader Approach Activities’ (complementary joint fusion research) with Japan for the rapid development of fusion energy;










(c)


to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities including the International Fusion Materials Irradiation Facility.














4.


When the Joint Undertaking was set up, the indicative total resources deemed necessary for the period 2007 to 2041 were 9 653 million euro. The total contribution from Euratom was set at 7 649 million euro, of which a maximum of 15 % for administrative expenditure. Other resources consist of contributions from the ITER host State (France), the annual membership contributions, voluntary contributions from members other than Euratom, and additional resources to be received under terms approved by the Governing Board. The Court draws attention to the need for substantially increased resources for the ITER project (see paragraphs 31 to 33).



























































































































14.


The comments which follow do not call the Court’s opinions into question.





COMMENTS ON BUDGETARY AND FINANCIAL MANAGEMENT



Implementation of the budget








15.


The final authorised payments budget for the Joint Undertaking for 2009 amounted to 173,6 million euro. The overall utilisation rate for payment appropriations was 65,3 %. Within this, the rate for operational expenditure was 65,5 % and for administrative expenditure it was 64,2 %. At the end of 2009, the Joint Undertaking had bank account deposits of 42 million euro. The underspending mostly relates to delays in the progress of the Euratom fusion programme, as was also noted by the Court in 2008.






Presentation of the accounts: members’ contributions








16.


The Court notes that the activities of the EU Joint Undertakings are funded by contributions from their members, and that the Joint Undertakings have no capital as such. The Court recommended that this specific feature of the Joint Undertakings is clearly disclosed in the accounts.










17.


Unlike the other EU Joint Undertakings, the Joint Undertaking for ITER and the Development of Fusion Energy is entirely publicly funded. Thus the general provisions of EU Accounting Rule 1 (Group Accounting) on the presentation of members’ contributions under Net Assets in the Balance Sheet do not apply to the Joint Undertaking for ITER, where the contributions from members are presented under Operating Revenue in the Economic Outturn Account.










18.


While this accounting treatment is acceptable for the Joint Undertaking for ITER and the Development of Fusion Energy, the Court considers that, in general, the Accounts of the Joint Undertakings should be harmonised as far as possible and notes the intention of the Commission to issue detailed guidance in this respect to the Joint Undertakings.





OTHER MATTERS



Internal control systems








19.


While recognising that the Joint Undertaking was in a start-up phase in 2008, the Court observed in its previous report that the Joint Undertaking had not completely implemented its internal controls and financial information system.










20.


Although the Joint Undertaking has taken action during 2009 to develop internal control standards, it remains the case that at the end of 2009, key activities of the organisation are not sufficiently formalised. An appropriate tool for the management of operational contracts was not in place. Budget implementation and reporting is based on the use of spreadsheets. There is no database to centralise operational, administrative and financial information.










21.


In April 2009, the departmental structure of the Joint Undertaking was reorganised. In the revised structure, the budget and accounting functions have been placed with the Procurements Department, which raises issues concerning the necessary separation of duties for financial and operational activities (see also paragraph 31).










22.


As already observed in 2008, the underlying business processes have not been validated by the Accounting Officer as required by the Financial Regulation of the Joint Undertaking.










23.


The Joint Undertaking put an internal auditing service in place in July 2009. However, the assessment of the management systems and of the efficiency of the internal control systems required by the Financial Regulation of the Joint Undertaking has not yet been undertaken. This assessment is especially important in view of the internal reorganisation made by the Joint Undertaking in 2009.










24.


The Court tested a sample of 31 transactions. In two cases, the Joint Undertaking made budget commitments only after it had already entered into legal obligations, contrary to the requirements of the Financial Regulation and in another two cases, there were insufficient supporting documents to attest the validation procedures carried out before making payments.










25.


For one audited grant payment of 584 000 euro, the Court found that the officer authorising the payment only had delegated authority to authorise grant payments up to 200 000 euro. For an audited payment of more than 10 million euro in respect of site preparation works, the Court found evidence only of formal checks by the Joint Undertaking, which were not sufficient to provide assurance notably regarding the financial requirements of the grant agreement and the eligibility of costs.






Late payment of membership contributions








26.


In 2008, the Court observed that a number of members of the Joint Undertaking did not pay their membership contributions within the deadline set by the Governing Board.










27.


For 2009, the expiry date for members to pay their annual contributions was 31 May 2009. Despite several reminders sent by the Joint Undertaking, at the year end two members had not yet paid their 2009 membership contributions.






Financial Regulation of the Joint Undertaking








28.


The Court noted a number of issues in 2008 for which it considered that amendments were required to the Financial Regulation of the Joint Undertaking in order to reinforce its financial framework (13). At the end of 2009, no amendments had been introduced to the Financial Regulation.






The role of the Internal Audit Service of the Commission








29.


The Court pointed out in its Opinion No 4/2008 that the Financial Regulation of the Joint Undertaking does not refer to the powers of the Commission’s internal auditor to perform audits of the Joint Undertaking.










30.


The Court reiterates that, according to the Framework Financial Regulation, as a general rule, the Commission’s internal auditor exercises the same powers with respect to EU bodies, including the Joint Undertakings, as with respect to Commission departments.






Status of the ITER project








31.


In May 2010, the Commission issued a communication to the European Parliament and the Council on the status of the ITER project (14). The Commission concludes that the substantial cost increases for ITER require a review of the governance of the Joint Undertaking, including its procurement policies, and the establishment of a sustainable financial framework. In particular, the Commission estimates that around 1,4 billion euro will be needed to meet the cost increases in the Euratom contribution to ITER in 2012 and 2013.










32.


While the Council confirmed its support to the ITER project at its meetings in November 2009 and July 2010, as at September 2010 both the Council and the European Parliament had yet to give their agreement to the additional funding required in 2012 and 2013 for the Euratom contribution to the ITER project.










33.


The Court notes that these developments may significantly affect the activities and the budget of the Joint Undertaking.





This report was adopted by Chamber II, headed by Mr Morten LEVYSOHN, Member of the Court of Auditors, in Luxembourg at its meeting of 20 October 2010.


For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President





Table


The European Joint Undertaking for ITER and the Development of Fusion Energy (Barcelona)











Areas of Union competence deriving from the Treaty


Competences of the Joint Undertaking as defined in Decision 2007/198/Euratom


Governance


Resources made available to the Joint Undertaking in 2009


Main achievements for 2009





European Atomic Energy Community

Chapter 5 on ‘Joint Undertakings’, of the Treaty establishing the European Atomic Energy Community, and in particular

Article 45:


‘Undertakings which are of fundamental importance to the development of the nuclear industry in the Community may be established as Joint Undertakings within the meaning of this Treaty, in accordance with the following Articles’


Article 49:


‘Joint Undertakings shall be established by Council decision. Each Joint Undertaking shall have legal personality.’




Objectives







—


to provide the contribution of the European Atomic Energy Community (Euratom) to the ITER International Fusion Energy Organisation,










—


to provide the contribution of Euratom to Broader Approach Activities with Japan for the rapid realisation of fusion energy,










—


to prepare and coordinate a programme of activities in preparation for the construction of a demonstration fusion reactor and related facilities including the International Fusion Materials Irradiation Facility (IFMIF).







Tasks







—


oversee preparation of the ITER project site,










—


provide components, equipment, materials and other resources to the ITER Organisation,










—


manage procurement arrangements vis-à-vis the ITER Organisation and, in particular, associated quality assurance procedures,










—


prepare and coordinate Euratom’s participation in the scientific and technical exploitation of the ITER Project,










—


coordinate scientific and technological research and development activities in support of Euratom’s contribution to the ITER Organisation,










—


provide Euratom’s financial contribution to the ITER Organisation,










—


arrange to make human resources available for the ITER Organisation,










—


interface with the ITER Organisation and carry out any other activities in furtherance of the ITER Agreement.







1 —   Governing Board

The Governing Board shall be responsible for the supervision of the Joint Undertaking in the pursuit of its objectives and ensure close collaboration between the Joint Undertaking and its Members in the implementation of its activities.

2 —   Executive Committee

The Executive Committee shall assist the Governing Board in the preparation of its decisions and shall carry out any other tasks which the Governing Board may delegate to it.

3 —   Scientific Programme Board

The Scientific Programme Board shall advise the Governing Board and the Director, as necessary, on the adoption and implementation of the project plan and work programmes.

4 —   Director

The Director shall be the chief executive officer responsible for the day-to-day management of the Joint Undertaking and shall be its legal representative.

5 —   External Audit

Court of Auditors.

6 —   Internal Audit

Established as of 1 July 2009.

7 —   Discharge Authority

Parliament on a recommendation of the Council.



Final budget for 2009

173,61 million euro of which 80,6 % funded by Union contribution.
(149,8 million euro for 2008)

Staff at 31 December 2009







—


199 posts in the establishment plan of which 147 occupied at 31.12.2009 (153 including job offers done and accepted, of which 40 permanent and 113 temporary),










—


66 other posts (contractual, seconded national experts),










—


total staff number: 213 (219 including job offers done and accepted).







ITER and Broader Approach International Agreements







—


Operational Contracts: 47 awarded for a total value of 142,5 million euro (51 launched),










—


Procurement Arrangements: 8 signed for the ITER Project (equivalent to 400 million euro), 3 signed for the Broader Approach Projects (equivalent to 19 million euro),










—


ITER Credit Awarded to F4E: 2,92 kIUA (equivalent to 4,4 million euro),










—


Grants: 30 awarded for a total value of 15,9 million euro (30 launched),










—


Administrative Contracts: 5 awarded for a total value of 6 million euro (7 launched),










—


Budget Implementation: 98,9 % in commitment appropriations, 65,3 % in payment appropriations,










—


Building up of the Organisation: 58 F4E Officials or Temporary Agents recruited as well as 34 Contract Agents,










—


Internal Audit and Data Protection functions established,










—


Committees: 4 meetings of the Governing Board, 7 meetings of the Executive Committee and 3 meetings of the Technical Advisory Panel.









Source: Information submitted by the Joint Undertaking.






REPLIES OF THE JOINT UNDERTAKING

Implementation of the budget


Paragraph 15

F4E agrees with the Court’s comments. An improved payment profile is being implemented for 2010 with more rigorous reporting and control mechanisms on budget execution for operational expenditure.

Presentation of the accounts: members’ contributions


Paragraphs 16 -18

F4E agrees with the observations of the Court which are statements relating to Joint Undertakings in general and address the intention of the Commission to issue detailed guidance on the presentation of members’ contributions in the annual accounts.

Internal control systems


Paragraph 19

F4E agrees with the Court’s comments and emphasises that the reinforcement of the control environment of the organisation remains one of its key priorities. However, it needs to be understood that developing, implementing and monitoring internal controls in a young, fast-growing organisation requires substantial time and resources, particularly while the organisation is seeking its most appropriate management arrangements.
Throughout 2009 and 2010, substantial progress has been achieved in the development of the non-financial control framework, especially concerning:






—


job descriptions,










—


ethical and organisational values,










—


staff evaluation and development,










—


processes and procedures,










—


business continuity,










—


document management,










—


internal audit.





Paragraph 20

F4E agrees with the Court’s comments and is currently putting in place a contract management tool. F4E is also developing systematic budget tools covering budget preparation/implementation (with production of an automatic scoreboard) and reporting on budget and resources data.

Paragraphs 21 and 23

After the first months of the internal audit function were dedicated to consulting activities and capacity building, the first audit engagement, on financial circuits, started in November 2009 and was closed in May 2010. The Annual Audit Plan for 2009/2010 was adopted by the Director and endorsed by the Governing Board on 27 January 2010.
As concerns financial controls, the internal audit on the financial circuits of F4E already addresses a number of cross-cutting issues linked to financial management since the reorganisation carried out in April 2009. The concerns raised by the Court have been subject to an assessment in the light of this internal audit. In line with the recommendations of the Internal Auditor, an action plan has been established which, among others, aims at ensuring the necessary separation of duties for financial and operational activities. The implementation of this action plan has commenced in August 2010 and for the main parts should be completed by year end.

Paragraph 22

F4E agrees with the Court’s comments. The accounting systems have not been formally validated by the Accounting Officer as some of the underlying processes have not yet been formalised.

Paragraph 24

Due to budgetary constraints, F4E was not in a position to commit the total amount resulting from an agreement reached between the main actors of the ITER project. By the end of 2010, F4E should be able to commit the total amount of International Organisation contribution, as a result of the ITER Council Decision to be taken in November and further amendment of the 2010 F4E budget.

Paragraph 25

In relation to the grant which was audited, F4E agrees with the Court’s comments. The situation is now remedied with a higher, single ceiling defined in the delegation granted to the Authorising Officer by Delegation.
In relation to the audited payment in respect of site preparation works, F4E agrees with the Court’s comments. In general, F4E is planning to analyse and reflect on internal procedures which will amongst other things allow improving internal ex ante control.

Late payment of membership contributions


Paragraphs 26-27

F4E agrees with the Court’s comments. The situation has improved in 2010 due to greater anticipation and preventive measures. For 2011, F4E will further reinforce its early warning by sending the estimates of each member’s contribution for 2011. Members already received the information in April 2010 for their 2011 contributions and will receive a formal note with confirmation of the final amount after adoption of the 2011 budget by the Governing Board in November 2010.

Financial Regulation of the Joint Undertaking


Paragraph 28

F4E agrees with the Court’s comments. F4E considered that a sound and efficient approach was to gather a few years’ experience on the actual implementation of these rules before proposing a possible revision of the Financial Regulation. This revision should also be consistent with the possible proposal for the revision of the F4E Statutes (after Governing Board approval) and subsequent discussions with the Council. An internal working group has been set up and a proposal for revision of the F4E Financial Regulation should be submitted for adoption before the end of 2010.

The role of the Internal Audit Service of the Commission


Paragraphs 29-30

It is expected that the revision of the F4E Statutes will clarify the applicability of the Framework Financial Regulation with respect to internal audit of the Joint Undertaking. Notwithstanding this clarification, the proposal to amend the F4E Financial Regulation, which is currently under preparation, will already take into account the remark of the Court and existing general provisions empowering the Commission’s Internal Auditor to audit EU bodies.

Status of the ITER project


Paragraphs 31-33

F4E would like to emphasise that, while the information is correct, it represents the status of discussions in September 2010, following the publication by the Commission of a proposal for a decision of the European Parliament and of the Council amending the Interinstitutional Agreement of 17 May 2006 on budgetary discipline and sound financial management as regards the multiannual financial framework, to address additional financing needs of the ITER project (COM(2010) 403 of 20 July 2010).



(1)  ITER: International Thermonuclear Experimental Reactor.

(2)  Council Decision 2007/198/Euratom of 27 March 2007 establishing the European Joint Undertaking for ITER and the Development of Fusion Energy and conferring advantages upon it (OJ L 90, 30.3.2007, p. 58).

(3)  The ITER International Fusion Energy Organisation was set up in October 2007 for an initial period of 35 years to implement the ITER project, which aims to demonstrate the scientific and technological feasibility of fusion energy. The Members are Euratom, the People’s Republic of China, the Republic of India, Japan, the Republic of Korea, the Russian Federation and the United States of America.

(4)  These accounts are accompanied by a report on the budgetary and financial management during the year which gives, inter alia, an account of the rate of implementation of the appropriations with summary information on the transfers of appropriations among the various budget items.

(5)  The financial statements include the balance sheet and the economic outturn account, the cash-flow table, the statement of changes in capital and the annex to the financial statements which includes the description of the significant accounting policies and other explanatory information.

(6)  The budget implementation reports comprise the budget outturn account and its annex.

(7)  OJ L 248, 16.9.2002, p. 1.

(8)  Financial Regulation of the European Joint Undertaking for ITER and the Development of Fusion Energy adopted by Decision of its Governing Board on 22 October 2007.

(9)  Article 33 of Commission Regulation (EC, Euratom) No 2343/2002 of 19 November 2002 of 19 November 2002 (OJ L 357, 31.12.2002, p. 72).

(10)  Article 38 of Regulation (EC, Euratom) No 2343/2002.

(11)  The rules concerning the presentation of the accounts and accounting by EU bodies are laid down in Chapter 1 of Title VII of Regulation (EC, Euratom) No 2343/2002 as last amended by Regulation (EC, Euratom) No 652/2008 of 9 July 2008 (OJ L 181, 10.07.2008, p. 23) and are incorporated in the Financial Regulation of the European Joint Undertaking for ITER and the Development of Fusion Energy.

(12)  International Federation of Accountants (IFAC) and International Standards of Supreme Audit Institutions (ISSAI).

(13)  Opinion No 4/2008 on the Financial Regulation of the European Joint Undertaking for ITER and the Development of Fusion Energy (Fusion for Energy), and paragraphs 21 to 23 Court’s Report on the annual accounts of the European Joint Undertaking for ITER and the Development of Fusion Energy for the financial year ended 31 December 2008 (OJ C 310, 18.12.2009, p. 1).

(14)  Communication from the Commission to the European Parliament and the Council: ITER status and possible way forward (SEC(2010) 571 of 4 May 2010).