REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN COURT OF AUDITORS "THE RELIABILITY OF THE RESULTS OF THE MEMBER STATES' CHECKS OF THE AGRICULTURAL EXPENDITURE"
Date: 2014-01-30
Institutions: European Commission
Subjects: EU Member State, agricultural expenditure, agricultural statistics, audit, management audit

EUROPEAN 
COMMISSION 

Brussels, 30.1.2014  
COM(2014) 60 final 

REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE 
EUROPEAN COURT OF AUDITORS 

"THE RELIABILITY OF THE RESULTS OF THE MEMBER STATES' CHECKS OF 
THE AGRICULTURAL EXPENDITURE" 

EN 

   EN 

 
 
 
 
  
 
REPLIES OF THE COMMISSION TO THE SPECIAL REPORT OF THE EUROPEAN 
COURT OF AUDITORS 

"THE RELIABILITY OF THE RESULTS OF THE MEMBER STATES' CHECKS OF THE 
AGRICULTURAL EXPENDITURE" 

EXECUTIVE SUMMARY 

Common reply to paragraphs I –IX: 

The  ECA  has,  for  a  number  of  years,  criticised  the  Commission's  reliance  on  the  Member  States' 
statistics on the results of their controls as a source of information for calculating a residual error 
rate.  In the first place, the Commission was aware that it could not place full reliance on the control 
statistics from the Member State as the only indicator of the level of error in agriculture spending.  
This is why, for many years and until the 2012 Annual Activity Report (AAR) it had applied a 25% 
"safety margin" to the residual error rate calculated on the basis of the statistics.  This was regularly 
contested by the Court. Secondly, in its 2012 AAR, DG AGRI took on board the concerns about the 
control  statistics  and  changed  its  approach  after  consulting  with  the  central  services  of  the 
Commission  responsible  for  methodological  issues.    The  Court,  in  its  annual  report  for  2012,  did 
not  criticise  this  approach  and  rather,  expressed  itself  positively  thereon  and  recommended  that  a 
similar approach be applied for the EAFRD. 

Moreover,  the  new  horizontal  regulation  on  the  control,  financing  and  monitoring  of  the  CAP  in 
force  as  from  January  2014,  provides  for  a  significant  increase  in  the  responsibilities  of  the 
Certification  Bodies  in  the  Member  States  with  regard  to  delivering  an  opinion  on  legality  and 
regularity  of  the  expenditure  including  validating  the  member  States'  control  results  which  are 
communicated to the Commission.   

In consequence, the Court's report deals with a methodology which has changed and is still 
evolving. Rather, therefore, than concentrate on historic elements, the Commission would prefer to 
concentrate on the present and future and on the establishment, including with the constructive 
input of the Court, of a sound methodology.  

III.  For  its  2012  Annual  Activity  Report  DG  AGRI  has  developed  a  method  for  calculating  the 
residual error rate that also takes into account its own audits and those of the Court. This method 
has  been  used  for  direct  payments  (around  70  %  of  the  CAP  expenditure)  in  respect  to  financial 
year  2012  and  will  be  extended  from  2013  financial  year  to  other  CAP  expenditure  and  in 
particular, to rural development.  

IV.  The  establishment  of  control  systems  is  governed  by  precise  EU  rules,  complemented  by 
Commission guidelines as appropriate.  For instance, paying agencies shall perform administrative 
checks on 100 % of the claims before payment, and at least 5 % of the claims shall be controlled 
on-the-spot. The conformity of the control systems with the rules is checked by DG AGRI auditors 
and  the  risks  for  the  EU  budget  that  may  derive  from  the  identified  weaknesses  in  the  control 
systems are covered by financial corrections. 

The paying agencies are also responsible for compiling the results of their controls into statistical 
control data to be sent annually to the Commission.  The certification bodies must systematically 
test the accuracy of these compiled statistics, notably via reconciliation with individual transactions, 
and give an opinion on them. 

Finally, for claim year 2012, DG AGRI has tested, for area related payments, the transmission of 
the individual control data via the IT system that is used for payments (so called CATS).  The test 
has been successful and this automatic transmission of control data will be extended to most of the 
CAP measures and expenditure from claim year 2014.  This will prevent inaccuracies in the control 
statistics resulting from inadequate compilation of the individual data. 

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V.  The  Commission's  own  audits  indicate  that  in  some  Member  States  control  systems  are  not  in 
line with the rules and do not detect all errors that could be detected.  

The Commission was therefore aware that it could  not place full  reliance  on the control statistics 
from the Member State as the only indicator of the level of error in agriculture spending.  This is 
why, for many years and until the 2012 AAR it had applied a 25% "safety margin" to the residual 
error rate calculated on the basis of the statistics.  This was regularly contested by the Court without 
however their assessment on the extent to which it was insufficient. 

Nevertheless,  DG  AGRI  took  on  board  the  concerns  about  the  control  statistics  and  changed  its 
approach  (see  reply  to  paragraph  III)  after  consulting  the  central  services  of  the  Commission 
responsible for methodological issues.  The Court, in its annual report for 2012, did not criticise this 
approach  and  rather  expressed  itself  positively  thereon  and  proposed  that  it  be  extended  to  other 
expenditure areas within the CAP and in particular, to rural development. 

VI. The new method described in the reply to paragraph III provides for the Commission to adjust 
the error rate resulting from statistics from the Member States where Commission and/or the Court 
have identified deficiencies in the systems for detecting irregular expenditure. 

VII. The Commission was also aware that there were limitations to the scope of the work which the 
certification bodies were requested to carry out. This is why, as from claim year 2014 in application 
of the CAP reform, certification bodies will have to carry out much deeper work on the reliability of 
the controls by the paying agencies. 

VIII. In spite of certain shortcomings the information provided is considered useful for monitoring 
purposes  and  as  an  indication  of  the  error  detected  by  the  Member  States  in  the  course  of  their 
administrative  and  on-the-spot  checks.  As  already  stated  above,  a  new  method  is  used  by  the 
Commission to arrive at a more informed estimate of the level of error than could be derived solely 
from the Member States' control statistics. 

IX.  The  Commission  does  not  claim  that  the  adjustment  it  makes  to  the  Member  States'  control 
statistics  is  statistically  valid  but  considers  it  to  be  the  best  estimate  in  the  absence  of  any  other 
more reliable data.  This approach was the result of an intensive internal discussion not only within 
DG AGRI but also with the central services of the Commission. 

The Commission notes that, in its Annual Report for 2012, the Court recommends that : 

"The Commission, in DG AGRI's annual activity report, applies a similar approach for EAFRD as 
for decoupled area aid, where the Commission takes account of the results of its own conformity 
audits in assessing the error rate for each paying agency." 

X. 

The  Commission  shares  the  opinion  of  the  Court  regarding  the  necessary  improvement  of  the 
administrative and on the spot cheks.  The adequacy of those checks is verified/assessed during the 
conformity audits and recommendations on the improvements are provided to the Member States.  
The Commission also regularly informs Member States of its most common audit findings with a 
view to encouraging best practices.  

The Commission considers that it implements this recommendation on a permanent basis as set out 
below and it has strengthened certain tools in the framework of the CAP reform. 

Where  the  Commission,  and  indeed  the  Court,  detect  weakness  in  the  management  and  control 
systems in the Member States it uses all tools at its disposal in order to induce the Member States to 
remedy the situation.  These include the conformity clearance procedure which results in financial 
corrections that not only protect the EU budget but also act as a powerful incentive to the MS, the 
requirement for Member States to implement action plans addressing the deficiencies.  Interruption 

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of payments has also been used for the EAFRD and the new Horizontal Regulation on the control, 
financing  and  monitoring  of  the  CAP,  which  comes  into  force  in  January  2014,  includes  a 
reinforced  mechanism  for  suspension  of  payments  for  Member  States  who  fail  to  implement  a 
remedial action plan.  

Area based aid schemes in general and the LPIS (Land Parcel Identification System) in particular 
are subject to a continuous rolling out of audits in order to detect deficiencies. An ineffective LPIS 
is  taken  very  seriously  by  the  Commission  and  Member  States  are  required  to  implement  urgent 
changes  which  are  closely  monitored  by  the  Commission  via  follow-up  audits.  At  the  same  time, 
any risk for the EU budget is covered by financial corrections.   

First  indent:  The  guidelines  on  controls  to  be  performed  will  be  updated  in  the  framework  of  the 
CAP  reform,  in  parallel  to  the  establishment  of  delegated  and  implementing  acts.  They  will  be 
discussed and explained to both paying agencies, which will have to apply them and to certification 
bodies, which will have to check their application by the paying agencies. 

The Commission will also review the guidelines provided to Member States for the compilation of 
the  statistics  and  in  particular  endeavour  to  harmonise  the  best  practices  between  the  different 
sectors.  Guidelines will, in particular, be reviewed in the context of the automation of the statistics 
as well as in the context of the implementing rules for the CAP reform.  

The Commission  will  continue to request  Member States  to  improve their internal procedures for 
verification of the control data sent. 

Second  indent:  The  new  Horizontal  Regulation  on  the  control,  financing  and  monitoring  of  the 
CAP,  which  comes  into  force  in  January  2014,  will  require  the  certification  bodies  to  deliver  an 
opinion  on  the  legality  and  regularity  of  transactions.    This  will  entail  re-performance  of  a 
representative sample of transactions already controlled by the paying agency and the validation (or 
not)  of  the  resulting  control  statistics.    It  is  expected  that  this  additional  work  will  result  in  an 
improvement in the quality of the Paying Agencies control data and coupled with the Certification 
Body opinion will produce improvements in the degree of assurance which can be drawn. 

Third indent: The Commission emphasises that the various deadlines for sending the statistics have 
been established for a number of operational reasons and not purely for AAR reporting purposes.  
The Commission notes that a balance has to be reached on the optimal time for receiving the data 
bearing in mind the heavy administrative burden its compilation places upon the Member States in 
order to avoid multiple updated transmissions. 

In  2012  the  Commission  conducted  a  pilot  exercise  for  the  automatic  transmission  of  the  control 
data  for  area  related  payments.    That  data  was  thus  transmitted  in  July  2013  and  the  initial 
assessments of its completeness and quality are positive.  Adjustments will be made in order that all 
relevant  control  data  will  be  automated  in  this  manner.    This  will  limit  the  risk  of  wrongly 
compiling errors and ensure that a single methodology is used in all MS. 

In the new Horizontal Regulation for the control, financing and monitoring of the CAP, a provision 
was introduced which enables the Commission to suspend payments to Member States in respect of 
those control data which have not been sent within the specified deadlines. 

Finally,  with  the  new  work  of  the  certification  bodies  on  legality  and  regularity  the  Commission 
will  get  a  more  robust  opinion  on  the  reliability  of  the  controls  themselves  and  a  reinforced 
assurance on the error rates. 

Fourth  indent:  The  new  Horizontal  regulation  provides  that  the  certification  bodies  will  have  to 
systematically  test,  on  representative  samples  for  EAGF  and  for  EAFRD,  the  reliability  of  the 
administrative and on-the-spot-controls performed by the paying agencies. The guidelines prepared 
by the Commission aim at ensuring that this work is conducted on a robust statistical methodology, 

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that its results will reinforce assurance on the legality and regularity of the transactions and provide 
a  valid  estimate  of  the  residual  error  rate  per  member  state  and  per  Fund.  This  would  allow  the 
Commission to progressively reduce the need for the individual adjustments it currently makes to 
the statistics provided by the Member States. 

In the meantime, the Commission will apply the new approach referred to in the reply to paragraph 
III  and  will  implement  the  recommendation  in  the  Court's  annual  report  for  2012:  "The 
Commission,  in  DG  AGRI's  annual  activity  report,  applies  a  similar  approach  for  EAFRD  as  for 
decoupled area aid, where the Commission takes account of the results of its own conformity audits 
in assessing the error rate for each paying agency." 

Regarding its own audit activities, the Commission will continue to focus on systemic audits of the 
paying  agencies,  on  a  risk  basis  and  in  the  framework  of  the  conformity  clearance  procedure,  to 
ensure that risks resulting from identified weaknesses in the control systems are corrected.  Audit 
activities  will  also  cover  the  new  tasks  of  the  certification  bodies  on  legality  and  regularity,  to 
provide technical guidance and contribute to achieving the objective of a reinforced assurance. 

OBSERVATIONS 

Common reply to paragraphs 28-36: 

DG AGRI has already in the AAR 2012 stated that "…Member States control statistics need to be 
considered with a degree of caution".  DG AGRI has  already undertaken to extend  the integrated 
approach taken for decoupled direct aids in the 2012 AAR to other areas of CAP expenditure for the 
2013 AAR – i.e. the Member States' statistics will be adjusted by taking account of the results of 
DG AGRI's own audit findings, the Court's and Certification Bodies' findings.  

30. The Commission is following-up the Court’s observation on the effectiveness of the supervisory 
and control systems in the PAs concerned in the context of its ongoing conformity procedures. 

For 2011 the Commission notes that most of the errors referred to were relatively small in financial 
terms and mainly concerned small differences in the re-measurement of land parcels carried out by 
the  Court  (42  of  the  errors  found  by  the  Court  concern  very  small  differences  in  parcel  re-
measurement and 24 errors were below 2%). 

For 2012, similarly, most of the quantifiable errors were relatively small in financial terms and also 
concerned  very  small  differences  in  the  re-measurement  of  parcels  by  the  Court  (36  of  the  errors 
found by the Court were less than 5% of which 23 were below 2%). 

32. When calculating the residual error rate, the Commission takes account of the potential impact 
of the weaknesses affecting the data reported by the MS. 

First indent: The Commission is bound to follow the definition of a farmer in Article 2 of Council 
Regulation (EC) No. 73/2009. 

Second  indent:  While  the  Commission  does  not  always  share  the  appreciation  of  the  Court's 
auditors  as  to  the  exact  eligibility  of  areas,  where  it  finds  that  a  Member  State  fails  to  correctly 
record eligible area, the issue is followed up through its clearance of accounts procedure.  

Third indent: In the specific case referred to by the Court, the paying agency concerned considered 
their replacement of parcels to be a correction of "obvious errors" – a concept which is provided for 
in the EU legislation/guidelines.  As stated in its previous replies, the Commission does not share 
the  view  of  the  Court  concerning  the  application  of  the  obvious  error  concept  in  case  of 
misplacement of parcels.  

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Fourth indent: Paying agencies are not always responsible for how the payment entitlements should 
be calculated.  In a number of cases the instructions on how to calculate entitlements are established 
by the competent authority in the Member State. 

Fifth indent: While the Commission does not always share the appreciation of the Court's auditors 
as  to  the  exact  eligibility  of  areas,  where  it  finds  that  a  Member  State  fails  to  correctly  record 
eligible area, the issue is followed up through its clearance of accounts procedure. 

Box 1 – Example of incorrect data in the LPIS. 

According  to  the  Italian  authorities,  the  Lombardia  issue  has  been  rectified  as  from  2011.  The 
Commission is pursuing this through the conformity clearance procedure of accounts. 

The  Commission  is  aware  of  the  issues  related  to  the  eligibility  of  pasture  areas  in  Spain.  The 
Spanish authorities were requested to act on this matter and presented the LPIS Improvement Plan 
including,  notably,  measures  to  implement  the  application  of  an  eligibility  coefficient  to  pasture 
parcels  and  to  ensure  systematic  update  of  LPIS  with  the  results  of  on  the  spot  checks.    The 
Commission will continue to monitor the implementation of this plan by the national authorities. 

The  Commission  has  also  found  some  cases  in  Hungary  where  LPIS  was  not  updated  with  the 
results  of  the  on  the  spot  checks  and  has  requested  the  Hungarian  authorities  in  writing  to  take 
corrective action in this respect. 

33.  The  weaknesses  referred  to  by  the  Court  have  already  been  reported  in  previous  years.  The 
corresponding  recommendations  are  being  implemented  since  2010  in  collaboration  with  the 
Member States and followed up where necessary in the context of conformity procedures.  

34.  For  2011  the  Commission  notes  that  most  of  the  errors  referred  to  were  relatively  small  in 
financial terms (half of the errors are less than 5%).  

35. When calculating the residual error rate, the Commission takes account of the potential impact 
of the weaknesses affecting the data reported by the MS. 

Box 3 – Example of insufficient quality of a Member State's on-the-spot checks 

 This issue has been followed in an enquiry the outcome of which is as follows: 

- The Paying Agency decided – after having reassessed the case - to recover the support already 

paid for the specific project; 

- The verification procedure/check lists were updated in order to exclude that an inspector could 

not notice that an agricultural construction has mostly the characteristics of a house;  

- A  re-performance  of  the  checks  (ex  post)  has  been  carried  out  over  all  projects  checked  and 

approved by the same inspector which approved the non-eligible one; 

- A  re-performance  of  the  checks  (ex-post)  has  been  carried  out  over  all  the  projects  having 

similar characteristic of the non-eligible project; 

- Those ex-post controls showed some minor irregularities which are now following the standard 
contradictory steps and will probably involve recoveries of part of the support already paid; 

- Nevertheless,  as  the  last  re-performance  of  the  checks  only  concerned  the  projects  involving 
new constructions and not also restructuring of existing buildings the Commission asked the 
Italian authorities to re-verify those projects. The results for these final ex-post checks will be 
sent by 30 November 2013. 

Box 4 – Example of undetected breach of public procurement rules  

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As indicated in the reply to the Annual Report 2012, Commission services will follow the Court's 
findings up vis-à-vis the national authorities with a view to protecting the financial interest of the 
EU and recovering any undue payments. 

Concerning  Romania,  the  Commission  has  in  its  audits  also  found  substantial  weaknesses,  and  a 
clearance of account procedure is on-going.  

36.  The  Commission  has  recognised  this  deficiency  itself  and  therefore  in  its  2012  AAR  has 
changed the way in which it draws assurance from Member States' control statistics.  Therefore, it 
takes into account other audit opinions, including ECA audit evidence, so as to reflect the extent of 
errors which are not detected by Member States and thus not reported in their statistics. 

38. The Commission is in the process of automating the transmission of the control statistics (with a 
successful pilot exercise in July 2012) and is, in this context, preparing more detailed guidelines and 
procedures both internally and for the Member States. See also reply to paragraphs 39 – 41. 

39. DG AGRI has not defined a precise cut-off date for compilation of the statistical reports as it 
prefers  to  receive  updated  statistics  even  the  following  year.  However,  Member  States  are  in  the 
Rural  Development  Committee  constantly  reminded  of  the  importance  of  providing  the  statistics. 
Nevertheless an "intermediary" cut-off date could possibly be introduced. 

DG  AGRI  verifies  the  completeness  of  statistics  through  the  Certification  Bodies'  annual  report 
which it scrutinises and which may result in follow-up conformity clearance procedures. 

It is correct that the data is not complete and that the error rate is calculated only on the basis of the 
expenditure  for  which  control  statistics  are  available.    However,  the  Commission  calculates  that 
only  around  0.6%  of  the  amount  of  direct  aid  payments  in  respect  of  claim  year  2010  were  paid 
after the deadline of 30 June 2011 and therefore were possibly unreported via the control statistics.  
As a consequence, the impact of this 0.6% on the precision of those control statistics as a basis of 
the error rate calculation is very limited.  

Box 5 – Examples of incomplete or inaccurate data reported by some of the paying agencies 
audited  

See reply to paragraph 92. 

40.  As  mentioned  by  the  Court,  the  current  guidelines  do  not  highlight  statistics  re-submission. 
Nevertheless, during the period between the sending of the statistics by the Member State and their 
use by the Commission in the AAR, the latter carries out consistency and plausibility checks and 
takes contact with Member States were necessary in order to verify possible anomalies. Updates are 
also requested in the Rural Development Committee, as well as during audit missions and bilateral 
meetings, if deemed appropriate. 

Moreover,  requiring  systematic  updates  of  the  statistics  would  create  an  additional  administrative 
burden  not  only  on  the  Member  States  but  also  on  the  Commission  due  to  having  to  repeat  its 
verification  work  and  incorporate  the  amended  data  into  the  complex  calculation  base  for  the 
residual error rate.  There is ultimately a very limited window of opportunity to receive, verify and 
process any revised data in order to be able to incorporate it into the annual activity report of the 
Director General.  The Commission emphasises that the control statistics and the error rate that is 
derived  from  them  are  not  the  annual  accounts  of  the  Member  State  and  their  accuracy  does  not 
have to be established to the same extent.  Rather, they are used to give an indication of where the 
error lies and, even before the Commission introduced its new method for adjusting the error rate, it 
applied a significant margin of appreciation to them in order to reflect the likelihood of their being 
understated.   

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Finally, a pilot exercise was carried out with regard to the automation of statistics for area aids for 
claim year 2012.  This work commenced already in 2011 with the necessary advance notification of 
the  technical  requirements  to  the  Member  States  and  the  resulting  data  for  claim  year  2012  was 
transmitted  and  automatically  processed  into  the  Commission's  database  by  15  July  2013.    The 
initial Commission assessments of the quality have been positive.  When all necessary review has 
been  completed,  work  will  commence  on  the  extension  of  the  automation  to  the  other  main 
expenditure areas of the CAP and is expected to be in place for the claim year 2014.  In this context, 
the  Commission  is  preparing  more  detailed  guidelines  and  procedures  both  internally  and  for  the 
Member States.  

41.  The  Commission  is  attentive  to  not  excessively  increasing  the  administrative  burden  on  the 
Member  States.  Nevertheless  the  automation  of  the  transmission  of  the  control  statistics  should 
improve the traceability of the checks made. 

Common reply to paragraphs 42 - 46: 

The  Commission  is  aware  that  progress  has  still  to  be  made  in  some  paying  agencies  in  the 
compilation and verification of the control data.  Indeed in most of its own audits the Commission 
tests  the  reconciliation  of  statistical  reports  with  individual  control  data  and  frequently  observes 
inconsistencies. 

This  is  the  reason  why  the  Commission  has  initiated  an  automatic  procedure  that  allows  paying 
agencies  to  communicate  their  individual  control  data  with  the  system  used  for  the  individual 
payments.    A  pilot  exercise  covering  area  related  payments  in  all  Member  States  for  claim  year 
2012 (communication 15 July 2013) has been successful and the method will be extended to other 
CAP measures.  

Such automation reduces the administrative burden and suppresses all compilation errors. 

44. 

Fourth indent: The inclusion of additional information in relation to previous years could only lead 
to an overstatement of the level of error.  Even if information is reported in the incorrect table, the 
residual  error  rate  for  Rural  Development  as  a  whole  would  not  be  affected.    Thus  it  can  be 
concluded that neither of the two errors cited resulted in the level of error being understated. 

Box  6  –  Examples  of  inaccurate  presentation  of  the  number  or  value  of  the  on-the-spot  checks 
carried out 

In the Polish example the checks were carried out, the paying agency did identify and fully record 
the error but inadvertently misclassified part of it as an administrative rather than as an on-the-spot 
check.    

Box 7 – Examples of errors found and having a significant impact on the error rates reported 
to the Commission 

Second  paragraph:  In  the  example  with  regard  to  Bulgaria,  while  the  paying  agency  reported 
erroneously, it had in fact overstated the error rate.  

Common reply 47 – 50 

The  number  of  checks  carried  out  by  the  certification  bodies  is  in  line  with  the  sample  size 
requested by the Commission in its guidelines to those bodies.  The Commission has, however, for 
a number of years, also considered that improvement was needed with regard to the quality of the 
Member States checks, how they reported on them and how better assurance could be given by the 
certification  bodies.    At  the  end  of  2009,  it  provided  for  a  voluntary  reinforcement  of  assurance 
exercise by certification bodies which would require them to re-perform a representative sample of 

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the  paying  agency  on-the-spot  checks.  This  possibility  was  only  taken  up  by  a  small  number  of 
paying agencies with rather mixed results.   

However, in the context of the CAP reform, political agreement has been reached on a provision in 
the new Horizontal Regulation for the financing, management and monitoring of the CAP, which 
requires  the  certification  bodies  to  deliver  an  opinion  on  the  legality  and  regularities  of  the 
transactions  underlying  the  expenditure.    This  will  entail  a  cradle  to  grave  review  and  re-
performance  of  a  representative  sample  of  transactions  (a  range  of  60-170  transactions  per  Fund 
depending on a number of factors including population size).  

The Commission therefore considers that the findings were addressed in the legislative initiatives it 
had already taken and which will be adopted at the beginning of 2014. 

Box 8 – Examples of certification bodies’ weaknesses in not covering  by their  checks all the 
EU funding requirements  

ECA's findings will be taken into account in the certification team risk analysis.   

51.  Whenever  necessary,  recommendations  were  made  to  the  concerned  Certification  Bodies  to 
enhance the quality of their work for the future.  Findings and recommendations were also shared 
and made available to all Certification Bodies through an expert group meeting held in September 
2012.  Some certification bodies have a good understanding of the checks to be carried out and their 
purposes,  whilst  other  do  not  sometimes  go  deep  enough  in  their  testing  and  stay  at  a  rather 
formalistic level of assessment.  

The Commission considers that most of the findings were minor and did not call into question the 
assurance that can be derived by the Commission in the AAR in this regard. 

Common reply to paragraphs 52-54: 

As a rule, the Commission continues to review the work of the certification bodies via the analysis 
of  the  documents  related  to  the  financial  clearance  of  accounts  as  well  as  audit  missions  to 
certification  bodies.  In  the  light  of  the  lessons  drawn  from  the  voluntary  application  of  the 
"reinforcement  of  assurance  procedure",  the  guidelines  for  the  certification  bodies  are  being 
reviewed  to  provide  for  the    new  responsibility  of  certification  bodies  to  cover  legality  and 
regularity of expenditure. 

Common reply to paragraphs 56 -57: 

The  Commission  shares  the  Court's  view  that  the  sample  currently  checked  by  the  certification 
bodies  is  too  small.    To  this  effect,  the  draft  guidelines  for  the  new  certification  bodies'  tasks 
underpinning the opinion on legality and regularity set out a statistically valid model for performing 
the work and have been expanded as to the nature of the work to be carried out by the certification 
bodies  to  ensure  a  complete  cradle  to  grave  test  of  each  transaction  selected.    Furthermore,  it  is 
intended that there will be closer supervision of the work of the certification bodies in the future. 

58.  The  Commission  considers  that  its  information  system  is  suited  for  its  intended  purposes.  In 
particular,  the  information  from  the  Member  States  serves  the  needs  of  operational  and  audit 
services. The regulatory deadlines are those which will be maintained and observed.   

59. The Commission collects information on the results of the administrative and on-the spot checks 
for claim year n which is paid to the farmers from December n until June n+1 and then reported to 
the Commission in July n+1.  The AAR for financial year n+1 is drawn up in March of n+2. 

The  Commission  notes  that  rather  than  use  the  statistics  for  monitoring  Member  States 
implementation,  it  uses  them  to  check inter  alia  if  the  number  of  controls  respects  the  regulatory 
requirements.  A further purpose for the statistics is their use as a management tool for the Member 

9 

 
 
States.  They are a useful source of information on errors detected which in a given year should be 
corrected.   

60. For direct payments, the payment period for claim year n is 15/10/n to 30/06/n + 1 (the payment 
period therefore falls within financial year n+1 which is the subject of the AAR for n+1 drawn up in 
March n+2.).  The control statistics cannot therefore be sent until the claim year has been processed.  
While there are some payments made after this date, normally they are of a relatively low number 
and  of  a  low  financial  impact.    The  draft  legislation  for  the  CAP  reform  proposes  to  align  the 
payment period and deadline for the EAGF IACS to that of the EAFRD-IACS.  One reason is to 
have a better link between claim year and financial execution.  The 15 July deadline also enables 
the Member States to make any adjustments necessary before the following claim year. 

61.  The  deadlines  for  sending  statistics  on  controls  carried  out  are  laid  down  by  the  relevant  EU 
legislation. It is not always possible to obtain statistics updates in time to be included in the AAR. 

62. The Commission notes that the only statistics which can be considered to be "not fully relevant" 
are those for EAFRD non-IACS for which the period in respect of which the statistics are reported 
does not fully correspond to the financial year of the AAR. 

63.  The  data  referred  to  by  the  Court  was  sent  electronically  directly  to  the  CATS  data  base  in  a 
pilot exercise in July 2013.  All of the data for area direct aids was received in this manner and thus 
the Commission's scope for carrying out checks has been enhanced.  However it is noted that the 
Member States formal financial declarations (including the "x-tables" referred to by the Court) in 
respect of the transactions underpinning those statistics is sent in February n+1 – just 4 months after 
the end of the financial year in question.  The timing of the annual declarations juxtaposed with the 
timing of the Director-General's Annual Activity Report which has to be signed by end of March 
n+1, renders it impossible to carry out an in depth reconciliation of the x-table data and that of the 
statistics sent the previous July.  

Common reply to paragraphs 66 - 68. 

The Commission considers that it is not possible to systematically verify all the data presented in 
statistics during the conformity audits carried out in the Member States.  DG AGRI estimates that 
there  are  over  900  000  controls  carried  out  by  the  Member  States  each  year  which  underpin  the 
control  statistics  and  it  would  therefore  be  impossible  to  carry  out  the  extent  of  verification 
demanded by the Court.  

The audits are to cover the essential risks. While some work is done in this regard, it is not possible 
to pursue all issues found in the statistics.  Checking of control statistics is not the core object of the 
conformity audits which focus, rather, on the functioning of the management and control systems.  
Furthermore, a large number of the audits for the year concerned are carried out after the AAR has 
been completed. 

10 

 
 
Depending  on  the  delay  given  by  the  EU  legislation  and  the  audit  procedure,  it  is  not  always 
possible to obtain statistics updates in time to be included in the AAR. 

The  wide  range  of  elements  which  already  have  to  be  checked  and  audited  by  the  Commission's 
auditors in DG AGRI, renders it impossible, in the context of the available resources, to follow the 
Court's suggestion, without negatively affecting the core business. Nevertheless reinforced attention 
to  the  statistical  reports  will  underlie  the  work  to  be  carried  out  by  the  certification  bodies  in  the 
context of the opinion on legality and regularity. 

69. As already explained above, the purpose of the conformity clearance procedure is not primarily 
to check the Member States' control statistics. It is, rather, to check their management and control 
systems – and also, to following up the Court's own DAS findings, and to correct risk for the EU 
budget. 

70. The Commission has always been aware that the Member States' estimate of irregular payment 
was not fully reliable.  This is why other evidence is taken into consideration in order to support the 
annual statement of assurance of the Director General of DG AGRI. 

71.  While  the  Commission  agrees  that  the  samples  referred  to  by  the  Court  were  not  sufficiently 
representative,  the  impact  of  the  practices  employed  resulted  in  the  residual  error  rate  being 
overstated in most cases.  

72.  In  the  draft  guideline  for  certification  bodies  for  post-2013  a  statistically  valid  model  for 
building up the audit assurance has been put forward which paying agencies will also be advised to 
apply.  The  assurance  is  proposed  to  stem  not  only  from  the  system  verification  results,  but  also 
from a more sound substantive approach (and where possible, a dual purpose test). 

Common reply to paragraphs 73 -78: 

The  Court  has  criticised  the  Commission  for  using  the  data  reported  by  Member  States  on  the 
controls which they have carried out.  As a consequence, the Commission has adapted its approach 
and then applied its own appreciation to this data in order to give an assessment of elements (e.g. 
wrong interpretation or application of the EU and/or national legislation, deficient controls) which 
may mean that the statistics do not present the full picture.  This approach has been approved by the 
central services of the Commission and is considered to be an appropriate means of increasing the 
assurance  which  can  be  derived  from  the  work  carried  out  by  the  Member  States  under  shared 
management.  

According  to  the  revised  methodology,  available  information  from  ECA  audits,  certification  body 
findings  and  Commission's  own  audits  is  integrated  in  an  overall  assessment  of  the  situation  at 
paying agency level and taken into account when aggregating at Member State and EU-27 level. 

As  indicated  in  the  reply  to  the  Court's  Annual  Report  2012,  the  new  integrated  approach,  which 
was used for 2012 for decoupled direct aids only, will be further developed and extended as much 
as possible to the other CAP measures for the year 2013, and in particular to rural development.  By 
doing  so,  the  Commission  will  be  in  line  with  the  Court's  annual  report  for  2012  where  it  is 
recommended  that:  "The  Commission,  in  DG  AGRI's  annual  activity  report,  applies  a  similar 
approach for EAFRD as for decoupled area aid, where the Commission takes account of the results 
of its own conformity audits in assessing the error rate for each paying agency." 

78. As already indicated in the reply to the Annual Report 2012, the new integrated approach which 
was  used  for  2012  for  decoupled  direct  aids  will  be  further  developed  and  extended  as  much  as 
possible to the other CAP measures for the year 2013. 

By  doing  so,  the  Commission  considers  that  it  will apply  the  recommendation  of  the  Court  in  its 
Annual  Report  for  2012  that:  "The  Commission,  in  DG  AGRI's  annual  activity  report,  applies  a 

11 

 
 
similar approach for EAFRD as for decoupled area aid, where the Commission takes account of the 
results of its own conformity audits in assessing the error rate for each paying agency." 

Common reply to paragraphs 79-81:  

The Commission agrees that the level of error estimated by the two institutions cannot be compared.   

It is noted that the residual error rate estimated by DG AGRI in 2012 for EAGF, falls within the 
upper and lower error limits of the Court's estimate of error. 

82. The methodologies used by the two institutions to calculate the error rate are different. As the 
Commission needs information at the level of the individual paying agencies it has thus developed 
its own methodology for that purpose. 

83.  As  the  Court  notes  in  paragraph  76,  the  adjustments  made  by  the  Commission  for  decoupled 
direct  aids  in  its  2012  AAR  resulted  in  a  significant  increase  in  the  estimated  residual  error  rate 
which  the  Commission  considers  as  adequate  to  take  account  of  the  weaknesses  in  the  Member 
States’ control statistics.  

The  Commission  notes  that  in  its  2012  Court's  annual  report  the  Court  recommended  that  this 
approach should be extended to all agriculture expenditure. 

84. In spite of reliability issues, the Commission considers that there is a value in the results of the 
more than 900 000 controls carried out by the Member States and that this work cannot simply be 
disregarded. 

See also reply to paragraph 82. 

87. Since the Court  may,  as  illustrated, apply a different assessment of the quantitative impact of 
errors to that determined by the Commission and notified to Member States, it will therefore always 
estimate  a  higher  error  rate.    This  does  not  mean  that  the  Commission,  which  is  the  institution 
which  is  responsible  for  the  implementation  of  the  legislation,  under  the  control  of  the  European 
Court of Justice, should align its appreciation of the seriousness of an error to that of the Court.   

In  determining  the  amount  of  a  correction,  the  Commission  takes  into  account  the  principle  of 
proportionality,  the  type  and  extent  of  irregularity  and  financial  implications  of  the  shortcomings 
found. Purely formalistic errors do not always endanger sound financial management. 

88. As indicated in its reply to the Annual Reports 2011 and 2012, the Commission is of the opinion 
that the respect of cross-compliance obligations does not constitute an eligibility criterion for CAP 
payments  and,  therefore,  the  controls  of  these  requirements  do  not  pertain  to  the  legality  and 
regularity of the underlying transactions.  Cross-compliance is a mechanism by which farmers are 
penalised when they do not respect a series of rules which stem in general from other policies than 
the CAP and apply to all EU citizens independently of the CAP.  Thus, the Commission considers 
that  penalties  imposed  for  violations  of  cross-compliance  requirements  should  not  be  taken  into 
account for the calculation of the error rates for the CAP. 

CONCLUSIONS AND RECOMMENDATIONS 

90.  The  Commission  wishes  to  underline  that  its  treatment  of  the  Member  States'  statistics  was 
significantly changed for the 2012 AAR.  DG AGRI had, up to 2011 used a 25% safety margin in 
order  to  compensate  for  incompleteness  of  Member  States'  statistics  but  this  approach  had  been 
criticised by the Court as being unreliable.  Therefore, the Commission, in its 2012 AAR, undertook 
further evaluation of the statistics using information available to it from the certification bodies, the 
Commission's  own  audits  and  those  of  the  Court.    Where  there  was  a  divergence  between  the 
appreciation of those audit bodies and the level of error indicated from the Member States control 
statistics,  an  adjustment  was  applied  to  reflect  what  the  Commission  considered  to  be  a  more 

12 

 
 
realistic  level  of  error.    Following  the  Court's  recommendation  in  its  2012  Annual  report,  this 
approach  is  being  applied  to  other  expenditure  areas  for  2013  AAR,  and  in  particular,  to  rural 
development.  

91. When calculating the residual error rate, the Commission takes account of the potential impact 
of the weaknesses affecting the data reported by the Member States. 

Recommendation 1 

The  Commission  shares  the  opinion  of  the  Court  regarding  the  necessary  improvement  of  the 
administrative and on the spot checks. The adequacy of those checks is verified / assessed during 
the  conformity  audits  and  recommendations  on  the  improvements  are  provided  to  the  Member 
States.  The Commission also regularly informs Member States of its most common audit findings 
with a view to encouraging best practices.   

The Commission implements this recommendation on a permanent basis as set out below and it has 
strengthened certain tools in the framework of the CAP reform. 

First indent: Where the Commission, and indeed the Court, detect weakness in the management and 
control systems in the Member States it uses all tools at its disposal in order to induce the Member 
States to remedy the situation.  These include the conformity clearance procedure which results in 
financial corrections that not only protect the EU budget but also act as a powerful incentive to the 
Member  States,  the  requirement  for  Member  States  to  implement  action  plans  addressing  the 
deficiencies, interruption of payments used for the EAFRD.  The new Horizontal Regulation on the 
control, financing  and monitoring of the CAP, which comes into force in January 2014, includes a 
reinforced  mechanism  for  suspension  of  payments  for  Member  States  who  fail  to  implement  a 
remedial action plan. 

Second and third indents: Area based aid schemes in general and the LPIS in particular are subject 
to a continuous rolling out of audits in order to detect deficiencies.  An ineffective LPIS is taken 
very  seriously  by  the  Commission  and  Member  States  are  required  to  implement  urgent  changes 
which are closely monitored by the Commission via follow-up audits.   

The Commission launched in 2012 an exercise with the Member States to identify the root causes of 
error for Rural Development. All Member States have been requested to set up action plans with a  
view  to  reducing  the  error  rates.  Improvement  of  the  quality  of    Member  States'  controls  is  an 
integral part of the plan. 

Common reply to paragraphs 92 and 93. 

The new Horizontal Regulation on the control, financing  and monitoring of the CAP, which comes 
into force in January 2014, will require the certification bodies to deliver an opinion on the legality 
and  regularity  of  transactions.    This  will  entail  re-performance  of  a  representative  sample  of 
transactions  already  controlled  by  the  paying  agency  and  the  validation  (or  not)  of  the  resulting 
control  statistics.    It  is  expected  that  this  additional  work  will  result  in  an  improvement  in  the 
quality of the paying agencies' statistics. 

Nevertheless, the Member States will be requested to carry out further verification of the data which 
is transmitted.  An important step was taken in summer 2012 in respect of the control statistics for 
claim  year  2012  for  direct  payments;  the  statistics  were  transmitted  and  input  directly  by  the 
Member  States  into  the  Commission's  CATS  database  and  the  initial  assessments  of  the  exercise 
were  very  positive.    Following  a  full  review,  and  any  necessary  adjustments  the  automatic 
transmission will be rolled out for other important CAP expenditure area. 

Recommendation 2 

13 

 
 
The Commission will review the guidelines provided to Member States for the compilation of the 
statistics and in particular endeavour to harmonise the best practices between the different sectors.  
Guidelines will, in particular, be reviewed in the context of the automation of the statistics as well 
as in the context of the implementing rules for the CAP reform.  

Second paragraph: 

This part of the recommendation is addressed to the Member States. The Commission will continue 
to request Member States to improve their internal procedures for verification and compilation of 
the control data sent. 

94. The Certification Bodies carry out the verifications requested of them by the EU rules and this 
entails the checking of a rather limited number of transactions.  The new Horizontal Regulation on 
the control, financing and monitoring of the CAP which will be adopted at the beginning of 2014 
requires  certification  bodies  to  carry  out  significantly  more  checks  to  a  greater  depth  in  order  to 
deliver an opinion on the legality and regularity of the expenditure. 

Recommendation 3 

First paragraph:  

The  COM  considers  the  recommendation  is    addressed  by  the  new  Horizontal  Regulation  on  the 
control,  financing    and  monitoring  of  the  CAP,  in  force  from  January  2014  and    will  require  the 
certification  bodies  to  deliver  an  opinion  on  the  legality  and  regularity  of  transactions.    This  will 
entail  re-performance  of  a  representative  sample  of  transactions  already  controlled  by  the  paying 
agency  and  the  validation  (or  not)  of  the  resulting  control  statistics.    Detailed  guidelines  are  well 
advanced setting out how this work should be done.  

First indent: The guidelines propose the re-performance by the certification body of a representative 
sample of paying agencies checks. 

Second indent: Re-performance has already been proposed by the Commission for the claim year 
2014. 

Third indent: It is expected that this additional work will result in an improvement in the quality of 
the  paying  agency  statistics  and  coupled  with  the  certification  body  opinion  will  produce 
improvements in the degree of assurance which can been drawn. 

95. See replies to paragraphs 58 to 62. 

A balance has to be reached on the optimal time for receiving the data bearing in mind the heavy 
administrative  burden  its  compilation  places  upon  the  Member  States  in  order  to  avoid  multiple 
updated transmissions. 

96. Desk reviews are limited in scope and are not intended to verify each individual data item.  Such 
a work is not possible with proportionate effort (the statistics are made notably on the basis of some 
900 000 on-the-spot checks carried out). 

97. See reply to paragraphs 66 – 69. 

Recommendation 4 

The  Commission  emphasises  that  the  various  deadlines  for  sending  the  statistics  have  been 
established for a number of operational reasons and not purely for AAR reporting purposes.  The 
Commission  notes  that  a  balance  has  to  be  reached  on  the  optimal  time  for  receiving  the  data 
bearing in mind the heavy administrative burden its compilation places upon the Member States in 
order to avoid multiple updated transmissions. 

14 

 
 
The timeliness of the reception of the statistics has been reviewed by the Commission.  In 2012 it 
launched a pilot exercise for the automatic transmission of the control statistics for direct payments.  
That  data  was  thus  transmitted  in  July  2013  and  the  initial  assessments  of  its  completeness  and 
quality are positive.  The necessary adjustments will be made in order that all relevant statistics can 
be  automated  in  this  manner.    This  will  limit  the  risk  of  reporting  errors  and  ensure  that  a  single 
methodology is used in all MS. 

Furthermore, in the political agreement on the Horizontal Regulation for the control, financing and 
monitoring of the CAP, a new provision was introduced which enables the Commission to suspend 
payments  to  Member  States  in  respect  of  those  statistics  which  have  not  been  sent  within  the 
specified deadlines.  

The  European  legislator  has  made  the  clear  choice  to  further  improve  the  existing  assurance 
building blocks in the context of the CAP reform and accordingly the Commission has no intention 
to  carry  out  a  full  verification  of  the  data  underlying  the  control  statistics  which  would  also 
undermine the principle of shared management. 

While some work is carried out on verifying control statistics this is not the primary purpose of the 
conformity clearance procedure.  It is rather to check their management and control systems – and 
to following up the Court's own DAS findings.  The wide range of elements which have to already 
be checked and audited by the Commission's auditors in DG AGRI within the resources available 
render it impossible to follow the Court's suggestion without negatively effecting its core business 
including impacting negatively on the level of financial corrections recovered in the protection of 
the EU's financial interests.  Nevertheless, elements of the underlying data are checked during the 
Commission's audits in order to address doubts over certain elements and are also used to prepare 
the  sample  of  transactions  to  be  checked  on-  the-  spot.  Furthermore,  reinforced  attention  to  the 
statistical reports will underlie the work to be carried out by the certification bodies in the context of 
the opinion on  legality and regularity. 

Common reply to paragraphs 98 - 99: 

For  the  AAR  2012  for  decoupled  direct  aids  (representing  65%  of  the  CAP  expenditure)  the 
Commission  adopted  a  new  approach  described  in  its  reply  to  paragraph  69.  The  Commission's 
synthesis report states that DG AGRI will extend the approach to other CAP expenditure areas for 
2013 AAR. This extension is also recommended by the Court in its 2012 Annual Report. 

The Commission does not claim that the adjustment it makes to the Member States' control statistics 
is statistically valid but considers it to be the best estimate in the absence of any other more reliable 
data. 

The  Commission’s  estimate  of  the  residual  error  rate  is  not  only  based  on  the  Member  States’ 
control  statistics  but  also  take  into  account  other  relevant  information  based  on  professional 
judgment,  notably  the  Commission’s  and  the  Court’s  own  audit  results  and  the  findings  of  the 
certification bodies.  

Recommendation 5 

Second paragraph: 

From  claim  year  2014  the  certification  bodies  will  have  to  systematically  test,  on  representative 
samples  for  EAGF  and  for  EAFRD,  the  reliability  of  the  administrative  and  on-the-spot-controls 
performed by the paying agencies.  The guidelines prepared by the Commission aim at ensuring that 
this  work  is  conducted  on  a  robust  statistical  methodology  and  that  its  results  will  reinforce 
assurance on the legality and regularity of the transactions and will provide a valid estimate of the 
residual error rate per member state and per Fund.  DG AGRI will increase its supervision of the 
Certification  Bodies  in order to  get  assurance  on the  reliability of  their new work  on  legality and 

15 

 
 
regularity.  This would allow the Commission to progressively reduce the need for the individual 
adjustments it currently makes to the statistics provided by the Member States. 

In  the  meantime  and  for  the  sake  of  a  necessary  stability,  the  Commission  will  apply  the  revised 
integrated approach used for decoupled direct payments in DG AGRI 2012 AAR and extend it to 
other CAP measures, in particular, to rural development, as recommended by the Court in its 2012 
Annual report. 

16