Report on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2010, together with the replies of the Joint Undertaking
Date: 2011-10-25
Institutions: European Court of Auditors
Subjects: administration of the Institutions, auditing, budgetary control, budgetary resources, closing of accounts, financial control, fuel cell, hydrogen, joint venture, powers of the institutions (EU)








C_2011368EN.01004001.xml










16.12.2011   


EN


Official Journal of the European Union


C 368/40





REPORT
on the annual accounts of the Fuel Cells and Hydrogen Joint Undertaking for the financial year 2010, together with the replies of the Joint Undertaking
2011/C 368/06

INTRODUCTION







1.


The Fuel Cells and Hydrogen Joint Undertaking (FCH Joint Undertaking) located in Brussels, was set up in May 2008 (1) for the period up to 31 December 2017.










2.


The objectives of the FCH JU include supporting research, technological development and demonstration activities in the Member States and countries associated with the Seventh Framework Programme (2) in a coordinated manner together with industry and research organisations in order to focus on developing market applications and hence facilitating additional industrial efforts towards a rapid deployment of fuel cells and hydrogen technologies. (3)











3.


The Founding Members of the Joint Undertaking are the European Union, represented by the Commission, and the European Fuel Cell and Hydrogen Joint Technology Initiative Industry Grouping (Industry Grouping).










4.


The maximum EU contribution to the FCH Joint Undertaking to cover running costs and research activities is 470 million euro financed from the budget of the Seventh Framework Programme, of which the proportion earmarked for running costs must not exceed 20 million euro. The Industry Grouping should contribute 50 % of the running costs (up to a maximum of 10 million euro) and should contribute to the funding of research activities through in-kind (4) contributions at least equal to the EU financial contribution.










5.


The Joint Undertaking was granted its financial autonomy on 15 November 2010.





STATEMENT OF ASSURANCE







6.


Pursuant to the provisions of Article 287(1) of the Treaty on the Functioning of the European Union, the Court has audited the annual accounts (5) of the Fuel Cells and Hydrogen Joint Undertaking, which comprise the ‘financial statements’ (6) and the ‘reports on the implementation of the budget’ (7) for the financial year ended 31 December 2010, and the legality and regularity of the transactions underlying those accounts.










7.


This Statement of Assurance is addressed to the European Parliament and to the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (8).





The Director’s responsibility







8.


As authorising officer, the Director implements the revenue and expenditure of the budget in accordance with the Joint Undertaking’s financial rules, under his own responsibility and within the limits of the authorised appropriations (9). The Director is responsible for putting in place (10) the organisational structure and the internal management and control systems and procedures relevant for drawing up final accounts (11) that are free from material misstatement, whether due to fraud or error, and for ensuring that the transactions underlying those accounts are legal and regular.





The Court’s responsibility







9.


The Court’s responsibility is to provide, on the basis of its audit, a statement of assurance as to the reliability of the Joint Undertaking’s annual accounts and the legality and regularity of the transactions underlying them.










10.


The Court conducted its audit in accordance with the IFAC and ISSAI (12) International Auditing Standards and Codes of Ethics. Those standards require the Court to comply with ethical and professional requirements and to plan and perform the audit so as to obtain reasonable assurance about whether the accounts are free from material misstatement and whether the underlying transactions are legal and regular.










11.


The Court’s audit involves performing procedures to obtain audit evidence of the amounts and disclosures in the accounts and of the legality and regularity of the transactions underlying them. The procedures selected, including its assessment of the risks of material misstatement of the accounts or of illegal or irregular transactions, whether due to fraud or error, depend on its audit judgement. In making those risk assessments, internal controls relevant to the entity’s preparation and presentation of accounts are considered in order to design audit procedures that are appropriate in the circumstances. The Court’s audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the accounts.










12.


The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for the opinions set out below.






Opinion on the reliability of the accounts








13.


In the Court’s opinion, the annual accounts of the Joint Undertaking fairly present, in all material respects, its financial position as of 31 December 2010 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its financial rules.






Opinion on the legality and the regularity of the transactions underlying the accounts








14.


In the Court’s opinion, the transactions underlying the annual accounts of the Joint Undertaking for the year ended 31 December 2010 are, in all material respects, legal and regular.










15.


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





COMMENTS ON THE BUDGETARY AND FINANCIAL MANAGEMENT



Delayed financial autonomy








16.


The Court is of the view that the period of 28 months from the date the Council Regulation came into force to the date of the actual financial autonomy on 15 November 2010 is excessive. As a result of the delayed financial autonomy, all the 2010 operational payments to beneficiaries were made during the last 6 weeks of 2010.






Internal Control Systems








17.


At the end of 2010, the underlying business processes had not yet been formalised and had not been validated by the Accounting Officer as required by the Joint Undertaking’s financial rules.










18.


The limited review of the IT controls showed that the Joint Undertaking has an adequate level of IT governance and practice for its size and mission, but the formalisation of policies and procedures, however, is lagging behind in certain areas (13).






Methodology for evaluating contributions in kind








19.


The methodology for evaluating contributions in kind has not yet been developed (14). The FCH Joint Undertaking is committed to developing such a methodology in the course of 2011 in order to be in a position to validate cost claims.





OTHER MATTERS



Internal audit function and the Commission’s Internal Audit Service








20.


The Court points out the need to amend the Joint Undertaking’s financial rules to include the provision referring to the powers of the Commission’s internal auditor in the Commission Framework Regulation applicable to the Joint Undertakings (15). The Commission and the Joint Undertaking have taken action to ensure that the respective operational roles of the Commission’s Internal Audit Service and the Joint Undertaking’s internal auditing function are clearly defined.






Lack of host State agreement








21.


Under the terms of the Council Regulation setting up the Joint Undertaking, a host agreement should be concluded between the Joint Undertaking and Belgium concerning office accommodation, privileges and immunities and other support to be provided by Belgium. However, as at the end of 2010, no such agreement had been signed.





This Report was adopted by Chamber IV, headed by Mr Igors LUDBORŽS, Member of the Court of Auditors, in Luxembourg at its meeting of 25 October 2011.


For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President





(1)  Council Regulation (EC) No 521/2008 of 30 May 2008 setting up the Fuel Cells and Hydrogen Joint Undertaking (OJ L 153, 12.6.2008, p. 1).

(2)  The Seventh Framework Programme, adopted by Decision No 1982/2006/EC of the European Parliament and of the Council (OJ L 412, 30.12.2006, p. 1), brings all the research-related EU initiatives together under one roof and plays a crucial role in achieving the goals of growth, competitiveness and employment. It is also a key pillar for the European Research Area.

(3)  The Annex summarises the Joint Undertaking’s competences, activities and available resources. It is presented for information purposes.

(4)  According to Article 12(3) of the Annex to the Council Regulation setting up the Joint Undertaking which stipulates that the ‘operational costs of the FCH Joint Undertaking shall be covered through the financial contribution of the Community, and through in-kind contributions from the legal entities participating in the activities.’

(5)  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.

(6)  The ‘financial statements’ include the balance sheet and the economic outturn account, the cash-flow statement, the statement of changes in net assets and the notes to the financial statements which include a description of the accounting policies and other explanatory information.

(7)  The budget implementation reports comprise the budget outturn account, its reconciliation with the economic outturn account and a report on the budget execution in 2010.

(8)  OJ L 248, 16.9.2002, p. 1.

(9)  Article 33 of Commission Regulation (EC, Euratom) No 2343/2002 (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 (OJ L 181, 10.7.2008, p. 23), and are incorporated in the financial rules of the FCH Joint Undertaking.

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

(13)  Namely: (a) incomplete strategic IT planning cycle; (b) lack of proper data classification according to confidentiality and integrity requirements; and (c) lack of formal Business Continuity Plan (BCP) and complete and tested Disaster Recovery Plan (DRP).

(14)  Article 12 (7)of the Annex to the Council Regulation setting up the Joint Undertaking stipulates that ‘the methodology for evaluating contributions in kind shall be defined by the FCH Joint Undertaking in compliance with its financial rules and based on the Rules for Participation of the Seventh Framework Programme.’

(15)  Commission Regulation (EC, Euratom) No 2343/2002 of 19 November 2002 on the Framework Financial Regulation for the bodies referred to in Article 185 of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities.


ANNEX

Fuel Cells and Hydrogen Joint Undertaking


Competences and activities








Areas of Union competence deriving from the Treaty



Extracts from Articles 187 and 188 of the Treaty on the Functioning of the European Union
Decision No 1982/2006/EC of the European Parliament and of the Council of 18 December 2006 concerning the Seventh Framework Programme – provides for a Union contribution to the establishment of long-term public-private partnerships in the form of Joint Technology Initiatives which could be implemented through Joint Undertakings within the meaning of Article 187 of the TFEU






Competences of the Joint Undertaking


(Council Regulation (EC) No 521/2008)




Objectives

The Fuel Cells and Hydrogen Joint Undertaking shall contribute to the implementation of the Seventh Framework Programme and in particular the Specific Programme ‘Cooperation’ themes for ‘Energy’, ‘Nanosciences, Nanotechnologies, Materials and New Production Technologies’, ‘Environment (including Climate Change)’, and ‘Transport (including Aeronautics)’.
It shall in particular:






—


aim at placing Europe at the forefront of fuel cell and hydrogen technologies worldwide and at enabling the market breakthrough of fuel cell and hydrogen technologies, thereby allowing commercial market forces to drive the substantial potential public benefits,










—


support Research, Technological development and Demonstration (hereinafter referred to as RTD) in the Member States and countries associated with the Seventh Framework Programme (hereinafter referred to as Associated countries) in a coordinated manner to overcome the market failure and focus on developing market applications and thereby facilitate additional industrial efforts towards a rapid deployment of fuel cells and hydrogen technologies,










—


support the implementation of the RTD priorities of the JTI on Fuel Cells and Hydrogen, notably by awarding grants following competitive calls for proposals,










—


aim to encourage increased public and private research investment in fuel cells and hydrogen technologies in the Member States and Associated countries.





Tasks







—


to ensure the establishment and the efficient management of the Joint Technology Initiative on Fuel Cells and Hydrogen,










—


to reach the critical mass of research effort to give confidence to industry, public and private investors, decision-makers and other stakeholders to embark on a long-term programme,










—


to leverage further industrial, national and regional RTD investment,










—


to integrate RTD, and focus on achieving long-term sustainability and industrial competitiveness targets for cost, performance and durability and overcome critical technology bottlenecks,










—


to stimulate innovation and the emergence of new value chains including SMEs,










—


to facilitate the interaction between industry, universities and research centres including on basic research,










—


to promote the involvement of SMEs in its activities, in line with the objectives of the Seventh Framework Programme,










—


to encourage the participation of institutions from all Member States and Associated countries,










—


to perform broadly-conceived socio-techno-economic research to assess and monitor technological progress and non-technical barriers to market entry,










—


to perform research to support the development of new, and review existing, regulations and standards to eliminate artificial barriers to market entry and support interchangeability, inter-operability, cross-border hydrogen trading, and export markets, whilst ensuring safe operation and not inhibiting innovation,










—


to undertake communication and dissemination activities, and to provide reliable information to improve public awareness and create public acceptance concerning hydrogen safety, and the benefits from the new technologies to the environment, security of supply, energy costs, and employment,










—


to establish and implement a Multiannual Implementation Plan,










—


to commit the Community funding and mobilise the private-sector and other public-sector resources needed to implement its RTD activities,










—


to ensure the sound operation of the RTD activities and sound financial management of the resources,










—


to communicate and disseminate information on the projects, including the names of the participants, the results from the RTD activities, and the amount of the financial contribution from the FCH Joint Undertaking,










—


to notify the legal entities that have concluded a Grant Agreement with the FCH Joint Undertaking of the potential borrowing opportunities from the European Investment Bank, in particular the Risk Sharing Finance Facility set up under the Seventh Framework Programme,










—


to ensure a high level of transparency and fair competition under equal access conditions for all applicants to the RTD activities of the FCH Joint Undertaking, whether or not they are members of the Research Grouping or the Industry Grouping (in particular SMEs),










—


to follow the international developments in the area and engage in international cooperation when appropriate,










—


to develop close cooperation and ensure coordination with the Research Framework Programme and other European, national and trans-national activities, bodies and stakeholders,










—


to monitor progress toward the objectives of the FCH Joint Undertaking,










—


to carry out any other activity needed to achieve its objectives.









Governance



The bodies of the FCH Joint Undertaking are:






(a)


the Governing Board;










(b)


the Executive Director;










(c)


the Scientific Committee.





1 –   The Governing Board

The Governing Board is the main decision-making body of the FCH Joint Undertaking.

2 –   The Director

The Executive Director is responsible for the day-to-day management of the Joint Undertaking and is its legal representative. He is accountable to the Governing Board.

3 –   The Committees

Scientific Committee - Composed of up to nine members reflecting a balanced representation of world-class expertise from academia, industry and regulatory bodies.
Its tasks are to:






(a)


advise on the scientific priorities for the annual and Multiannual Implementation Plans proposal;










(b)


advise on the scientific achievements described in the annual activity report;










(c)


advise on the composition of the peer review committees.




The external advisory bodies to the FCH Joint Undertaking are:
the FCH States Representatives Group and the Stakeholders General Assembly.

4 –   The FCH States Representatives Group

It consists of one representative of each Member State and of each Associated country.
Its most important tasks comprise providing opinions on the programme progress of the FCH JU, monitoring compliance and respect of targets and coordination with national programmes to avoid overlapping.

5 –   The Stakeholders General Assembly

The SGA is an important communication channel on FCH JU activities and as such is open to all public and private stakeholders, international interest groups from Member States, Associated countries as well as from third countries. It is convened once a year. The SGA shall be informed of the activities of the FCH Joint Undertaking and shall be invited to provide comments.
The internal and external auditors and the discharge authority of the FCH Joint Undertaking are:

6 –   Internal Audit







—


FCH JU Internal Audit Manager (i.e. the Internal Audit Capability - IAC),










—


the Commission's Internal Audit Service (i.e. IAS).





7 –   External Audit

Court of Auditors.

8 –   Discharge Authority

The European Parliament on a recommendation from the Council.





Resources available to the Joint Undertaking in 2010




Budget

97,4 million euro in Commitment Appropriations of which 94,2 million euro funded by the EU budget contribution for operations (an equivalent in-kind contribution from private industry members is planned) and 3,2 million euro for running costs.

Staff at 31 December 2010

18 temporary staff posts in the establishment plan of which 14 were filled-in at 31 December 2010.
Other staff:






—


Seconded National Experts: n/a










—


Contract staff: 2










—


Local staff: n/a




Allocated to:






—


Operational activities: 6










—


Administrative tasks: 6










—


Mixed tasks: 6









Activities and services provided in 2010




Operational achievements







—


Revision of the Multi Annual Implementation Plan (MAIP), launched in November 2010 with the focus on updating programme targets and priorities,










—


Drafting of the RTD priorities and 2010 call topics (25) with an indicative FCH JU funding of 89,1 million euro,










—


Publication of the 2010 call for proposals in June 2010 with a deadline for submission in October 2010,










—


Evaluation of the 2010 call for proposals in November 2010 with preparation of a list of projects for which negotiations are to be entered into; list to be submitted to the Board for approval in Q1 2011,










—


Negotiation of the 2009 call for selected proposals after approval of the correction factor by the Governing Board and conclusion of the related grant agreements (28),










—


Development of the international cooperation with key partners (USA, Japan and Korea),










—


Exchange of information with the Member States and the Associated countries (information sessions),










—


Cooperation with the European Regions (via HyRaMP),










—


Cooperation with the Joint Research Centre (JRC) at project and programme level. Alignment of the activities by a Joint Work Plan focused on measuring, technology mapping and strategic advice; Stakeholders General Assembly held on 9-10 November with 444 registered participants and other communication activities, with the focus being on commercialisation of FCH technologies, in particular in the transport sector.





Other main achievements







—


Completion of the internal control system; adoption of the internal control standards; development of a risk management process; adoption of the ex-post audit strategy,










—


FCH JU autonomy was granted on 15 November 2010,










—


Negotiation of new premises to house FCH together with four other JTIs and setting-up of new IT infrastructure ready for the removal (effective mid-January 2011).









Source: Information supplied by the Joint Undertaking.







REPLIES OF THE JOINT UNDERTAKING

Paragraph 16

FCH JU shares the Court’s view that the period from the entry into force of the Council Regulation setting up the JU to the date of the actual financial autonomy was long. However, FCH JU would like to point out that all necessary steps were taken by the JU towards the autonomy (e.g. a readiness assessment report proving compliance with the autonomy criteria was submitted to the Commission on time) and therefore the delay in granting autonomy was the result of events out of the JU’s control; the 2010 operational payments were made during the last weeks of 2010 not as a result of the delayed financial autonomy but because the operational and financial conditions to proceed with the payment were met at that time. Indeed, if the conditions would have been met before, the Commission would have proceeded with the payments, even before the financial autonomy of the JU, as it was the case in the previous call in accordance with Article 16 of the Council Regulation.

Paragraph 17

FCH JU is committed to validate the accounting system in the course of 2011 as this was not realistic and feasible with the resources available in 2010. We will follow the guidelines for system validation issued by the Commission, including the sampling of transactions in all relevant areas.

Paragraph 18

The FCH JU is committed to formalise its IT strategy, security rules for access to documents as well as a business continuity plan, including a Disaster Recovery Plan, by the end of 2011.

Paragraph 19

The FCH JU has drafted a methodology in Q2 2011 that will be submitted to the GB for adoption at its next meeting in November 2011.

Paragraph 20

As stated by the Court, the Commission and the Joint Undertaking have taken action to ensure that the respective roles of the Commission’s Internal Audit Service (IAS) and the Joint Undertaking’s Internal Audit Manager (IAM) are clearly defined. In particular, the Governing Board confirmed the powers of the IAS in line with the Framework Financial Regulation in its meeting of 10 November 2010, the IAS and IAM Audit Charters were approved by the Governing Board and the Executive Director on 10 and 18 March 2011, respectively, and a ‘Coordinated IAS-IAM strategic audit plan for the period 2011-2013’ was adopted by the Governing Board on 19 May 2011 and is being implemented as planned.
Taking into consideration the actions indicated above which clarify the roles of the IAS and the IAM, the FCH JU is of the opinion that there is no need to amend the Joint Undertaking’s financial rules. However, after finalisation of the ongoing revision of the Commission’s Framework Financial Regulation, the Joint Undertaking will assess the need and appropriateness to amend its financial rules on all relevant aspects, including the audit function.

Paragraph 21

The JUs have again contacted the Belgian authorities early June 2011 to finalise an agreeable text based on the Belgian proposal and the comments from the Commission. However, the FCH JU would like to highlight that the residual risk of the delay in signing this host agreement is (extremely) limited as: (1) the Protocol on Privileges and Immunities is directly applicable to the JUs and its staff by the regulation setting up the JUs; and (2) the Belgian authorities apply it in practice without difficulties.