Special Report No 18/2013 ‘The reliability of the results of the Member States’ checks of the agricultural expenditure’
Date: 2014-03-11
Institutions: European Court of Auditors
Subjects: EU Member State, EU financing, agricultural economics, agricultural expenditure, aid to agriculture, common agricultural policy, control of State aid, economic accounts for agriculture, environmental monitoring, national agricultural policy

EUROPEAN
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THE RELIABILITY OF THE RESULTS OF 
THE MEMBER STATES’ CHECKS OF THE 
AGRICULTURAL EXPENDITURE

EN

 
 
 
 
Special Report No 18 

 2013

THE RELIABILITY OF THE RESULTS OF 
THE MEMBER STATES’ CHECKS OF THE 
AGRICULTURAL EXPENDITURE

(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 18 

 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 978-92-9241-566-2
doi:10.2865/1181

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

Printed in Luxembourg

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CONTENTS

Paragraph

ABBREVIATIONS

GLOSSARY

I–X 

EXECUTIVE SUMMARY

1–20 

INTRODUCTION

1–5 

 THE PURPOSE OF CHECKING TRANSACTIONS AT MEMBER STATE LEVEL IN THE IMPLEMENTATION OF THE 
COMMON AGRICULTURAL POLICY

6–20 

PREPARATION, COMPILATION AND VERIFICATION OF THE STATISTICAL REPORTS

7–12 

NATIONAL PAYING AGENCIES CARRY OUT THE REQUIRED CHECKS AND PREPARE THE STATISTICAL REPORTS

13–17 

CERTIFICATION BODIES REVIEW THE COMPILATION OF THE REPORTS AND TEST THE UNDERLYING DATA

18–20 

THE COMMISSION REVIEWS THE INDIVIDUAL STATISTICAL REPORTS

21–27 

AUDIT SCOPE, OBJECTIVES AND APPROACH

28–89 

OBSERVATIONS

28–36 

 THE ADMINISTRATIVE AND ON‑THE‑SPOT CHECKS CARRIED OUT BY ALMOST ALL PAYING AGENCIES 
AUDITED ARE ONLY PARTIALLY EFFECTIVE

30–32 

33–36 

 WEAKNESSES IN THE QUALITY OF THE ADMINISTRATIVE AND ON‑THE‑SPOT CHECKS OF THE EAGF 
AREA‑RELATED MEASURES RESULT IN IRREGULARITIES NOT BEING DETECTED OR REPORTED

 WEAKNESSES IN THE QUALITY OF THE ADMINISTRATIVE AND ON‑THE‑SPOT CHECKS OF THE EAFRD MEASURES 
RESULT IN IRREGULARITIES NOT BEING DETECTED NOR REPORTED

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37–46 

 INADEQUATE COMPILATION AND VERIFICATION OF THE STATISTICAL REPORTS BY PAYING AGENCIES 
FURTHER AFFECT THEIR RELIABILITY

38–41 

42–46 

 IMPRECISIONS IN THE COMMISSION’S GUIDELINES AFFECT THE ACCURACY AND RELEVANCE OF THE 
INFORMATION COLLECTED

 THE AUDITED PAYING AGENCIES’ SYSTEMS FOR THE COMPILATION AND VERIFICATION OF THE REPORTS ARE 
NOT EFFECTIVE

47–57 

 THE WORK OF THE CERTIFICATION BODIES DOES NOT PROVIDE SUFFICIENT ASSURANCE ON THE QUALITY OF 
THE ON‑THE‑SPOT CHECKS AND THE RELIABILITY OF THE STATISTICAL REPORTS

47–51 

52–54 

 THE CHECKS PERFORMED BY CERTIFICATION BODIES OF THE ON‑THE‑SPOT CHECKS CARRIED OUT BY PAYING 
AGENCIES ARE INSUFFICIENT IN NUMBER AND QUALITY

 AS FOR THE CERTIFICATION BODIES WHICH HAVE APPLIED THE ‘REINFORCEMENT OF ASSURANCE’ OPTION, 
THEIR ASSESSMENTS OF THE RESULTS OF THE EXTENDED SAMPLES TESTED ARE HAMPERED BY SERIOUS 
DEFICIENCIES

55–57 

 THE REVIEW OF THE STATISTICAL REPORTS BY CERTIFICATION BODIES AUDITED IS LIMITED IN SCOPE AND DOES 
NOT PROVIDE REASONABLE ASSURANCE ON THE RELIABILITY OF THESE REPORTS

58–69 

 SHORTCOMINGS IDENTIFIED IN THE COMMISSION’S REVIEW OF THE MEMBER STATES’ STATISTICAL REPORTS

58–62 

63–65 

66–69 

70–89 

70–72 

 THE DESIGN OF THE COMMISSION’S INFORMATION SYSTEM IS NOT SUITED FOR THE DIFFERENT PURPOSES FOR 
WHICH THE INFORMATION IS USED

 DESPITE THE ABOVEMENTIONED SHORTCOMINGS, THE COMMISSION DETECTED ERRORS IN MORE THAN HALF 
OF THE MEMBER STATES’ REPORTS

 THE COMMISSION’S REVIEW OF THE STATISTICAL REPORTS DURING ITS CONFORMITY AUDITS IS NOT 
SUFFICIENT

 THE COMMISSION’S ESTIMATE OF IRREGULAR PAYMENTS IS NOT STATISTICALLY VALID AND IMPACTS ON THE 
RELIABILITY OF THE ANNUAL STATEMENT OF ASSURANCE OF DG AGRICULTURE AND RURAL DEVELOPMENT

 MEMBER STATES’ APPROACHES IN DRAWING RANDOM SAMPLES ARE NOT ALWAYS STATISTICALLY VALID, THUS 
AFFECTING THE REPRESENTATIVITY OF SUCH SAMPLES

73–78 

THE METHOD USED BY THE COMMISSION TO ESTIMATE A RESIDUAL ERROR RATE IS NOT STATISTICALLY VALID

79–89 

 THE LEVEL OF ERROR REPORTED BY DG AGRICULTURE AND RURAL DEVELOPMENT CANNOT BE COMPARED 
WITH THE COURT’S MOST LIKELY ERROR

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90–99 

CONCLUSIONS AND RECOMMENDATIONS

91 

 THE EFFECTIVENESS OF THE ADMINISTRATIVE AS WELL AS THE ON‑THE‑SPOT CHECKS CARRIED OUT BY THE 
PAYING AGENCIES NEEDS TO BE GREATLY IMPROVED

92–93 

 THE STATISTICAL REPORTS PRODUCED BY THE PAYING AGENCIES SHOULD BE MORE RIGOROUSLY VERIFIED 
AND COMPILED BEFORE THEY ARE SENT TO THE COMMISSION

94 

 THE WORK OF THE CERTIFICATION BODIES DOES NOT PROVIDE THE COMMISSION WITH SUFFICIENT 
ASSURANCE AS TO THE RELIABILITY OF THE STATISTICAL REPORTS

95–97 

INAPPROPRIATE USE AND LIMITED REVIEW OF MEMBER STATES STATISTICS BY THE COMMISSION 

98–99 

THE COMMISSION’S ESTIMATE OF THE RESIDUAL ERROR RATE IS NOT STATISTICALLY VALID

ANNEX I  — 

 ESTABLISHMENT OF THE RESIDUAL ERROR RATES BY THE COMMISSION FOR 
THE 2012 AAR

ANNEX II  — 

 RESULTS OF ASSESSMENTS OF SELECTED SUPERVISORY AND CONTROL 
SYSTEMS — EAGF IACS

ANNEX III  — 

 RESULTS OF ASSESSMENTS OF SELECTED SUPERVISORY AND CONTROL 
SYSTEMS — EAFRD

ANNEX IV  — 

 AN OVERVIEW OF MATERIAL ERRORS FOUND DURING THE DOCUMENTARY 
REVIEWS OF THE 414 FILES

ANNEX V  — 

 OVERVIEW OF THE PERIOD COVERED BY THE STATISTICAL REPORTS AND THE 
ASSOCIATED REPORTING DEADLINES

REPLY OF THE COMMISSION

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ABBREVIATIONS

AAR: annual activity report

CAP: common agricultural policy

CB: certification body

DAS: statement of assurance (déclaration d’assurance)

DG Agriculture and Rural Development: Directorate-General for Agriculture and Rural Development

EAGF: European Agricultural Guarantee Fund

EAFRD: European Agricultural Fund for Rural Development

GAEC: good agricultural and environmental condition

IACS: integrated administration and control system

LPIS: land parcel identification system

RER: residual error rate

SMR: statutory management requirement

SAPS: Single Area Payment Scheme

SPS: Single Payment Scheme

VAT: value added tax

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GLOSSARY

7

Administrative checks: Formalised and automated checks carried out by the paying agencies on all applica-
tions in order to verify the eligibility of applications and detect all possible irregularities.

Conformity clearance audits: Compliance audits of selected aid measures carried out by the Commission’s 
services on a multi-annual basis to verify whether paying agencies have implemented agricultural expenditure 
in conformity with EU rules. Non- compliance results, in most cases, in flat-rate financial corrections being 
imposed on Member States.

Court’s annual report: Presenting the results of financial audits in the form of statements of assurance on the 
EU general budget and the European Development Fund (published each year in November).

DG Agriculture and Rural Development’s annual activity report: DG Agriculture and Rural Development 
annual management assessment of the functioning of management and control systems in place (published 
in March). On the basis of the document the director-general prepares a declaration of assurance for the DG 
Agriculture and Rural Development expenditure and both documents are then used for the discharge pro- 
cedure with the Council and Parliament.

EAGF IACS population: Measures financed from the European Agricultural Guarantee Fund that are managed 
under integrated administration and control system (e.g. SPS or SAPS).

EAFRD IACS population: Measures financed from the European Agricultural Fund for Rural Development that 
are managed under integrated administration and control system (e.g. area- or animal-related measures such 
as agri- environmental payments).

EAFRD non‑IACS population: Measures financed from the European Agricultural Fund for Rural Development 
that are not managed under integrated administration and control system (e.g. all the non-area project-based 
measures such as the modernisation of agricultural holdings).

Error  rates:  Rates  of  error  calculated  in  the  statistical  reports  per  aid  measure  and  per  checking  mode 
(on-the -spot inspections vs. administrative checks). The rate is the amount of error detected expressed as 
a percentage of the amounts claimed in the relevant category.

IACS: An  integrated  system  that  consists  of  databases  of  holdings,  applications,  agricultural  parcels  and 
payment entitlements (in those Member States applying SPS). These databases are used for administrative 
cross- checks on all aid applications for most of the EAGF measures (e.g. SPS, SAPS or other direct payments).

LPIS: A database which contains a record of the entire agricultural area (reference parcels) of the Member State 
and the eligible areas. Its reliability is of crucial importance for the quality of the administrative cross-checks 
verifying that aid is only paid for eligible land.

Most likely error: The Court’s annual best estimate of the error affecting a class of payments. It is calculated 
on the basis of the results of the tests carried out on a representative sample of transactions of that class. It 
is expressed as a percentage of the total amount of payments in that class. This percentage lies, with a 95 % 
probability, within a confidence interval determined by a lower and an upper limit.

On‑the‑spot check: Verification carried out by the paying agency’s inspectors of the legality and regularity of 
transactions, involving a visit to the applicant’s premises (e.g. on-farm inspections to measure and assess the 
eligibility of the parcels declared).

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Residual error rate: It represents the Commission’s estimate of the level of irregularities remaining in the 
transactions after all checks have been carried out. The Commission computes four residual error rates at the 
EU level (one per expenditure population) and publishes them in the DG Agriculture and Rural Development 
annual activity report.

Shared management: Method of implementation of the EU budget where implementation tasks are del-
egated to the Member States. To that end, Member States authorities designate bodies responsible for the 
management and control of Union funds. Such bodies report to the Commission. In the context of the present 
report, these bodies are the ‘paying agencies’ and the ‘certification bodies’.

Statistical reports: Annual reports submitted by Member States to the Commission that contain the results 
of the paying agencies’ administrative and on-the -spot checks.

X‑table: Complete records of all the accounting information required for statistical and control purposes that 
Member States must annually submit to the Commission by 15 February the year following the one to which 
the data relate1.

1  The structure of the information is detailed in Commission Regulation (EU) No 825/2010 of 20 September 2010 laying down form and 
content of the accounting information to be submitted to the Commission for the purpose of the clearance of the accounts of the EAGF 
and EAFRD as well as for monitoring and forecasting purposes (OJ L 247, 21.9.2010, p. 1).

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EXECUTIVE SUMMARY

I.
The  Commission  shares  the  responsibility  for  the 
implementation of the common agricultural policy 
with  the  Member  States. The  agricultural  expend- 
iture is thus administered and paid out by national 
or regional paying agencies. These paying agencies 
report to the Commission. Independent certification 
bodies appointed by the Member States certify to the 
Commission the annual accounts of paying agencies 
and the quality of the control systems these agencies 
have put in place.

II.
The paying agencies carry out administrative checks 
on aid applications in order to verify their eligibility. 
They also carry out on-the-spot checks of a sample of 
applicants. Errors detected through those checks give 
rise to reductions in the amount of aid claimed by the 
applicant. Member States annually report the results of 
these checks to the Commission (Statistical Reports).

III.
The Commission uses this information in the context 
of the discharge procedure before the European Par-
liament and the Council. Member States’ statistical 
reports are the building blocks used for estimating 
a residual error rate which is deemed to represent 
the financial impact, expressed as a percentage of the 
amount of payments, of the irregularities in payments 
made after all checks have been carried out. A con-
solidation of statistical reports at the EU level and the 
residual error rate are published in the annual activity 
report of the DG Agriculture and Rural Development.

IV.
The  Commission  issues  guidelines  governing  the 
establishment of control systems in the paying agen-
cies  and  the  compilation  of  the  statistical  reports. 
However, the audit showed that these guidelines are 
not always correctly implemented. Most paying agen-
cies do not ensure the accuracy of the reports before 
they are submitted to the Commission. While the pay-
ing agencies audited carried out verification tests, the 
nature and extent of these tests were limited and they 
did not prevent errors which were detected, at a later 
stage, by the desk reviews performed by the Commis-
sion’s services or by the Court’s audits.

V.
Overall, the Court concludes that the results of the 
checks of agricultural expenditure carried out by Mem-
ber States and reported by the Commission are not 
reliable.

VI.
The Court’s audits as well as the Commission’s own 
audits show that the systems in place for administra-
tive and on-the -spot checks in paying agencies were 
only partially effective in detecting irregular expend- 
iture, thus seriously undermining the reliability of the 
information the Member States provide the Commis-
sion with.

VII.
The Court also concluded that the work carried out 
at present by the certification bodies did not provide 
sufficient assurance either on the adequacy of the 
on-the -spot checks or on the reliability of the statisti-
cal reports.

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EXECUTIVE SUMMARY

 — the guidelines issued by the Commission to the 
certification bodies be amended to increase the 
size of samples of on-the -spot checks tested, re -
quire re-performance of checks, and verify more 
closely the compilation of statistical reports;

 — the Commission should re-examine the current re-
porting system that paying agencies are subjected 
to in order to ensure that it receives at the most 
appropriate time complete and relevant inform- 
ation that it could use in the discharge procedure. 
Additionally, the Commission should also increase 
the effectiveness of its desk and on-the -spot veri-
fications of the Member States’ statistical reports;

 — the Commission take the necessary measures to 
arrive at a statistically valid estimate of irregular- 
ities in payments, based on the work of the paying 
agencies and the expanded role of the certifica-
tion bodies provided that sufficient improvements 
take place in the work of those bodies.

VIII.
The Court considers that the information system at 
present available to the Commission does not effec-
tively serve the Commission’s needs. Some of the infor-
mation currently made available is not fully relevant or 
is incomplete and inaccurate for the purpose of being 
used as such in the annual activity report and in the 
discharge procedure. The limited review of Member 
States statistics by the Commission cannot ensure 
their reliability.

IX.
Because of the weaknesses detailed in the present 
report, the information available to the Commission 
does not provide it with a reliable basis to estimate 
a residual error rate. In addition, the Commission’s 
adjustments of the error rates resulting from the sta-
tistical reports are not statistically valid. By way of 
consequence nor is the resultant residual error rate.

X.
The Court recommends that:

 — the  administrative  and  on-the -spot  checks  be 
more rigorously conducted by the paying agen-
cies and the quality of the LPIS databases be im-
proved;

 — the guidelines issued by the Commission for im-
plementing adequate control systems and com-
piling statistical reports be clarified and their im-
plementation more strictly monitored;

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INTRODUCTION

11

1. 

2. 

3. 

4. 

5. 

THE PURPOSE OF CHECKING TRANSACTIONS AT 
MEMBER STATE LEVEL IN THE IMPLEMENTATION OF 
THE COMMON AGRICULTURAL POLICY

The Commission shares responsibility for the implementation of the com-
mon agricultural policy (CAP) with Member States.

The EU budget finances CAP expenditure through two funds 2: the Euro- 
pean Agricultural Guarantee Fund (EAGF), which fully finances EU di-
rect  aid  and  market  measures 3,  and  the  European  Agricultural  Fund 
for Rural Development (EAFRD), which co-finances  rural development 
programmes.

For the most part, direct aid is distributed under the Single Payment 
Scheme 4 (SPS) and, in 10 Member States5, under the transitory Single 
Area Payment Scheme6 (SAPS). In addition, over 30 other complementary 
direct aid schemes support specific agricultural sectors.

Rural development support is implemented through regional and nation-
al rural development programmes. It may take the form of area-related 
aid, such as agri- environment payments or compensatory payments to 
farmers in areas with natural handicaps or aid to specific projects such 
as the modernisation of agricultural holdings or the setting up of basic 
services for rural population.

As the Commission assumes overall responsibility for the implementa-
tion of the EU budget, it needs to obtain relevant information from the 
Member States on their implementation of the CAP. The annual statistical 
reports that disclose the results of the administrative and on-the -spot 
checks carried out by the national paying agencies 7 represent an impor-
tant source of information.

2  Council Regulation 
(EC) No 1290/2005 of 
21 June 2005 on the 
financing of the common 
agricultural policy (OJ L 209, 
11.8.2005, p. 1).

3  With the exception of 
certain measures such as 
promotion measures and the 
school fruit scheme, which 
are co-financed.

4  SPS is an income support 
scheme for farmers that 
hold payment entitlements 
and annually activate them 
with agricultural land at 
their disposal in order 
to receive the payment. 
The entitlements were 
allocated to farmers using 
models provided by the EU 
legislation.

5  Bulgaria, the Czech 
Republic, Estonia, Cyprus, 
Latvia, Lithuania, Hungary, 
Poland, Romania and 
Slovakia.

6  SAPS is a simplified income 
support scheme directed at 
farmers and paid annually 
on the basis of the area of 
eligible land at their disposal.

7  For reporting on EAGF direct aid measures, see Article 84(1) of Commission Regulation (EC) No 1122/2009 of 30 November 2009 laying down 
detailed rules for the implementation of Council Regulation (EC) No 73/2009 as regards cross-compliance, modulation and the integrated 
administration and control system, under the direct support schemes for farmers provided for that regulation, as well as for the implementation of 
Council Regulation (EC) No 1234/2007 as regards cross-compliance under the support scheme provided for the wine sector (OJ L 316, 2.12.2009, p. 65). 
For reporting on EAFRD measures, see Article 31 of Commission Regulation (EU) No 65/2011 of 27 January 2011 laying down detailed rules for the 
implementation of Council Regulation (EC) No 1698/2005, as regards the implementation of control procedures as well as cross-compliance in respect 
of rural development support measures (OJ L 25, 28.1.2011, p. 8).

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PREPARATION, COMPILATION AND VERIFICATION OF 
THE STATISTICAL REPORTS

6. 

Figure 1 shows the key processes in the preparation, compilation and 
verification of the statistical reports covering EAGF area-based measures. 
The roles of the bodies involved are further explained below. Similar 
arrangements apply for reports presented in respect of other EAGF and 
EAFRD measures.

FIGURE 1

KEY PROCESSES FOR THE EAGF AREA‑BASED STATISTICAL REPORTS COVERING  
THE 2010 AID APPLICATIONS

Lodging of aid
applications
(by May 2010)

Paying Agency

Administrative checks on all applications
Selection of random and risk-based samples
for on-the-spot checks
Carrying out of on-the-spot checks 
Input of results of the checks in the databases
Calculation of the aid 
Authorisation and payment of the aid 
(December 2010 to June 2011)

Upload of
underlying
data

Paying Agency

Compilation of the statistical reports
Reconciliation of data contained in the reports
to the databases and further veriﬁcation tests

Certiﬁcation body

CB checks

Assessment of control environment
Compliance testing of PA on-the-spot checks 
Review of control statistics

Transmission
of the statistics
by 15 July 2011

Commission

Correspondance/
modiﬁcations

CB report and opinion
submitted
by 15 February 2012 

Veriﬁcation of Member States’ individual statistics
Compilation of the individual MSs’ statistics into
summarised ones 
Veriﬁcation of the consolidated statistics and calculations
of the residual error rates
Publication in AAR (March 2012)

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8  According to Article 31 
of Regulation (EC) 
No 1122/2009, on-the-spot 
checks should cover at least 
5 % of all beneficiaries and 
Member States have to select 
randomly between 20 % 
and 25 % out of these 5 % of 
beneficiaries. The remainder 
should be selected on the 
basis of a risk analysis.

9  According to Article 25 of 
Regulation (EU) No 65/2011, 
the expenditure covered by 
on-the-spot checks should 
represent at least 4 % of 
the expenditure paid in the 
given year and in total at 
least 5 % of the expenditure 
for the whole programming 
period. This regulation also 
introduced a requirement 
to draw a random sample of 
beneficiaries to be checked 
on the spot (between 20 % 
and 25 % of the expenditure 
selected for on-the-spot 
checks).

7. 

8. 

9. 

10. 

11. 

NATIONAL PAYING AGENCIES CARRY OUT THE REQUIRED CHECKS AND 
PREPARE THE STATISTICAL REPORTS

Across the EU, the CAP expenditure is administered and paid out by 
81 national or regional paying agencies. These paying agencies must, 
either directly or through delegated bodies, check the eligibility of the 
aid applications they receive from farmers.

Check ing  is  per formed  by  way  of  administrative  and  on-the -spot 
checks. Whereas all applications are submitted to administrative checks, 
on-the -spot checks are carried out on samples of applications only.

EU regulations outline the common rules governing the performance of 
such checks, including what should be verified, how the samples should 
be selected and the minimum coverage for each type of support. While 
there has always been a legal requirement to draw a random sample of 
applicants to be checked on the spot for the EAGF and EAFRD schemes 
under the integrated administrative and control system (IACS) 8, this was 
not the case for EAFRD non-area-based measures until 2011 9.

The results of the administrative and on-the -spot checks are recorded 
in the paying agencies databases. Errors detected through those checks 
give rise to reductions in the amounts of aid claimed by the applicants.

The statistical reports setting out the results of these checks must comply 
with the format established by the Commission. This format is set out in 
electronic templates and guidelines and it varies according to the spe-
cific characteristics of individual CAP measures. Most statistical reports 
must disclose:

(a) 

the total number of applicants claiming the aid and the number of 
applicants checked on the spot;

(b) 

the total amount claimed by (or paid to) applicants and the total 
amount checked on the spot;

(c) 

the reductions in aid applied by paying agencies, splitting the over-
all amount between applicants who were inspected on the spot 
and those who were not.

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10  There are four expenditure 
populations: EAGF 
expenditure covered by IACS, 
EAGF not covered by IACS, 
EAFRD covered by IACS and 
EAFRD not covered by IACS.

11  This assessment has been 
required by the Commission 
since the 2008 financial year.

12  The size of the sample 
depends on the assurance 
which the certification 
body could take from the 
functioning of the paying 
agency’s internal control 
system.

13  According to the 
Commission’s guideline, 
the CB work should not be 
limited to the verification 
of the quality of the paying 
agency’s on-the-spot 
checks but should cover the 
entire handling of the file, 
from the receipt of the aid 
application to the calculation 
and execution of the final 
payment, including the 
application of reductions and 
sanctions.

12. 

13. 

14. 

15. 

The results of these checks, per paying agency and per Member State, 
should be communicated annually to the Commission by 15 July of the 
year following that to which the data relate. For example, with respect 
to applications made in 2010 (year n), paying agencies must report on 
their checks of such claims by 15 July 2011(year n+1).

CERTIFICATION BODIES REVIEW THE COMPILATION OF THE REPORTS 
AND TEST THE UNDERLYING DATA

Certification bodies (CB) are independent audit bodies appointed by the 
Member States to examine the accounts and payment records of the 
paying agencies and to report to the Commission. These reports must be 
sent to the Commission, together with the annual accounts of the paying 
agencies, by 15 February of the year following that in which payments 
were made. For example, applications made in 2010 (n) are paid in 2011 
(n+1) and the certification bodies report by 15 February 2012 (n+2).

The Commission has issued guidelines on the work to be carried out 
by the certification bodies, as well as on the format of the reports that 
should be submitted to it. The certification bodies are required, inter 
alia, to issue an opinion on:

(a) 

the quality of the control environment by re -performing at least 
10 on-the -spot checks (per expenditure population 10) carried out 
by the paying agency, and

(b)  whether or not the statistical reports setting out the results of the 
administrative and on-the -spot checks have been correctly com -
piled and reconciled to the database of the paying agency, with 
an adequate audit trail11.

Since  2010,  the  Commission  has  given  Member  States  the  option  of 
paying agencies being subjected to an extended audit by certification 
bodies. Under such extended audits, a sample of between 110 and 180 
on-the -spot checks per expenditure population 12 carried out by the pay-
ing agency would have to be fully re-performed by the certification 
bodies13. Such in- depth audit is referred to as the ‘reinforcement of as-
surance on the legality and regularity of transactions at the level of the 
final beneficiaries through the work of the certification bodies’.

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14  Article 59(5) 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).

16. 

17. 

18. 

19. 

20. 

Under this ‘reinforcement of assurance’ option, the amount of the finan-
cial corrections imposed by the Commission would be limited to the 
amount corresponding to the error rate derived from the checks certified 
by the certification bodies. To date, five Member States (Bulgaria, Greece, 
Luxembourg, Romania and the United Kingdom — Northern Ireland) 
have agreed to apply this option.

The financial regulation14 adopted on 25 October 2012 requires the cer-
tification bodies to give an opinion on the legality and regularity of the 
underlying transactions. For that reason the ‘reinforcement of assurance’ 
will become compulsory in all Member States. The legislative proposals 
for the CAP 2014–20 also include provisions for that purpose and the 
Commission is preparing a new guideline on how to implement these 
provisions.

THE COMMISSION REVIEWS THE INDIVIDUAL STATISTICAL REPORTS

The Commission carries out desk reviews of the statistical reports. These 
reviews  comprise  a  mix  of  automated  checks  that  test  the  internal 
consistency of the data set out in the report and manual checks that 
compare the data in the report with information from previous year or 
other reports. When the Commission detects errors or inconsistencies 
in a report, the Member State is asked to remedy the situation, usually 
by providing corrected data.

The Commission also carries out conformity audits on the functioning 
of the management and control systems of selected paying agencies. 
During these audits, the Commission usually tests the reliability of the 
paying agency’s on-the -spot checks by re -performing a sample of them.

After all the individual paying agencies’ reports have been validated, the 
data are then used by the Commission for the calculation of a residual er-
ror rate which is reported in the annual activity report (see Annex I which 
illustrates the Commission’s residual error rate calculation method).

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AUDIT SCOPE, OBJECTIVES AND APPROACH

16

21. 

22. 

The audit addressed the following main question: ‘are the results of the 
checks of agricultural expenditure carried out by Member States and 
reported by the Commission reliable?’

This overall question was detailed into five sub-questions:

(a)  Are the administrative and on-the-spot checks carried out by the 

paying agencies effective?

(b)  Are the statistical reports containing the results of the paying agen-
cies’ checks correctly compiled and verified before their submission 
to the Commission?

(c)  Does the work of the certification bodies provide sufficient assur-
ance regarding the quality of the on-the -spot checks and the reli -
ability of the statistical reports?

(d)  Does the Commission ensure that the statistical reports are reliable?

(e) 

Is the Commission’s calculation of the residual error rate statisti-
cally valid?

23. 

The audit concerned the statistical reports covering the 2010 results of 
administrative and on-the -spot checks for rural development and direct 
aid schemes which were included in DG Agriculture and Rural Develop-
ment annual activity report for the 2011 financial year. The audit also 
reviewed the calculation of the residual error rates and its presentation 
in DG Agriculture and Rural Development annual activity report for the 
2011 and 2012 financial years.

24. 

The Court has included in the scope of the audit statistical reports that 
covered the financially most significant aid schemes, representing over 
86 % of CAP expenditure. This is illustrated in Table 1 .

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17

The assessment of the effectiveness of the systems implemented by pay-
ing agencies to carry out administrative and on-the -spot checks relies 
on the results of the 2010, 2011 and 2012 DAS audits of the Court.

During the audit, the Court visited nine paying agencies in eight Member 
States15. These nine paying agencies managed 28 % of the EAGF direct 
aid and 41 % of the EAFRD expenditure in 2011. The Court’s auditors 
also met with representatives of the relevant certification bodies and 
Commission staff dealing with the statistical reports.

15  The following Member 
States (paying agencies) were 
included in the scope of 
the audit: Bulgaria (SFA), the 
Czech Republic (SAIF), Greece 
(OPEKEPE), Spain (Castilla-La 
Mancha), Italy (AGEA), Poland 
(ARMA), Romania (PIAA 
and PARDF) and the United 
Kingdom (RPA).

25. 

26. 

TABLE 1

SUMMARY OVERVIEW OF KEY CAP AID SCHEMES AND THEIR 2011 EXPENDITURE

Heading

Expenditure incurred in the 2011  
financial year

(in million euro)

percentage

Included in the 
scope of the audit?

Interventions in agricultural markets (EAGF non-IACS popula-
tion expenditure)

Single Payment Scheme (part of EAGF IACS population 
expenditure)

Single Area Payment Scheme (part of EAGF IACS population 
expenditure)

Other direct aids (part of EAGF IACS population expenditure)

Rural development (both EAFRD IACS and non-IACS population 
expenditure)

TOTAL

3 533

31 082

5 084

4 012

12 394

56 105

6,3 %

55,4 %

9,1 %

7,1 %

22,1 %

No

Yes

Yes

No

Yes

100,0 %

86,6 %

Source: The Court's Annual Report on the implementation of the budget concerning the financial year 2011.

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27. 

The audit focused on the effectiveness of the systems that are designed 
to ensure the reliability of the Member States’ control statistics. More 
specifically:

(a) 

at the level of the paying agencies, the Court reviewed the man-
agement systems in place for the compilation and validation of the 
administrative and on- the-spot checks both for EAGF and EAFRD 
measures. The Court carried out documentary reviews of 415 ap-
plications checked on the spot by the paying agencies’ inspectors 
in order to determine whether these were accurately presented in 
the reports submitted to the Commission. Furthermore, the random 
selection of samples was reviewed in order to determine whether 
they were statistically representative;

(b)  at  the  level  of  the  certification  bodies,  the  Court  examined  the 
procedures for verifying and validating the reliability of the statis-
tical reports as well as the assessment of the quality of the paying 
agency’s on-the -spot checks;

(c) 

at the Commission level, the Court reviewed procedures imple-
mented to check the statistical reports, including its calculation of 
the residual error rate; particular attention was paid to the justifica-
tion for major adjustments and corrections made to these reports.

The Court’s annual report 2012, in the context of DG Agriculture and Ru-
ral Development’s annual activity report, noted the Commission’s change 
in approach concerning the establishment of the residual error rate for 
decoupled area aid (EAFG). In the current special report the Court further 
develops its past observations by including an in- depth assessment of 
the reliability of the checks of agricultural expenditure (both EAGF and 
EAFRD) carried out by Member States and the validity of the Commis-
sion’s calculation of the residual error rate. The scope of the audit is thus 
extended compared to the 2012 annual report.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

 
16  The Court calculates 
its estimate of error from 
a representative sample. The 
figure quoted is the best 
estimate. The Court has 95 % 
confidence that the rate of 
error in the population lies 
for 2011 between 1,1 % and 
4,7 % and for 2012 between 
1,7 % and 5,9 % (the lower 
and upper error limits 
respectively).

OBSERVATIONS

19

28. 

29. 

30. 

31. 

THE ADMINISTRATIVE AND ON‑THE‑SPOT CHECKS 
CARRIED OUT BY ALMOST ALL PAYING AGENCIES 
AUDITED ARE ONLY PARTIALLY EFFECTIVE

Administrative  checks  include  all  formalised  checks  and  automated 
cross- checks needed to verify the eligibility of applications and detect 
all possible irregularities. For example, applications for specific parcels 
should be checked against databases recording the eligibility of land.

With respect to on-the -spot checks, paying agency inspectors have to 
verify that the characteristics of the parcel or the project they are visit-
ing match the information in the application, for example by measuring 
the parcel, examining the specific features of a project or examining the 
documentation relating to a procurement procedure.

WEAKNESSES IN THE QUALITY OF THE ADMINISTRATIVE AND 
ON‑THE‑SPOT CHECKS OF THE EAGF AREA‑RELATED MEASURES 
RESULT IN IRREGULARITIES NOT BEING DETECTED OR REPORTED

Between 2010 and 2012, the Court visited 15 paying agencies in 10 Mem-
ber States in order to assess the effectiveness of their supervisory and 
control systems for SPS/SAPS. Only one paying agency was assessed as 
having effective systems both for administrative and on-the -spot checks, 
while the remaining 14 paying agencies were assessed as being only 
partially effective or not effective in at least one area. A summary of the 
assessments can be found in Annex II.

For 2011 and 2012, the Court’s testing of 180 transactions for EAGF ex-
penditure disclosed that 39 % and 41 %, respectively, of these transac-
tions were affected by error. The most likely error estimated by the Court 
was 2,9 % and 3,8 %16, respectively. A significant part of such errors arose 
from ineffective administrative checks or incorrect aid calculations made 
by the paying agencies.

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32. 

On the basis of the above audits17 as well as performance audits of SAPS 
and SPS 18, the Court identified the following main weaknesses which 
affect the data in the paying agencies’ reports and, consequently, the 
Commission’s calculation of the residual error rate:

17  See the Court’s 
annual reports on the 
implementation of the 
budget regarding the 
2010–12 financial years.

 — Insufficient procedures in place to ensure that SAPS or SPS aid is 
paid only to beneficiaries that meet the regulatory definition of 
a ‘farmer’;

 — Weaknesses regarding the reliability of the Land Parcel Identifica-
tion System19 (LPIS), as ineligible areas were recorded as eligible for 
payment (see examples in Box 1 );

 — Replacement (by the paying agencies) of ineligible parcels declared 

by farmers by other parcels after the legal deadline20;

 — Incorrect calculations of the aid by the paying agencies (mainly re-
lating to erroneous ‘payment entitlements’ that are also established 
by the paying agencies); and

 — Inaccurate assessment of the eligible land in the declared parcels21 

(see example in Box 2 ).

18  Special Report No 5/2011 
single payment scheme (SPS): 
issues to be addressed to 
improve its sound financial 
management, and Special 
Report No 16/2012. The 
effectiveness of the Single 
Area Payment Scheme as 
a transitional system for 
supporting farmers in the 
new Member States (http://
eca.europa.eu).

19  The LPIS is a database 
which contains a record 
of the entire agricultural 
area (reference parcels) of 
the Member State and the 
eligible areas. Its reliability is 
of crucial importance for the 
quality of the administrative 
cross-checks verifying that aid 
is only paid for eligible land.

20  See Example 3.3 of the 
Court’s 2011 Annual Report 
(OJ C 344, 12.11.2012, p. 1).

21  During the 2010–12 DAS systems audits of SPS/SAPS, the Court re-performed 80 on-the-spot checks carried out by paying agencies’ inspectors in 
10 Member States. This involved re-measuring and determination of areas for 511 land parcels. The Court found 11 % of the parcels to be affected by 
error as the areas determined by the Court differed by more than the applicable tolerance margins from the areas established by the paying agencies.

BOX 1

EXAMPLE OF INCORRECT DATA IN THE LPIS

In two paying agencies (Lombardia in Italy and Galicia in Spain), the Court found some cases where parcels 
were recorded as fully eligible in the LPIS despite being covered with dense forest or presenting other features 
that made them ineligible. The Court also observed that the LPIS was not updated with the results of recent 
on-the -spot inspections performed by paying agencies (Spain (Galicia), Italy (Lombardia) and Hungary).

Source: Example 3.4 of the Court’s 2011 annual report.

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BOX 2

INELIGIBLE LAND ASSESSED DURING THE PAYING AGENCY’S INSPECTION AS ALMOST 
FULLY ELIGIBLE

In Poland, GAEC require a regular activity to be carried out on arable land. However, the Court found that SAPS 
aid was paid in relation to unutilised arable land (see example in Picture 1). Among the beneficiaries visited, 
the Court frequently came across similar situations. SAPS beneficiaries received in most cases full payment or 
were only subject to very small reductions, even where the authorities found that they had not used their land 
for several years.

Picture 1 — Former arable land which was not used for several years

Source: The Court’s Special Report No 16/2012 (p. 23).

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22  From 178 transactions in 
2011 and 177 in 2012, only 
160 transactions, related 
to rural development 
expenditure, the remaining 
18 and 17, respectively, 
related to expenditure on 
environment and climate 
action, maritime affairs and 
fisheries, and health and 
consumer protection.

23  The Court calculates 
its estimate of error from 
a representative sample. The 
figure quoted is the best 
estimate. The Court has 95 % 
confidence that the rate of 
error in the population lies 
for 2011 between 4,5 % and 
10,9 % and for 2012 between 
4,5 % and 11,3 % (the lower 
and upper error limits 
respectively).

24  See the Court’s 
annual reports on the 
implementation of the 
budget regarding the 
2010–12 financial years.

33. 

34. 

35. 

WEAKNESSES IN THE QUALITY OF THE ADMINISTRATIVE AND 
ON‑THE‑SPOT CHECKS OF THE EAFRD MEASURES RESULT IN 
IRREGULARITIES NOT BEING DETECTED NOR REPORTED

Between 2010 and 2012, the Court during its compliance audits of sys-
tems in place to manage rural development measures visited 21 paying 
agencies in 16 Member States. Only one paying agency was assessed 
as having effective systems with regard to administrative checks and 
only six were assessed as being effective with regard to their systems 
for on-the -spot checks. This means that the vast majority of the audited 
paying agencies were assessed as only partially effective or even not ef-
fective in at least one area. A summary of the assessment can be found 
in Annex III.

For 2011 and 2012, the Court found that 57 % and 63 %, respectively, 
of the 178 22 transactions in its sample of EAFRD expenditure were af-
fected by error. The most likely error estimated by the Court was 7,7 % 
and 7,9 %23 respectively. Most of the errors found by the Court should 
have been detected by the paying agencies during their administrative 
checks.

The Court identified the following main weaknesses which affect the data 
presented in the Member States’ statistical reports and, consequently, 
the Commission’s calculation of the residual error rate24:

 — Incorrect calculation and payment of the aid;

 — Systematic weaknesses in administrative checks resulting in the 
financing of ineligible expenditure (such as VAT, for example);

 — Failure to detect non-compliance during on-the-spot checks (see 

example in Box 3),

 — Non- compliance with public procurement procedures that should 
have been detected by the paying agencies (see example in Box 4 ); 
and

 — Deficiencies in sampling methodologies and non- compliance with 

the regulatory minimum number of on-the -spot checks.

36. 

The foregoing examples in Boxes 1 to 4 illustrate that reliance on the 
Member States’ statistical reports is seriously undermined by the fact 
that paying agencies audited are failing to detect a significant number 
of errors which are thus not reflected in the reports provided to the 
Commission.

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BOX 3

BOX 4

EXAMPLE OF INSUFFICIENT QUALITY OF A MEMBER STATE’S ON‑THE‑SPOT CHECKS

The Court re-performed the checks of a project in Lombaria (Italy), the purpose of which was to construct 
a two-storey building on a farm including a laboratory for the processing of fruit and other farm products, 
a storage area and a terrace for drying fruits.

The paying agency approved the full amount of the final payment claim of 221 205 euro following both ad-
ministrative and on-the -spot checks.

However, the Court found that the building had predominantly the characteristics of a private residence and not 
of an agricultural building and that the related costs were thus not eligible. The fact that the national authorities 
accepted the full amount of expenditure declared indicates substantial weakness in both the administrative 
and on-the -spot checks.

Source: Example 4.5 of the Court’s 2011 annual report.

EXAMPLE OF UNDETECTED BREACH OF PUBLIC PROCUREMENT RULES

In Romania, the beneficiary (a rural municipality) applied for support for an investment project which included 
a water supply network, a sewage system, improvement of local roads and a community building. Seven tender-
ers submitted offers, of which the beneficiary rejected five as not fulfilling the requirements. The Court found 
that the winning tenderer did not respect two tender requirements, and, moreover, that other bids had been 
excluded for not respecting precisely those requirements. The paying agency should thus have found that the 
related expenditure was ineligible.

The Court also found similar cases of breach of public procurement rules in Spain (Andalucía), France, Lithuania, 
Poland and Slovenia.

Source: Example 4.3 of the Court’s 2012 annual report.

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INADEQUATE COMPILATION AND VERIFICATION OF 
THE STATISTICAL REPORTS BY PAYING AGENCIES 
FURTHER AFFECT THEIR RELIABILITY

In order for the reported results of checks to be comparable across the 
Member States, these results must be compiled using the same meth-
odology. The Commission has issued guidelines to paying agencies for 
this purpose.

IMPRECISIONS IN THE COMMISSION’S GUIDELINES AFFECT THE 
ACCURACY AND RELEVANCE OF THE INFORMATION COLLECTED

While the guidelines governing the reporting of the results of the checks 
in many respects provide clear guidance to paying agencies, the Court’s 
audit identified a number of weaknesses which impact on the compar- 
ability and consistency of the data reported.

First, the guidelines do not require Member States to provide information 
on the cut-off dates used for the compilation of the statistical reports 
nor on the treatment of the applications which were not fully processed 
at the time when the report was compiled. Consequently, the Commis-
sion cannot fully assess the completeness and consistency of the data 
contained in the reports (see in Box 5 different examples of incomplete 
or inaccurate data reported by some of the paying agencies audited).

37. 

38. 

39. 

BOX 5

EXAMPLES OF INCOMPLETE OR INACCURATE DATA REPORTED BY SOME OF THE PAYING 
AGENCIES AUDITED

In Bulgaria, the initial report covering EAFRD IACS measures was compiled in early June 2011 and contained 
only 75 % of the applications for agri- environmental measures. The Bulgarian authorities submitted an updated 
report in January 2012 which however still covered only 85 % of the applications.

In Romania, the Court’s auditors noted that a significant number of payment decisions used for the compilation 
of the statistical reports were subsequently changed. As a result, the report submitted to the Commission for 
the EAFRD IACS and EAFRD non-IACS populations contained only 55,4 % and 73,4 % respectively of the total 
final reductions and sanctions applied.

Source: Evidence collected during the Court’s audit.

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25

40. 

41. 

42. 

43. 

Second, Member States have to submit their reports in July each year 
and, six months later, these reports are used by the Commission to cal-
culate the residual error rates. However, the guidelines do not specifi-
cally require the paying agencies to provide up-to -date statistics for this 
purpose.

Third, the guidelines do not require paying agencies to maintain a clear 
audit trail to demonstrate that a minimum number of consistency and 
accuracy checks on the data contained in the statistical reports has been 
conducted before their submission to the Commission. This becomes 
particularly important in the context of the weak verification proce -
dures found by the Court in most of the paying agencies visited (see 
paragraph 43 below).

25  The aim was to review in 
each paying agency at least 
15 files for each of the three 
expenditure populations 
included in the scope of 
the audit. Due to the size of 
the samples and that they 
were mostly judgementally 
selected, it is not possible 
to extrapolate the results 
of these tests on the whole 
population.

THE AUDITED PAYING AGENCIES’ SYSTEMS FOR THE COMPILATION 
AND VERIFICATION OF THE REPORTS ARE NOT EFFECTIVE

The Court analysed the paying agencies’ systems for the compilation and 
verification of the reports and attempted to reconcile the data presented 
in the statistics with underlying data contained in the paying agencies’ 
databases (for 24 statistical reports). Additionally, the Court’s auditors 
reviewed 414 files25 to determine whether the results of the on-the -spot 
checks as well as other supporting information (applications, payment 
claims, etc.) were accurately recorded in the databases and included in 
the reports submitted to the Commission. The auditors also checked the 
calculations of the aid, including reductions and sanctions applied.

The Court’s auditors found that, in eight out of the nine paying agencies 
audited, the written procedures in place for the verification of the data 
and the compilation of the reports were insufficiently detailed. Although 
the representatives of the paying agencies claimed that such verifica-
tions were carried out, they were not properly supported by appropriate 
documentary evidence. These shortcomings may have contributed to 
incorrect data being included in the reports which were later detected 
by the Commission or during the Court’s audit.

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44. 

Out of 414 files reviewed by the Court, the documentary evidence did 
not support the amounts included in the statistical reports in 118 cases 
(28,5 %). Most errors related either to the accuracy of the underlying 
data stored in the databases or to the incorrect application of the Com-
mission’s compilation rules. The most significant or frequent weaknesses 
impacting on the calculation of the error rates are described below (fur-
ther details on the errors found are presented in Annex IV).

26  Some rural development 
measures have both 
an area-related and an 
investment component 
and they should have been 
reported separately in two 
different tables.

 — The recording of the results of the on-the -spot checks in the databas-
es was not always accurate (Italy, Romania and the United Kingdom).

 — Applicants or amounts were recorded in the databases as having 
been checked on the spot although this was not the case or not all 
the requirements for the on-the -spot checks were fulfilled (EAFRD 
for Greece, Spain, Poland and Romania) — see examples in  Box 6.

 — Undocumented cut-off rules were used for the compilation of the 
reports, leading to inconsistent approaches applied by the paying 
agencies which affected the completeness and accuracy of the data 
reported (Greece, Italy and Romania). And

 — Reductions in aid relating to previous years were incorrectly includ-
ed in the reports and information relating to some measures was 
reported in the wrong tables of the reports26 (the Czech Republic 
and United Kingdom).

BOX 6

EXAMPLES OF INACCURATE PRESENTATION OF THE NUMBER OR VALUE OF THE 
ON‑THE‑SPOT CHECKS CARRIED OUT

In Poland, the paying agency treated some on-the -spot checks as in situ visits 27 (part of the administrative 
checks) and vice versa in the report covering EAFRD non-area-based measures. The correction of this error would 
have increased the error rate for applicants visited on the spot from 0,24 % to 0,71 %.

In Romania, advances made in respect of EAFRD non-area-based measures were incorrectly reported under 
‘Amount of payments covered in on-the -spot checks for year 2010’ which resulted in an overstatement of this 
amount by 84 %. Together with other errors found it resulted in an overall understatement of the error rate by 
16 % (the reported error rate was 2,44 % when it should have been 2,88 %).

27  In situ visits are defined in Article 26(4) by Commission Regulation (EC) No 1975/2006 of 7 December 2006 laying down detailed 
rules for the implementation of Council Regulation (EC) No 1698/2005, as regards the implementation of control procedures as well as 
cross-compliance in respect of rural development support measures (OJ L 368, 23.12.2006, p. 74). Their purpose is to verify the physical 
realization of a project. They usually do not fulfil all the requirements of on-the-spot checks defined by Article 27 of the same regulation.

Source: Evidence collected during the Court’s audit.

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45. 

46. 

Furthermore, the Court’s auditors found some material unexplained dis-
crepancies 28 between the data provided in the statistical reports and 
data retrieved from the paying agencies’ databases in 16 (66,6 %) out of 
24 reports audited.

28  The materiality level was 
set at 5 % of relevant total 
of the populations audited 
(EAGF IACS, EAFRD IACS and 
EAFRD non-IACS).

The errors and problems summarised above have different impacts on 
the error rates reported to the Commission. All Member States audited 
encountered difficulties in the compilation of the reports and, although 
checked by the national authorities and later during the Commission’s 
desk review, still contained undetected errors (see examples in Box 7).

BOX 7

EXAMPLES OF ERRORS FOUND AND HAVING A SIGNIFICANT IMPACT ON THE ERROR 
RATES REPORTED TO THE COMMISSION

In Romania, the underlying data used for the compilation of the reports containing the results of the checks for 
EAFRD IACS and non-IACS populations were subsequently changed, thus resulting in lower reductions being 
reported to the Commission (see Box 5). Based on the information subsequently furnished to the Court by the 
Romanian authorities, the Court could only assess the impact of the compilation errors detected for the EAFRD 
non-IACS population for which the error rate increased from 2,44 % to 2,88 %.

In Bulgaria, the Court’s auditors found in six out of 13 EAFRD non-IACS applications reviewed significant over -
statements in the reductions included in the statistical report. These reductions were overstated for the whole 
sample by 84,2 %. This would have a significant impact on the error rate calculated for this sample (decrease 
from 6,96 % to 3,9 %).

Source: Evidence collected during the Court’s audit.

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THE WORK OF THE CERTIFICATION BODIES DOES 
NOT PROVIDE SUFFICIENT ASSURANCE ON THE 
QUALITY OF THE ON‑THE‑SPOT CHECKS AND THE 
RELIABILITY OF THE STATISTICAL REPORTS

THE CHECKS PERFORMED BY CERTIFICATION BODIES OF THE 
ON‑THE‑SPOT CHECKS CARRIED OUT BY PAYING AGENCIES ARE 
INSUFFICIENT IN NUMBER AND QUALITY

47. 

The certification bodies’ compliance testing of on-the -spot checks car-
ried out by the paying agencies included in the scope of this audit is 
summarised in the following Table 2 .

TABLE 2

OVERVIEW OF THE CERTIFICATION BODIES’ COMPLIANCE TESTS OF THE PAYING 
AGENCIES ON‑THE‑SPOT CHECKS FOR THE 2010 CLAIM YEAR 1

Member State (Paying 
Agency)

Size of the compliance (substantive) samples audited for 
each population

EAGF IACS

EAFRD IACS

EAFRD non-IACS

Bulgaria (SFA)1

Czech Republic (SAIF)

Greece (OPEKEPE)1

Spain (Castilla-La Mancha)

Italy (AGEA)

Poland (ARMA)

Romania (PIAA and PARDF)1

United Kingdom (RPA)

115

11

111

11

10

10

184

10

137

13

111

10

10

17

183

10

10

10

25

10

10

10

0

10

Are the inspections re-
performed or accompanied?

re-performed for EAGF and EAFRD 
IACS/accompanied for EAFRD 
non-IACS

accompanied

re-performed for EAGF and EAFRD 
IACS/accompanied for EAFRD 
non-IACS

re-performed

re-performed/accompanied

re-performed

re-performed

accompanied

1  In the case of Bulgaria, Greece and Romania, the reinforcement of assurance procedure as regards the legality and regularity of the 
underlying transactions was introduced in 2011 for the 2010 claim year and covered the EAGF IACS and EAFRD IACS populations. For 
these three Member States, the CBs carried out substantive tests and re-performed the on-the-spot inspections. 

Source: European Court of Auditors.

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Although the Commission recommends a full re-performance of a num-
ber of on-the -spot checks carried out by paying agencies, two out of 
eight certification bodies audited only accompanied the paying agen-
cies’ inspectors during their initial inspections. The Court does not con-
sider this approach to provide a true assessment of the paying agency’s 
control environment as the inspectors are likely to carry out the checks 
more carefully in the presence of the certification body auditors.

Furthermore, except for the certification bodies which have applied the 
optional ‘reinforcement of assurance’ procedure, the size of the compli-
ance samples (10–17 transactions per expenditure population) is not 
large enough to allow for any valid conclusion to be drawn on the quality 
of on-the -spot checks.

48. 

49. 

BOX 8

EXAMPLES OF CERTIFICATION BODIES’ WEAKNESSES IN NOT COVERING BY THEIR 
CHECKS ALL THE EU FUNDING REQUIREMENTS

In the Czech Republic, Poland and the United Kingdom, the questionnaires used by the certification bodies for 
checking on-the -spot checks SPS or SAPS applicants did not refer to certain key SPS/SAPS eligibility conditions 
such as whether:

 ο the applicant was a ‘farmer’ in the sense of Article 2a of Council Regulation (EC) No 73/2009 29, i.e. carried 

out a farming activity;

 ο the applicant had the parcels claimed for at his disposal on the date set by the Member State (Article 124(2) 

of Regulation (EC) No 73/2009);

 ο the area was eligible for SPS/SAPS (Article 35(1) and Article 124 of Regulation (EC) No 73/2009); and

 ο the parcels were reliably identified so that they could be located and measured (Article 6 of Regulation (EC) 

No 1122/2009).

29  Council Regulation (EC) No 73/2009 of 19 January 2009 establishing common rules for direct support schemes for farmers under 
the common agricultural policy and establishing certain support schemes for farmers, amending Regulations (EC) No 1290/2005, (EC) 
No 247/2006, (EC) No 378/2007 and repealing Regulation (EC) No 1782/2003 (OJ L 30, 31.1.2009, p. 16).

Source: Evidence collected during the Court’s audit.

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30  ‘The Commission 
instructions, allow a 2 % 
tolerance margin between 
the aid amounts validated 
by the paying agency and 
the amounts determined 
by the certification 
body and a further 2 % 
tolerance margin for 
incorrect compilation of 
inspection statistics by the 
paying agency. The two 
tolerance margins allow the 
certification body to validate 
residual error rates which 
could be understated by 
up to 4 percentage points 
thereby undermining the 
materiality threshold set.’ 
(Source: Paragraph 3.37 of the 
Court’s 2011 annual report).

50. 

51. 

52. 

The Court’s auditors randomly selected and reviewed the working papers 
of the certification bodies for one of the on-the -spot checks re -per -
formed for each of the expenditure populations audited (EAGF IACS, 
EAFRD IACS and non-IACS). The review revealed that testing by four out 
of eight certification bodies did not cover all EU requirements and that 
their work was not sufficiently supported by documentary evidence (see 
examples in Box 8 ).

For the reasons mentioned above, the Court is of the opinion that the 
audited certification bodies’ assessments do not provide sufficient assur-
ance on the effectiveness of the paying agencies’ on-the -spot checks and 
thus cannot significantly contribute to the assessment of the reliability 
of the statistical reports.

AS FOR THE CERTIFICATION BODIES WHICH HAVE APPLIED THE 
‘REINFORCEMENT OF ASSURANCE’ OPTION, THEIR ASSESSMENTS OF 
THE RESULTS OF THE EXTENDED SAMPLES TESTED ARE HAMPERED BY 
SERIOUS DEFICIENCIES

In its 2011 annual report, the Court reported the conceptual inconsist-
encies 30 in the  Commission guidelines applicable  to the  work  of  the 
certification bodies regarding the ‘reinforcement of assurance proced- 
ure as to the legality and regularity of transactions at the level of final 
beneficiaries’. The Commission has not yet taken any action to address 
these inconsistencies.

BOX 9

DEFICIENCIES IN THE WORK CARRIED OUT BY CERTIFICATION BODIES

In Bulgaria, the certification body outsourced re-performance of the on-the -spot checks to a service provider. 
In several cases, the Court found that the service provider had incorrectly assessed the eligibility of land. Fur-
thermore, the certification body did not detect that, where the same area was claimed by two farmers (multiple 
claims), the paying agency, contrary to EU legislation, replaced the area claimed by one of the farmers by an 
equivalent unclaimed area in another part of the reference parcel.

In Romania, the paying agency withheld all payments selected by the certification body and provided it with pay-
ment simulations which excluded ineligible areas. This undermined the reliability of the certification body’s work.

Source: Example 3.6 of the Court’s 2011 annual report.

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53. 

54. 

55. 

The Court’s review of the certification bodies’ audits of the EAGF IACS 
populations  in  Bulgaria  and  Romania  for  the  2010  claim  year  and  in 
Luxembourg and the United Kingdom (Northern Ireland) for the 2011 
claim year concluded that the quality of the certification bodies’ work 
was insufficient (see Box 9).

As a result of the audit findings described above, the Court does not 
consider that the work of the certification bodies in implementing the 
‘reinforcement of assurance’ guideline provides sufficient assurance as 
to the effectiveness of the paying agencies’ on-the -spot checks and, 
consequently, on the reliability of the statistical reports.

THE REVIEW OF THE STATISTICAL REPORTS BY CERTIFICATION BODIES 
AUDITED IS LIMITED IN SCOPE AND DOES NOT PROVIDE REASONABLE 
ASSURANCE ON THE RELIABILITY OF THESE REPORTS

The  Commission’s guideline lays down the  work  certification bodies 
should carry out on the statistical reports submitted by the paying agen-
cies in order to conclude whether these reports were correctly compiled 
and reconciled to their databases, with an adequate audit trail. In par-
ticular, certification bodies should check the accuracy of the inform- 
ation stored in the databases and used for the compilation of the reports 
against the underlying documents (applications and inspection reports) 
for a sample of at least 20 inspection reports.

56. 

The Court’s auditors identified the following shortcomings in the imple-
mentation of this guideline:

 — The certification body’s conclusions that the reconciliation of the 
reports  to  the  paying  agency ’s  databases  was  supported  by  an 
adequate audit trail were not confirmed by the Court’s findings 
(Bulgaria, Greece, Poland and Romania);

 — The  sample  of  20  files  covered  only  the  payments  in  respect  of 
measures under the EAFRD IACS and did not include any payment 
under the EAFRD non-area-based measures (Bulgaria); and

 — The examination of the samples of 20 files was inadequate in that 
it did not ensure that the data presented in the statistical reports 
had been checked against the underlying documentation, e.g. the 
applications (Greece and Italy).

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32

57. 

Furthermore, the Court considers the Commission’s guideline to be in-
sufficiently clear and some checks to be limited in their scope which 
reduces their effectiveness. In particular:

 — the guideline does not require certification bodies to comment on 
the paying agency’s procedures in place for the compilation and 
verification of the statistics;

 — the certification body is not required to carry out any consistency 
or completeness checks of the data in the statistical reports with 
information contained in other available reports (e.g. last year re-
ports, quarterly EAFRD payment reports, lists of applicants selected 
for on-the -spot checks and those actually inspected);

 — the testing of a sample of 20 inspection reports per population is 
too narrowly focused on the correct entry of inspection results into 
the database and their inclusion in the statistical reports (rather 
than on the correctness of the underlying data). The Court consid-
ers the testing to be extended to an assessment of the adequacy 
of the work done by the paying agency from the receipt of the 
applications and thus include a review of administrative checks 
carried out on the applications; and

 — the size of the samples (20 transactions) for the testing is too small 
to allow the results of these checks to be extrapolated on the whole 
population, thus precluding the quantifications of the impact on 
the error rates.

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58. 

59. 

60. 

SHORTCOMINGS IDENTIFIED IN THE COMMISSION’S 
REVIEW OF THE MEMBER STATES’ STATISTICAL 
REPORTS

THE DESIGN OF THE COMMISSION’S INFORMATION SYSTEM IS 
NOT SUITED FOR THE DIFFERENT PURPOSES FOR WHICH THE 
INFORMATION IS USED

The information requested from the Member States should be clearly 
defined and based on the Commission’s needs, meaning that it should 
be available at the right time and of the appropriate quality in terms of 
accuracy and completeness.

31  Article 29(2) of Regulation 
(EC) No 73/2009.

The Commission collects information on the results of administrative 
and on-the -spot checks for claim year n on 15 July of n+1 and uses it for 
monitoring the implementation of the various aid schemes by Member 
States, for audit planning purposes and for calculating the residual error 
rate published in the annual activity report at the end of March of year 
n+2 (see Annex V).

While EAGF IACS aid applications for year n should be paid by 30 June 
of  the  following  year 31,  no  such  time  limit  exists  for  EAFRD  IACS  aid 
schemes, so payments can be legally made after 15 July of the year n+1. 
The results of the Court’s visits to Member States showed that a number 
of paying agencies had processed a significant number of EAFRD IACS 
applications for the 2010 claim year after 15 July 2011. Furthermore, due 
to the time required to compile the statistical reports, some paying agen-
cies handling large numbers of applications could not even include in 
their reports the final data relating to applications processed after the 
end of May 2011. Such data was either reported on the basis of estimates 
or omitted completely.

61. 

EAFRD non-IACS statistical reports included in the AAR for a given year 
contain the results of on-the -spot checks of applications which were 
paid in the preceding year. Hence, the statistics used in the AAR are not 
fully relevant for the reporting period concerned.

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62. 

Overall, the Court considers that the Commission’s information system 
provides  data  which  is  insufficiently  accurate  and  complete  as  well 
as not fully relevant for the estimation of a residual error rate by the 
Commission.

DESPITE THE ABOVEMENTIONED SHORTCOMINGS, THE 
COMMISSION DETECTED ERRORS IN MORE THAN HALF OF THE 
MEMBER STATES’ REPORTS

63. 

The detailed data supporting the statistical reports (X-tables) is not made 
available to the Commission in time for the desk review nor in a format 
suitable for such a review. As a result, the scope of the Commission’s 
review is limited to checking the internal consistency of these reports. 
This limitation explains why certain errors identified during the Court’s 
audit were not detected during the Commission’s desk review.

64. 

The results of the desk review carried out by the Commission are sum-
marised in Figure 2.

FIGURE 2

OVERVIEW OF THE CORRECTIONS TO THE STATISTICAL REPORTS AS A RESULT OF THE 
COMMISSION’S DESK REVIEW

Reports which were
corrected after their
publication in the
2011 annual activity report
6 %

Corrections to reports
having material eﬀect
on the error rates
22 %

Minor corrections to
reports having limited
impact on the error rates
26 %

Reports not changed
since their submission
46 %

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35

65. 

66. 

67. 

68. 

69. 

While the Court identified some shortcomings regarding the Commis-
sion’s  implementation  of  the  verification  procedures,  the  significant 
number of errors detected by the Commission for the three types of 
reports audited (EAGF-IACS, EAFRD -IACS and EAFRD non-IACS) shows 
that its desk review is nonetheless capable of detecting a number of 
mostly compilation errors that were not identified at the level of the 
Member States. This also highlights that most Member States are unable 
to supply complete and accurate statistics by the set deadline.

THE COMMISSION’S REVIEW OF THE STATISTICAL REPORTS DURING 
ITS CONFORMITY AUDITS IS NOT SUFFICIENT

As explained above, the desk review of the reports has certain scope 
limitations but these can be mitigated during the conformity audit visits 
to selected Member States (which form part of the clearance of accounts 
procedure).

However, the scope of the work was not sufficiently detailed in any of the 
Commission internal documents. This resulted in different approaches 
being taken by the Commission staff during their audit visits to paying 
agencies. Furthermore, the scope of the reconciliations and verification 
tests was limited and, in some cases, even excluded checks on the reduc-
tions reported, even though this information is critical for the calculation 
of the residual error rate.

Most of the errors or anomalies found by the Commission during their 
conformity audits related to reports covering the EAFRD measures. The 
most significant ones were detected in three paying agencies audited 
between September and December 2011. Nevertheless, the Commission 
either did not ask the relevant paying agencies to submit corrected ver-
sions of the reports or received them too late to take them into account 
for the calculation of the residual error rate published in the annual 
activity report in March 2012.

The Court considers that conformity clearance audits could better con-
tribute to improving the quality of the Member States’ statistical reports 
by paying increased attention to the verification of the reported statistics 
against the underlying records of the paying agencies.

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THE COMMISSION’S ESTIMATE OF IRREGULAR 
PAYMENTS IS NOT STATISTICALLY VALID AND 
IMPACTS ON THE RELIABILITY OF THE ANNUAL 
STATEMENT OF ASSURANCE OF DG AGRICULTURE 
AND RURAL DEVELOPMENT

MEMBER STATES’ APPROACHES IN DRAWING RANDOM SAMPLES 
ARE NOT ALWAYS STATISTICALLY VALID, THUS AFFECTING THE 
REPRESENTATIVITY OF SUCH SAMPLES

70. 

The  Court  assessed  first  whether  the  Commission  provided  Member 
States with clear guidance on how to draw a random sample of appli-
cants to be inspected on the spot and, second, whether the procedures 
implemented by the paying agencies ensured that applicants were se-
lected randomly and were as representative as possible of the whole 
population. On the first point, the Court noted that the Commission does 
not provide sufficiently clear guidance on random sampling and also 
does not require paying agencies to verify ex post whether the random 
sample is representative of the whole population with regard to some 
key characteristics (e.g. farm size or type of agricultural area farmed).

71. 

On the second  point, the Court identified  the following weaknesses 
regarding the random selections:

 — Paying  agencies  did  not  document  clearly  enough  the  random 
selection steps to be followed to avoid different methods being 
applied from one year to another (Spain-Castilla La Mancha, Ita-
ly-AGEA, Poland and Romania);

 — Random samples were sometimes exclusively drawn from high-risk 
populations (Spain-Castilla La Mancha), resulting in a risk-based 
rather than a random sample;

 — The sampling method used prioritised applicants claiming for more 
than one area-based measure, which meant that the sample was 
not fully representative of the whole population — applicants for 
both SAPS and Less Favoured Area (LFA) aid had a higher chance 
of being selected than applicants for SAPS aid only (Bulgaria, the 
Czech Republic, Greece and Romania);

 — Some new applicants for EAFRD area-based measures had no possi -
bility of being selected for on-the -spot check as the random sample 
was drawn before the deadline for the submission of the applica-
tion (Greece); and

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 — There were significant unexplained differences between the popu-
lation in the random sample and the whole population with respect 
to some key characteristics, such as the average surface of land 
declared (Italy-AGEA). This casts doubt on the random sampling 
methodology applied.

32  These assessments for 
2011 consisted of desk 
reviews of information 
available to the Commission 
services (conformity audit 
results, Court’s reports and 
certification bodies’ reports) 
that mostly related to 
previous years.

72. 

73. 

74. 

75. 

The abovementioned shortcomings in the random sampling of appli-
cants for on-the -spot checks by the paying agencies affected the statisti-
cal representativeness of the samples and, consequently, the reliability 
of the error rates. While most of these shortcomings individually would 
have only a limited impact on the error rates, in the case of one paying 
agency (Spain-Castilla La Mancha) the potential impact could be impor-
tant as the problems detected were more severe.

THE METHOD USED BY THE COMMISSION TO ESTIMATE A RESIDUAL 
ERROR RATE IS NOT STATISTICALLY VALID

The Court assessed whether the Commission’s calculations of a residual 
error rate had been carried out correctly from a mathematical point of 
view and whether it could provide statistically valid estimates of rates 
of error in payments after all checks had been carried out.

Before its AAR 2012, DG Agriculture and Rural Development based its cal-
culation of a residual error rate on the results of the on-the -spot checks 
reported in the Member States’ statistical reports. However, to take into 
account the weaknesses in administrative and on-the-spot checks, the 
Commission increased the reported error rates by 25 %.

In its AAR 2012, following an assessment of the reliability of the proce-
dures applied, DG Agriculture and Rural Development revised its ap-
proach. The Commission has carried out assessments of every paying 
agency32 and has corrected the reported error rates on the basis of the 
results of these assessments (see also Annex I). In 2012, the reported 
error rates were thus adjusted by 2 to 5 percentage points in 37 out of 
81 paying agencies.

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As a result, the residual error rate for EAGF IACS expenditure for 2012 
calculated by the Commission is 2,4 %, i.e. 4,5 times the error rate of 
0,54 %33 calculated on the basis of the Member States’ statistical reports.

33  EU-27 weighted average 
of error rates reported by 
the Member States in the 
statistical reports for the EAGF 
IACS expenditure population.

The results of the new approach confirm that only limited assurance can 
be gained from the statistical reports, the declarations of the directors 
of paying agencies and the work carried out by the certification bodies. 
Indeed, in the 37 paying agencies of which the Commission decided to 
correct the EAGF IACS error rate, the directors had issued an unqualified 
opinion and, for 32 of them, the certification bodies also had issued an 
unqualified opinion.

The 2012 change of approach recognises the weaknesses reported by the 
Court in its annual reports and confirmed by the Commission’s Internal 
Audit Service in 2013. While the Court considers the new approach to be 
a step in the right direction, it is only partially applied and it should be 
noted that the 2 to 5 percentage points increase in the reported error 
rates is not statistically valid and does not currently provide a reliable 
basis for the estimation of the residual error rate.

76. 

77. 

78. 

TABLE 3

EVOLUTION OF THE COURT’S MOST LIKELY ERRORS AND THE COMMISSION’S RESIDUAL 
ERROR RATES

Expenditure

EAGF for the 2011 FY

EAGF for the 2012 FY

EAFRD for the 2011 FY1

EAFRD for the 2012 FY1

The Court’s results of its transaction testing

Lower limit

Most likely error

Upper limit

The Commission’s calculation 
of the residual error rates

1,1 %

1,7 %

4,5 %

4,5 %

2,9 %

3,8 %

7,7 %

7,9 %

4,7 %

5,9 %

10,9 %

11,3 %

0,55 %

2,24 %

1,89 %

1,62 %

1  From 178 transactions in 2011 and 177 in 2012, only 160 transactions, related to rural development expenditure, the remaining 18 
and 17, respectively, related to expenditure on environment and climate action, maritime affairs and fisheries, and health and consumer 
protection.

Source: The Court’s annual reports on the implementation of the budget concerning the 2011 and 2012 financial years and the 2012 
Commission annual activity report of the Directorate-General for Agriculture and Rural Development.

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39

79. 

80. 

81. 

82. 

83. 

THE LEVEL OF ERROR REPORTED BY DG AGRICULTURE AND RURAL 
DEVELOPMENT CANNOT BE COMPARED WITH THE COURT’S MOST 
LIKELY ERROR

The Court compared its own methodology for testing transactions and 
its estimation of the most likely error rate with the Commission’s meth-
odology for the calculation of a residual error rate.

Over the past years, the Commission has consistently published lower 
residual error rates than the most likely error rate estimated by the Court, 
as shown in Table 3.

The significant differences between the Court’s and the Commission’s 
estimates of error rates call for clarification. The findings of the Court 
suggest that the explanations can be found in the elements summarised 
in the following paragraphs.

First, the methodologies used to calculate the error rates are different.

Second, as regards the ‘adjustments’ made by the Commission (see para-
graphs 74 to 78 above), the Court considers that they are not statistically 
valid to take into account the unreliable nature of the Member States’ 
statistical reports which are the basic building blocks for its estimated 
residual error rate.

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40

Third, while the samples of beneficiaries checked on-the-spot by the 
paying agencies are significantly larger than the Court’s samples and 
should, in theory, allow for more precise estimates of the residual error 
rate, the shortcomings identified in the effectiveness of the checks and 
their compilation undermine the reliability of the reports submitted to 
the Commission. For its part, the Court carries out thorough documen-
tary and on-site reviews of all the eligibility conditions for the payments 
selected in the samples and, in many cases, it found errors that should 
have been detected by the paying agencies either through administra-
tive or on-the -spot checks.

This is further illustrated by the following two graphs analysing the er-
rors found in the transactions tested by the Court for the 2011 financial 
year. Figure 3 shows that, with respect to EAGF transactions, 55 % of the 
errors found by the Court should have been corrected at an earlier stage 
by the paying agencies.

Figure 4 shows that, with respect to EAFRD transactions, 76 % of the er-
rors found by the Court should have been corrected at an earlier stage 
by the paying agencies.

84. 

85. 

86. 

FIGURE 3

TYPES OF ERRORS FOUND IN THE FRAMEWORK OF THE REGULARITY OF TRANSACTIONS 
AUDIT RELATING TO AGRICULTURE: MARKET AND DIRECT SUPPORT (FY 2011)

Area overdeclaration
errors
38 %

Cross-compliance errors
7 %

Administrative errors
(non-respect
of procurement
rules)
20 %

Administrative errors
(ineﬀective cross-checks
with animal database)
10 %

Administrative errors
(incorrect calculation
of payments/entitlements)
25 %

Source: Court’s annual report on the implementation of the budget concerning the financial year 2011.

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41

87. 

88. 

Fourth, the quantitative impact of an error may be assessed by the Court 
differently from what is recommended in the Commission guidelines. 
For example, the Court classifies a material breach of public procure -
ment rules as a 100 % error (since the transaction should not have been 
authorised in the first place) while the Commission guidelines call for 
an assessment of the ‘seriousness’ of the breach which may result in an 
error estimated at 20 % only of the full payment.

Fifth, the breach of cross- compliance rules is included in the computa-
tion  of  the  error  rate  estimated  by  the  Court,  while  the  Commission 
excludes such breaches from its calculation of residual error rates. For 
example, the cross- compliance infringements represented 0,2 percent-
age points of the most likely error calculated for the EAGF expenditure 
by the Court in 2011.

89. 

Finally, paying agencies’ checks are carried out ex ante (i.e. before the 
payment is made) while the Court audits payments made (i.e. ex post).

FIGURE 4

TYPES OF ERRORS FOUND IN THE FRAMEWORK OF THE REGULARITY OF TRANSACTIONS 
AUDIT RELATING TO RURAL DEVELOPMENT (FY 2011)

Cross-compliance errors
3 %

Other errors
4 % 

Non-respect of the
agro-environmental
commitments
9 %

Area overdeclaration
errors
8 %

Administrative errors
(incorrect calculation
of payments/
ineligible payments)
45 %

Administrative errors
(non-respect of
procurement rules)
31 %

Source: Court’s annual report on the implementation of the budget concerning the financial year 2011.

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CONCLUSIONS AND RECOMMENDATIONS

42

90. 

The Court assessed whether the reports containing the results of pay-
ing agencies’ administrative and on-the -spot checks covering the 2010 
claim year were reliable. It also examined whether the Commission’s 
use  of  these  statistical  reports  and  its  calculation  of  a  residual  error 
rate provided a statistically valid estimate of irregularities in payments. 
Overall, the Court concludes that the results of the checks of agricultural 
expenditure carried out by Member States and reported by the Commis-
sion are not reliable.

THE EFFECTIVENESS OF THE ADMINISTRATIVE AS 
WELL AS THE ON‑THE‑SPOT CHECKS CARRIED OUT 
BY THE PAYING AGENCIES NEEDS TO BE GREATLY 
IMPROVED

91. 

The Court’s previous audits as well as the Commission’s own audits show 
that the systems in place for administrative and on-the -spot checks were 
only partially effective, thus seriously undermining the reliability of the 
information Member States provide the Commission with (paragraphs 30 
to 36).

RECOMMENDATION 1

The Commission should ensure that the administrative and on-the-spot 
checks carried out by the paying agencies are ef fective. Hence, the 
Court reiterates the following specific recommendations included in 
its last two annual reports:

 — Paying agencies should significantly improve their administra-
tive checks (claim verification procedures, detection of ineligible 
expenditure) and use all relevant information available to them in 
order to detect and correct errors contained in the applications;

 — The quality of LPIS databases should be significantly improved 

in order to clearly identify ineligible areas; and

 — On-the-spot inspections need to be more rigorously conducted 

in order to correctly determine eligible areas and expenditure.

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92. 

93. 

THE STATISTICAL REPORTS PRODUCED BY THE 
PAYING AGENCIES SHOULD BE MORE RIGOROUSLY 
VERIFIED AND COMPILED BEFORE THEY ARE SENT 
TO THE COMMISSION

Although the Commission provides detailed guidelines for the com-
pilation of the statistical reports, paying agencies do not always apply 
them correctly. Furthermore, the data included in the reports were often 
incomplete or based on estimates as the reports were finalised before 
all the applications had been processed (paragraphs 37 to 41).

Most paying agencies audited did not have in place written procedures 
to establish the accuracy of the reports before their submission to the 
Commission. While they carried out some verification tests, the nature 
and extent of these tests were limited and were not capable of detect-
ing errors later identified either by the Commission’s desk review or the 
Court’s audit. Furthermore, most checks carried out by the paying agen-
cies were not properly documented (paragraphs 42 to 46).

RECOMMENDATION 2

The Commission should improve the clarity of its guidelines for the 
compilation of the statistical reports. The guidelines should in par-
ticular provide instructions on the cut-of f dates to be used and the 
treatment of applications not yet processed as well as the nature and 
extent of tests to be carried out by paying agencies before reports are 
submitted to the Commission.

Member States’ paying agencies should establish written procedures 
for the verification and compilation of the data included in the reports 
and should adequately document all checks carried out.

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THE WORK OF THE CERTIFICATION BODIES DOES 
NOT PROVIDE THE COMMISSION WITH SUFFICIENT 
ASSURANCE AS TO THE RELIABILITY OF THE 
STATISTICAL REPORTS

94. 

The  cer tification  bodies  do  not  provide  the  Commission  with  suf -
ficient assurance on the adequacy of the on-the -spot checks carried 
out by the paying agencies as well as on the reliability of the statistics 
(paragraphs 47 to 57).

RECOMMENDATION 3

The Commission should amend the guidelines issued to certification 
bodies and monitor their correct implementation. The amendments 
should be designed:

 — to increase the minimum sample of paying agencies’ on-the-spot 

checks to be tested by the certification bodies;

 — to require re-performance of such checks as opposed to only 

accompanying the paying agencies’ inspectors; and

 — to further clarify the verification work to be carried out on the 

compilation of the statistical reports.

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45

95. 

96. 

97. 

INAPPROPRIATE USE AND LIMITED REVIEW OF 
MEMBER STATES STATISTICS BY THE COMMISSION

The Court does not consider that the Commission’s information system 
on the results of the Member States’ checks effectively serves the Com-
mission’s needs. Some of the information currently made available is not 
fully relevant or is incomplete and inaccurate for the purpose of being 
used as such in the annual activity report and in the discharge procedure 
(paragraphs 58 to 62).

The limited review of Member States statistics by the Commission can-
not ensure their reliability. The desk review of the statistical reports by 
the Commission is limited to checking the internal consistency of the 
information they contain but it does not allow for verifying their content 
against the underlying data (paragraphs 63 to 65).

These  limitations  are  not  fully  mitigated  during  the  Commission’s 
on-the -spot (conformity) audits in the selected Member States. Further-
more, when the Commission identified incorrect data in the statistical 
reports during such audits, it did not result in a correction of the data 
used in the annual activity report (paragraphs 66 to 69).

RECOMMENDATION 4

The Commission should ensure that it receives complete information 
on the checks carried out by paying agencies at the most appropriate 
time. In particular, the deadlines for the submission of statistical reports 
to the Commission should be re-examined with a view to better align -
ing them with the time of the year when they are actually verified and 
used by the Commission’s services. This is particularly important for 
the Commission’s calculation of the residual error rate.

The Commission should harmonise the systems for the verification of 
the statistical reports. The desk verifications should be as far as possible 
automated and include systematic reconciliation of the data contained 
in the reports with the underlying data.

The Commission’s conformity audits should also cover the review of ver-
ifications carried out by the paying agencies and certification bodies.

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98. 

99. 

46

THE COMMISSION’S ESTIMATE OF THE RESIDUAL 
ERROR RATE IS NOT STATISTICALLY VALID

In the DG Agriculture and Rural Development annual activity report, 
the Director-General’s declaration of assurance covering, amongst oth-
ers, the legality and regularity of transactions at the level of the final 
beneficiaries, is supported by residual error rates which are estimated 
on the basis of Member States’ statistical reports on the results of paying 
agencies’ administrative and on-the -spot checks.

34  See paragraph 27 of the 
Court’s Opinion No 1/2012 
on certain proposals for 
regulations relating to the 
common agricultural policy 
for the period 2014–20.

Because of the weaknesses in the Member States’ statistics as illustrated 
in the present report, those statistics in themselves do not provide a re-
liable basis for the Commission’s estimations of the residual error rate. 
Furthermore, the Commission’s adjustments of the error rates computed 
for each paying agency are not statistically valid nor is the residual error 
rate (paragraphs 73 to 78).

RECOMMENDATION 5

The  Commission  should,  based  on  the  work  of  the  paying  agencies 
and the expanded role of the certification bodies, take the necessary 
measures to arrive at a statistically valid estimate of the current impact 
of irregularities on payments after all checks have been carried out.

However, the reliability and statistical validity of the work carried out 
both by the paying agencies and the certification bodies would need to 
be substantially improved (along the lines set out in the present report) 
in order to enable the Commission34 to derive from it a valid estimate 
of a residual rate of error.

T his  repor t  was  adopted  by  Chamber  I,  headed  by  Mr  Jan  K INŠ T, 
Member  of  the  Cour t  of  Auditors,  in  Luxembourg  at  its  meeting  of 
18 December 2013.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA
President

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

47

ANNEX I

ESTABLISHMENT OF THE RESIDUAL ERROR RATES BY THE COMMISSION FOR THE 2012 AAR

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Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48

ANNEX II

RESULTS OF ASSESSMENTS OF SELECTED SUPERVISORY AND CONTROL SYSTEMS — 
EAGF IACS

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51

ANNEX III

RESULTS OF ASSESSMENTS OF SELECTED SUPERVISORY AND CONTROL 
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Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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ANNEX III

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56

ANNEX IV

AN OVERVIEW OF MATERIAL ERRORS FOUND DURING THE DOCUMENTARY REVIEWS OF 
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Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58

ANNEX V

OVERVIEW OF THE PERIOD COVERED BY THE STATISTICAL REPORTS AND THE 
ASSOCIATED REPORTING DEADLINES

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Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
59

REPLY OF THE 
COMMISSION

EXECUTIVE SUMMARY

Common reply to paragraphs I–IX
The  ECA  has,  for  a  number  of  years,  criticised  the  Com-
mission’s reliance on the Member States’ statistics on the 
results of their controls as a source of information for cal-
culating a residual error rate. In the first place, the Com-
mission 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  Agriculture  and  Rural  Development  took 
on  board  the  concerns  about  the  control  statistics  and 
changed  its  approach  after  consulting  with  the  central 
services of the Commission responsible for methodologi-
cal issues. The Court, in its annual report for 2012, did not 
criticise  this  approach  and  rather,  expressed  itself  posi-
tively 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 Janu-
ary 2014, provides for a significant increase in the respon-
sibilities of the certification bodies in the Member States 
with regard to delivering an opinion on legality and reg-
ularity of the expenditure including validating the Mem-
ber States’ control results which are communicated to the 
Commission.

In consequence, the Court’s report deals with a methodol-
ogy which has changed and is still evolving. Rather, there-
fore, than concentrate on historic elements, the Commis-
sion 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 Agriculture and Rural 
Development 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 par-
ticular, to rural development.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

60

IV.
The establishment of control systems is governed by pre-
cise EU rules, complemented by Commission guidelines as 
appropriate. For instance, paying agencies shall perform 
administrative checks on 100 % of the claims before pay-
ment, 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 Agriculture and Rural Development 
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 transac-
tions, and give an opinion on them.

Finally, for claim year 2012, DG Agriculture and Rural Devel-
opment has tested, for area-related payments, the trans-
mission  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 inac-
curacies in the control statistics resulting from inadequate 
compilation of the individual data.

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

VI.
The new method described in the reply to paragraph III 
provides for the Commission to adjust the error rate result-
ing from statistics from the Member States where Commis-
sion 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 Mem-
ber States’ control statistics.

IX.
The  Commission  does  not  claim  that  the  adjustment  it 
makes to the Member States’ control statistics is statisti-
cally 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  Agriculture  and  Rural  Development  but  also 
with the central services of the Commission.

The  Commission  was  therefore  aware  that  it  could  not 
place full reliance on the control statistics from the Mem-
ber State as the only indicator of the level of error in agri-
culture  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.

The Commission notes that, in its annual report for 2012, 
the Court recommends that:

‘ The  Commission,  in  DG  Agriculture  and  Rural  Develop-
ment’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.’

Nevertheless, DG Agriculture and Rural Development 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 respon-
sible 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.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

REPLY OF THE COMMISSION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 recommenda-
tions 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 recom-
mendation 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  Cour t,  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  correc tions  that  not  only  protec t  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 of payments has 
also been used for the EAFRD and the new horizontal regu-
lation on the control, financing and monitoring of the CAP, 
which comes into force in January 2014, includes a rein-
forced 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 Par-
cel Identification System) in particular are subject to a con-
tinuous rolling out of audits in order to detect deficiencies. 
An ineffective LPIS is taken very seriously by the Commis-
sion 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.

61

X. First indent
The  guidelines  on  controls  to  be  per for med  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 agen-
cies,  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 statis-
tics 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.

X. Second indent
The new horizontal regulation on the control, financing 
and monitoring of the CAP, which comes into force in Janu- 
ary  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 statis-
tics. 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.

X. 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 rele -
vant 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.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

REPLY OF THE COMMISSION62

OBSERVATIONS

Common reply to paragraphs 28–36
DG Agriculture and Rural Development has already in the 
AAR 2012 stated that ‘… Member States control statistics 
need to be considered with a degree of caution’. DG Agri-
culture and Rural Development 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 Agriculture 
and Rural Development’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.

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

In the new horizontal regulation for the control, financ-
ing 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.

X. Fourth indent
The  new  horizontal  regulation  provides  that  the  certifi-
cation  bodies  will  have  to  systematically  test,  on  repre -
sentative 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,  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  Cour t ’s  annual 
report for 2012: ‘ The Commission, in DG Agriculture and 
Rural Development’s annual activity report, applies a simi-
lar 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 pay-
ing agency.’

Regarding  its  own  audit  activities,  the  Commission  will 
continue to focus on systemic audits of the paying agen-
cies, on a risk basis and in the framework of the conform-
ity 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 certifi-
cation bodies on legality and regularity, to provide techni-
cal guidance and contribute to achieving the objective of 
a reinforced assurance.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

REPLY OF THE COMMISSION63

32. Second indent
While the Commission does not always share the appre-
ciation 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.

32. 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 obvi-
ous error concept in case of misplacement of parcels.

32. 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.

32. Fifth indent
While the Commission does not always share the appre-
ciation 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 
According to the Italian authorities, the Lombardia issue 
has been rectified as from 2011. The Commission is pur-
suing this through the conformity clearance procedure of 
accounts.

The Commission is aware of the issues related to the eli-
gibility 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 recommen-
dations 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 
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 agricul-
tural 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 characteristics to 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;

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

REPLY OF THE COMMISSION64

 — 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 
As indicated in the reply to the annual report 2012, Com-
mission 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 ongoing.

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  statis-
tics. 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,  pre -
paring  more  detailed  guidelines  and  procedures  both 
internally  and  for  the  Member  States.  See  also  reply  to 
paragraphs 39–41.

39.
DG  Agriculture  and  Rural  Development  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 Agriculture and Rural Development verifies the com-
pleteness  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 Com-
mission 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 conse-
quence, 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 
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 Mem-
ber 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 Commis-
sion 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 apprecia-
tion to them in order to reflect the likelihood of their being 
understated.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

REPLY OF THE COMMISSION65

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  neces-
sary 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 posi-
tive. 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. Never-
theless 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 statisti-
cal  repor ts  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 com-
municate  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 pre-
vious  years  could  only  lead  to  an  overstatement  of  the 
level of error. Even if information is reported in the incor-
rect 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 
In the Polish example the checks were carried out, the pay-
ing agency did identify and fully record the error but inad-
vertently misclassified part of it as an administrative rather 
than as an on-the -spot check.

Box 7 — 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 to paragraphs 47–50
The number of checks carried out by the certification bod-
ies is in line with the sample size requested by the Com-
mission 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  voluntar y 
reinforcement of assurance exercise by certification bod-
ies which would require them to re-perform a representa -
tive sample of 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 agree-
ment has been reached on a provision in the new horizon-
tal regulation for the financing, management and monitor-
ing 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 repre -
sentative sample of transactions (a range of 60–170 trans-
actions per fund depending on a number of factors includ-
ing population size).

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REPLY OF THE COMMISSION66

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 
ECA’s findings will be taken into account in the certifica-
tion team risk analysis.

51.
Whenever  necessar y,  recommendations  were  made  to 
the concerned certification bodies to enhance the qual-
ity of their work for the future. Findings and recommen-
dations were also shared and made available to all certi-
fication 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 ‘rein-
forcement 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 certifica-
tion bodies’ tasks underpinning the opinion on legality and 
regularity set out a statistically valid model for perform-
ing  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 transac-
tion 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 informa-
tion from the Member States serves the needs of opera-
tional  and  audit  ser vices. The  regulator y  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 sta-
tistics is their use as a management tool for the Member 
States. They are a useful source of information on errors 
detected which in a given year should be corrected.

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REPLY OF THE COMMISSION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 statis-
tics 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 fol-
lowing 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 sta -
tistics are reported does not fully correspond to the finan-
cial year of the AAR.

63.
The  data  referred  to  by  the  Cour t  was  sent  electroni-
cally 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 car-
rying 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 finan-
cial  year  in  question. The  timing  of  the  annual  declara-
tions 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.

67

Common reply to paragraphs 66–68 
The Commission considers that it is not possible to sys-
tematically verify all the data presented in statistics during 
the conformity audits carried out in the Member States. 
DG  Agriculture  and  Rural  Development  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 con-
trol systems. Furthermore, a large number of the audits for 
the year concerned are carried out after the AAR has been 
completed.

Depending on the delay given by the EU legislation and 
the audit procedure, it is not always possible to obtain sta-
tistics 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 
Agriculture and Regional Development, renders it impossi-
ble, in the context of the available resources, to follow the 
Court’s suggestion, without negatively affecting the core 
business. Nevertheless, reinforced attention to the statisti-
cal reports will underlie the work to be carried out by the 
certification bodies in the context of the opinion on legal-
ity 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 man-
agement and control systems — and also, to follow 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 Agriculture and Rural Development.

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.

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REPLY OF THE COMMISSION72.
In the draft guideline for certification bodies for post-2013 
a statistically valid model for building up the audit assur-
ance 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 appreci-
ation to this data in order to give an assessment of ele -
ments (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 informa-
tion from ECA audits, certification body findings and Com-
mission’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.

68

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 meas-
ures for the year 2013, and in particular to rural develop-
ment. 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 Agriculture and Rural Devel-
opment’s annual activity report, applies a similar approach 
for EAFRD as for decoupled area aid, where the Commis-
sion  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 Agriculture and Rural 
Development ’s  annual  activity  repor t,  applies  a  similar 
approach for EAFRD as for decoupled area aid, where the 
Commission takes account of the results of its own con-
formity 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 
Agriculture and Rural Development in 2012 for EAGF, falls 
within the upper and lower error limits of the Court’s esti-
mate of error.

82.
The methodologies used by the two institutions to calcu-
late 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.

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REPLY OF THE COMMISSION69

88.
A s   i n d i c a t e d   i n   i t s   r e p l y   t o   t h e   a n n u a l   r e p o r t s 
2011  and  2012, the Commission is of the opinion that the 
respect of cross- compliance obligations does not consti-
tute an eligibility criterion for CAP payments and, there-
fore, 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 Com-
mission 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.

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 ad- 
equate to take account of the weaknesses in the Member 
States’ control statistics.

The  Commission  notes  that  in  its  2012  Cour t ’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 assess-
ment  of  the  quantitative  impact  of  errors  to  that  deter-
mined 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 insti-
tution which is responsible for the implementation of the 
legislation, under the control of the European Court of Jus-
tice, should align its appreciation of the seriousness of an 
error to that of the Court.

In determining the amount of a correction, the Commis-
sion 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.

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REPLY OF THE COMMISSION70

CONCLUSIONS AND RECOMMENDATIONS

90.
Th e   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   i t s   t re a t -
ment  of  the  Member  States’  statistics  was  significantly 
changed  for  the  2012  AAR.  DG  Agriculture  and  Rural 
Development  had,  up  to  2011  used  a  25  %  safety  mar-
gin in order to compensate for incompleteness of Mem-
ber  States’  statistics  but  this  approach  had  been  criti -
cised  by  the  Cour t  as  being  unreliable.  Therefore,  the 
Commission,  in  its  2012  AAR,  under took  fur ther  evalu- 
ation 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 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 regard-
ing the necessary improvement of the administrative and 
on the spot checks. The adequacy of those checks is veri-
fied/assessed during the conformity audits and recommen-
dations 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 strength-
ened certain tools in the framework of the CAP reform.

Recommendation 1 — First indent
Where  the  Commission,  and  indeed  the  Cour t,  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  mech- 
anism for suspension of payments for Member States who 
fail to implement a remedial action plan.

Recommendation 1 — Second and third indents
Area-based aid schemes in general and the LPIS in particu-
lar are subject to a continuous rolling out of audits in order 
to detect deficiencies. An ineffective LPIS is taken very ser- 
iously 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 Janu- 
ary  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 stat- 
istics.  It  is  expected  that  this  additional  work  will  result 
in an improvement in the quality of the paying agencies’ 
statistics.

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REPLY OF THE COMMISSION71

Recommendation 3 — First indent
The guidelines propose the re-performance by the certifi -
cation body of a representative sample of paying agencies 
checks.

Recommendation 3 — Second indent
Re-performance has already been proposed by the Com -
mission for the claim year 2014.

Recommendation 3 — 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 pro-
duce 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 administra-
tive 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 pos-
sible  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.

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 impor-
tant CAP expenditure area.

Recommendation 2
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 statis-
tics as well as in the context of the implementing rules for 
the CAP reform.

Recommendation 2 — Second paragraph
This part of the recommendation is addressed to the Mem-
ber States. The Commission will continue to request Mem-
ber States to improve their internal procedures for verifica-
tion and compilation of the control data sent.

94.
T h e   c e r t i f i c a t i o n   b o d i e s   c a r r y   o u t   t h e   ve r i f i c a t i o n s 
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 begin-
ning  of  2014  requires  cer tification  bodies  to  carr y  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, financ-
ing and monitoring of the CAP, in force from January 2014 
and  will  require  the  cer tification  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.

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REPLY OF THE COMMISSION72

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 Agriculture 
and Rural Development 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 statisti-
cally 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 takes into account other relevant information based 
on professional judgement, notably the Commission’s and 
the Court’s own audit results and the findings of the certi-
fication 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 ensur-
ing  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 Mem-
ber State and per fund. DG Agriculture and Rural Develop-
ment will increase its supervision of the certification bod-
ies in order to get assurance on the reliability of their new 
work on legality and regularity. This would allow the Com-
mission 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 Agriculture and  
Rural Development 2012 AAR and extend it to other CAP 
measures, in particular, to rural development, as recom-
mended by the Court in its 2012 annual report.

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.

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 stat- 
istics 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 fur-
ther improve the existing assurance building blocks in the 
context of the CAP reform and accordingly the Commis-
sion 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 sta-
tistics this is not the primary purpose of the conformity 
clearance procedure. It is rather to check their manage-
ment and control systems  — and to follow up the Court’s 
own  DAS  findings.  The  wide  range  of  elements  which 
have to already be checked and audited by the Commis-
sion’s auditors in DG Agriculture and Rural Development 
within the resources available render it impossible to fol-
low 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 car-
ried out by the certification bodies in the context of the 
opinion on legality and regularity.

Special Report No 18/2013 – The reliability of the results of the Member States’ checks of the agricultural expenditure

REPLY OF THE COMMISSIONEuropean Court of Auditors

Special Report No 18/2013
The reliability of the results of the Member States’ checks of the agricultural expenditure

Luxembourg: Publications Office of the European Union

2014 — 72 pp. — 21 × 29.7 cm

ISBN 978-92-9241-566-2
doi:10.2865/1181

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THE COURT AUDITED THE RELIABILIT Y OF MEMBER STATES’ REPORTS ON 

THE RESULTS OF THEIR ADMINISTRATIVE AND ON-THE-SPOT CHECKS OF THE 

AGRICULTURAL EXPENDITURE AS WELL AS THE USE OF THIS INFORMATION 

BY THE COMMISSION. THE COURT CONCLUDES THAT THESE REPORTS ARE 

NOT  RELIABLE  DUE TO  BOTH  COMPILATION  ERRORS  AND THE  SYSTEMS 

FOR ADMINISTRATIVE AND ON-THE-SPOT CHECKS BEING ONLY PARTIALLY 

EFFEC TIVE IN DETEC TING IRREGULAR EXPENDITURE. ADDITIONALLY, THE 

WORK OF THE CERTIFICATION BODIES DOES NOT PROVIDE SUFFICIENT AS-

SURANCE EITHER ON THE ADEQUACY OF THE ON-THE-SPOT CHECKS OR ON 

THE RELIABILITY OF THE STATISTICAL REPORTS. LASTLY, THE COURT DOES 

NOT CONSIDER THE COMMISSION’S ADJUSTMENTS OF THE ERROR RATES 

RESULTING FROM THE REPORTS TO BE STATISTICALLY VALID. THE REPORT 

CONTAINS RECOMMENDATIONS WHICH ARE AIMED AT IMPROVING THE RE-

LIABILITY OF THE MEMBER STATES’ REPORTS AS WELL AS THE STATISTICAL 

VALIDIT Y OF COMMISSION’S ESTIMATE OF IRREGULARITIES IN PAYMENTS 

AFTER ALL CHECKS HAVE BEEN CARRIED OUT.

EUROPEAN COURT OF AUDITORS