REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS "TAKING STOCK OF "SINGLE AUDIT" AND THE COMMISSION'S RELIANCE ON THE WORK OF NATIONAL AUDIT AUTHORITIES IN COHESION"
Date: 2013-12-19
Institutions: European Commission
Subjects: audit, economic and social cohesion, management audit













EUR-Lex - 52013DC0939 - EN











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52013DC0939

REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS "TAKING STOCK OF "SINGLE AUDIT" AND THE COMMISSION'S RELIANCE ON THE WORK OF NATIONAL AUDIT AUTHORITIES IN COHESION" /* COM/2013/0939 final */









REPLIES OF THE
COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS
"TAKING STOCK OF
"SINGLE AUDIT" AND THE COMMISSION'S RELIANCE ON THE WORK OF NATIONAL
AUDIT AUTHORITIES IN COHESION"
Executive
summary
II. The Commission
shares the Court’s conclusion and also considers that a better system for
auditing Cohesion spending for the 2007-2013 programming period is in place.
The improved regulatory framework has put in place an audit authority in charge
of testing legality and regularity of expenditure through system audits and
audits of representative samples of operations and of reporting its conclusions
each year to the Commission through an audit opinion and a control report.
III. The Commission underlines
that through the regulatory framework for 2007-2013, the level of assurance it
can obtain has increased significantly, in particular by allowing assessing the
assurance for each operational programme each year as from the start of
implementation. Therefore the cost of controls should be assessed from a
cost-efficiency perspective.
The Commission notes that
eligible costs under technical assistance at the disposal of Member States
(article 46 of Regulation 1083/2006) include audits and controls together with
management, monitoring and evaluation costs. Available technical assistance
monies are in most cases up to 4% of funding for each programme. 
IV. The Commission welcomes the
acknowledgement of its work and significant efforts, in close cooperation with
audit authorities, to ensure better consistency in their approaches and working
methods through guidance, targeted training and re-performance work that
contribute to capacity building.
V. The Commission’s assurance is
based on the assessment of key elements of the management and control systems
based on all available audit results 
The Commission has in place a
robust and thorough process to analyse the error rates reported by Member
States. When it cannot validate or recalculate error rates, the Commission
estimate the level of risk by using flat rate amounts (5-10-25-100%) instead of
unreliable reported error rates for its assurance process. The use of
additional tools, such as the cumulative residual risk, allowed Commission
services to consider additional reservations in the annual activity reports
compared to previous years. 
The Commission always aims at
ensuring that the reporting made to the Discharge Authority gives a fair and
reliable picture of the estimated risk affecting the EU budget for each Member State, taking also account of the multiannual corrective capacity. The Commission
services provide all available information in full transparency in their annual
activity reports.
VI. The Commission can
only notify article 73 to a programme once a positive assessment of all
elements of the management and control system is reached. This assessment of
the audit authority’s work necessitates that sufficient on-the-spot
re-performance audit work is carried out in accordance with international audit
standards. The Commission considers it follows a prudent and robust approach to
grant the ‘single audit’ status to some programmes so far. 
VII.
First indent: 
The Commission has a
thorough verification process in place, including on-the-spot fact-finding
missions, in order to ensure the accuracy and reliability of the error rates
reported by national audit authorities. It alternatively uses flat rates when
it considers error rates as unreliable. This process is complemented by an
exhaustive Commission audit enquiry since 2009 whereby 269 audit missions
allowed reviewing the work of audit authorities, including through
re-performance, covering more than 90% of Funds allocations. The Commission
also carries risk-oriented audits to verify the accuracy of reported financial
corrections. 
Second indent:
The Commission
considers that the single audit status was granted based on robust, consistent
and transparent criteria. It furthermore considers that by the end of 2013 all
requirements are fulfilled for these programmes.
The Commission will
continue to apply a robust approach, further clarified with the implementation
of its roadmap on article 73, up-dated in September 2013.  
Third
indent: 
The
Commission considers this recommendation is implemented through the updated
roadmap and the audit enquiry on monitoring article 73 adopted in September
2013. 
Following
the granting of the first batch of article 73 decisions in the first half of
2012 and based on pilot missions, the Commission services developed an audit
methodology to carry out monitoring missions, which include re-performance work
and working paper reviews, in line with International Standards on Auditing.
Fourth indent:
The Commission has
introduced in its proposal for Common Provisions Regulation for 2014-2020 and
the legislator has agreed on the possibility for net financial corrections in
the event of serious irregularities identified after the submission of the
annual accounts and not previously detected and/or reported by the audit
authority.
The Commission intends
to propose in the secondary legislation that flat rate corrections can be
increased for repeated breaches involving the same deficiencies, where the Member State has failed to take adequate corrective measures for that part of the system
that was affected and subject to a previous correction.
Fifth
indent:
The
Commission is taking measures to ensure improved secondary legislation and
timely and complete guidance within a stable methodological framework for the
work of the audit authorities, building on the accumulated experience of the
2007-2013 programming period.
The
Commission will further clarify some aspects of the existing guidance through
written clarification by the end of 2013.
Furthermore, according
to the regulation for the 2014-20 programming period, the Commission is empowered
to adopt, by means of implementing and delegated acts, binding models and/or
requirements for the audit work of audit authorities that should build up on
the experience and good practices of the 2007-2013 programming period.
Sixth indent:
The Commission
considers that this recommendation is already implemented in the 2011 Impact
Assessment (see footnote 71). It further notes, under shared management and in
respect of the principle of subsidiarity, the decision to allocate technical
assistance to the different cost categories is taken by the Member States.
Furthermore, in the
2014-2020 regulation, the Commission reinforces its cost-efficiency approach
for Cohesion. As a consequence, the newly designed arrangements for the
implementation of the funds, including in relation to controls, "(…) shall
respect the principle of proportionality having regard to the level of support
allocated and shall take into account the overall aim of reducing
administrative burden for bodies involved in the management and control of the
programmes".

Introduction

7.
In 2012 DG Regional and Urban Policy and DG Employment, Social Affairs and
inclusion (hereafter "DG Employment") received respectively 680 and
522 system audit reports from the audit authorities. The Commission analyses
the results of all audit reports  and uses them in its supervisory role during
the year initiating interruption/pre-suspension procedures when needed and in
its assurance process.
9. In
order to be able to rely on the audit results and error rates reported by the
audit authorities, and in line with international auditing standards, DG
Regional and Urban Policy and DG Employment have so far carried out an
extensive review and re-performance of the audit authorities’ work, which is
and continues to be the main enquiry for DG Regional and Urban Policy and DG
Employment.
When
deficiencies are identified in the work of audit authorities, depending on the
seriousness of the required improvements extensive action plans are put in
place accompanied by interruption/suspension procedures where necessary to
correct these deficiencies and bring the audit work up to standard. This
re-performance of the audit authorities' work also allowed an extensive
capacity building by sharing audit checklists, raising awareness on risky areas
and identifying areas and solutions for improvement of the national audit work.
The
methodology for the assurance process and for determining reservations is
described in annex 4 of the annual activity reports of DG Regional and Urban
Policy and DG Employment.
Box 2 - Use
of error rates reported by national Audit Authorities in the Commission’s
assurance process
The
analysis of the error rates reported by year end by the audit authorities needs
to be done for all 434 ERDF/CF and ESF  programmes in good time for the annual
activity report, a first version of which has to be ready by end February (and
adjusted until the date of signature on 31 March). The Commission underlines
that the objective is to indicate estimates of error rates within a statistically
valid range, or in case of non-statistical sample foreseen in the regulation
useful indicators to estimate the risk for the payments to the programmes in
the year under assessment.
The
Commission also uses flat rates to estimate that risk when it considers
reported error rates to be unreliable. 
The
Commission refers in the annual activity reports to the average risk rate for
all programmes of each Member State, based on the validated error rates, to
quantify the amounts included in interim payments made in the year under
assessment and at risk. Due to the decalage foreseen in the regulation  to
allow time for the audit authorities to carry out their audits, this estimate
of the risk in payments made in year N is based on the validated error rate reported
for expenditure declared in year N-1, being the best estimate available at the
time of signing the annual activity report. Since 2012 DG Regional and Urban
Policy and DG Employment also present in their annual activity report the
average cumulative (multi annual) residual risk per Member State, taking into account all corrections reported by the Member States as deducted from all
payments claims up to the end of year N.
10. According to the
Commission's assurance process methodology, a programme with a validated error
rate above 5% would be put under reservation already at step 1, unless the
necessary financial correction and action plan have been implemented before the
signature of the annual activity report (see also paragraph 40).

11. The Commission
agrees that the processes to establish an overall error rate by the Court and
the Commission's assessment of the risk to its payments in the year differ for
the reasons quoted by the Court and due to the nature of the different
institutional roles. However the objective of this process is essentially the
same, i.e. assessment of the risk to the EU budget in a particular year.
The Commission
takes into account all these differences in its assessment, in particular
timing differences in quantification of public procurement errors. This is
evidenced by the fact that, as shown in the last three years in a row for DG
Employment and two years in a row for DG Regional and Urban Policy, the result
of this assessment is in line with the error rates calculated by the Court. 

The Commission's assessment also
takes account of the multiannual character of cohesion policy and of the
corrective capacity for each programme, through the calculation of a cumulative
residual risk.
Some of the differences quoted by
the Court will be removed in the regulatory framework for the 2014-2020
programming period further enabling the full implementation of the single audit
principle.
12. The Commission
welcomed the principles laid down in the Court's Opinion 2/2004, which have
been an important element in developing the 2007-2013 regulations concerning
the set-up of the management and control systems.
15. The Commission
welcomes the conclusion of the Court. The Commission has designed its system
generally in line with the "Single Audit" principles set out by the
Court (see also paragraph 80).
The main advantage of
applying article 73 for the Commission lies in the possibility to focus its
limited audit resources to higher risk programmes and authorities rather than
reduce its control work overall. In addition, single auditing still requires
monitoring of the work of the audit authority and thus remains a crucial
issue.  
16. The conditions to
grant article 73 relate both to the reliability of the work of the audit
authority and to the fact that the management and control systems function
well. The Commission must therefore carry out considerable detailed audit work
in accordance with international standards on auditing, before it can grant an
article 73 status. This also explains why the article 73 status can only be
granted after some years of programme implementation. 
It also means that
where the management and control system of a programme, independently from the
audit authority, is still not sufficiently robust, no article 73 status can be
granted to the programme even if the Commission is satisfied based on its audit
work with the functioning of the audit authority.
Common reply to
paragraphs 17, 18 and 19
Each decision to grant
an article 73 is specific for a programme under the responsibility of the
respective directorate general of the Commission. 
The conditions to
grant the article 73 status to a programme have been set out in a “roadmap
towards the implementation of Article 73" discussed with the Audit
Authorities in 2009 and 2010 and finalised on 13 October 2010. The audit
authorities have thus been fully associated and informed on the criteria and
benefits of having an article 73 status for a particular programme. 
The initial roadmap
has been formally updated in September 2013, following the first decisions on
granting Article 73 status in early 2012. The update relates to the
clarification of the conditions to grant Article 73 as well as to the
corrective measures to be taken if one or more of the conditions are
(temporarily) no longer fulfilled. In addition a specific audit enquiry setting
the methodology and steps to monitor the implementation of article 73 has been
jointly designed and is being implemented by all concerned Commission services
under their inter-service level agreement.
As set out in the
updated roadmap and in this audit enquiry, the Commission will take the
decision to resume its own on-the-spot audits when it is no longer justified
maintaining reliance on the work of the audit authorities. This may result from
the fact that material deficiencies have not been reported and taken into
account in the annual audit opinion for a given year and a request by the
Commission to implement action plans/corrective measures has not been
adequately followed up by the audit authority.
OBSERVATIONS
27.
As indicated in the executive summary of DG Regional and Urban Policy's 2012
annual activity report, the decrease in the number of reservations is mainly
due to the corrective actions taken in the Member States and the implementation
of financial corrections by the Commission (see 2012 annual activity report for
DG Regional and Urban Policy, pages 46 to 49). The strict policy followed by DG
Regional and Urban Policy on warnings, interruptions, suspensions and financial
corrections has worked as an incentive for the concerned Member States to
improve the weak management and control systems.
29.
In addition to the two indicators mentioned by the Court, the Commission bases
its assurance on an in-depth process and various steps, taking into account
many other national and Union audit results and information beyond simply the
two indicators quoted by the Court.
The
result of this process and analysis is described in detail in the respective
annual activity reports of DG Regional and Urban Policy 2012 and DG Employment
(see page 35 and annex 9 and page 37 and annex 8 of respectively DG Regional
and Urban Policy and DG Employment 2012 annual activity reports).
Common
reply for paragraph 30 and box 4
The
Commission acknowledges the fundamental role played by the audit authorities
and the importance to ensure the accuracy and reliability of the information
reported in the Annual Control Reports. 
For
this reason, the Commission carried out an extensive audit work done through 269
audit missions over the years in order to assess the effectiveness of the audit
authorities covering 96% and 99% of the respective allocations of ERDF/CF and
ESF. 
Between
2009-2013, the Commission re-performance audit work on audit authorities showed
that:
- Out
of 47 audit authorities audited, DG Regional and Urban Policy concluded that,
at this stage, 38 audit authorities were reliable. 
- Out
of 84 audit authorities, DG Employment concluded that 78 were reliable. 
The
Commission thus considers that it has obtained reasonable assurance that audit
authorities covering around 90% of the funds allocations comply with Article 62
of (EC) Regulation and provides a reliable basis for the Commission's assurance
and for applying the single audit concept.
Those
results are complemented by the Court's examinations of audit authorities over
the last three years. 
In
particular, when the Commission has doubts as to the accuracy and reliability
of the error rates reported by national audit authorities, it discloses in its
annual activity report the reported error rates which are recalculated when
sufficient information is available, or which are replaced by flat rates
when they are considered unreliable.
First
indent:
In
two cases, the Commission notes that there were some weaknesses in the sampling
approach, but
considers that there was no significant impact. 
In
three cases, the Commission had found similar weaknesses as the ones reported
by the Court and has taken appropriate actions. In one case reported
by the Court in 2013, the follow-up is on going.
Second
indent:
In six cases, the
Commission considers that the audit authorities are effective with respect to
audits on operations. For the remaining six cases, the Commission followed up
the weaknesses detected by the Court.
Third
indent:
In two
cases, the Commission agrees that there were some weaknesses in the audit
authority procedures and the Commission ensured the follow-up. However the
Commission’s assessment of the reported error rates and annual control reports
led to appropriate conclusions, considering also the additional audit work
performed by the audit authority at the request of the Commission where
necessary.
In
the remaining
three
cases, the Commission had found similar weaknesses as the ones reported by the
Court and took
appropriate actions, including the interruption of payments until remedial
actions were implemented by the concerned audit authority.
As
a result of the actions taken to remedy weaknesses identified, the Commission
has as of today reasonable assurance that all but one ERDF/CF and ESF audit
authorities examined by the Court are effective. For the remaining audit
authority identified by the Commission and the Court as non effective, remedial
actions are still on-going for some ERDF/CF and ESF programmes.
For
the five audit authorities which under-reported error rates for ERDF/CF
programmes during either 2010, 2011 or 2012, the situation is as follows:
-
in one case, the under-reporting had no impact on the Commission’s assessment
because the audit authority’s opinion was qualified and a reservation has been
made in the 2010 annual activity report
-
the cumulative residual risk was below 2% in another case,
-
the Commission considered the reported error rates as unreliable and used flat
rates for the purpose of its assurance process in three cases; it expressed
reservations in the respective annual activity reports and interrupted payments
to the corresponding programmes.
Moreover
the Commission is working pro-actively with these audit authorities in order to
improve the reliability of their reported error rates.
31. The Commission
interrupts payments as soon as it has evidence to suggest problems including in
the functioning of an audit authority. Furthermore, substantiated evidence of
shortcomings in the functioning of an audit authority following a Commission
audit always leads to the initiation of a suspension procedure until such time
that the necessary corrective measures have been implemented by the Member State. 
The corrective
measures are further strengthened in the draft regulations for the 2014-2020
programming period, which foresee net financial corrections in the event of
serious irregularities identified after the submission of the annual accounts
and not previously detected/reported by the programme audit authority.
Common
reply to paragraphs 32 & 33:
The Commission has
developed a robust methodology to verify and validate the error rates reported
by the audit authorities. The Commission's conclusions of the desk review with
regard to the accuracy and reliability of the error rates reported in the
annual control reports are also based on the assurance obtained from the
extensive audit enquiry on the review of the work of audit authorities (see
replies to paragraph 9). 
Through this desk
review process, the Commission clarifies any doubt that may arise as to the
accuracy and/or reliability of the reported error rates. If needed, it obtains
detailed audit results supporting the calculation of the error rate in writing
or during on-the-spot fact-finding missions. 
In 2013 the Commission
services carried out 12 on-the-spot fact-finding missions covering 64 ERDF/CF
programmes in 11 Member States and 15 missions covering 23 ESF programmes in 10
Member States.  Based on all collected information, the Commission adjusted the
reported error rates for 21% and 15% of the of the ERDF/CF and ESF programmes
respectively, and considered 11% of the reported error rates for all programmes
as unreliable and therefore replaced them by flat rates.
Furthermore,
for the two ESF OP's out of the 51 the Commission wishes to underline that the
Court, in paragraph 6.34  of the Court's 2012 Annual Report states that the
shortcomings in the error rates reported by the Audit Authorities "do
not put into question the number and impact of the reservations formulated by
DG Employment in 2012". For another 44 ERDF/CF programmes the
Commission notes that the slight discrepancies reported by the Court did not
put into question the number and impact of the reservations formulated by DG Regional
and Urban Policy in 2012. 
See
also replies to paragraphs 34 and 35.
34. The Commission considers that
the fact that for 3 years in a row the Commission's own estimated error rate as
disclosed in DG Employment's annual activity report is in line with the Court's
most likely error rate confirms the validity and reliability of its approach. 
For 2011 and 2012, DG
Employment's estimated error rates as disclosed in its annual activity report
were within a range of 2.0% to 2.5% (see page 43 of the 2011 annual activity
report) and  2.3% to 3.2% (see page 37 of the 2012 annual activity report),
respectively. The Court's error rates for those years were 2.2% and 3.2%,
respectively. Hence the Commission considers that the error rate used by DG
Employment for its 2010 annual activity report, which corresponds to the
results obtained through the Court's Statement of Assurance exercise, are
reliable. 
For ERDF/CF programmes, the Court
also confirms in its 2012 Annual report that DG Regional and Urban Policy’s estimate
of amounts at risk for 2012, based on error rates reported by audit authorities
in relation to 2011 expenditure and this is in line with the assessment of the
Court (paragraph 5.55 of the Court’s 2012 annual report).
First
indent:
The
Commission notes that the 51 programmes quoted by the Court correspond to the
work of nine audit authorities out of the total of 112 audit authorities in
charge of ERDF, ESF and Cohesion Fund. It notes that the technical issue raised
in the case of 31 programmes grouped in a single sample does not modify the
audit authority’s and the Commission’s assessments.
In
the remaining cases, the Commission considers that sufficient information was
available to conclude adequately on the error rates reported by the audit
authorities. 
See also Commission
reply to paragraph 32.
Second indent:
The Commission welcomes the fact
that the Court has come to the same conclusions for all but five out of the 138
cases reviewed. Regarding these five cases that concern two audit authorities,
the Commission confirms its assessment as reported in the 2012 annual activity
report after an in-depth analysis of explanations provided by the concerned
audit authorities and that there was no reason for a reservation. For four of
these programmes regrouped in a single sample, the error was corrected in 2012
and therefore the Commission considers that it did not have to be included in
the calculation of the projected error rate. For the fifth programme, the
Commission considers that taking into account the part of the expenditure that
was excluded from the population to be audited would have had a very limited
impact on the error rate. 
See also Commission's reply to
paragraphs 5.52, 4th indent, and 5.57 of the Court's 2012 annual report.
The Commission therefore
considers that it has correctly implemented its supervisory role on the error
rates reported by the audit authorities.
35. According to the method used
for the 2010 annual activity report, the validated error rates were one of the
elements for DG Regional and Urban Policy for its final assessment of the
programmes. They were not used for the estimate of the minimum and maximum
payments at risk, that was based on the methodology used in previous years.  As
explicitly indicated in its 2010 annual activity report (page 69), DG Regional
and Urban Policy estimated the amount at risk between 0,8% and 1,7% of its 2010
payments and  considered that "the reported error rates by the national
audit authorities which relate to 2009 declared expenditure have to be
interpreted with caution when assessing the functioning of the systems in
2010"(page 31). All reported error rates were assessed and validated by DG
Regional and Urban Policy, including upwards or using flat rate in more than
half of the cases, in 2011 and subsequent years. In some cases reliable revised
error rates have been communicated by audit authorities in 2011 or 2012. 
Since 2011 onwards, DG Regional
and Urban Policy revised its methodology allowing a more precise estimate of
the amount at risk, based on error rates reported by audit authorities and
validated by the Commission services. At the same time, DG Regional and Urban
Policy introduced the calculation of a cumulative residual risk, taking into
account financial corrections implemented by Member States. For this
calculation, DG Regional and Urban Policy thus uses validated error rates for
all years since the start of the programming period, including error rates
subsequently revised by audit authorities, error rates it could recalculate and
flat rates. Therefore the limitations expressed on the error rates at the time
of their reporting in 2010 have no impact on the calculation by the Commission
of the cumulative residual risk in 2012. The Court confirmed in its 2012 Annual
report that DG Regional and Urban Policy’s estimate of amounts at risk for 2012
is in line with the assessment of the Court (paragraph 5.55 of the Court’s 2012
annual report).
Regarding the Directorate-General
for Employment and Social affairs, the Commission refers to its reply to
paragraph 34. 
36. The Commission has actively
promoted the use of statistical sampling in 2012/2013 through its updated
sampling guidance of April 2013, even in the case of small populations of
operations, so as to obtain representative results in an increasing number of
programmes.
Moreover, it should be noted that the
error rate can also be representative in case a formal approach to non-
statistical sampling is used, or when the sample audited ensures a high
coverage of the expenditure.

However, non-statistical samples
for small populations of operations are in line with the regulation and provide
the best available indication of the overall risk for the concerned programmes.
In such cases, the Commission also takes into account the characteristics of
the population and the audit coverage. The Commission has to use these
indicators for the purpose of its assurance process and for the calculation of
the cumulative residual risk. 
In any case, where the Commission
considers the reported error rate as unreliable, it uses flat rates.

37. The Commission
agrees with the Court that accounting for financial corrections is a complex
task given the timing differences between the Member States' reporting and the
Commission's annual activity report deadlines and the various actors involved
in their implementation.  In order to reflect the multi-annual character of
programmes implementation, including of financial corrections, the Commission
calculates a cumulative residual risk that is an indicator of how the corrective
capacity of the programme is progressing year after year. The Commission aims
at ensuring a residual error rate below the materiality threshold at the end of
the programming period, by taking into account all financial corrections
incurred during the life of a programme.
38. The Commission has
to work with the data provided by the Member States by end March each year
under the regulatory requirements and which are available under the
multi-annual set-up for cohesion policy.
First indent: 
The Commission needs
to calculate the cumulative residual risk as at the end of the year under
assessment in the annual activity report. The cumulative residual risk is an
indicator of the corrective capacity of the programme over several years,
taking into account the information available at the time of its calculation,
both in terms of risk and of financial corrections made. 
At the time of the
annual activity report, the Commission has at its disposal the Member State's
reporting on financial corrections submitted the previous year and data
reported for the current year for some programmes. This information can be
reviewed by the Commission since most corrections are initiated at the request
of the Commission itself.
Furthermore, the
Commission has conducted specific risk-based audit work over the last  3 years
covering 68 operational programmes in order to ensure that the corrections
reported by the Member States are effectively implemented and, in case of
doubts or insufficient evidence, deducts the amounts concerned from the
cumulative financial corrections taken into account for the purposes of the
calculation of the residual error rate.
Second indent:
As indicated in the
guidance on treatment of errors disclosed in the annual control report
(COCOF_11-0041-01-EN of 7 December 2011), audit authorities have to project the
error rate based on all audit findings and should not take into account
financial corrections carried out as a result of their audits for calculating
the projected error rates. When formulating their audit opinion, they can take
into account subsequent events in the sense of financial corrections taken
since the end of their audits. If these corrections are sufficient to mitigate
the projected error rate, the audit authority may decide to report an
unqualified opinion, but still has to report the projected error rate as
calculated. 
The Commission will
remind the audit authorities about this rule.
Third indent:
Pending recoveries are
based on recovery orders issued by the Member State, and to be executed. They
are requested by the regulation and it is legitimate to take these corrective
actions into account.
Fourth indent:
In accordance with the
regulation, Member States have to report any withdrawal included in a payment
claim of the previous year. As clarified in the guidance note  [footnote: ref.
COCOF 10/0002/02 dated 17/03/2010], withdrawals are definitive and cannot be
re-instated in subsequent payment claims, except if the irregular amounts were
later found to be regular and eligible. In such cases the certifying authority
should correct its reporting. The Commission will remind the certifying
authorities about this rule.
39. Since the 2011
annual activity reports released in March 2012, any potential instances of
negative residual error rates are adjusted to a minimum of 0 as part of the
procedures put in place by the Commission to avoid under-estimating the
calculation of an overall cumulative residual risk.
The cumulative
residual risk reflects the overall corrective capacity of a programme, taking
into account the best estimate of the risk, the validated error rate, and
information on all corrections carried out, independently from the source of
the finding (managing, certifying or audit authority). Therefore, in extreme
cases, a cumulative residual risk at zero shows that overall corrections
reported and linked to expenditure previously included in payment claims to the
Commission were higher than the estimated cumulative risk for the programme, at
the time of the calculation. 
40. Reservations are
mainly based on the assessment of the functioning of the management and control
system and the projected error rate, The cumulative residual risk is a second
filter to decide on the need for additional reservations. In particular, but
not exclusively, in case of a validated error rate between 2% and 5%, it allows
deciding if additional reservations should be made. It is certainly not the
main source of reservations in the annual activity report, but a complementary
one.
This approach was
followed for 65 ERDF/CF programmes out of the 67 quoted by the Court. For the
remaining two programmes, as indicated by the Court in annex III to its report,
exceptions in line with the annual activity report methodology were made and
disclosed in the annual activity report since all necessary financial
corrections had been implemented in time for the assurance process (cf. DG
Regional and Urban Policy 2012 annual activity report, page 35) .
For the 4 ESF OPs with the
"projected error rates" above 5%, the necessary financial corrections
had already been implemented by the time DG EMPL 2012 Annual Activity Report
was issued. Hence, the cumulative error rates calculated for those OP were
below 2%. According to the Commission's standing instruction for the 2012
Annual Activity Report, a (quantified reservation) is required only if the
cumulative financial risk is above 2%. Moreover, for the 4 programmes
concerned, the appropriate action plans were in place in order to prevent these
issues from re-occurring. 
Moreover, the Commission
notes that in paragraph 6.34 of its 2012 Annual Report the Court states that
the shortcomings identified in the error rates reported by the Audit
Authorities "do not put into question the number and impact of the
reservations formulated by DG EMPL in 2012".
43. There are two
processes which should be clearly differentiated: the formal reliance on the
audit authority’s work under the conditions imposed by article 73 of the
regulation on the one hand, and the fact that the Commission may for the annual
assurance process, following its in-depth assessment of the annual control
report and taking into account its on-the-spot re-performance work, validate
and therefore rely on the reported audit results on the other hand.
The figures reported
by the Court reflect the prudent approach followed by the Commission, as
mentioned in paragraph 47, and the double condition to rely not only on the
audit authority’s work and reported error rates but also that all elements of
the management and control system for the concerned programme are fully
effective (see also reply to paragraph 16).
In addition, the
fulfilment of the conditions does not trigger automatically a decision by the
Commission to grant Article 73. The Commission uses professional judgement in
order to weigh up all other relevant factors, including, among others, the
materiality and criticality of each OP for the Fund as a whole.
Common reply to
paragraphs 44 to 46
The Commission could
only notify article 73 once sufficient audit work had been carried out in
accordance with international audit standards and a positive assessment of the
audit authority could be reached. 
In addition, even if
decisions to grant article 73 were taken in the sixth year of the 2007-2013
period, the implementation of the programmes on the ground runs until 2015, and
closure is up to 2017. Furthermore, the implementation of the single audit may
play a role for the set-up of the management and control systems for the next
programming period and the concept will be maintained and will have a positive
impact up to 2023.
The 2010 roadmap was
prudently indicating that "a first group of audit authorities could be in
a position to benefit or may already benefit from the single audit principle
for some programmes/systems and the Commission will principally rely on the
opinion of the Audit Authority ". The Commission therefore could not
pre-empt a precise timeline before having carried out its review. Indeed, the
conditions foreseen in the regulation, as well as audit standards, require that
the Commission obtains robust audit results after adversarial procedures before
it can decide to implement article 73 to a specific programme. This was only
possible after in-depth on-the-spot re-performance work by the Commission under
its audit enquiry “Review of the work of audit authorities”, carried out as
from 2009.
The Commission thus
adopted a prudent approach since the first article 73 status were only granted
after having received the 2010 and 2011 annual control reports, which were the
first ones to report error rates. In the same period, the Commission provided
guidance on the elaboration of those reports, the treatment of errors,
sampling, etc. in order to ensure reliability and consistency of the
information received.  
See also reply to paragraph
30.
47. The Commission
aims at obtaining "reasonable assurance that the management and control
systems function effectively" through the assessment of detailed key
requirements and functions for each programme. This assessment is based on a
synthesis of all audit results by the Commission and the Member State and goes beyond the indication provided by the sole cumulative residual risk indicator.
The Commission has formally updated its roadmap in September 2013, including by
further clarifying the criteria it follows to grant article 73: acceptance of
the audit strategy and compliance assessment; reasonable assurance that the
management and control system function effectively and bear limited risks;
reasonable assurance that the audit authority works well and that only some or
minor improvements are needed, taking account of the Commission's cumulative
audit knowledge and experience with this audit authority. It also considers the
Court's audit results. 
48.
Based on its own assessment, the Commission considers that the requirements are
in place at the end of 2013 for all 61 programmes. In its assessment, the
Commission bases itself on the results of the extensive audit enquiries started
in 2009 to effectively verify the reliability of the Audit Authorities. It
furthermore takes account of all regulatory provisions, including the use of
non statistical sampling in some cases as the best estimate of the risk and the
effectiveness of the managing and control system, as well as the
"cumulative residual risk" calculated for each programme or groups of
programmes since 2012 as indicated above.
Moreover,
the Commission notes that the programmes referred to by the Court in box 6 represent 5% and less than 1% of the respective global allocations for the ERDF/CF and
the ESF.
Box 6 -
Overview of the results of the Court’s testing of Article 73 conditions being
in place (2012)
(a) 
First
indent:
When
programmes under a common management and control system are grouped for the
purpose of the statistical sampling, as provided for in the regulation,  the
Commission cannot calculate a cumulative residual risk per programme since the
audit authorities reports one single error rate for all grouped programmes
together. This approach is taken in all cases for all Member States when audit
authorities group programmes under a single representative sample. 
The
six programmes quoted by the Court are part of eight programmes under a common
management and control system. The reported and validated error rate for the
group of programmes was 2,64% for 2011. The corresponding cumulative residual
risk for the group of all eight programmes taken together, after corrections
were made by the concerned certifying authority, was below 2%. The Commission
therefore concluded that systems are effective for all eight programmes. 
Second
indent:
All
conditions for the granting of article 73 to this programme were already in
place at the beginning of 2012. Nonetheless, the Commission decided to follow a
prudent approach to address the risk of systemic errors in a specific measure
of the programme. It therefore issued a partial reservation in the annual
activity report to cover this risk. It was subsequently confirmed by the Member State that the entire expenditure related to this measure was preventively withdrawn
already in November 2011 and an action plan was implemented in 2012 to ensure
that no expenditure was actually at risk for this measure. Following this
conclusion, the partial reservation was lifted in November 2012. Following two
on-the-spots audit missions, article 73 was granted to the programme. The
positive results reported in the annual control report for 2012 confirmed this
assessment with a validated error rate below 2%, and the Commission issued an
unqualified opinion in the annual activity report 2012.
(b)
First indent:
·     
For
the two ESF and one ERDF cases mentioned by the Court, the Commission confirms
that the concerned audit authorities adequately followed the Commission’s
guidance note on sampling, given the small size of the population. The
Commission notes that the use of sample error rates based on non-statistical
samples are foreseen in the regulation in the case of small populations of
operations. These are the only available indicators to estimate the overall
risk for the concerned programmes and are therefore used by the Commission for
the purpose of the assurance process. In such cases, the Commission also takes
into account the characteristics of the population and the audit coverage. In
two ESF cases, given the small size of the population, the minimum coverage
requirement (10%) was met. For the remaining ERDF programme, the use in 2011 of
a random selection covering high value items and more than 10% of the
expenditure was adequate. 
·     
Furthermore,
the Commission based its assessment not only on the error rates reported in the
annual control reports, but also on other elements gained through its audit
work, such as re-performance of a number of the audit authority's controls on
operations and accumulated knowledge on the functioning of the systems
concerned. 
·     
As
those elements were positive, the Commission concluded that it had a sufficient
basis to grant article 73 for those three programmes.
·     
For
the 2013 sample, both audit authorities opted for a statistical sampling method
considering the increase of the population’s size and the lower threshold
triggering the use of statistical sampling set out in the revised sampling
guidance provided by the Commission in April 2013.
See
also reply to paragraph 36.
Third
indent:
Article
73 was granted to these two programmes in June 2012 based on the conclusion
that all conditions stipulated in the Commission roadmap had been fulfilled. At
that moment the Commission had reviewed the sampling methodology used by the
Audit Authority in four consecutive Annual Control Reports since 2008 and found
it to be compliant. The information about the change of the sampling method was
provided in December 2012 in the new Annual Control Report which was
immediately assessed. Based on its assessment, the Commission noted that
exclusion of expenditure from the population to be sampled was not in line with
the rules. However, it concluded that this change of methodology had no impact
on the reported error rates and had been chosen by the Audit Authority for reasons
of cost-efficiency since the concerned  beneficiaries had already been audited
without generating errors in previous years. 
The
Commission notes that the change of methodology increased the audit coverage
from 5% to 20% compared to previous years.

Fourth indent:
The OP referred to by the Court
is the fourth smallest OP for ESF. Annual payments in 2010/2012 amounted to 1,5
million euro on average. Despite its very small size, article 74 which sets out
proportional control arrangements for small OPs could not be applied since the
co-financing rate for this OP is above 40%. 
Furthermore, the Commission
confirms that it had sufficient ground to grant article 73 to this programme,
which has a similar impact to article 74 since, the ESF audit authority adequately
followed the Commission’s guidance note on sampling, given the very small size
of the population which was largely below the threshold required for
statistical sampling quoted by the Court in footnote 9 (below 20 projects for
2011 and 2012). Therefore, statistical sampling could not be applied to the
population concerned. However the minimum 10% coverage required by the sampling
guidance was achieved.  
Furthermore, the management and
control system for this operational programme was assessed as effective and the
error rate reported by the managing authority and validated by the Commission
was constantly below 2%.

(c)
The Commission considers that it granted article 73 to these two programmes,
based on robust, consistent and transparent criteria having taken account of
the Court's findings.

In one of the two cases referred
to by the Court, the management and control system was assessed as effective and
error rates reported by the audit authority and validated by the Commission
have constantly been below 2% over the period (2010 - 2012). 

For
the second case, the Court's findings were not related to the functioning of
the audit authority but to other parts of the management and control system and
are being followed up. The Commission considers that deficiencies identified in
the management and control system in 2013 do not necessarily impact its
reliance on the work of the audit authority.
(d)
Article 73 was granted to the two concerned audit authorities in June and
September 2012. The Court's observation refers to findings disclosed in 2013.
In any case, the
Commission confirms, after a thorough assessment of the Court's findings, that
these audit authorities fulfil the requirements for article 73. The Commission
closely monitors that these requirements continue to be fulfilled under its
recent joint audit enquiry on monitoring article 73 (see reply to paragraph
54).
Common
reply to paragraphs 49 and 50
As
stipulated in the updated roadmap and joint audit enquiry decided in September
2013, and reflected in the Commission services’ audit strategy, adequate
monitoring of article 73 is carried out through the analysis of national system
audit reports and of annual control reports (including fact-findings missions
where necessary), on-the-spot work paper review and re-performance of audits
carried out by the audit authority and bilateral co-ordination meetings. 
See
also reply to paragraph 32.
Common
reply to paragraphs 51 to 53.
The
roadmap was meant as a strategic document to set out the conditions for granting
article 73 and for monitoring purposes and not as a methodological document.
Following the first batch of Article 73 decisions in the first half of 2012,
the methodology to carry out monitoring missions has been developed and the new
enquiry has been fined tuned based on the experience of 2 pilot missions
carried out in 2012, which included reperformance work and working paper
review. 
In
accordance with the updated roadmap, the joint audit enquiry and the audit
strategy, a monitoring mission will be carried out for every audit authority
with article 73 status in principle every 2nd year. These monitoring missions
are including reperformance work and working paper reviews, in line with
international auditing standards. 

Common reply to paragraphs 54
and 55

DG
Regional and Urban policy indicated in its 2012 annual activity report that
based on its monitoring of the programmes with a single audit status conditions
were still in place to justify this status, since the audit authorities had
appropriately reported new deficiencies for some of the concerned programmes.
Thus the concerned audit authorities continued to function appropriately. 
In
September 2013 the Commission has formally updated its initial roadmap and
adopted an audit enquiry setting out the methodology and process for the
monitoring of the ‘single audit’ status. Annex I of the updated roadmap
contains an overview of actions/corrective measures in case one or more of the
initial conditions to arrive at the implementation of the single audit principle
are no longer complied with. 
The
Commission monitors all concerned programmes, including through re-performance
work. At the end of 2013, the Commission's monitoring covers nineteen OPs with
an article 73, for seven audit authorities in  line with the Commission’s audit
methodology. Specific corrective measures are being implemented for four audit
authorities.

DG Employment
did not identify any issues in its 2012 annual activity report warranting a
reconsideration of the operational programmes that have been granted article 73
in 2012. Therefore, no corrective actions had to be initiated in order to
withdraw or suspend the single audit status granted in 2012. Furthermore, the
Commission started monitoring missions on these OPs in late 2013.

56.
The closure will build on the extensive audit and monitoring work performed
during the period, in particular with respect to the annual assessment of the
cumulative residual risk by programme. See also reply to paragraphs 49 to 53 on
the updated roadmap and audit enquiry on monitoring.
The Commission also
draws the attention to the fact that the implementation of the single audit
concept will also continue in the period 2014-2020 as stipulated in Article
140(3) of the  Common provisions Regulation [footnote: “For operational
programmes for which the Commission concludes that it can rely on the opinion
of the audit authority, it may agree with the audit authority to limit the
Commission’s own on-the-spot audits to audit the work of the audit authority
unless there is evidence of deficiencies in the work of the audit authority for
an accounting year for which the accounts have been accepted by the Commission”].

60. The Commission
issued guidance over the first years of implementation which is essential for
the audit authorities’ work (e.g. compliance assessment, audit strategy,
assessment of management and control systems, sampling methods). These guidance
documents were issued on time at the beginning of the programming period (see
paragraph 62).
Common
reply to paragraph 61 and Box 8
Guidance
on complex issues, such as the ones quoted by the Court, is necessarily based
on good and bad practices identified during the first years of implementation.
Draft guidance is discussed during various technical meetings with the audit
authorities before being finalised in the COCOF meeting. This was in particular
the case for the guidance on the treatment of errors which was extensively
discussed with audit authorities before being formally communicated.
66. 
First
indent:
The
Commission agrees that this compulsory information could be further
complemented through additional guidance as far as results of operations are
concerned. The Commission intends to provide additional written clarification
to audit authorities in this regard by the end of 2013.
Second
indent:
The
Commission obtains additional information on the results of audits of
operations, either on a writing form or during on-the-spot fact-finding
missions, when required, based on its risk assessment (see reply to paragraph
32). 
The
Commission will consider the possibility to issue further written clarification
on this issue. 
Third
indent:
At
closure, audit authorities are already required to do a multi annual assessment
of the functioning of the management and control systems as well as of the
corrective capacity at closure (see closure guidance issued in 2013).
Fourth indent:
Concerning the impact
of subsequent events on the audit opinion, this is already partly covered in
the guidance on the treatment of errors issued in December 2011 as far as
‘positive’ events are concerned.
The
Commission will consider the possibility to issue further written clarification
on this issue. 
The
Commission has made proposals to cover all previous aspects in the implementing
/ delegated acts for the 2014-2020 programming period to further harmonise
implementation.
67.
The regulation and as a consequence the guidance issued by the Commission take
account of international audit standards but have to reflect the specificities
and terminology used for cohesion policy.
Common
reply to paragraphs 68-69
The
extensive audit work to review the work of audit authorities since 2009 also
entailed a comprehensive capacity building exercise with the concerned audit
authorities. This allowed in its turn an exchange of good practices with all
audit authorities through additional guidance and technical meetings.
72.
The Commission continues to provide training to audit authorities, in
particular on sampling techniques, on the audit work in the view of closure of
the 2007-2013 period and on the audit for the new programming period.
73. The
Commission notes that granting article 73 to some programmes  does not reduce
its control work. The main advantage for the Commission lies in the possibility
to focus its limited audit resources to higher risk programmes and authorities
rather than reduce its control work overall. Moreover, single auditing does not
mean no audit at all. Monitoring and follow-up missions remain necessary to
ensure the continued reliability of the audit work of the national audit
authorities.
Common
reply to paragraph 74 to 76
The
Commission underlines that through the regulatory framework for 2007-2013, the
level of assurance it can obtain has increased significantly, in particular by
allowing assessing the assurance for each operational programme each year as
from the start of implementation. Therefore the cost of controls should be
assessed from a cost-efficiency perspective rather than in absolute terms.
The
Commission notes that the Funds may finance the preparatory, management,
monitoring, evaluation, information and control activities of programmes
through technical assistance.
77.
Following years of high error rates in the period 2000-2006 the Commission,
decided to propose reinforced management and control provisions, including
statistical sampling, for the 2007-2013 period. These proposals are largely
reflected in the current legislative framework. The Commission notes that in
the current programme period error rates are significantly lower. 
78. 
The
Commission anticipates that the costs of control for the 2014-20 programming
period will remain stable. 
With
the different audit simplifications foreseen in the regulation, the reduction
in administrative burden (for example reduced reporting requirements and
extended use of simplified cost options) or the use of updated guidance on
sampling may lead to considerable gains in audit effort. 
This
would more than compensate the additional efforts needed to audit the accounts
and to review the management declaration.  
Common
reply to 79 and 80
The
Commission welcomes the Court’s conclusion. The Commission also considers that
the  Member States and the Commission have reinforced the internal control
framework for 2007-2013 programmes compared to previous programming periods.
The Commission considers that this contributes to ensuring a robust audit
capacity across the Union. 
83.
With regards to the risks identified by the Court, the Commission has the
following position:
First
indent:
Since
2009 the Commission carried out extensive audits on the spot to review the work
of audit authorities. It carried out 269 audit missions and reviewed 47 and 84
Audit Authorities for ERDF and ESF. This covers approximately 96% and 99% of
the total allocations, respectively. These reviews allowed the Commission to
give advice, to contribute to capacity building and to recalculate rates or
replace them by flat rates if these were considered unreliable. 
Overall,
the Commission has a thorough process to verify the reliability of the error
rates reported by the audit authorities which are revised where appropriate.
The fact that the error rates reported in the annual activity reports of DG
Employment and DG Regional and Urban Policy are in line with the error rate established
by the Court corroborates the reliability of the auditing and reporting system.
Second
indent:
The
Commission has also put in place a robust methodology to verify and validate
the error rates reported by the Audit Authorities, including where necessary,
additional requests of information and/or on-the-spot fact finding missions (in
2013, 64 ERDF/Cohesion Fund OPs in 11 Member States and 23 ESF OPs in 10 Member
States).
The
good knowledge gained on the functioning of a large number of audit authorities
through its extensive audit enquiry proved to be very useful in the
Commission's assessment of the reported error rates. 
Third
indent: 
The
Commission considers that the cumulative residual risk, which takes into
account the error rates and financial corrections over the programming period,
is an indicator of the overall corrective capacity of the programmes assessed
each year by the Commission in its annual activity reports.
It is
based on all available reported data for the previous years and the best estimate
of the year under assessment. 
It
helps the Commission to tackle in particular but not exclusively the situation
of programmes with validated annual error rates between 2% and 5%. 
Such
programmes, which were safe from reservations in the past, can now be subject
to a reservation and subsequently to legal proceedings
(interruptions/suspensions/ financial corrections).
Thanks
to the use of the cumulative residual risk, additional programmes are put into
reservation, thereby mitigating the risk identified by the Court of an
under-estimation of the risks for those programmes.
Furthermore,
the Commission has conducted specific risk-based audit work in order to ensure
that the corrections reported for 68 OPs over the last 3 years are effectively
implemented and, in case of doubts or insufficient evidence, deducts the
amounts concerned from the cumulative financial corrections taken into account
for the purposes of the calculation of the residual error rate.
The
Commission always aims at ensuring that the reporting made to the Discharge
Authority gives a fair and reliable picture of the estimated risk affecting the
EU budget for each Member State, taking also account of the multiannual
corrective capacity. The Commission services provide all available information
in full transparency in their annual activity reports.
The
Commission thoroughly reviews each year the error rates reported by audit
authorities. This verification process, together with the extensive results
from its audit enquiries,  allows the Commission to disclose full and reliable
validated error rates in the annual activity reports and to make appropriate
reservations when necessary. 
To
illustrate this, the Commission considers that the fact that for three years in
a row for DG Employment and two years in a row for DG Regional and Urban Policy
the Commission's own estimated error rate as disclosed in the annual activity
report is in line with the Court's error rates confirms the validity and
reliability of its approach. 
Recommendation 1
The Commission
considers that this recommendation is already implemented. 
The
Commission has a thorough verification process in place, including on-the-spot
fact-finding missions, in order to ensure the accuracy and reliability of the
error rates reported by audit authorities. It alternatively uses flat rates
when it considers error rates as unreliable. This process is complemented by an
exhaustive Commission audit enquiry since 2009 whereby 269 audit missions
allowed reviewing the work of audit authorities, including through
re-performance, covering around 90% of Funds allocations. The Commission also
carries risk-oriented audits to verify the accuracy of reported financial
corrections.
The
Commission will continue to ensure a strict supervision of the reported error
rates, to monitor and review the work of the audit authorities, and to make
targeted audits on the quality of the certifying authorities’ processes to
record and report financial corrections.
Recommendation
2
The Commission has
introduced in its proposal for Common Provisions Regulation for 2014-2020 and
the legislator has agreed on the possibility for net financial corrections in
the event of serious irregularities identified after the submission of the
annual accounts and not previously detected and/or reported by the audit
authority.
The Commission also
intends to propose in the secondary legislation that flat-rate corrections can
be increased for repeated breaches involving the same deficiencies, where the Member State has failed to take adequate corrective measures for that part of the system
that was affected and subject to a previous correction.
84.
The figures described by the Court result from the strict conditions foreseen
in the regulation which require  comprehensive audit work by the Commission and
the Member State, including re-performance work in accordance with
international auditing standards, before being able to assess the functioning
of the whole management and control system. In addition, the Commission had to
wait that error rates be delivered in 2010 or even in 2011 in most cases due to
the slow take off of implementation. The Commission had to carefully verify
these rates as well as the results of its first on-the-spot re-performance of
the work of the audit authorities to assess the effectiveness of the
implementation of management and control systems.
85.
Based on its own assessment, the Commission strongly disagrees for all of the
15 cases mentioned in box 6 and considers that the requirements are in place at
the end of 2013 for all 61 programmes. In its assessment, the Commission bases
itself on the results of the extensive audit enquiries started in 2009 to
effectively verify the reliability of the Audit Authorities. It furthermore
takes account of all regulatory provisions, including the use of non-statistical
sampling in some cases as the best estimate of the risk and the effectiveness
of the managing and control system, as well as the "cumulative residual
risk" calculated for each programme or groups of programmes since 2012 as
indicated above. In addition, the objections raised are particularly unsuitable
for small OPs.
Moreover,
the Commission notes that the programmes referred to by the Court in box 6 represent 5% and less than 1% of the respective global allocations for the ERDF/CF and
the ESF.
86.
Since the audit of the Court, the concerned Directorates general of the
Commission have jointly developed and adopted in September 2013 an audit enquiry
to monitor the article 73 decisions granted for the first time in 2012. In addition,
they have taken a joint decision updating the roadmap to article 73 and the
monitoring processes in September 2013.
see
below reply to recommendation 4 
Recommendation
3
The Commission
considers that the single audit status was granted based on robust, consistent
and transparent criteria. It furthermore considers that by the end of 2013 all
requirements are fulfilled for these programmes.
The Commission will
continue to apply a robust approach, further clarified with the implementation
of its roadmap on article 73, up-dated in September 2013. 
Recommendation
4
The
Commission considers this recommendation is implemented through the updated
roadmap and the audit enquiry on monitoring article 73 adopted in September
2013. 
Following
the granting of the first batch of article 73 decisions in the first half of
2012 and based on pilot missions, the Commission services developed an audit
methodology to carry out monitoring missions which include re-performance work
and working paper reviews, in line with International Standards on Auditing.
87.
The Commission welcomes the Court’s assessment and is continuing its close
cooperation with audit authorities to constantly improve its guidance and
support. The Commission is actively promoting the implementation of its revised
guidance on sampling from April 2013 through training seminars in various
decentralised Member States, to ensure adequate dissemination of the
information to all concerned audit authorities in these Member States.
The
Commission has started the dialogue with audit authorities to adequately
prepare for the launching of the 2014-2020 period, and to improve the secondary
legislation on matters related to the work of the audit authorities. 
Recommendation
5
The
Commission agrees with this recommendation and is taking measures to ensure
improved secondary legislation and timely and complete guidance within a stable
methodological framework for the work of the audit authorities, building on the
accumulated experience of the 2007-2013 programming period.
The
Commission will further clarify some aspects of the existing guidance through
written clarification by the end of 2013.
Furthermore, according
to the regulation for the 2014-20 programming period, the Commission is
empowered to adopt, by means of implementing and delegated acts, binding models
and/or requirements for the audit work of audit authorities that should build
up on the experience and good practices of the 2007-2013 programming period.
89.
Under the Treaty, Financial Regulation and sector specific regulations the
division of responsibilities is clearly established. Within the context of the
European Structural and Cohesion Funds a substantial technical assistance
budget is available to Member States. They have to decide how to use this allocation.
See also Commission reply to
recommendation 6. 
Recommendation
6
The Commission
considers that this recommendation is already implemented in the 2011 Impact
Assessment (see footnote 71). It further notes, under shared management and in
respect of the principle of subsidiarity, the decision to allocate technical
assistance to the different cost categories is taken by the Member States.
Furthermore,
in the 2014-2020 regulation, the Commission reinforces its cost-efficiency
approach for Cohesion. As a consequence, the newly designed arrangements for the
implementation of the funds including in relation to controls, "(…) shall
respect the principle of proportionality having regard to the level of support
allocated and shall take into account the overall aim of reducing
administrative burden for bodies involved in the management and control of the
programmes".