Special Report No 16/2013 ‘Taking stock of “single audit” and the Commission’s reliance on the work of national audit authorities in Cohesion’
Date: 2014-01-11
Institutions: European Court of Auditors
Subjects: Cohesion Fund, EU Member State, European Regional Development Fund, audit, budgetary control, budgetary expenditure, economic and social cohesion, financial control, legality, regional development

EUROPEAN
COURT OF AUDITORS

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TAKING STOCK OF ‘SINGLE AUDIT’ AND THE 

COMMISSION’S RELIANCE ON THE WORK OF 

NATIONAL AUDIT AUTHORITIES IN COHESION

EN

 
 
 
 
Special Report No 16 

 2013

TAKING STOCK OF ‘SINGLE AUDIT’ 
AND THE COMMISSION’S RELIANCE 
ON THE WORK OF NATIONAL AUDIT 
AUTHORITIES IN COHESION

(pursuant to Article 287(4), second subparagraph, TFEU)

EUROPEAN COURT OF AUDITORS

EUROPEAN COURT OF AUDITORS
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1615 Luxembourg
LUXEMBOURG

Tel. +352 4398-1
Fax +352 4398-46410
E-mail: eca-info@eca.europa.eu
Internet: http://eca.europa.eu

Special Report No 16 

 2013

More information on the European Union is available on the Internet (http://europa.eu).

Cataloguing data can be found at the end of this publication.
Luxembourg: Publications Office of the European Union, 2014

ISBN 978-92-9241-543-3
doi:10.2865/94994

© European Union, 2014
Reproduction is authorised provided the source is acknowledged.

Printed in Luxembourg

TABLE OF CONTENTS

3

Paragraph

GLOSSARY

ABBREVIATIONS

I–VII 

EXECUTIVE SUMMARY

1–19 

INTRODUCTION

1–4 

5–8 

SHARED RESPONSIBILITIES FOR INTERNAL CONTROL IN COHESION

ROLE AND RESPONSIBILITIES OF AUDIT AUTHORITIES

9–11 

AUDIT AUTHORITIES’ CONTRIBUTION TO THE COMMISSION’S ASSURANCE PROCESS

12–19 

THE ’SINGLE AUDIT’ PRINCIPLE AS DEFINED IN ARTICLE 73

20–24 

AUDIT SCOPE AND APPROACH

25–78 

OBSERVATIONS

25–56 

 DID THE COMMISSION MAKE PROPER USE OF THE INFORMATION PROVIDED BY NATIONAL AUDIT 
AUTHORITIES FOR ITS OWN ASSURANCE AND WHEN GRANTING ARTICLE 73 STATUS TO OPs?

26–28 

29–40 

41–48 

49–56 

 THE COMMISSION RELIED ON THE INFORMATION PROVIDED BY AUDIT AUTHORITIES FOR ALMOST THREE 
QUARTERS OF ALL OPs IN 2012

 RISKS ASSOCIATED WITH THE COMMISSION’S USE OF INFORMATION PROVIDED BY NATIONAL AUTHORITIES: 
ERROR RATES AND FINANCIAL CORRECTIONS

 LIMITED TAKE‑UP OF THE OPTION TO APPLY THE ‘SINGLE AUDIT’ PROVISIONS, DELAYS IN GRANTING ARTICLE 73 
STATUS AND MINIMUM CONDITIONS NOT ALWAYS IN PLACE

 THE MONITORING ARRANGEMENTS FOR ARTICLE 73 OPs NEED TO BE STRENGTHENED AND ‘SINGLE AUDIT’ 
STATUS SHOULD BE REVOKED IF MINIMUM CONDITIONS ARE NO LONGER MET

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57–72 

58–67 

 DID THE COMMISSION ENSURE A CONSISTENT AUDIT APPROACH ACROSS ALL OPs THROUGH ITS GUIDANCE 
AND SUPPORT FOR AUDIT AUTHORITIES?

 IMPROVEMENTS IN THE COMMISSION’S METHODOLOGICAL GUIDANCE TO AUDIT AUTHORITIES SINCE THE 
START OF THE PROGRAMMING PERIOD

68–69 

EXCHANGE OF GOOD PRACTICES WITH AND BETWEEN AUDIT AUTHORITIES PROMOTED BY THE COMMISSION

70–72 

THE COMMISSION SUPPORTS AUDIT AUTHORITIES THROUGH SPECIFIC TRAINING 

73–78 

 WHAT ARE THE COSTS OF THE AUDIT ARRANGEMENTS INTRODUCED IN THE 2007–13 PROGRAMMING 
PERIOD?

79–89 

CONCLUSIONS AND RECOMMENDATIONS

ANNEX I  — 

ERDF/CF AND ESF: NUMBER OF OPs AND TOTAL BUDGET (EU AND NATIONAL 
PUBLIC AND PRIVATE FUNDING) FOR THE 2007–13 PROGRAMMING PERIOD

ANNEX II  — 

RESPONSIBILITIES OF AUDIT AUTHORITIES ACCORDING TO THE REGULATIONS

ANNEX III  —  OVERVIEW OF RESERVATIONS ISSUED BY DIRECTORATES‑GENERAL FOR 

REGIONAL AND URBAN POLICY AND FOR EMPLOYMENT, SOCIAL AFFAIRS AND 
INCLUSION IN 2012 ANNUAL ACTIVITY REPORTS

ANNEX IV  —  GENERAL PRINCIPLES STATED IN OPINION NO 2/2004 ON THE COMMISSION’S 

‘SINGLE AUDIT’ MODEL (AND A PROPOSAL FOR A COMMUNITY INTERNAL 
CONTROL FRAMEWORK)

REPLY OF THE COMMISSION

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GLOSSARY

5

Article 73: Article 73 of Council Regulation (EC) No 1083/2006 stipulates that the Commission may rely on 
the work carried out by a national audit authority, and reduce its own audits and checks, once it has accepted 
the national compliance assessment and the audit authority’s audit strategy and if it has obtained reasonable 
assurance that the management and control systems of the Operational Programme function effectively.

Compliance assessment: The term ‘compliance assessment’ refers to a process whereby an independent audit 
body (which can be the national audit authority evaluates the design of management and control systems for 
an (or a group of ) Operational Programme(s) (the ‘compliance assessment report’) and provides an opinion as 
to whether they comply with the Regulations (the ‘compliance assessment opinion’). The Commission must 
accept the compliance assessment before expenditure incurred under the Operational Programme can be 
reimbursed from the EU budget.

Contracts of confidence: These are bilateral administrative arrangements signed with national authorities 
by the Commission during the 2000–06 programming period if it had reasonable assurance that the financial 
management and control systems for one or more funds complied with the requirements of Commission 
Regulation (EC) No 438/2001 and that the national authorities had drawn up a satisfactory audit strategy. The 
Member State also undertook to submit reports on its audit activities to the Commission. Where a contract 
of confidence was signed, the Commission agreed in principle that it would no longer carry out audits in 
the Member State (or region) concerned. Contracts of confidence were signed between 2005  and  2009 with 
Austria, Cyprus, Denmark, Estonia, Portugal, Lithuania, UK (England), UK ( Wales) and Slovenia for 55 OPs.

Financial corrections: Financial corrections aim at protecting the EU budget from the burden of erroneous or 
irregular expenditure. For expenditure subject to shared management, recovering payments incorrectly made 
is the primary responsibility of Member States. Financial corrections can be made by withdrawing irregular 
expenditure from Member States’ expenditure declarations or through recoveries from beneficiaries. Financial 
corrections can also be imposed by the Commission.

Internal control: Internal control is understood as a process which is designed to provide reasonable assur-
ance regarding the achievement of an organisation’s objectives in terms of the effectiveness and efficiency of 
its operations, the reliability of its financial reporting and its compliance with laws and regulations.

Internationally accepted audit standards (IAAS): Audit authorities must take account of internationally 
accepted audit standards in their audit work. The IAAS comprise auditing standards specified by different 
public and professional standard-setting bodies, such as the International Standards on Auditing (ISAs), the 
international auditing standards of Supreme Audit Institutions, implementation guidelines issued by INTOSAI 
and the guidance notes published by the Institute of Internal Auditors.

Materiality level: Auditors express an opinion as to whether financial statements are prepared, in all material 
respects, in conformity with a certain set of rules. The assessment of what is material is a matter of profes-
sional judgement. The materiality level used by the Commission is 2 %, which refers to the ratio of erroneous 
or irregular expenditure to the EU spending audited. In Cohesion, the Commission uses this threshold for both 
the annual projected error rate and the multiannual residual error rate at the level of each OP.

(National) audit strategies: Audit authorities’ audit strategies indicate, for each OP (or group of OPs), the sys-
tems and bodies which will be examined, the audit approaches and methods to be used, the sampling method 
for audits on operations and the indicative timetable for these audits. National audit strategies are approved 
by the Commission.

Operational Programme (OP): Expenditure from the ERDF, CF and ESF is allocated through multiannual 
Operational Programmes, which set out a development strategy with specific priorities to be carried out with 
the aid of the fund or, in the case of the Convergence objective, with the aid of both the CF and the ERDF. 
Programming documents are submitted by Member States and adopted by the Commission.

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Projected error rate: An audit authority’s estimate of the part of the  annual expenditure for each OP (or 
group of OPs) which is not legal and regular. This rate should be established on the basis of a statistical sam-
pling approach. Projected error rates must be representative for the expenditure incurred for the OP (or group 
of OPs). This may also be the case for error rates established on the basis of specific non-statistical sampling 
methods (in particular for small populations), as long as they are representative of the population as a whole.

Regulations: For the purpose of this report the term ‘Regulations’ refers to the two regulations governing the 
ERDF, ESF and CF for the 2007–13 programming period: Regulation (EC) No 1083/2006 and Commission Regula-
tion (EC) No 1828/2006 (as amended).

Residual error rate: The Commission’s estimate of the part of the expenditure paid during the entire pro-
gramming period for each OP (or group of OPs) which is not legal and regular. Residual error rates are calcu-
lated by the Commission on the basis of the audit authorities’ representative annual projected error rates as 
validated by the Commission. These annual rates are then applied to the expenditure paid during the program-
ming period, and all financial corrections implemented since the start of the programming period at national 
level (through withdrawals and recoveries) and EU level (through formal Commission decisions) are deducted. 
This calculation results in the cumulative residual amount at risk. The residual error rate is the ratio of this 
amount to the total expenditure paid since 2007.

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ABBREVIATIONS

CF: Cohesion Fund

COCOF: Coordination Committee of the Funds

EC: European Community

ERDF: European Regional Development Fund

ESF: European Social Fund

EU: European Union

IAAS: Internationally accepted audit standards

ISA: International standard on auditing

OP: Operational Programme

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EXECUTIVE SUMMARY

I.
Through this audit, the Court analysed the extent to 
which the Commission is able to rely, in the area of 
Cohesion, on the work of national audit authorities 
and took stock of the Commission’s implementation 
of the ‘single audit’ model (as specified in Article 73 
of Regulation No 1083/2006). The report covers the 
period from 2010 to the end of 2012.

II.
Shared management arrangements imply that the 
Commission has to be able to rely on Member States 
in its supervision of the EU budget. The Court found 
that Member States and the Commission have made 
significant  efforts  to  establish  a  better  system  for 
auditing Cohesion spending for the 2007–13 program-
ming period.

III.
However, this has come at a cost. The Court estimates 
the specific annual ‘cost of control’ for audit authorities 
at between 110 and 130 million euro. This corresponds 
to around 0,2 % of the total budget (in terms of EU and 
national public and private funding) for all ERDF/CF 
and ESF Operational Programmes (OPs). In this respect, 
the Court would observe that internal control systems 
require an appropriate balance between the cost of 
checks in a particular budgetary area and the benefits 
those checks bring in terms of limiting the risk of loss 
and irregularity to an acceptable level.

IV.
Since the start of the programming period, the Com-
mission has made considerable progress on develop-
ing a system based on which it can draw assurance 
as to the legality and regularity of ERDF/CF and ESF 
expenditure from the work of national audit author- 
ities, and on providing guidance material which con-
tributes  to  better  consistency  in  audit  authorities’ 
approaches and working methods.

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 — introduce  a  system  of  net  financial  corrections 
for OPs in respect of which the audit authorities 
repeatedly under-report problems, based on the 
applicable provisions in the Regulations for the 
2014–20 programming period;

 — take appropriate measures so that audit authori-
ties can draw on a stable and binding methodo-
logical framework; and

 — propose arrangements for Member States and the 
Commission to share the costs of Cohesion con-
trols, based on a more recent evaluation of the 
actual costs incurred by Member States.

V.
However, the Court identified a number of risks in 
the Commission’s reliance on the error rates reported 
by audit authorities and the information on financial 
corrections reported by Member States. The Commis-
sion may therefore underestimate the problems in its 
reporting to the European Parliament and the Council 
and incorrectly assess what is needed to achieve an 
unqualified audit opinion in the Cohesion area.

VI.
The Court notes that ‘single audit’, as specified for 
Cohesion in Article 73, should be the rule rather than 
the exception. The Court found, however, that the 
Commission faces considerable challenges to its effec-
tive implementation of the ‘single audit’ provisions. As 
in the previous programming period, only a limited 
number of ERDF/CF and ESF OPs were compliant with 
the necessary conditions for ‘single audit’ status by 
the end of 2012.

VII.
The Court makes a number of recommendations in this 
report regarding the Commission’s use of the work of 
national audit authorities in Cohesion. In particular, 
the Commission should:

 — strengthen its verifications of the accuracy and 
reliability of the error rates reported by national 
audit authorities and the information on financial 
corrections reported by Member States before us-
ing these elements in its own assurance process;

 — in all cases apply robust, consistent and transpar-
ent criteria when granting ‘single audit’ status to 
Operational Programmes;

 — comply in its monitoring of Article 73 OPs (and 
the corresponding audit authorities) with the re-
quirements in the international standards on au-
diting for using the work of other auditors;

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INTRODUCTION

10

1. 

2. 

3. 

4. 

SHARED RESPONSIBILITIES FOR INTERNAL CONTROL 
IN COHESION

In Cohesion, EU financial support is granted through the European Re-
gional Development Fund (ERDF), the European Social Fund (ESF) and the 
Cohesion Fund (CF). Taken together, the three funds had a total budget 
(EU and national public and private funding) of 491 billion euro for the 
2007–13 programming period (see Annex I).

Cohesion policy is a shared competence of the Member States and the 
Commission. The Commission approves multiannual OPs on the basis of 
Member States’ proposals. A total of 434 OPs had been approved for the 
2007–13 programming period (317 under the ERDF/CF and 117 under 
the ESF) by the end of 2012. The eligibility rules for each of these OPs are 
laid down by national authorities, subject to exceptions in the specific 
regulations for each fund.

For each OP, the Commission has to satisfy itself that the Member States 
have set up robust internal controls and that these systems function ef-
fectively1 — in other words, the Member States’ internal controls must 
provide reasonable assurance that errors in transactions underlying the 
accounts are either prevented or identified and corrected before the 
expenditure is certified to the Commission2.

At national level, the internal control of OPs is the responsibility of a man-
aging authority, a certifying authority (see Box 1) and an audit authority. 
Together, these bodies must ensure the legality and regularity of the 
co-financed operations, under the Commission’s supervision and final 
responsibility3.

1  Article 72 of Council 
Regulation (EC) No 1083/2006 
of 11 July 2006 laying 
down general provisions 
on the European Regional 
Development Fund, the 
European Social Fund and the 
Cohesion Fund and repealing 
Regulation (EC) No 1260/1999 
(OJ L 210, 31.7.2006, p. 25).

2  Article 32 of Regulation 
(EU, Euratom) No 966/2012 
of the European Parliament 
and of the Council of 
25 October 2012 on the 
financial rules applicable to 
the general budget of the 
Union and repealing Council 
Regulation (EC, Euratom) 
No 1605/2002 (OJ L 298, 
26.10.2012, p. 1) (Financial 
Regulation).

3  Article 317 of the Treaty 
on the Functioning of the 
European Union.

BOX 1

RESPONSIBILITIES OF MANAGING AND CERTIFYING AUTHORITIES

Managing authorities (often ministries or regional authorities in charge of a certain policy area) are responsible 
for selecting the individual projects to be included in the various OPs on the basis of previously agreed criteria. 
They also carry out first-level checks of these operations and the expenditure declared before the expenditure is 
certified by the certifying authority as legal and regular. Certifying authorities are generally part of the Ministry 
of Finance or internal control bodies under ministry authority.

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INTRODUCTION

5. 

6. 

THE ROLE AND RESPONSIBILITIES OF AUDIT 
AUTHORITIES

Audit authorities provide assurance to the Commission regarding the 
effective functioning of the management systems and internal controls 
for an OP (and, as a consequence, the legality and regularity of the ex-
penditure certified) (see Annex II). They must be functionally independ-
ent from the bodies managing the funds.

Within the 27 Member States, 112 audit authorities have been set up 
for the 434 OPs approved as of the end of 2012 for the 2007–13 pro-
gramming period (see Figure 1)4. In most cases the audit authorities are 
separate departments within State chancelleries, at Ministries of Finance 
(or internal control bodies under ministry authority), at other ministries 
or within Supreme Audit Institutions. Their role and responsibilities have 
been reinforced compared to those of the ex post control authorities in 
the 2000–06 programming period5.

11

4  63 of these 112 audit 
authorities are responsible 
for auditing OPs for the 
ERDF/CF as well as for the 
ESF in their Member State 
or region. These ‘multi-fund’ 
AAs account for 344 OPs 
(including ETC programmes) 
corresponding to 89 % of the 
total budget (EU and national 
public and private funding). 
Additional audit authorities 
have been set up for the 
European Fisheries Fund 
(EFF).

5  Article 10 and Article 15 of 
Commission Regulation (EC) 
No 438/2001 of 2 March 2001 
laying down detailed rules 
for the implementation of 
Council Regulation (EC) 
No 1260/1999 as regards the 
management and control 
systems for assistance 
granted under the Structural 
Funds (OJ L 63, 3.3.2001, 
p. 21).

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FIGURE 1

NUMBER AND TYPE OF AUDIT AUTHORITIES PER MEMBER STATE (2012)

SE

1 Multifund AA

FI

1 Multifund AA
1 ESF AA

EE

1 Multifund AA
1 ERDF AA1

LV

1 Multifund AA
1 ERDF AA1

LT

1 Multifund AA
1 ERDF AA1

UK

3 Multifund AAs
2 ERDF AAs
1 ESF AA

IE

1 ERDF/CF AA
1 ESF AA

DK

1 ERDF AA
1 ESF AA

NL

1 Multifund AA
1 ERDF AA1

BE

3 Multifund AAs
2 ERDF AAs

DE

10 Multifund AAs
8 ERDF AAs1
7 ESF AAs

LU

1 Multifund AA

FR

1 Multifund AA

AT

1 ERDF AA
1 ESF AA

PL

1 Multifund AA

CZ

1 Multifund AA

SK

1 Multifund AA

HU

1 Multifund AA

RO

1 Multifund AA

PT

1 Multifund AA

ES

1 Multifund AA
19 ESF AAs

SI

1 Multifund AA

BG

1 Multifund AA

IT

22 Multifund AAs
3 ERDF AAs
1 ESF AA

GR

1 Multifund AA

MT

1 Multifund AA

CY

1 Multifund AA

1 

Including audit authorities exclusively responsible for European Territorial Cooperation (ETC) programmes.

Source: European Court of Auditors, 2012 survey.

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7. 

An audit authority reports the findings of its systems audits and audits 
of  operations  to  the  managing  and  certifying  authorities  for  the  OP 
concerned (see Figure 2 and Annex II). Reports on systems audits are 
also submitted to the Commission. The managing authority has to de-
cide whether financial corrections are to be applied as a result of these 
audits and/or whether alternative corrective action should be taken. If 
the audit authority considers that the managing authority has not taken 
appropriate corrective action, it must draw the Commission’s attention 
to the matter.

FIGURE 2

MANAGEMENT AND CONTROL SYSTEM FOR OPs

European Commission

Implementation
report

Certiﬁed expenditure
declaration

Report on ﬁnancial
corrections

Certify
expenditure
at OP level

Report on ﬁnancial
corrections
implemented
at OP level

Annual control
report & audit
opinion

System audit
reports

Certifying authority

System audit
reports

Declare
expenditure
at OP level

Check MA’a
expenditure
declaration

System
audits

Audit authority

Managing authority

Claim
expenditure
at project level

Check
expenditure
claimed by
beneﬁciaries

Beneﬁciaries

System audit
reports

Audits of
operations

Reports on
audits of
operations

Source: European Commission.

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8. 

If the Commission finds, based on its own work or the information re-
ported by audit authorities, that a Member State has failed to remedy 
serious shortcomings in the management and control systems and/or to 
correct irregular expenditure which had been declared and certified, it 
may interrupt or suspend payments6. If the Member State does not rem-
edy any detected system failures or withdraw the irregular expenditure 
(which may be replaced by expenditure which is eligible), the Commis-
sion itself may apply financial corrections, leading to a net reduction in 
EU funding for the OP7.

6  Article 39(2) of Council 
Regulation (EC) No 1260/1999 
of 21 June 1999 laying down 
general provisions on the 
Structural Funds (OJ L 161, 
26.6.1999, p. 1); Articles 91 
and 92 of Regulation (EC) 
No 1083/2006.

7  Article 99 of Regulation 
(EC) No 1083/2006.

BOX 2

USE OF ERROR RATES REPORTED BY NATIONAL AUDIT AUTHORITIES IN THE 
COMMISSION’S ASSURANCE PROCESS

The Directorates- General assess, for each OP, the reliability of the error rates reported by the audit authorities. 
Reliable error rates are meant to be representative for the OP (or group of OPs)8. If the Commission labels the 
audit authority’s error rate reliable, this means either that it can accept the rate or that it can recalculate it on 
the basis of additional information in the annual control report or obtained on the spot during fact-finding 
missions. In the case of unreliable error rates, the Commission applies a flat error rate (between 2 % and 25 %) 
in line with the results of its assessment of the functioning of management and internal control systems. This 
results in a validated ‘projected error rate’ for each OP.

Validated projected error rates are then used by the Directorates- General for Regional and Urban Policy and 
for Employment, Social Affairs and Inclusion to calculate average error rates for each Member State. The two 
Directorates-General have published those rates in their annual activity reports since 2011 and 2010 respectively.

The Commission also calculates a ‘residual error rate’ for each OP. This takes into account all financial corrections 
implemented at EU and national level since the start of the programming period and therefore has a multian-
nual character. Residual error rates are also reported in the annual activity reports9.

8  From 2010 to 2012, the Commission required the use of statistical sampling for populations comprising at least 800 items (see 
Guidance on treatment of errors disclosed in the annual control reports, COCOF 11-0041-01-EN, 7.12.2011, p. 11). From 2013 onwards, 
statistical sampling must be applied for populations comprising at least 150 items (see Guidance on sampling methods for Audit 
Authorities, COCOF 08/0021/03, 4.4.2013). Representative error rates may also be obtained from certain non-statistical sampling 
approaches.

9  Whereas projected error rates always relate to expenditure incurred during the previous year, residual error rates also take account of 
financial corrections implemented during the year covered by the relevant annual activity report.

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9. 

10. 

AUDIT AUTHORITIES’ CONTRIBUTION TO THE 
COMMISSION’S ASSURANCE PROCESS

The information provided by audit authorities in their annual control 
reports, audit opinions and systems audit reports is one of the main 
sources underlying the Commission’s assessment, for each OP, of the 
legality and regularity of EU spending. When preparing their annual ac-
tivity reports, the Directorates- General perform a detailed assessment 
of the work of national audit authorities, and in particular of the error 
rates reported by the audit authorities for each OP (or group of OPs). This 
information is examined against the Commission’s own audit results and 
other information at the disposal of the Directorates-General for each 
OP10 (see Box 2 ).

10  European Commission, 
‘Inter-service agreement on 
audit cooperation between 
DGs MARE, REGIO and EMPL 
for the programming period 
2007–13’, 26.5.2011.

The Commission can choose to issue a full (or partial) reservation for an 
OP in its annual activity reports. As a first step, the Commission assesses 
the functioning of the management and control system, based on its 
monitoring of national authorities’ compliance with regulatory require-
ments and, where applicable, the status of corrective actions agreed with 
the Member State for the OP concerned. In a second step, the Commis-
sion assesses OPs which are not under reservation after this initial review. 
The validated projected error rate and the residual error rate calculated 
by the Commission are the main indicators used for this purpose (see 
Box 2). Since 2012,OPs have in general been subject to a reservation if 
the residual error rate exceeds the Commission’s 2 % materiality thresh-
old. No reservation is issued if the residual error rate is below 2 %, even 
if the projected error rate is above 5 % (see paragraph 40 and Annex III).

11. 

The error rates reported by audit authorities in Cohesion (and assessed 
and consolidated by the Commission for its assurance process) and those 
estimated by the Court in the context of its annual Statement of Assur-
ance differ in the following respects:

 — the error rates calculated by audit authorities are meant to be rep-
resentative at the level of an OP (or group of OPs), while the Court’s 
error rates are calculated at the level of funds for all Member States;

 — the Court’s error rate is based on a statistically representative sam-
ple of transactions at EU level, while, although audit authorities 
generally apply statistical sampling, they may also select audits 
of operations on the basis of non-statistical (and even non-repre -
sentative) samples;

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11  The Commission (and the 
national audit authorities) 
quantify with a view to the 
financial corrections that 
are necessary given the 
irregularities found. This is 
particularly so for cases of 
non-compliance with the EU 
Directives and national public 
procurement laws (see 2012 
Annual Report, Commission 
reply to paragraph 5.33 and 
Annex 1.1, paragraphs 9 to 11).

12  The error rates reported 
by audit authorities in their 
annual control reports for 
year n relate to expenditure 
certified to the Commission 
in year n-1. The Court’s error 
rates for year n relate to 
expenditure in year n.

13  Court of Auditors Opinion 
No 2/2004 on the ‘single 
audit’ model (and a proposal 
for a Community internal 
control framework) (OJ C 107, 
30.4.2004, p. 1).

14  COM(2005) 252 final of 
15 June 2005.

15  COM(2006) 9 final of 
17 January 2006, in particular 
see Actions 5, 7, 9 and 13 to 16.

 — there are methodological differences in quantifying the impact of 

the audit findings11;

 — finally, the error rates reported by national audit authorities do not 
relate to the same period as those published by the Court12.

As a result, these annual error rates are not directly comparable. Mean-
while,  the  residual  error  rates  calculated  by  the  Commission  are  of 
a multiannual nature and take account of all the financial corrections 
implemented at EU and national level.

THE ’SINGLE AUDIT’ PRINCIPLE AS DEFINED IN 
ARTICLE 73

In the context of the European Union budget, the term ‘single audit’ re-
fers to a system of internal control and audit which is based on the idea 
that each level of control builds on the preceding one. ’Single audit’ aims 
at preventing the duplication of control work and reducing the overall 
cost of control and audit activities at the level of the Member States and 
the Commission. It also aims at decreasing the administrative burden 
on auditees. The Commission (which holds ultimate responsibility for 
the implementation of the EU budget) is at the top of the ‘single audit’ 
pyramid.

In its Opinion No 2/2004, the Court set out a number of general princi-
ples for internal control systems to operate in accordance with the ‘single 
audit’ model (see Annex IV)13. The Court, as the external auditor of the 
EU, is not part of the Commission’s ‘single audit’ system.

In June 2005 the Commission presented its proposals for a ‘Community 
integrated control framework’ to achieve more effective and efficient 
internal control of EU funds14. In 2006, the Commission further developed 
this concept in its ‘Action Plan towards an Integrated Internal Control 
Framework’15, which had a significant impact on the design of internal 
control systems for the ERDF/CF and ESF as set out in the Regulations 
for  the  2007–13  programming  period.  In  particular,  the  Commission 
proposed:

 — to minimise the duplication of control work (and to maximise the 
level of control which could be achieved with a given level of re-
sources) by sharing control information so that one level of con-
trol could rely on the preceding level in the chain (‘single audit’ 
principle);

12. 

13. 

14. 

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 — to introduce national control reports with a view to reinforcing ac-
countability and providing an incentive for managers of EU funds 
to assess and improve their internal control systems;

 — to draw assurance from third-party independent audit bodies; and

 — to use common guidelines per policy area and ‘agreed upon proce-
dures’ between EU and national level so as to ensure a consistent 
level of internal control.

15. 

For the 2007–13 programming period, the way the ‘single audit’ princi-
ples are to be applied in Cohesion is set out in Article 73 of Regulation 
(EC) No 1083/2006. This states that the Commission may reduce its own 
checks if it has obtained reasonable assurance that the OP’s management 
and internal control systems function effectively (see Box 3).

BOX 3

‘SINGLE AUDIT’ IN COHESION AS SET OUT IN ARTICLE 73

Article 73(2): ‘In determining its own audit strategy, the Commission shall identify those operational programmes 
for which the opinion on the compliance of systems under Article 71(2) is without reservations, or where res-
ervations have been withdrawn following corrective measures, where the audit strategy of the audit authority 
is satisfactory and where reasonable assurance has been obtained that the management and control systems 
function effectively on the basis of the results of audits by the Commission and the Member State.’

Article 73(3): ‘For those programmes, the Commission may conclude that it can rely principally on the [audit 
authority’s audit] opinion […] with regard to the effective functioning of the systems and that it will carry out 
its own on-the -spot audits only if there is evidence to suggest shortcomings in the system affecting expenditure 
certified to the Commission in a year for which an [audit] opinion […] has been provided which contains no 
reservation in respect of such shortcomings.

Where the Commission reaches such a conclusion, it shall inform the Member State concerned accordingly. 
Where there is evidence to suggest shortcomings, it may require the Member State to carry out audits […] or 
it may carry out its own audits […].’

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16  SEC(2004) 632/2 of 
18 May 2004.

17  European Commission, 
Directorate-General for 
Employment, Social Affairs 
and Inclusion, Roadmap for 
the implementation and 
for the monitoring of the 
correct implementation of 
the ‘single audit’ principle 
(final version agreed with 
Directorate-General for 
Regional and Urban Policy), 
13.10.2010.

18  Directorate-General for 
Regional and Urban Policy, 
Summary of the audit work 
carried out and the results 
under the enquiry planning 
memorandum — To obtain 
assurance on functioning of 
systems 2007–13 through 
review of the work of audit 
authorities — Phase 1 and 
Phase 2, 5.12.2012, p. 40.

19  European Commission, 
Directorate-General for 
Employment, Social Affairs 
and Inclusion, Roadmap for 
the implementation and 
for the monitoring of the 
correct implementation of 
the ‘single audit’ principle 
(final version agreed with 
Directorate-General for 
Regional and Urban Policy), 
13.10.2010.

16. 

17. 

18. 

19. 

For those OPs to which Article 73 status has been granted, the Commis-
sion can then draw its assurance regarding the legality and regularity 
of EU spending, to a large extent, from the work of the audit authorities 
(‘single audit’ principle). Hence, ‘single audit’ status is the consequence 
of effective internal control arrangements for an OP. This provision in 
the Regulations draws largely on the example of the ‘contracts of con-
fidence’ piloted during the 2000–06 programming period 16. However, 
OPs to which ‘single audit’ status has been granted by the Commission 
need not comply with any requirements over and above those already 
specified in the Financial Regulation or sectoral Regulations.

If the Commission considers that all necessary conditions are in place 
for an OP, a decision will be taken to notify the Member State in accord-
ance with Article 73. In 2010, the Commission defined how the regula-
tory requirements for applying Article 73(2) were to be interpreted by 
its services. These internal rules (the ‘Article 73 roadmap’), were agreed 
in a working paper between the Directorates- General for Regional and 
Urban Policy and for Employment, Social Affairs and Inclusion 17. In 2012, 
the roadmap was amended, and additional criteria for granting Article 73 
status were specified18.

In the case of OPs with Article 73 status, the Commission relies on the 
audit opinion prepared by the corresponding audit authority. In par-
ticular, the Commission will carry out its own on-the -spot checks only if 
there is evidence to suggest shortcomings in the system affecting the 
legality and regularity of the expenditure which had been certified to 
the Commission for that year, unless the audit authority has adequately 
addressed these issues in its audit opinion.

Subject to the results of its monitoring, the Commission may decide to 
suspend (or withdraw) an OP’s ‘single audit’ status at any time19. If the 
Commission decides to suspend (rather than withdraw) the application 
of Article 73, additional corrective action will have to be agreed with the 
Member State concerned.

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AUDIT SCOPE AND APPROACH

19

20. 

21. 

AUDIT QUESTIONS

In the 2007–13 programming period, the Commission has increasingly 
relied on the information provided by national audit authorities and has 
put in place a comprehensive system for obtaining assurance regarding 
the legality and regularity of ERDF/CF and ESF expenditure.

Through this audit, the Court analysed the extent to which the Commis-
sion is able to rely, in the area of Cohesion, on the work of national audit 
authorities for its own assurance, and took stock of the Commission’s 
implementation of the ‘single audit’ model (as specified in Article 73) 
up to the end of 2012.

22. 

In particular, the Court examined whether the Commission has:

 — made proper use of the information provided by national audit au-
thorities for its own assurance and when granting Article 73 status 
to OPs; and

 — ensured a consistent audit approach in Cohesion through its guid-

ance and support of audit authorities.

The Court also analysed the costs of the reinforced audit arrangements 
introduced in the 2007–13 programming period.

PERIOD COVERED, EVIDENCE COLLECTION METHODS AND AUDIT CRITERIA APPLIED 
BY THE COURT

23. 

The period under examination was 2010 to 2012 and the audit involved 
inter alia: 

 — an assessment of the Commission’s supervision and monitoring of 
national audit authorities and the way in which the information 
provided by them was used by the Commission in its annual activ-
ity reports;

 — a review of relevant information on the concept of ‘single audit’, on 
audit authorities and on the Commission’s procedures for granting 
Article 73 status;

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 — an analysis of the Commission’s progress in granting Article 73 sta-

20  OJ C 107, 30.4.2004, p. 1.

tus to OPs and the budgetary impact thereof;

21  COM(2006) 9 final.

 — examination of a sample of 19 audit authorities for ERDF/CF and/or 
ESF in 15 Member States to assess their compliance with key regula-
tory requirements and their effectiveness;

 — a review of the Commission’s legislative proposal for the 2014–20 
programming period as regards the role and responsibilities of na-
tional audit authorities;

 — an electronic survey of the 112 audit authorities for ERDF/CF and/or 
ESF to obtain their views on the Commission’s guidance and sup-
port, its supervision and monitoring activities, the effectiveness of 
the internal control system and the Commission’s proposals for the 
2014–20 programming period. Around 97 % of all the audit authori-
ties responded to this survey;

 — an estimate of the ‘cost of control’ of audit activities for the 2007–13 
programming period based on information provided by audit au-
thorities in the survey; and

 — interviews with the heads of 36 audit authorities (or their represent-
atives) in 17 Member States, following interest expressed through 
the survey.

24. 

The findings were examined against the relevant provisions in the Regu-
lations for the 2007–13 programming period and the Commission’s own 
rules and guidelines with regard to granting Article 73 status. Account 
was also taken of the general principles applicable to an integrated in-
ternal control framework as set out in the Court’s Opinion No 2/2004 20 
and in the Commission’s 2006 Action Plan21, as well as the requirements 
of the international standards on auditing (ISAs) and the guidance notes 
addressed to audit authorities by the Coordination Committee of the 
Funds (COCOF).

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OBSERVATIONS

21

DID THE COMMISSION MAKE PROPER USE OF THE 
INFORMATION PROVIDED BY NATIONAL AUDIT 
AUTHORITIES FOR ITS OWN ASSURANCE AND WHEN 
GRANTING ARTICLE 73 STATUS TO OPs?

25. 

For the Commission to draw assurance as to the legality and regularity 
of ERDF/CF and ESF expenditure from the work carried out by national 
audit authorities, the information provided by them must be compre-
hensive, reliable and accurate. This is particularly the case for ‘Article 73’ 
OPs, where the Commission would in principle rely on the audit opinion 
issued by the audit authority for its assurance process. The Court:

22  232 out of 317 ERDF/CF 
OPs (73 %) and 90 out of 117 
ESF OPs (77 %).

 — reviewed how the information provided by audit authorities was 
presented in the annual activity reports of both directorates-general;

 — examined specific risks associated with the way in which the error 
rates were calculated and reported by national audit authorities 
and with how financial corrections imposed at the national level 
were accounted for;

 — verified for which OPs the Commission had taken decisions to grant 
Article 73 status, when those decisions were notified to the Member 
States and whether the minimum conditions for doing so had been 
fully in place; and

 — assessed whether the Commission had put in place a robust moni-

toring strategy for Article 73 OPs.

THE COMMISSION RELIED ON THE INFORMATION PROVIDED BY AUDIT 
AUTHORITIES FOR ALMOST THREE QUARTERS OF ALL OPs IN 2012

26. 

Overall, in 2012, the Commission considered that 322 of the 434 OPs 
(74  %)  required  no  reser vation 22. These  account  for  around  340  bil-
lion  euro (69 %) of the total estimated budget (in terms of EU and na-
tional public and private funding) for the ERDF/CF and ESF.  Annex III 
summarises how the 434 ERDF/CF and ESF OPs were classified by the 
Commission and by the two directorates- general for 2012.

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The number of OPs without reservations increased significantly com-
pared with 2011, when a total of 264 OPs (61 %) were free of reservations 
(accounting for 260  billion  euro (or 53 %) of the total budget)23. This 
increase was almost entirely due to a larger number of ERDF/CF OPs for 
which the Directorate-General for Regional and Urban Policy no longer 
issued reservations in 2012.

In 2012, therefore, for a significant part of the Cohesion budget, the 
Commission considered that OP internal controls were functioning ef-
fectively and that EU spending was legal and regular.

23  171 ERDF/CF OPs (54 %) 
and 93 ESF OPs (79 %).

24  Chapter 4, 
Annex 4.3 of 2010 Annual 
Report (OJ C 326, 10.11.2011, 
p. 1), Chapter 5, Annex 
5.2 of 2011 Annual Report 
(OJ C 344, 12.11.2012, p. 1) 
and Chapter 5, Annex 
5.2 of 2012 Annual Report 
(OJ C 331, 14.11.2013, p. 1).

RISKS ASSOCIATED WITH THE COMMISSION’S USE OF INFORMATION 
PROVIDED BY NATIONAL AUTHORITIES: ERROR RATES AND FINANCIAL 
CORRECTIONS

The Commission’s assurance process in Cohesion relies on two main in-
dicators: the projected error rates reported by national audit authorities 
(as validated by the Commission) and the residual error rates calculated 
by the Commission itself (see paragraph 10 and Box 2). This requires both 
the error rates reported by national audit authorities and the information 
on financial corrections implemented at national level to be accurate 
and reliable. Moreover, the Commission must make appropriate use of 
this information so that its assessment properly reflects the situation for 
each OP.

INSUFFICIENT ACCURACY AND RELIABILITY OF THE ERROR RATES REPORTED FOR 
SEVERAL OF THE AUDIT AUTHORITIES EXAMINED BY THE COURT

Audit authorities which are not effective in checking the legality and reg-
ularity of EU spending are obviously a major impediment to implementa-
tion of the ‘single audit’ model in Cohesion. The Court’s examinations of 
audit authorities between 2010 and  2012 highlighted shortcomings in 
the calculation (and reporting) of error rates in a number of cases (see 
Box 4)24. Therefore, doubts remain as to the accuracy and reliability of 
the error rates reported by several audit authorities. The risk that audit 
authorities may under-report problems was also noted by the Commis -
sion’s Internal Audit Service in a 2013 report.

27. 

28. 

29. 

30. 

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31. 

The Court notes that the Commission may interrupt or suspend payments 
if audit authorities under-report problems for OPs. However, there is no 
provision in the Regulations for the 2007–13 programming period for 
the Commission to impose targeted net financial corrections on OPs in 
respect of which the audit authorities repeatedly under-report problems.

BOX 4

COURT’S OWN EXAMINATION OF AUDIT AUTHORITIES: MAIN FINDINGS

The Court’s examinations of 19 audit authorities between 2010 and 2012 showed that:

 — seven audit authorities applied a sampling approach which was not in line with the regulatory requirements 

and/or the Commission’s guidance, or the sample of operations to be audited was incorrectly drawn;

 — for 12 audit authorities, the Court detected irregularities, either in relation to issues which had not been 
checked (often due to differences in the audit scope and approach) or where the significance of the find-
ing had been understated by the audit authority for at least one of the audits of operations re-performed 
by its own auditors; and

 — for five audit authorities, the Court found cases where the audit authority had unduly omitted errors from 
the calculation of the error rate or otherwise miscalculated the rate. In these cases, the differences detected 
by the Court were significant (i.e. augmenting the projected error rate by more than 0,5 %) and/or would 
have had an impact on the audit opinion.

The Court concluded from its examination of 19 audit authorities between 2010  and 2012 that eight were glob-
ally ‘effective’. Nine were rated as ‘partially effective’ and two were ‘not effective’25.

Five of the 19 audit authorities examined by the Court had significantly under-reported the error rates for OPs 
in their annual control reports. This led to insufficient financial corrections being imposed by managing and 
certifying authorities.

25  2010 Annual Report, Chapter 4, Annex 4.2; 2011 and 2012 Annual Reports, Chapter 5, Annex 5.2.

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26  2011 Annual Report, 
paragraph 5.50; 2012 Annual 
Report, paragraph 5.52.

27  Annex VI to Commission 
Regulation (EC) No 1828/2006 
of 8 December 2006 
setting out rules for the 
implementation of Council 
Regulation (EC) No 1083/2006 
laying down general 
provisions on the European 
Regional Development 
Fund, the European Social 
Fund and the Cohesion 
Fund and of Regulation 
(EC) No 1080/2006 of the 
European Parliament and of 
the Council on the European 
Regional Development Fund 
(OJ L 371, 27.12.2006, p. 1).

28  2012 Annual Report, 
paragraphs 5.52 and 6.34.

29  2012 Annual Report, 
paragraphs 5.52 and 5.57.

32. 

33. 

THE COMMISSION’S SCOPE FOR VALIDATING THE ERROR RATES DISCLOSED IN ANNUAL 
CONTROL REPORTS IS LIMITED

Each year, the Commission conducts a desk review of annual control 
reports, which  provide summaries of the results of  audit  authorities’ 
system audits and audits on operations in relation to the expenditure 
certified to the Commission during the previous year. The Court’s audits 
showed, however, that the Commission has limited scope to verify the 
calculation of error rates during these desk reviews and, where necessary, 
make adjustments. This has already been noted by the Court in prev- 
ious years26, and is due to the fact that audit authorities are not required 
to submit detailed information about their audits of operations to the 
Commission (such as audit reports)27.

The summary information disclosed in annual control reports does not 
permit the recalculation of error rates or verification that the sampling 
method set out in the audit authorities’ audit strategy has actually been 
complied with. The Commission would normally only carry out limited 
plausibility checks of the reported error rates (see paragraph 65, first and 
second indents). The additional information necessary for more effective 
checks is not requested systematically, but only on a case-by- case basis 
if the desk reviews identify issues which need to be clarified. Where the 
Commission had such information, the Court’s checks showed that its 
assessment of the error rates reported by audit authorities was generally 
effective.

34. 

The Court’s analysis of the 2012 annual activity reports of the Directo-
rates- General for Regional and Urban Policy and for Employment, Social 
Affairs and Inclusion in respect of 138 ERDF/CF and ESF OPs (based on 
the information available at the Commission and additional data re-
quested from audit authorities) showed that28:

 — for 51 of the 138 OPs reviewed the Commission did not have suffi-
cient information to accept (or recalculate) the error rates reported 
by the audit authorities. This included cases where  the  audited 
expenditure stated in the annual control report did not fully cor-
respond to OP spending for the year or where an error rate was not 
accurately calculated by the audit authority; and

 — for five of the 138 OPs examined (including one Article 73 OP), the 
residual error rate recalculated by the Court was above the Com-
mission’s materiality threshold of 2 %. This should have led to ad-
ditional reservations by the Commission in respect of the ERDF/CF 
OPs concerned29.

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30  2010 Annual Activity 
Report of DG Regional and 
Urban Policy, p. 69.

31  These OPs accounted for 
54 % of the total budget in 
2011 and 73 % in 2012.

35. 

THE ROBUSTNESS OF THE COMMISSION’S CALCULATION OF RESIDUAL ERROR RATE IS 
AT RISK

THE ERROR RATES USED BY THE COMMISSION WHEN CALCULATING RESIDUAL ERROR 
RATE ARE NOT SUFFICIENTLY RELIABLE

When calculating the residual error rate for an OP (or a group of OPs), 
the Commission takes account of the annual projected error rates for all 
years in which interim or final payments were made (see Box 2). In 2010, 
most audit authorities reported error rates for the first time, with a sig-
nificant number reporting error rates of 0 %, very low error rates or no 
error rates at all (in relation to 2009 expenditure). The Commission also 
identified significant shortcomings in the way in which audit authorities 
had carried out their audits of operations (see also paragraph 45). As 
a result, the Directorate-General for Regional and Urban Policy chose not 
to rely on these rates in 2010, instead using a set of flat rates for its calcu-
lation of the risk to 2010 payments. The Court found that around a third 
of the rates considered to be unreliable in 2010 were subsequently used 
by the directorate-general when calculating multiannual residual error 
rates in 2012. For the remaining OPs, the directorate-general validated 
adjusted rates for 2010 that had been reported by audit authorities in 
2011 and 2012. Generally speaking, these rates, which the Commission 
validated in 2012, did not differ significantly from those reported in 2010. 
The Court notes, however, that the directorate-generals’ estimate of the 
payments at risk in 2010 would have been above the Commission’s 2 % 
materiality threshold if the validated error rates had been used instead 
of the flat rates (2,8 % instead of the 0,8 % reported in the 2010 Annual 
Activity Report)30.

36. 

Moreover, for only around half of the ERDF/CF OPs (46 % in 2011 and 55 % 
in 2012) did audit authorities report error rates which were statistically 
representative for the OP as a whole31. However, even where an OP has 
a non-representative error rate, the Commission takes account of  all 
financial corrections when calculating the corresponding residual error 
rate. The Court considers that this practice is not appropriate. If the er-
ror rate is not representative of the population as a whole, the residual 
error rate should only take account of those financial corrections which 
were implemented for the sample audited (and to which the error rate 
relates).

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37. 

The reliability of the Commission’s calculation of residual error rate de-
pends to a large extent on the accuracy of Member States’ information 
on financial corrections implemented at national level and how this 
information is taken into account by the Commission (see paragraph 29). 
Accounting for financial corrections is however a complex task: they are 
made at different stages of programme implementation and as a result 
of a multitude of control and audit activities (by national and EU bodies). 
At national level, financial corrections can be imposed by managing and 
certifying authorities through withdrawals and recoveries (see Box 5).

BOX 5

FINANCIAL CORRECTIONS AT MEMBER STATE LEVEL IN COHESION

Financial corrections aim at protecting the EU budget from the burden of erroneous or irregular expenditure. 
According to the financial regulation, amounts incorrectly paid are to be recovered32. For expenditure subject 
to shared management, preventing or detecting and correcting payments incorrectly made is the primary re-
sponsibility of Member States33. In Cohesion, the regulations also require certifying authorities to report annually 
on all financial corrections implemented (i.e. withdrawals and recoveries), and also on pending recoveries and 
unrecoverable amounts34.

32  Article 78(3) of the financial egulation.

33  Recital 65, Article 61 and Article 70 of Regulation (EC) No 1083/2006.

34  Article 20 of Regulation (EC) No 1828/2006 and guidance note to certifying authorities on reporting on withdrawn amounts, recovered 
amounts, amounts to be recovered and amounts considered irrecoverable, applicable to programming period 2007–13 and the 
remainder of the 2000–06 programming period, COCOF 10/0002/02/EN, 17 March 2010.

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35  Article 20(2) of Regulation 
(EC) No 1828/2006, Annex XI: 
The annual statement 
specifies the types of financial 
corrections (i.e. withdrawn 
and recovered amounts, 
pending recoveries and 
irrecoverable amounts), but 
not their origin.

38. 

The Court considers that there is also a risk of the Commission under-es-
timating the residual error rate where it has limited assurance of the 
reliability and accuracy of a Member State’s information on financial 
corrections. This is mainly due to the following aspects:

 — Timing: the certifying authority reports on financial corrections for 
a given year before the end of March of the following year (n+1). 
This is the same deadline for directorates- general to present their 
annual activity reports. As a result, provisional information on finan-
cial corrections is requested from certifying authorities. The Court 
considers that the information in the previous (definitive) report 
should be used instead when calculating residual error rate. This 
would also result in a better match with the period for which the 
projected error rate is calculated and for which reliable informa-
tion on the financial corrections implemented is available (end of 
year n-1).

 — Double counting: Member States report financial corrections with-
out specifying the source (i.e. whether they are based on managing 
and certifying authorities’ own checks or on audits carried out by 
audit authorities). However, the directorates- general are unable 
to isolate withdrawals and recoveries which result from national 
audit authorities’ own audit work 35. This makes it impossible for 
the Commission to verify whether audit authorities have reduced 
their projected error rates by taking account of financial corrections 
implemented after certification of expenditure to the Commission. 
The Court found several cases where financial corrections (with-
drawals) taken into account by the Commission for the residual 
error rate calculation were related to expenditure decertified by the 
Member State before the sample was drawn or where the irregular 
expenditure in the sample was incorrectly reduced by financial 
corrections.

 — Inclusion of pending recoveries: the Commission’s calculation takes 
account of pending recoveries reported by Member States. This 
information on financial corrections is by definition uncertain, since 
these recoveries have not yet been implemented by the end of 
year n.

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36  In 2012, the 
Directorate-General for 
Regional and Urban Policy 
no longer disclosed the 
negative figures for residual 
error rates but set the 
value at ‘0’. The numbers 
referred to in this report 
refer to OPs for which the 
residual error rate calculation 
resulted in negative figures 
according to the information 
taken into account by the 
directorate-general.

37  Including four ESF OPs 
with projected error rates 
above 5 % and in respect 
of which the Commission 
abstained from making 
a reservation but did 
not disclose its reasons 
(see 2012 Annual Report, 
paragraph 6.38).

 — Adjustment of error rates in subsequent years with no correspond-
ing adjustment in financial corrections: audit authorities can ad-
just their estimates of error rates in subsequent years. This may 
occur if an error is no longer maintained (or assessed differently) 
in view of additional information obtained by the audit authority 
after submission of the annual control report. The adjusted rate is 
taken into account by the Commission, resulting in a reduction in 
the residual error rate. However, the Commission does not verify 
whether any financial corrections made in relation to irregularities 
which may already have been reported by the certifying authority 
are subsequently also adjusted.

39. 

40. 

INDICATIONS THAT THE RESIDUAL ERROR RATE MAY BE UNDERSTATED IN A NUMBER 
OF CASES

For a significant number of OPs, the Court’s analysis indicates that the 
financial corrections taken into account for the calculation of residual 
error rate may be over-estimated (or alternatively that the projected error 
rate was understated): in 2011, 33 ERDF/CF OPs and 22 ESF OPs (in 11 
Member States) had a negative residual error rate. In other words, the 
multiannual financial corrections taken into account by the Commission 
when calculating an OP’s residual error rate were higher than the spend-
ing affected by error (as extrapolated from the statistically representative 
error rate reported by the national audit authority). In 2012, this was the 
case for 53 ERDF/CF OPs in 16 Member States36. This effect applies across 
the board to all ERDF/CF and ESF OPs, but it can be demonstrated only 
in the case of OPs with negative residual error rates.

The Court emphasises that the reliability of the residual error rate is an 
important element in the Commission’s assurance process. In a number 
of cases the Commission’s decision not to issue a reservation for an OP 
is justified by the residual error rate’s being below the 2 % materiality 
threshold (see paragraph 10). In 2012, this was the case for 67 ERDF/CF 
OPs and 29 ESF OPs for which no reservations were made despite a vali-
dated projected error rate above 2 % (see Annex III)37.

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LIMITED TAKE‑UP OF THE OPTION TO APPLY THE ‘SINGLE AUDIT’ 
PROVISIONS, DELAYS IN GRANTING ARTICLE 73 STATUS AND 
MINIMUM CONDITIONS NOT ALWAYS IN PLACE

LIMITED TAKE‑UP OF THE OPTION TO GRANT ARTICLE 73 STATUS BY THE END OF 2012

As at December 2012, the Commission had granted Article 73 status to 
61 of the 434 OPs in 12 of the 27 Member States (see the Table): 51 ERDF 
OPs in 10 Member States and 10 ESF OPs in five Member States.

This corresponds to around 14 % of the 434 OPs for the 2007–13 program-
ming period, the share of Article 73 OPs being higher for the ERDF/CF 
(16 %) than for the ESF (9 %). As at the end of 2012, no Article 73 status 
had been granted to cross-border European Territorial Cooperation (ETC) 
OPs.

These 61 Article 73 OPs account for a total estimated budget (EU and 
national public and private funding) of 75 839 million euro for the 2007–
13 programming period. This corresponds to around 16 % of the total 
budget of 490 654 million euro (see Table and Annex I). This share is 
significantly smaller than for OPs (69 % of the total budget) in respect of 
which the Commission issued no reservations in 2012 (see paragraph 26).

41. 

42. 

43. 

TABLE

2007–13 PROGRAMMING PERIOD: NUMBER OF ARTICLE 73 OPS FOR ERDF/CF AND ESF 
(AS AT 31 DECEMBER 2012)

Number of OPs

—  of which Article 73

—  in %

Total budget (in million euro)

— of which Article 73

— in %

ERDF/CF

317

51

16 %

374 444

69 545

19 %

ESF

117

10

9 %

116 210

6 294

5 %

Total

434

61

14 %

490 654

75 839

16 %

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38  European Commission, 
Directorate-General for 
Employment, Social Affairs 
and Inclusion, ‘Roadmap for 
the implementation and 
for the monitoring of the 
correct implementation of 
the “single audit’”principle’ 
(final version agreed with 
Directorate-General for 
Regional and Urban Policy), 
13.10.2010.

39  Chapter 4, paragraphs 4.14 
and 4.27 of 2009 Annual 
Report (OJ C 303, 
9.11.2010, p. 1); Chapter 4, 
paragraph 4.42 of 2010 
Annual Report.

44. 

45. 

FIRST DECISIONS TO GRANT ARTICLE 73 STATUS TAKEN IN MARCH 2012

Granting Article 73 status to an Operational Programme will have an 
effect on the Commission’s supervision from the year following the noti-
fication until the close of the programming period. Therefore, the earlier 
in the programming period ‘single audit’ status can be granted to OPs, 
the greater will be the impact.

In the Article 73 roadmap, the Commission initially anticipated that the 
first Article 73 decisions could be taken during 201138. This proved how-
ever to be overly ambitious:

 — For a number of OPs, Member States experienced significant dif-
ficulties during 2009/2010 in presenting robust compliance assess-
ments to the Commission, which delayed the Commission’s accept-
ance of these documents39. This process was prioritised by Member 
States and the Commission in the early years of the 2007–13 pro-
gramming period.

 — In addition, for a large number of audit authorities, no audits of op-
erations were carried out until 2009/2010, and the results of these 
audits were reported in the 2010 annual control reports. However, 
the Commission did not consider these first reported error rates to 
be sufficiently robust for an assessment as to whether Article 73 
could be granted to OPs (see paragraph 35).

46. 

Article 73 status was first granted to OPs in March 2012, following the 
audit authorities’ submission of the 2011 annual control reports. Thus, 
the ‘single audit’ model was applied for the first time as late as the sixth 
year of the 2007–13 programming period. This illustrates the difficulties 
in effectively applying Article 73 as specified in the regulations.

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COMPLIANCE WITH ARTICLE 73 CONDITIONS TESTED BY THE COURT

47. 

Based on the provisions of Article 73 of the regulations, and taking ac-
count of the key conditions specified in the Commission’s internal rules 
in 2010  and  2012 (see paragraphs 15 and 17), the Court considers that 
the following minimum requirements need to be fulfilled for an OP to 
qualify under Article 73:

 — the audit strategy and compliance  assessment must  have been 

accepted by the Commission;

 — the OP’s internal controls must function effectively, and in particular 
the multiannual residual error rate must be below the Commission’s 
materiality threshold of 2 %;

 — the results of the Court’s audits should be considered, in particular 
where significant weaknesses in the OP’s internal controls have 
been identified; and

 — the audit authority must have been rated ‘effective’.

48. 

Overall, the Court’s verifications showed that 46 of the 61 Article 73 OPs 
satisfied all these conditions (see Box 6). Taken together, these OPs ac-
count for around three quarters of the total budget of all Article 73 OPs.

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BOX 6

OVERVIEW OF THE RESULTS OF THE COURT’S TESTING OF ARTICLE 73 CONDITIONS 
(2012)

The Court found that the Commission had accepted the audit authorities’ audit strategy and compliance as-
sessment documents (report and opinion) for all 61 Article 73 OPs, generally in 2008 and 2009.

However, for a number of OPs, the tests showed that other conditions for granting Article 73 status were not 
fully in place.

(a)  Insufficient information as to whether the internal controls were functioning properly. In particular, the 

Court found that:

 — for 10 ERDF and ESF OPs in 2011 and 15 OPs in 2012, the Commission validated a projected error rate 
above the 2 % materiality threshold. In these cases, Article 73 status should only have been granted if at 
the same time the residual error rate for each of the OPs concerned was below 2 %40. For six ERDF OPs, 
this was only achieved because the Commission grouped them together when calculating the residual 
error rate. However, Article 73 status is supposed to be granted to a specific OP and not a group of OPs. 
The Court therefore considers that the Commission cannot use a combined residual error rate in this way;

 — in the case of another ERDF OP, the Commission had issued a partial reservation in March 2012. In No-
vember 2012, the Commission assessed that corrective action had been taken for this reservation to 
be lifted. At the same time the OP was granted Article 73 status, before checks were made of the 2012 
annual control report for the OP, which was submitted shortly afterwards.

(b)  The error rate reported by the audit authority was not statistically representative and therefore the Commis-

sion did not have a sufficiently robust basis for deciding whether to grant Article 73 status:

 — according to the regulation the size of the sample must be sufficient to enable the audit authority to 
draw valid conclusions regarding the effective functioning of the system. For one ERDF and two ESF 
OPs, the audit authorities had taken a sample in line with the Commission’s guidance. Each sample was 
however too small for the error level to be extrapolated to the population as a whole. As a result, the 
error rates reported by the audit authorities cannot be considered representative of the OPs (or group 
of OPs) examined and therefore do not permit a conclusion as to the effective functioning of the OPs’ 
management and control systems;

 — for two ERDF OPs, the sampling population for the 2012 audits of operations, used for sampling in 
March 2012, did not include projects corresponding to at least a quarter of the expenditure certified to 
the Commission. When granting Article 73 status in June 2012, the Commission was not aware that the 
audit authority had opted for a sampling approach which was in breach of the regulation;

40  In principle, both rates should be below the Commission’s materiality threshold of 2 % (see Box 2). However, this requirement is more 
important for the residual error rate, which takes account of the projected error rates and multiannual financial corrections since the start 
of the programming period (see paragraphs 35 to 40). If this rate is above the 2 % threshold, it indicates that the internal controls are not 
sufficiently effective in detecting and correcting irregularities.

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BOX 6

 — for one ESF OP, in accordance with the Commission’s guidance for very small OPs, the audit authority 
had taken a sample of only two operations in 201141. Again, the error rate cannot be considered repre-
sentative.

(c)  Weaknesses in an OP’s internal controls were detected by the Court through its own audits of operations42. 

This was the case for two Article 73 OPs.

(d)  Two of the five audit authorities in charge of Article 73 OPs were rated ‘partially effective’ by the Court43.

41  The EU co-financing for this OP exceeded 40 % of the total public expenditure. As a result, the Commission could not apply Article 74 of 
Regulation 1083/2006 on proportional control arrangements, which would also have allowed it to rely on the work of the audit authority 
for this OP (see Annex IV).

42  The Court’s sample of OPs audited under its annual Statement of Assurance since 2009 has included 16 of the 51 ERDF Article 73 OPs 
and two of the 10 ESF Article 73 OPs. 

43  Overall, by the end of 2012, 21 audit authorities were responsible for auditing Article 73 OPs, five of which had also been examined by 
the Court between 2010 and 2012: Belgium (Wallonia) — Cellule Audit de l’Inspection des finances pour les fonds européens (CAIF); Spain 
— Intervención General de la Administración del Estado (IGAE); Malta — Internal Audit and Investigations Department (IAID); Poland — 
Generalny Inspektor Kontroli Skarbowej; Portugal — Inspeção-Geral de Finanças (IGF).

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44  European Commission, 
Directorate-General for 
Employment, Social Affairs 
and Inclusion, ‘Roadmap for 
the implementation and 
for the monitoring of the 
correct implementation of 
the “single audit” principle’ 
(final version agreed with 
Directorate-General for 
Regional and Urban Policy), 
13.10.2010.

45  ISA 600 on ‘Special 
Considerations — Audits of 
Group Financial Statements 
(Including the Work of 
Component Auditors)’, 
ISA 315 on ‘Identifying and 
assessing the risks of material 
misstatement through 
understanding the entity and 
its environment’ and ISA 610 
(revised) on ‘Using the work 
of internal auditors’ (http://
www.ifac.org).

49. 

50. 

THE MONITORING ARRANGEMENTS FOR ARTICLE 73 OPs NEED TO BE 
STRENGTHENED AND ‘SINGLE AUDIT’ STATUS SHOULD BE REVOKED IF 
MINIMUM CONDITIONS ARE NO LONGER MET

COMMISSION’S MONITORING APPROACH FIRST DEVELOPED IN 2010

In the case of Article 73 OPs the Commission would in principle rely on 
the audit opinion issued by the audit authority. For this to work, however, 
the Commission must be certain that the quality of the audit work by the 
audit authority concerned continues to be up to standard and that the 
information on the OP’s projected error rate and financial corrections is 
reliable.

In 2010, the Commission set out its strategy for monitoring audit au-
thorities in the Article 73 roadmap44. In this working paper, the Directo-
rates- General for Regional Policy and for Employment, Social Affairs and 
Inclusion agreed to:

 — undertake a desk review of the annual control reports, annual opin-
ion and system audits received for each Article 73 OP (as for any 
other OP); and

 — maintain close bilateral contacts with each audit authority through 
meetings and joint audit engagements (or Commission representa-
tives participating as observers in audits carried out under the re-
sponsibility of the national audit authority).

51. 

The ISAs on using the work of other auditors state that the Commission 
should carry out a review of an audit authority’s working papers when 
relying on their work. In addition, the ISAs require some audits to be 
re-performed 45.

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46  For Article 73 OPs, the 
Commission no longer 
intended to carry out its 
own examination of national 
managing and certifying 
authorities. Instead, the 
Commission relied on the 
systems audits carried out 
by the audit authorities. 
Similarly, the Commission 
no longer carried out 
its own examinations of 
audit authorities or its 
own on-the-spot audits of 
operations.

47  European Commission, 
‘Roadmap for the 
implementation and for the 
monitoring of the correct 
implementation of the “single 
audit” principle’ update of 
the version of 13.10.2010, 
26.9.2013.

48  According to the Article 73 
roadmap, the Commission 
could impose action plans on 
an audit authority; conduct 
systems audits to verify the 
degree of non-compliance 
of systems, and audits of 
operations to measure 
the impact of deficiencies; 
interrupt or suspend 
payments to the OP; or apply 
financial corrections.

52. 

These aspects were not addressed, however, in the Article 73 roadmap. 
Reviews of working papers and re-performances should take place only 
where  doubts  arise  as  to  the  accuracy  of  the  information  submitted 
by national audit authorities46. Since annual control reports are to be 
submitted by the end of the year, and the Commission aims at assess-
ing their reliability within two months, the Court considers that there 
is insufficient time for the Commission to carry out this task in an ap-
propriate manner (see paragraphs 32 to 34). The Court also considers 
that this limits the extent to which the Commission can draw assurance 
from the information reported by audit authorities.

53. 

The  Court  notes  that,  in  September  2013,  the  Commission  adopted 
an updated roadmap with modified provisions for the monitoring of 
Article 73 OPs47.

54. 

55. 

COMMISSION INITIATED CORRECTIVE ACTION FOR THREE AUDIT AUTHORITIES IN 
CHARGE OF FOUR ARTICLE 73 OPS

The Commission may decide at any time to suspend or withdraw the 
‘single audit’ status granted to an OP (see paragraph 19). As set out in the 
Article 73 roadmap, this may occur, in particular, if significant shortcom-
ings are detected in the work of the national audit authority and/or if the 
residual error rate for the OP exceeds the Commission’s 2 % materiality 
threshold.

In 2013, when examining the 2012 annual control reports, the Commis-
sion verified for the first time whether the conditions for granting Arti-
cle 73 status were still in place for OPs (and audit authorities) to which 
‘single audit’ status had been granted in 2012. The Court notes that the 
Commission initiated corrective actions for three audit authorities in 
charge of four ERDF OPs where the Court had reported that the ‘single 
audit’ conditions were not complied with as of the end of 2012 (see 
paragraph 48 and Box 6)48.

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49  Article 73(1) of Regulation 
(EC) No 1083/2006.

ARTICLE 73 PARTICULARLY RELEVANT FOR THE PROGRAMME CLOSURE SCHEDULED 
FOR 2017

56. 

The ‘single audit’ concept will also be relevant for the closure of the 
2007–13 programming period. Audit authorities will have until the end 
of 2015 to submit an annual control report and must prepare a closure 
declaration no later than 31  March  2017, supported by a final control 
report (see Annex II). Where Article 73 status has been granted to an OP, 
the Commission will be able to draw assurance that the final payment is 
legal and regular from the work of the audit authority rather than carry-
ing out its own detailed checks. The Court therefore considers that, for 
programme closure to be effective (which depends on the quality of the 
information provided by audit authorities), the Commission will need 
to have developed a sufficiently robust monitoring of audit authorities’ 
work by that time.

DID THE COMMISSION ENSURE A CONSISTENT 
AUDIT APPROACH ACROSS ALL OPs THROUGH ITS 
GUIDANCE AND SUPPORT FOR AUDIT AUTHORITIES?

57. 

The ‘single audit’ model can only be implemented effectively if audit 
authorities apply a consistent audit approach so that audit results are 
comparable between Member States, funds and OPs and over time. The 
Court verified whether the Commission had:

 — provided appropriate methodological guidance to audit authorities 

for their work in accordance with the regulations49;

 — promoted the exchange of good practices with and between audit 

authorities; and

 — organised training activities addressing the specific needs of audit 

authorities.

In  this  context,  the  Court  also  asked  how  the  Commission’s  capaci-
ty-building activities are perceived by audit authorities.

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50  Article 62(2) of Regulation 
(EC) No 1083/2006 and 
Annex V to Regulation (EC) 
No 1828/2006.

IMPROVEMENTS IN THE COMMISSION’S METHODOLOGICAL GUIDANCE 
TO AUDIT AUTHORITIES SINCE THE START OF THE PROGRAMMING 
PERIOD

INCONSISTENCIES IN HOW THE REGULATION SETS METHODOLOGICAL REQUIREMENTS

58. 

Audit authorities should take account of internationally accepted audit 
standards (IAAS) 50. In particular, the regulations refer to the ISAs, the 
professional standards issued by the Institute of Internal Auditors and 
INTOSAI audit standards. The Court notes that these standards, although 
they have some degree of similarity, are not identical. In addition, the 
regulations do not formally require that audit authorities comply with 
IAAS. Only half of the respondents (52 %) to the Court’s survey consid-
ered the extent to which the regulations set methodological require-
ments for audit authorities to be appropriate.

GUIDANCE PROVIDED BY THE COMMISSION

59. 

The Commission provides additional guidance material to support audit 
authorities in their operational work. This is generally done by means of 
‘COCOF guidance notes’ (see Box 7).

BOX 7

GUIDANCE NOTES APPROVED BY THE COORDINATION COMMITTEE OF THE FUNDS 
(COCOF)

The Coordination Committee of the Funds (COCOF) is the committee of Member State representatives set up 
under Article 103 of Regulation (EC) No 1083/2006 to provide advice to the Commission on the implementation 
of the ERDF, ESF and CF. The Commission chairs COCOF meetings and provides a secretariat.

COCOF plays a particular role in relation to the Commission’s guidance on all methodological and technical 
aspects where the regulations are silent. The Commission discusses draft versions with COCOF before finalising 
and issuing guidance notes.

The guidance notes serve as recommendations with practical examples and information, without being legally 
binding or limitative. All guidance notes include a legal disclaimer in this respect.

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51  Guidance document on 
a common methodology 
for the assessment of 
management and control 
systems in the Member States 
(2007–13 programming 
period), COCOF 08/0019/01, 
6.6.2008; Guidance note on 
the audit strategy (under 
Article 62 of Regulation 
(EC) No 1083/2006), COCOF 
07/0038/01, 6.8.2007; 
Guidance note on the 
‘compliance assessment’ 
exercise (under Article 71 
of Regulation (EC) 
No 1083/2006), COCOF 
07/0039/01, 6.8.2007.

60. 

61. 

62. 

SOME GUIDANCE TO AUDIT AUTHORITIES ISSUED LATE

The results of the Court’s survey showed that a majority of respondents 
considered that at least part of the guidance was not provided in due 
time. 15 % of audit authorities considered that guidance was generally 
late, and 58 % considered that guidance was partly late.

The survey results and the interviews carried out with heads of audit 
authorities revealed delays in particular for the issues covered by the fol-
lowing COCOF and other guidance notes: the model audit approach for 
financial engineering instruments (issued in July 2011) and the treatment 
of errors disclosed in annual control report (issued in December 2011). In 
addition, the second of these guidance notes was applied retroactively 
by the Commission when assessing the work of audit authorities (see 
Box 8).

The Court also observed cases of good practice where guidance was 
provided in time. This was in particular the case of the COCOF guidance 
on a common methodology for the assessment of management and 
control systems in Member States, the audit strategy and the compliance 
assessment exercise51.

BOX 8

RETROACTIVE APPLICATION OF COCOF GUIDANCE NOTE BY COMMISSION

The COCOF guidance on the treatment of errors disclosed in the annual control report, issued in December 2011, 
was applied retroactively to the 2011 annual control reports presented by audit authorities in the same month.

The adjustments that audit authorities were required by the Commission to make to their annual control reports 
in line with the guidance note caused duplication of work and further delayed the final versions of annual 
control reports.

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52  Guidance on sampling 
methods for Audit 
Authorities, COCOF 
08/0021/03, 4.4.2013.

53  Guidance note on Annual 
Control Reports and Opinions, 
COCOF 09/0004/01); see also 
Annex VI to Regulation (EC) 
No 1828/2006.

63. 

64. 

65. 

SIGNIFICANT PROGRESS ON PRESENTING COMPREHENSIVE AND CLEAR GUIDANCE 
MATERIAL SINCE THE START OF THE PROGRAMMING PERIOD

The Court found that the COCOF guidance notes cover a wide range of 
issues which are relevant for the work of audit authorities. The survey 
also showed that a majority of respondents think that the set of guidance 
notes is comprehensive (75 %) and consider the level of Commission 
guidance to be appropriate (60 %).

The Commission’s guidance is generally accepted and taken into account 
by audit authorities in their work, despite its non-binding character. 
Through the Court’s survey, more than 90 % of audit authorities indicated 
that they apply the COCOF guidance notes fully (or with some excep-
tions). This was also confirmed by the interviews with heads of audit 
authorities.

Overall, the Court considers that the Commission has made significant 
progress, since the start of the programming period, on providing guid-
ance material which contributes to better consistency in audit authori-
ties’ approaches and methodologies. In particular, in April 2013, the Com-
mission issued substantially revised guidance on statistical sampling52. 
This guidance must be applied by audit authorities from 2013 onwards 
and should help to address the shortcomings previously observed in this 
respect (see Box 4).

SPECIFIC WEAKNESSES IDENTIFIED IN RELATION TO THE COMMISSION’S GUIDANCE ON 
ANNUAL CONTROL REPORTS

66. 

As regards the provisions on annual control reports and audit opinions 
specified in the regulations, the Court considers that the Commission 
needs to clarify its guidance so that the information reported by audit 
authorities can be checked effectively (see paragraphs 32 to 34)53. This 
concerns in particular:

 — information on which operations (i.e. projects or payment claims 
and amounts declared) make up the sample audited by the audit 
authority. This would allow the Commission to understand on what 
basis the error rate reported in the annual control report has been 
calculated;

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54  Article 73(1) of Regulation 
(EC) No 1083/2006.

55  The Homologues Group 
is an informal working group 
composed of representatives 
of national audit authorities 
and the audit directorates of 
the Directorates-General for 
Regional and Urban Policy, 
for Employment, Social 
Affairs and Inclusion and for 
Maritime Affairs and Fisheries.

 — details concerning the errors found (i.e. information regarding op-
erations affected by error and error amount). Based on this infor-
mation, the Commission could check more effectively the accuracy 
and reliability of the error rate reported in the annual control report;

 — disclosure of the audit authority’s multiannual assessment of how 
the internal controls work, rather than just the current snapshot of 
audits carried out during the period covered by the annual control 
report. This could also provide a better basis for assessing whether 
appropriate corrective action has been taken and whether the audit 
authority’s audit strategy needs to be adjusted; and

 — information in relation to events occurring subsequent to the pe-
riod covered by  the annual control report  (which could lead  to 
a different assessment of the effectiveness of internal controls). 
The  Commission  has  not  yet  provided  guidance  on  which  (and 
how) cases that may have an impact on whether the audit author-
ity needs to issue a qualified (or adverse) audit opinion are to be 
reported in the annual control report. Currently, only a few audit 
authorities report these issues at all.

The  Court’s  analysis  also  showed  that  a  number  of  provisions  in  the 
Regulations (or in the COCOF guidance notes) in relation to the audit 
opinion differ from what is specified in the ISAs. This is the case, for ex-
ample, of the wording (and types) of audit opinions which are to be used; 
the period covered by audit opinions; the discrepancy in terminology 
between the Regulation and ‘International Federation of Accounts’ (IFAC) 
standards; uncorrected misstatements; and clarification of management 
and auditor responsibility in the audit opinion.

EXCHANGE OF GOOD PRACTICES WITH AND BETWEEN AUDIT 
AUTHORITIES PROMOTED BY THE COMMISSION

The regulations require the Commission and audit authorities to meet on 
a regular basis, and at least once a year, in order to examine the annual 
control reports and audit opinions and exchange views on other issues 
relating to the management and control of OPs54. The Commission also 
organises ad hoc technical meetings and the annual meeting of the 
‘Homologues Group’55.

67. 

68. 

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Audit authorities are generally satisfied with the Commission’s capac-
ity-building  activities  and  support.  68  %  of  the  respondents  to  the 
Court’s survey consider that the Commission effectively supports audit 
authorities in their work. The survey and interviews with heads of audit 
authorities indicate, however, the need for more Commission support 
in specific areas. For example, there is only limited information avail-
able for benchmarking audit authorities in terms of their organisational 
set-up, the resources allocated by them to their different activities and 
the good practices some of them have put in place. In 2012, the Directo-
rate-General for Regional and Urban Policy set up a special skills centre 
for administrative capacity-building 56.

56  European Commission, 
Directorate-General for 
Regional and Urban Policy, 
2011 discharge — responses 
to EP questionnaire 
to Commissioner 
Hahn for hearing on 
18 December 2012, 
Question 10, p. 8.

THE COMMISSION SUPPORTS AUDIT AUTHORITIES THROUGH SPECIFIC 
TRAINING

The Commission has carried out training activities to provide additional 
guidance for national audit authorities and promote good practices. 
These training activities, which mostly took place during the early phase 
of the programming period, have focused on specific issues (such as 
changes in the regulatory framework, compliance assessments, public 
procurement, annual control reports and audit opinions).

Overall, for the period audited, the Court estimates that around a fifth 
of all staff working for audit authorities have participated in training of 
this sort. High participation rates have been observed in particular in 
Bulgaria, the Czech Republic, Poland, Romania, Slovakia and Spain.

In the Court’s survey, the Commission’s training activities (which are 
provided in addition to training measures organised at national level) 
were  rated  very  positively.  Moreover,  a  third  of  the  respondents  ex-
pressed a desire for more (and more frequent) training by the Commis-
sion. This was also confirmed during interviews with audit authority 
representatives.

69. 

70. 

71. 

72. 

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57  SEC(2011) 1141 final 
of 6 October 2011: the 
Impact Assessment for the 
Commission’s legislative 
proposals for the 2014–20 
programming period 
contained an assessment of 
the overall ‘cost of control’ for 
the 2007–13 period, based on 
a study carried out in 2010 of 
the administrative workload 
and costs of implementing 
the ERDF and CF.

58  In 2011, the Contact 
Committee of the EU’s 
Supreme Audit Institutions 
(SAIs) presented a report on 
the overall ‘cost of control’ 
in the Cohesion policy area 
based on a parallel audit of 12 
SAIs. This report analysed the 
administrative and control 
costs of managing, certifying 
and audit authorities for 
the first years of the current 
programming period 
(2007 to 2009) on the basis 
of a sample of 34 ERDF/CF 
and 7 ESF OPs (see http://eca.
europa.eu/portal/pls/portal/
docs/1/11370726.PDF).

73. 

74. 

75. 

76. 

WHAT ARE THE COSTS OF THE AUDIT 
ARRANGEMENTS INTRODUCED IN THE 2007–13 
PROGRAMMING PERIOD?

The ‘single audit’ concept aims at preventing the duplication of control 
work  and  reducing  the  overall  cost  of  control  and  audit  activities  at 
Member State and Commission level, while also decreasing the admin-
istrative burden on auditees (see paragraph 11).

According to information presented by the Commission in 2011, the 
overall administrative cost for the implementation of OPs for the 2007–13 
programming period is 3,2 % of the total budget57. Based on this informa-
tion, the ‘cost of control’, which relates to the verification, certification 
and audit activities carried out by national authorities, accounts for 0,9 % 
of the total budget (i.e. less than 30 % of the total administrative cost). 
Around one fifth of the ‘cost of control’ is related to ‘programme audit’ 
(the work of national audit authorities).

In accordance with Article 46 of Regulation 1083/2006, the EU budget 
provides technical assistance to Member States (in most cases up to 4 % 
of the total allocation to OPs from the Funds). The Court notes that the 
‘cost of control’ is eligible under technical assistance.

Based on the information provided by audit authorities in 2012 (and re -
confirmed in 2013), the Court estimates that the overall cost of running 
the 112 audit authorities increased between 2010 and 2012 from around 
110  million  euro to 130  million  euro per year. For the entire 2007–13 
programming period, the total ‘cost of control’ relating to audit authori-
ties amounts to around 860  million  euro. This corresponds to 0,2 % of 
the total budget for the ERDF/CF and ESF and is broadly in line with the 
Commission’s own estimate58.

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59  European Commission, 
Proposal for a Regulation of 
the EP and of the Council 
laying down common 
provisions on the ERDF, 
the ESF, the CF, the EAFRD 
and the EMFF covered by 
the Common Strategic 
Framework and laying 
down general provisions 
on the ERDF, the ESF, the CF 
and repealing Regulation 
(EC) No 1083/2006, 
COM(2011) 615 final of 
6 October 2011 (as amended 
by COM(2012) 496 final of 
11 September 2012); see also 
European Court of Auditors’ 
Opinion No 7/2011 (OJ C 47, 
17.2.2012) and Opinion 
No 9/2012 (OJ C 13, 16.1.2013, 
p. 1).

77. 

Around 2 600 full-time staff are employed by national audit authorities. 
The Court’s analysis of the survey data also shows that the workload has 
increased during the current programme period: between 2010 and 2012 
staff numbers rose by around 10 %. According to the interviews with 
heads of audit authorities, this can mainly be attributed to the additional 
work  carried  out  by  audit  authorities  since  2010  on  audits  of  opera-
tions and the increasing use of statistically representative (and therefore 
larger) samples.

78. 

In the 2014–20 programming period, audit authorities will be given ad-
ditional responsibilities within an OP’s internal control system59. In par-
ticular, the audit authority will be expected to: 

 — examine the managing authority’s annual management declaration 
(including a summary of its checks and controls) and issue an au-
dit opinion as to whether the accounts prepared by the certifying 
authority are complete, accurate and true; and

 — express an opinion on the sound financial management of each OP.

These additional responsibilities are also specified in the Financial Regu-
lations for the period beginning 2014 and will further increase the ‘cost 
of control’. In this respect, the Court would observe that internal control 
systems require an appropriate balance between the cost of checks in 
a particular budgetary area and the benefits those checks bring in terms 
of limiting the risk of loss and irregularity to an acceptable level.

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CONCLUSIONS AND RECOMMENDATIONS

44

79. 

80. 

81. 

For the 2007–13 programming period, the Member States and the Com-
mission reinforced the internal control arrangements in Cohesion by, 
among other things, setting up national audit authorities as an additional 
layer of internal control. These audit authorities ensure that the Commis-
sion has at its disposal better and more comprehensive information on 
the legality and regularity of expenditure for each OP (or group of OPs).

The Commission has put in place a system for obtaining assurance as 
to the legality and regularity of ERDF/CF and ESF expenditure from the 
work of national audit authorities. The design of this system is gener-
ally in line with the ‘single audit’ principles set out by the Court in its 
Opinion No 2/2004. The Court also takes note of the Commission’s close 
cooperation with national audit authorities and improvements in the 
form of a more consistent level of internal control of the 434 ERDF/CF 
and ESF OPs in the 27 Member States.

The ‘single audit’ principles specified in Article 73 of Regulation (EC) 
No 1083/2006 are a precondition for the effectiveness of shared manage-
ment in Cohesion: checks by national audit authorities must be effective 
and, at the same time, must show that the management systems and 
internal controls in place function properly. In other words, in addition 
to the audit authority, all parts of an OP’s internal control system must 
work effectively.

82. 

The Court’s main findings are summarised below.

DID THE COMMISSION MAKE PROPER USE OF THE INFORMATION PROVIDED BY NATIONAL 
AUDIT AUTHORITIES WHEN GRANTING ARTICLE 73 STATUS TO OPS?

83. 

By the end of 2012, the Commission considered it had reasonable as-
surance that around three quarters (74 %) of all ERDF/CF and ESF OPs 
were free of a material level of error, and as a result no reservations were 
issued for these OPs, which accounted for 69 % of the total budget in the 
Cohesion policy area. However, the Court identified a number of risks 
which indicate that the Commission’s assessment may not be sufficiently 
robust in all cases.

 — Firstly, the Court’s audits over the last 3 years have shown that some 
audit authorities under-report problems and that the reported error 
rates are not always fully reliable;

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CONCLUSIONS AND RECOMMENDATIONS

45

 — secondly, audit authorities are not required to submit detailed in-
formation about their audits of operations to the Commission. This 
reduces the Commission’s scope for validating the annual error 
rates reported by audit authorities;

 — thirdly, the Commission refers to residual error rate as one of the 
criteria for deciding whether or not to issue reservations for an OP. 
This rate is calculated by deducting from the audit authorities’ an-
nual error rates (as applied to the payments made since the start 
of the programming period) the multiannual financial corrections 
imposed at national and EU level. The Court observes, however, that 
information on financial corrections reported by Member States 
may not always be reliable or accurate and that the Commission’s 
calculation method results in an understated residual error rate.

As a consequence, the Commission may underestimate the problems in 
its reporting to the European Parliament and the Council and incorrectly 
assess what is needed to achieve an unqualified audit opinion.

RECOMMENDATION 1

The Commission should ensure that its calculation of residual error rate 
does not understate the extent to which expenditure remains affected 
by error. In particular, the Commission should strengthen its verifica-
tions of the accuracy and reliability of the error rates reported by au-
dit authorities and the information on financial corrections reported 
by Member States before using these elements in its own assurance 
process.

RECOMMENDATION 2

For the 2014–20 programming period, the Commission should intro-
duce a  system of net financial corrections for OPs in respect of which 
the audit authorities repeatedly under-report problems. This system 
should be based on the applicable provisions in the regulations.

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84. 

85. 

86. 

The Court found that there was limited take-up of the options provided 
under Article 73, and delays in granting ‘single audit’ status to OPs. By 
the end of 2012, 61 of the 434 Operational Programmes in 12 of the 27 
Member States had been granted Article 73 status. These OPs account for 
15 % of the total Cohesion budget. The Commission was not in a position 
to grant ‘single audit’ status to a first set of OPs until the sixth year of 
the 2007–13 programming period. This situation (which is similar to that 
relating to contracts of confidence in the previous programming period) 
illustrates the difficulties encountered by the Commission in effectively 
applying Article 73 as specified in the regulations.

The Court considers that 46 of the 61 Article 73 OPs complied with the 
minimum requirements for ‘single audit’ status. Cases of non- compli-
ance relate mostly to ERDF OPs, where a higher share of OPs have been 
granted Article 73 status.

The Court also concludes that the Commission’s approach to monitor-
ing Article 73 OPs (and the corresponding audit authorities) needs to be 
further developed and clarified. This is of particular importance in view 
of the role of audit authorities in the closure of OPs scheduled for 2017.

RECOMMENDATION 3

The Commission should in all cases apply robust, consistent and trans-
parent criteria when granting ‘single audit’ status to Operational Pro-
grammes. In particular, the following minimum requirements should 
be fulfilled whenever Article 73 status is granted to an OP:

 — the audit strategy and compliance assessment must have been 

accepted by the Commission; 

 — the OP’s internal controls must function effectively (and in par-
ticular  the  multiannual  residual  error  rate  must  be  below  the 
Commission’s materiality threshold of 2 %); 

 — the Court’s audits should not have identified significant weak-

nesses in the OP’s internal controls; and

 — the audit authority must have been rated ‘effective’.

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RECOMMENDATION 4

The Commission should comply in its monitoring of Article 73 OPs (and 
the corresponding audit authorities) with the ISA requirements on us-
ing the work of other auditors. In particular, the Commission should 
continue to carry out a minimum level of checks and controls at the 
level of the national audit authorities so as to implement the ‘single 
audit’ model effectively.

DID THE COMMISSION ENSURE A CONSISTENT AUDIT APPROACH IN COHESION THROUGH 
ITS GUIDANCE AND SUPPORT FOR AUDIT AUTHORITIES?

87. 

The Court considers that the Commission has made significant progress 
since the start of the programming period on providing guidance ma-
terial which contributes to better consistency in audit authorities’ ap-
proaches and methodologies. In particular, in April 2013, revised guid-
ance on statistical sampling and the calculation of error rates was issued. 
This is an essential element of the Commission’s ‘single audit’ model 
which builds on national audit opinions based on checks of a repre -
sentative sample of operations. The Court notes that the Commission’s 
legislative proposals for the 2014–20 programming period provide for 
the possibility of secondary legislation on these matters.

RECOMMENDATION 5

The Commission should take appropriate measures so that audit au-
thorities can draw on a stable and binding methodological framework 
which ensures that EU spending in all Member States is checked ac-
cording to the same standards and that the results are reported accu-
rately. Further improvements are necessary as regards the disclosure 
of information in annual control reports, the scope and detail of the 
checks carried out for audits of operations and the follow up of audit 
findings (including financial corrections by Member State authorities).

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88. 

89. 

WHAT ARE THE COSTS OF THE AUDIT ARRANGEMENTS INTRODUCED IN THE 2007–13 
PROGRAMMING PERIOD?

Based on the information provided by audit authorities, the Court esti-
mates the specific annual ‘cost of control’ for audit authorities at between 
110 and 130 million euro. This amounts to 860 million euro, or 0,2 % of 
the total budget (in terms of EU and national public and private fund-
ing) of all ERDF, CF and ESF OPs for the 2007–13 programming period as 
a whole. This estimate is broadly in line with the Commission’s forecast 
in 2011.

The ‘cost of control’ is likely to increase further in the 2014–20 program-
ming period, as audit authorities will have to carry out additional audit 
and control tasks. As pointed out in the Court’s Opinion No 2/2004, it is 
up to the European Parliament and the Council to consider whether such 
a significant level of costs is appropriate in view of the results obtained 
and how these costs are to be shared between Member States and the EU.

RECOMMENDATION 6

The Commission should propose arrangements for Member States and 
the Commission to share the cost of Cohesion controls, based on a more 
recent evaluation of the actual costs incurred by Member States.

This report was adopted by Chamber II, headed by Mr Henri GRETHEN, 
Member  of  the  Cour t  of  Auditors,  in  Luxembourg  at  its  meeting  of 
4 December 2013.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA
President

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ANNEX I

ERDF/CF AND ESF — NUMBER OF OP s AND TOTAL BUDGET (EU AND NATIONAL PUBLIC 
AND PRIVATE FUNDING) FOR THE 2007–13 PROGRAMMING PERIOD

Fund
(in 
euro)

ERDF 
and CF

ESF

Total

Number 
of OPs

317

117

434

Funding

Community

National public

Private

Total budget

Amount

Share

Amount

Share

Amount

Share

Amount

Share

270 082 228 706

72 %

89 061 973 572

24 %

15 299 962 682

76 633 843 842

66 %

35 847 172 433

31 %

3 728 924 055

346 716 072 548

71 % 124 909 146 005

25 % 19 028 886 737

4 %

3 %

4 %

374 444 164 960

100 %

116 209 940 330

100 %

490 654 105 290

100 %

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ANNEX II

RESPONSIBILITIES OF AUDIT AUTHORITIES ACCORDING TO THE REGULATIONS

According to Regulation (EC) No 1083/20061, audit authorities are responsible for:

(a) 

assessing the management and control systems description proposed for each OP and 
providing an opinion as to its compliance with the regulations. The Commission has to 
approve this compliance assessment before it can authorise the first interim payment2; 

(b)  developing an audit strategy within nine months of approval of an OP. The Commission 
has to approve the first audit strategy. The strategy must subsequently be updated each 
year or at the request of the Commission;

(c)  undertaking ex post audits to verify the effective functioning of the management and 
control systems of OPs and audits of operations to verify expenditure declared (projects 
selected on the basis of an appropriate statistical sample to obtain a representative view 
of the legality and regularity of the expenditure declared for an OP (or group of OPs);

(d)  presenting an annual control report (ACR) by the end of each year from 2008  to 2015, 
setting out the findings of audits carried out during the 12-month period ending on 
30 June of the year concerned, together with an opinion as to whether the management 
and control systems function effectively3; 

(e)  preparing a closure declaration (at the latest by 31  March  2017) assessing the validity 
of the application for payment of the final balance and the legality and regularity of 
the transactions underlying the final statement of expenditure, supported by a final 
control report.

Less stringent rules (‘proportional control arrangements’) apply in the case of OPs with total eligible 
public expenditure of less than 750 million euro and a level of Community co-financing not exceed-
ing 40 %4. 

1 

2 

In particular Articles 59, 62 and 71.

 Member States are, however, allowed to start making payments to beneficiaries through unapproved systems while awaiting the 
Commission’s approval of the compliance assessment. 

3  Each AA may produce one or more ACRs and audit opinions on a single OP or a group of OPs.

4  Article 74 of Regulation (EC) No 1083/2006.

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ANNEX III

OVERVIEW OF RESERVATIONS ISSUED BY DIRECTORATES‑GENERAL FOR REGIONAL 
AND URBAN POLICY AND FOR EMPLOYMENT, SOCIAL AFFAIRS AND INCLUSION IN 2012 
ANNUAL ACTIVITY REPORTS 

Directorate-General for Regional and Urban Policy, Annual Activity Report for 2012 — OP reservations 
(amount in EU and national public and private funding for the 2007–13 programming period in 
million euro)

Multiannual residual error rate
(2007–13)

≤ 2 %

181 OPs

> 2 %

3 OPs

160 without reservation

196 738

2 without reservation (both exceptions are disclosed)

107

4 partial reputational reservations

≤ 2 %

2 full reputational reservations

10 partial reservations

5 full reservations

3 992

773

14 038

4 999

1 full reservation

220 541

Validated 
projected 
error rate 
(2012) 

≤ 5 %

77 OPs 

27 OPs 

65 without reservation

66 707

2 without reservation (both exceptions are disclosed)

3 partial reputational reservations

3 753

5 partial reputational reservations

7 partial reservations

2 full reservations

1 full reputational reservations

9 564

5 partial reservations

4 769

14 full reservations

84 792

5 OPs 

24 OPs 

2 without reservation both exceptions are disclosed)

2 205

1 without reservations (disclosed exception)

> 5 %

2 full reputational reservations

1 partial reservation

1 partial reputational reservations

3 600

6 full reputational reservations

3 039

3 partial reservations

13 full reservations

8 844

3 005

3 112

1 004

1 458

910

960

35 930

40 261

139

88

2 232

11 745

2 692

16 895

Note: Detail may not sum to totals because of rounding.

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ANNEX III

Directorate-General for Employment, Social Affairs and Inclusion, Annual Activity Report for 2012 — 
OP reservations (amount in EU and national public and private funding for the 2007–13 programming 
period in million euro)

Multiannual residual error rate
(2007–13)

≤ 2 %

65 OPs

60 without reservation

50 601

1 without reservation

≤ 2 %

5 partial reservations

28 OPs 

24 without reservation

Validated 
projected 
error rate 
(2012)

≤ 5 %

1 full reputational reservation

2 partial reservations

1 full reservation

21 857

72 458

15 990

1 368

9 505

414

3 full reservations

27 278

> 2 %

1 OPs

3 OPs 

13 OPs 

7 OPs 

5 without reservation (four exceptions not disclosed)

5 347

> 5 %

4 full reputational reservations

4 partial reservations

523

1 full reputational reservation

1 117

6 986

6 full reservations

Note: Detail may not sum to totals because of rounding.

826

826

1 204

1 204

322

7 134

7 457

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ANNEX IV

GENERAL PRINCIPLES STATED IN OPINION NO 2/2004 ON THE COMMISSION’S 
‘SINGLE AUDIT’ MODEL (AND A PROPOSAL FOR A  COMMUNITY INTERNAL CONTROL 
FRAMEWORK)

I. 

II. 

III. 

IV. 

V. 

VI. 

In order to ensure effective and efficient internal control of EU funds, a Community internal 
control framework should be developed containing common principles and standards, to be 
used as a basis for developing new or existing control systems at all levels of administration;

Controls should be applied to a common standard and coordinated to avoid unnecessary 
duplication;

Controls should be applied, documented and reported in an open and transparent way, al-
lowing the results to be used and relied upon by all parts of the system,

To allow controls to be effective and efficient, legislation underlying policy and processes 
should be clear and unambiguous and avoid unnecessary complexity;

Internal control systems should have, at their basis, a chain of control procedures, with each 
level having specific defined objectives which take into account the work of the others. 
Claims of expenditure or costs over a certain threshold should be accompanied by an inde-
pendent audit certificate and report, based on common standards of approach and content;

The Commission should define the minimum requirements for internal control systems whilst 
taking into account the specific characteristics of the different budgetary areas. Systems in 
each area should be accompanied by a coordinated information approach to ensure benefi-
ciaries are clearly aware of the objectives and consequences of being checked;

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ANNEX IV

VII. 

VIII. 

IX. 

X. 

The internal control systems should include mechanisms to ensure that weaknesses in the 
systems themselves, as well as errors and irregularities in transactions, are identified and 
corrected and where necessary, recoveries made;

Internal control systems require an appropriate balance between the cost of controlling 
a particular budgetary area and the benefits the checks bring in terms of limiting the risk of 
loss and irregularity to an acceptable level;

The Commission should be responsible for promoting the improvement in internal control 
systems in partnership with Member States. The Council and Parliament should be responsible 
for approving the cost/benefit balance for the different budgetary areas;

Clearly defined standards and objectives of internal control systems would provide an objec-
tive basis against which the Court could assess their design and operation when auditing 
them. 

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REPLY OF THE 
COMMISSION

EXECUTIVE SUMMARY

II.
The Commission shares the Court’s conclusion and also 
considers  that  a  better  system  for  auditing  Cohesion 
spending for the 2007–13 programming period is in place. 
The improved regulatory framework has put in place an 
audit authority in charge of testing legality and regular-
ity  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 2007–13, the level of assurance it can obtain 
has increased significantly, in particular by allowing assess-
ing 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  techni-
cal 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  effor ts,  in  close  cooperation  with 
audit  authorities,  to  ensure  better  consistency  in  their 
approaches and working methods through guidance, tar-
geted training and re-performance work that contribute to 
capacity building.

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VII. Second indent
The Commission considers that the single audit status was 
granted based on robust, consistent and transparent cri-
teria. 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, updated in September 2013. 

VII. Third indent 
T h e   Co m m i s s i o n   c o n s i d e r s   t h i s   re c o m m e n d a t i o n   i s 
implemented  through  the  updated  roadmap  and  the 
a u d i t   e n q u i r y   o n   m o n i to r i n g   A r t i c l e   7 3   a d o p te d   i n 
September 2013. 

Following the granting of the first batch of Article 73 deci-
sions in the first half of 2012 and based on pilot missions, 
the Commission services developed an audit methodol-
ogy to carry out monitoring missions, which include re-
performance work and working paper reviews, in line with 
International Standards on Auditing.

VII. Fourth indent
The Commission has introduced in its proposal for Com-
mon  Provisions  Regulation  for  2014–20  and  the  legisla-
tor has agreed on the possibility for net financial correc-
tions 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  secondar y 
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.

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 pro-
cess to analyse the error rates reported by Member States. 
When  it  cannot  validate  or  recalculate  error  rates,  the 
Commission estimates 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 Com-
mission services to consider additional reservations in the 
annual activity reports compared to previous years. 

The Commission always aims at ensuring that the report-
ing made to the Discharge Authority gives a fair and reli-
able picture of the estimated risk affecting the EU budget 
for each Member State, taking also account of the multian-
nual 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 manage-
ment 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 accord-
ance 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 Commis-
sion audit enquiry since 2009 whereby 269 audit missions 
allowed reviewing the work of audit authorities, includ-
ing through re-performance, covering more than 90 % of 
Funds  allocations. The  Commission  also  carries  risk-ori-
ented audits to verify the accuracy of reported financial 
corrections. 

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REPLY OF THE COMMISSION57

VII. 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 experi-
ence of the 2007–13 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 2007–13 programming period.

VII. Sixth indent
The Commission considers that this recommendation is 
already implemented in the 2011 Impact Assessment (see 
footnote 57). It further notes, under shared management 
and in respect of the principle of subsidiarity, the decision 
to allocate technical assistance to the different cost cat-
egories is taken by the Member States.

Furthermore, in the 2014–20 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 con-
trols, ‘(…) 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  Employ-
ment, Social Affairs and inclusion (hereafter ‘DG Employ-
ment ’)  received  respectively  680  and  522  system  audit 
reports from the audit authorities. The Commission ana- 
lyses 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 assur-
ance 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 authori-
ties’ 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 improve-
ment of the national audit work.

The methodology for the assurance process and for deter-
mining reservations is described in annex 4 of the annual 
activity reports of DG Regional and Urban Policy and DG 
Employment.

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REPLY OF THE COMMISSION58

Box 2 
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 activ-
ity report, a first version of which has to be ready by end 
Februar y  (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 takes into account all these differences in 
its assessment, in particular timing differences in quantifi-
cation 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 cor-
rective capacity for each programme, through the calcula-
tion of a cumulative residual risk.

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 Employ-
ment also present in their annual activity report the aver-
age  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.

Some  of  the  differences  quoted  by  the  Cour t  will  be 
removed in the regulatory framework for the 2014–20 pro-
gramming period further enabling the full implementation 
of the single audit principle.

13.
The Commission welcomed the principles laid down in the 
Court’s  Opinion  2/2004,  which  have  been  an  important 
element in developing the 2007–13 regulations concern-
ing 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).

10.
According to the Commission’s assurance process meth-
odology, a programme with a validated error rate above 
5  %  would  be  put  under  reser vation  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 main advantage of applying article 73 for the Com-
mission  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 reli-
ability of the work of the audit authority and to the fact 
that the management and control systems function well. 
The  Commission  must  therefore  carr y  out  considerable 
detailed audit work in accordance with international stand-
ards 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. 

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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 implementa-
tion 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 man-
agement and control systems.

29.
In addition to the two indicators mentioned by the Court, 
the Commission bases its assurance on an in-depth pro-
cess  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).

It also means that where the management and control sys-
tem of a programme, independently from the audit author-
ity, 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 pro-
gramme under the responsibility of the respective directo-
rate general of the Commission. 

The  conditions  to  grant  the  ar ticle  73  status  to  a  pro -
gramme  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  Oct- 
ober 2010. The audit authorities have thus been fully asso-
ciated 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  Sep-
tember  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  authori-
ties. This may result from the fact that material deficien-
cies 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 meas-
ures  has  not  been  adequately  followed  up  by  the  audit 
authority.

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Common reply for paragraph 30 and box 4
The  Commission  ack nowledges  the  fundamental  role 
played  by  the  audit  authorities  and  the  impor tance  to 
ensure  the  accurac y  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 2009–13, 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 rea-
sonable assurance that audit authorities covering around 
90  %  of  the  funds  allocations  comply  with  Article  62  of 
(EC) Regulation and this provides a reliable basis for the 
Commission’s assurance and for applying the single audit 
concept.

Those results are complemented by the Court’s examina-
tions of audit authorities over the last three years. 

In particular, when the Commission has doubts as to the 
accurac y  and  reliability  of  the  error  rates  repor ted  by 
national audit authorities, it discloses in its annual activ-
ity 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.

Box 4 — 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 weak-
nesses 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.

Box 4 — Second indent
In  six  cases,  the  Commission  considers  that  the  audit 
authorities are effective with respect to audits on opera-
tions.  For  the  remaining  six  cases,  the  Commission  fol-
lowed up the weaknesses detected by the Court.

Box 4 — 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 Commis-
sion’s assessment of the reported error rates and annual 
control  reports  led  to  appropriate  conclusions,  consid-
ering  also  the  additional  audit  work  per formed  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 authori-
ties examined by the Court are effective. For the remain-
ing audit authority identified by the Commission and the 
Court as non effective, remedial actions are still ongoing 
for some ERDF/CF and ESF programmes.

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For  the  five  audit  author ities  which  under-repor ted 
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 Com-
mission’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 un-
reliable and used flat rates for the purpose of its assurance 
process in three cases; it expressed reservations in the respec-
tive annual activity reports and interrupted payments to the 
corresponding programmes.

Moreover  the  Commission  is  work ing  proactively  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 evi-
dence 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 neces-
sary corrective measures have been implemented by the 
Member State. 

The corrective measures are further strengthened in the 
draft  regulations  for  the  2014–20  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 and 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 reliabil-
ity 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  fac t-finding  missions  covering  64  ERDF/CF  pro -
grammes in 11 Member States and 15 missions covering 
23 ESF programmes in 10 Member States. Based on all col-
lected 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.

Fur ther more,  for  the  t wo  ESF  OP ’s  out  of  the  51  the 
Co m m i s s i o n   w i s h e s   to   u n d e r l i n e   t h a t   t h e   Co u r t ,   i n 
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 Commis-
sion 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.

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34.
The Commission considers that the fact that for 3 years in 
a row the Commission’s own estimated error rate as dis-
closed 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 cor-
responds to the results obtained through the Court’s State-
ment 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 expendi-
ture and this is in line with the assessment of the Court 
(paragraph 5.55 of the Court’s 2012 annual report).

34. 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 Com-
mission’s assessments.

In the remaining cases, the Commission considers that suf-
ficient information was available to conclude adequately 
on the error rates reported by the audit authorities. 

See also Commission reply to paragraph 32.

34. Second indent
The  Commission  welcomes  the  fact  that  the  Cour t  has 
come to the same conclusions for all but five out of the 
138 cases reviewed. Regarding these five cases that con-
cern 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  cor-
rectly 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 pay-
ments 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. 

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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  repor ted  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  Pol-
icy thus uses validated error rates for all years since the 
star t  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  Com-
mission 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 para-
graph 34. 

36.
The Commission has actively promoted the use of statisti-
cal sampling in 2012/2013 through its updated sampling 
guidance of April 2013, even in the case of small popula-
tions 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-statis-
tical 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  con-
cerned 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 tim-
ing 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 imple-
mentation, including of financial corrections, the Commis-
sion calculates a cumulative residual risk that is an indi-
cator  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 thresh-
old 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 regula-
tory requirements and which are available under the multi-
annual set-up for cohesion policy.

38. First indent 
The Commission needs to calculate the cumulative resid-
ual 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  repor t,  the  Commis-
sion 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 Com-
mission itself.

Furthermore, the Commission has conducted specific risk-
based audit work over the last 3 years covering 68 opera-
tional programmes in order to ensure that the corrections 
repor ted  by  the  Member  States  are  effectively  imple -
mented  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.

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38. Second indent
As indicated in the guidance on treatment of errors dis-
closed 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.

38. 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 correc-
tive actions into account.

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 informa-
tion on all corrections carried out, independently from the 
source of the finding (managing, certifying or audit author-
ity). 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 cumula-
tive 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 reser-
vations. In particular, but not exclusively, in case of a vali-
dated 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.

38. 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 note1, withdraw-
als are definitive and cannot be reinstated in subsequent 
payment claims, except if the irregular amounts were later 
found to be regular and eligible. In such cases the certify-
ing authority should correct its reporting. The Commission 
will remind the certifying authorities about this rule.

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). 

39.
S i n c e   t h e   2 0 1 1   a n n u a l   a c t i v i t y   r e p o r t s   r e l e a s e d   i n 
March  2012,  any  potential  instances  of  negative  resid-
ual error rates are adjusted to a minimum of 0 as part of 
the procedures put in place by the Commission to avoid 
underestimating the calculation of an overall cumulative 
residual risk.

1  Ref. COCOF 10/0002/02 dated 17.3.2010.

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 cal-
culated  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 four programmes concerned, the appropriate action 
plans were in place in order to prevent these issues from 
reoccurring. 

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REPLY OF THE COMMISSIONMoreover, the Commission notes that in paragraph 6.34 
of its 2012 Annual Report the Court states that the short-
comings 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  dif-
ferentiated:  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 Com-
mission 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  repor ted  by  the  Cour t  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 trig-
ger 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.

65

Common reply to paragraphs 44 to 46
The Commission could only notify Article 73 once suffi-
cient 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 2007–13 period, the implementa-
tion 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 man-
agement 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 ben-
efit 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 preempt a precise time -
line before having carried out its review. Indeed, the condi-
tions 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 imple-
ment  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 informa-
tion received. 

See also reply to paragraph 30.

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47.
The Commission aims at obtaining ‘reasonable assurance 
that  the  management  and  control  systems  function  effec-
tively’  through  the  assessment  of  detailed  key  require -
ments and functions for each programme. This assessment 
is based on a synthesis of all audit results by the Commis-
sion and the Member State and goes beyond the indica-
tion provided by the sole cumulative residual risk indica-
tor. 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 strat-
egy 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 improve-
ments  are  needed,  taking  account  of  the  Commission’s 
cumulative  audit  k nowledge  and  experience  with  this 
audit authority. It also considers the Court’s audit results. 

48.
Based  on  its  own  assessment,  the  Commission  consid-
ers 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 enquir-
ies  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 indi-
cated above.

Moreover,  the  Commission  notes  that  the  programmes 
referred to by the Court in Box 6 represent 5 % and less 
than  1  %  of  the  respec tive  global  allocations  for  the 
ERDF/CF and the ESF.

Box 6 (a) — First indent
When  programmes  under  a  common  management  and 
control system are grouped for the purpose of the statisti-
cal sampling, as provided for in the regulation, the Com-
mission  cannot  calculate  a  cumulative  residual  risk  per 
programme  since  the  audit  authorities  reports  one  sin-
gle 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 repre-
sentative 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  pro-
grammes taken together, after corrections were made by 
the  concerned  certifying  authority,  was  below  2  %. The 
Commission therefore concluded that systems are effec-
tive for all eight programmes. 

Box 6 (a) — Second indent
All  conditions  for  the  granting  of  Article  73  to  this  pro-
gramme 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 spe-
cific measure of the programme. It therefore issued a par-
tial 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. Follow-
ing  this  conclusion,  the  partial  reservation  was  lifted  in 
November 2012. Following two on-the-spot audit missions, 
Article  73  was  granted  to  the  programme. The  positive 
results reported in the annual control report for 2012 con-
firmed this assessment with a validated error rate below 
2 %, and the Commission issued an unqualified opinion in 
the annual activity report 2012.

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REPLY OF THE COMMISSIONBox 6 — (b) — First indent
 — For the two ESF and one ERDF cases mentioned by the Court, 
the Commission confirms that the concerned audit authori-
ties adequately followed the Commission’s guidance note on 
sampling, given the small size of the population. The Commis-
sion 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 pro-
grammes and are therefore used by the Commission for the 
purpose of the assurance process. In such cases, the Commis-
sion also takes into account the characteristics of the popula-
tion 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 function-
ing 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 sta-
tistical 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.

67

Box 6 (b) — Second indent
Ar ticle  73  was  granted  to  these  t wo  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 sam-
pling  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 con-
cluded 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.

Box 6 (b) — Third indent
The  OP  referred  to  by  the  Cour t  is  the  four th  smallest 
OP for ESF. Annual payments in 2010/2012 amounted to 
1,5  million  euro  on  average.  Despite  its  ver y  small  size, 
Article  74  which  sets  out  proportional  control  arrange -
ments  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 suffi-
cient ground to grant Article 73 to this programme, which 
has  a  similar  impact  to  Ar ticle  74  since,  the  ESF  audit 
authority adequately followed the Commission’s guidance 
note on sampling, given the very small size of the popula-
tion which was largely below the threshold required for 
statistical  sampling  quoted  by  the  Cour t  in  footnote  9 
(below 20 projects for 2011  and  2012). Therefore, statisti-
cal sampling could not be applied to the population con-
cerned. 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 vali-
dated by the Commission was constantly below 2 %.

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Box 6 (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 man-
agement 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 (2010–12). 

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.

Box 6 (d)
Article 73 was granted to the two concerned audit authori-
ties 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 author-
ities 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 (includ-
ing fact-findings missions where necessary), on-the-spot 
work paper review and re-performance of audits carried 
out  by  the  audit  authority  and  bilateral  coordination 
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 moni-
toring 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 mis-
sions has been developed and the new enquiry has been 
fine tuned based on the experience of 2 pilot missions car-
ried 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  ever y  audit  authority  with  Article  73 
status in principle every 2nd year. These monitoring mis-
sions 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  pro-
grammes 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 authori-
ties 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 -per formance  work.  At  the  end  of 
2013, the Commission’s monitoring covers 19 OPs with an 
Article 73, for seven audit authorities in line with the Com-
mission’s audit methodology. Specific corrective measures 
are being implemented for four audit authorities.

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REPLY OF THE COMMISSIONDG  Employment  did  not  identify  any  issues  in  its  2012 
annual  activity  repor t  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 monitor-
ing work performed during the period, in particular with 
respect to the annual assessment of the cumulative resid-
ual  risk  by  programme.  See  also  reply  to  paragraphs  49 
to  53  on  the  updated  roadmap  and  audit  enquir y  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 2014–20 as stipulated in 
Article 140(3) of the common provisions regulation2. 

60.
The  Commission  issued  guidance  over  the  first  years  of 
implementation which is essential for the audit authori-
ties’  work  (e.g.  compliance  assessment,  audit  strategy, 
assessment  of  management  and  control  systems,  sam-
pling methods). These guidance documents were issued 
on time at the beginning of the programming period (see 
paragraph 62).

2 

‘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’.

69

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  compulsor y  informa-
tion could be further complemented through additional 
guidance as far as results of operations are concerned. The 
Commission intends to provide additional written clarifica-
tion to audit authorities in this regard by the end of 2013.

66. 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 fur-
ther written clarification on this issue. 

66. Third indent
At  closure,  audit  authorities  are  already  required  to  do 
a multi annual assessment of the functioning of the man-
agement and control systems as well as of the corrective 
capacity at closure (see closure guidance issued in 2013).

66. 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 fur-
ther written clarification on this issue. 

The  Commission  has  made  proposals  to  cover  all  pre -
vious  aspects  in  the  implementing/delegated  acts  for 
the  2014–20  programming  period  to  further  harmonise 
implementation.

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REPLY OF THE COMMISSION70

The Commission notes that the Funds may finance the pre-
paratory, management, monitoring, evaluation, informa-
tion and control activities of programmes through techni-
cal assistance.

77.
Following years of high error rates in the period 2000–06 
the Commission decided to propose reinforced manage-
ment  and  control  provisions,  including  statistical  sam-
pling, for the 2007–13 period. These proposals are largely 
reflected in the current legislative framework. The Com-
mission 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 reg-
ulation, the reduction in administrative burden (for exam-
ple 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 manage-
ment declaration. 

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 termi-
nology 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 
capacit y-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 2007–13 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 over-
all. 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 2007–13, the level of assurance it can obtain 
has increased significantly, in particular by allowing assess-
ing 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.

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REPLY OF THE COMMISSION71

83. Third indent 
The  Commission  considers  that  the  cumulative  residual 
risk, which takes into account the error rates and finan-
cial corrections over the programming period, is an indica-
tor 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 subse-
quently 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  evi-
dence, deducts the amounts concerned from the cumula-
tive financial corrections taken into account for the pur-
poses of the calculation of the residual error rate.

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 2007–13 programmes compared to previ-
ous 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 Com-
mission has the following position:

83. First indent
Since 2009 the Commission carried out extensive audits 
on the spot to review the work of audit authorities. It car-
ried 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 contrib-
ute 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 ver-
ify 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 corrob-
orates the reliability of the auditing and reporting system.

83. Second indent
The Commission has also put in place a robust methodol-
ogy 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 Mem-
ber 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 
enquir y  proved  to  be  ver y  useful  in  the  Commission's 
assessment of the reported error rates. 

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REPLY OF THE COMMISSION72

The Commission always aims at ensuring that the report-
ing made to the Discharge Authority gives a fair and reli-
able picture of the estimated risk affecting the EU budget 
for each Member State, taking also account of the multian-
nual 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 pro-
cess,  together  with  the  extensive  results  from  its  audit 
enquiries, allows the Commission to disclose full and reli-
able 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 3 years in a row for DG Employment and 2 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 pro-
cess is complemented by an exhaustive Commission audit 
enquiry since 2009 whereby 269 audit missions allowed 
reviewing the work of audit authorities, including through 
re-per formance,  covering  around  90  %  of  Funds  alloca-
tions. The Commission also carries risk-oriented audits to 
verify the accuracy of reported financial corrections.

The Commission will continue to ensure a strict supervi-
sion 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 Com-
mon  Provisions  Regulation  for  2014–20  and  the  legisla-
tor has agreed on the possibility for net financial correc-
tions 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 com-
prehensive audit work by the Commission and the Mem-
ber 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 Com-
mission 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 indi-
cated above. In addition, the objections raised are particu-
larly unsuitable for small OPs.

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REPLY OF THE COMMISSION73

Moreover,  the  Commission  notes  that  the  programmes 
referred to by the Court in Box 6 represent 5 % and less 
than  1  %  of  the  respec tive  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 cri-
teria. It furthermore considers that by the end of 2013 all 
requirements are fulfilled for these programmes.

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 Com-
mission 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  star ted  the  dialogue  with  audit 
authorities to adequately prepare for the launching of the 
2014–20 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 meth-
odological framework for the work of the audit authorities, 
building on the accumulated experience of the 2007–13 
programming period.

The Commission will continue to apply a robust approach, 
further clarified with the implementation of its roadmap 
on Article 73, updated in September 2013. 

The Commission will further clarify some aspects of the 
existing guidance through written clarification by the end 
of 2013.

Recommendation 4
T h e   Co m m i s s i o n   c o n s i d e r s   t h i s   re c o m m e n d a t i o n   i s 
implemented  through  the  updated  roadmap  and  the 
a u d i t   e n q u i r y   o n   m o n i to r i n g   A r t i c l e   7 3   a d o p te d   i n 
September 2013. 

Following the granting of the first batch of Article 73 deci-
sions 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-perfor-
mance work and working paper reviews, in line with Inter-
national Standards on Auditing.

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 2007–13 programming period.

89.
Under the Treaty, Financial Regulation and sector specific 
regulations the division of responsibilities is clearly estab-
lished. 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. 

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REPLY OF THE COMMISSION74

Recommendation 6

The Commission considers that this recommendation is 
already implemented in the 2011 Impact Assessment (see 
footnote 57). It further notes, under shared management 
and in respect of the principle of subsidiarity, the decision 
to allocate technical assistance to the different cost cat-
egories is taken by the Member States.

Furthermore, in the 2014–20 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 con-
trols, ‘(…) 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’.

Special Report No 16/2013 – Taking stock of ‘single audit’ and the Commission’s reliance on the work of national audit authorities in Cohesion

REPLY OF THE COMMISSIONEuropean Court of Auditors

Special Report No 16/2013
Taking stock of ‘single audit’ and the Commission’s reliance on the work of national audit authorities in Cohesion

Luxembourg: Publications Office of the European Union

2014 — 74 pp. — 21 × 29.7 cm

ISBN 978-92-9241-543-3
doi:10.2865/94994

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THE COURT CONSIDERS THAT THE COMMISSION HAS MADE CONSIDERABLE PRO-

GRESS ON DEVELOPING A ‘SINGLE AUDIT’ SYSTEM BASED ON WHICH IT CAN DRAW 

ASSURANCE AS TO THE LEGALITY AND REGULARITY OF ERDF/CF AND ESF EXPENDI-

TURE FROM THE WORK OF NATIONAL AUDIT AUTHORITIES. THE COURT ESTIMATES 

THE COST OF THESE AUDIT AUTHORITIES AT AROUND 860 MILLION  EURO FOR THE 

ENTIRE 2007-2013 PROGRAMMING PERIOD (0,2 % OF THE ERDF/CF AND ESF BUD -

GET ). THE COURT FOUND THAT THE ERROR RATES REPORTED BY AUDIT AUTHORITIES 

AND THE MEMBER STATES’ INFORMATION ON FINANCIAL CORRECTIONS ARE NOT 

SUFFICIENTLY RELIABLE TO EFFECTIVELY IMPLEMENT THE ‘SINGLE AUDIT’ PROVISIONS 

FOR ALL PROGRAMMES. THE COMMISSION MAY THEREFORE UNDERESTIMATE THE 

PROBLEMS IN THE COHESION AREA IN ITS REPORTING TO THE EUROPEAN PARLIA-

MENT AND THE COUNCIL.

EUROPEAN COURT OF AUDITORS