REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Annual report to the Discharge Authority on internal audits carried out in 2013 (Article 99(5) of the Financial Regulation)
Date: 2014-10-03
Institutions: European Commission
Subjects: administrative check, audit, budgetary discharge, financial year, fraud against the EU, management audit













EUR-Lex - 52014DC0615 - EN











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52014DC0615

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Annual report to the Discharge Authority on internal audits carried out in 2013 (Article 99(5) of the Financial Regulation) /* COM/2014/0615 final */









1.       Introduction. 2
2.       The
IAS Mission: Independence, objectivity and accountability Objectives and scope
of the Report  2
3.       Overview
of audit production. 3
3.1.         Implementation of the 2013 audit plan. 3
3.2.         Statistical data on IAS recommendations. 3
4.       Principal
findings and recommendations. 4
4.1.         Horizontal engagements. 4
4.1.1.      Management letter on the delegation of new
tasks to Executive Agencies (multi-DG) 4
4.1.2.      Performance Audit on the Effectiveness of HR
management to support the financial crisis in DG ECFIN, DG COMP, DG MARKT
(multi-DG) 4
4.2.         Agriculture, Natural Resources and Health. 5
4.2.1.      Limited review of residual error rate
calculations (pillar 1 and 2) (DG AGRI) 5
4.2.2.      Audit on Control Strategy - Implementation
in DG AGRI (DG AGRI) 6
4.3.         Cohesion. 6
4.3.1.      Performance Audit of DG REGIO Performance
Measurement Systems (DG REGIO) 6
4.3.2.      Performance Audit of DG EMPL Performance
Measurement Systems (DG EMPL) 7
4.4.         Research, energy and transport. 8
4.4.1.      Limited Review of the calculation and the
underlying methodology of DG RTD's residual error rate for the 2012 reporting
year (DG RTD) 8
4.4.2.      Joint IAS-IAC Audit on Grant Management in
TEN-T EA (Call for proposals-Project Management) (TEN-T EA) 8
4.4.3.      Audit on Control Strategy in EACI (EACI) 9
4.4.4.      Implementation of FP7 Control Systems in REA
(REA) 9
4.5.         External Aid, development and enlargement. 10
4.5.1.      Limited Review of the methodology and
calculation of the residual error rate (DG DEVCO) 10
4.5.2.      DG DEVCO's state of preparedness for the
revised ECA DAS Methodology (DG DEVCO) (Performance Audit) 11
4.5.3.      Procurement - decentralised (DG DEVCO) 11
4.6.         Education and citizenship. 11
4.6.1.      Performance audit of National Agencies (EAC) 11
4.7.         Economic and financial affairs. 12
4.7.1.      Performance Audit of GMES/Copernicus
Programme (DG ENTR) 12
4.8.         General services and HR. 12
4.8.1.      DG ESTAT's preparedness to fulfil its role
in the Economic Governance Framework (DG ESTAT) (Performance Audit) 12
4.9.         IT audits. 13
4.9.1.      Performance Audit on the management of the security
of EU ETS IT (EU ETS) (DG CLIMA, DG DIGIT and DG HR Security Directorate) 13
4.9.2.      SYGMA - Phase 1 – Performance audit on
development process (DG CNECT, DG RTD) 14
5.       Consultation
with the Commission's Financial Irregularities Panel 15
6.       Conclusions. 15

1.         
Introduction

This report is
to inform the Discharge Authority  of the work carried out by the Commission’s
Internal Audit Service (IAS), as required by Article 99(5) of the Financial
Regulation. It is based on the report drawn up by  the Commission’s Internal
Auditor  under Article 99(3) of the Regulation, regarding IAS audit- and
consulting reports completed in 2013[1]
on Commission Directorates-General (DGs), Services and Executive Agencies[2]. In line with its legal base it contains
a summary of the number and type of internal audits carried out, the
recommendations and the action taken on those recommendations[3].

2.         
The IAS Mission: Independence, objectivity and accountability Objectives and scope
of the Report

The IAS's
mission  is to contribute to sound management in the European Commission by
auditing internal management and control systems to assess their effectiveness
with a view to achieving on-going improvements. 
The IAS's independence  is enshrined in the Financial Regulation[4] and its Mission Charter as adopted by the Commission. The IAS
reports on all of its audits to the Audit Progress Committee (APC)[5].
The IAS performs
its work in accordance with the Financial Regulation and the International
Standards for the Professional Practice of Internal Auditing and the Code of
Ethics of the Institute of Internal Auditors.
The IAS does not audit  Member States’ systems
of control over the Commission’s funds. Such audits, which reach down to the
level of individual beneficiaries, are carried out by Member States’ internal auditors,
national Audit Authorities, other individual Commission DGs and the European
Court of Auditors (ECA). The IAS does, however, audit measures taken by the Commission
services to supervise and audit bodies in  Member States, and other bodies
which are responsible for disbursing EU funds, such as the United Nations. As
provided for in the Financial Regulation, the IAS can carry out these duties on
the spot, including in the Member States.

3.         
Overview of audit production
3.1.           
Implementation of the 2013 audit plan

By the cut-off date
of 31 January 2014, the IAS had implemented[6] 100% of its planned engagements (target 100%).
The IAS completed 87
reports (compared with 89 in 2012 and 77 in 2011) including 23 audits, 59 follow-ups,
4 limited reviews and one management letter. A table with comparative data on
engagements and reports established for the years 2011 - 2013 is provided in
the attached Staff Working Document.

3.2.           
Statistical data on IAS recommendations

In 2013, the IAS
issued 134 new recommendations (of which 2 critical, 59 very important, 67
important and 6 desirable). Action plans for these
recommendations were assessed as satisfactory by the IAS.
Auditees reported
that 79 % of accepted recommendations issued between 2009 and 2013 were implemented
by the start of 2014. Out of all recommendations rated 'very important' or
'critical' and issued in the period 2009-2013, 10 very important
recommendations (2.3%) were overdue by more than six months. Three additional
overdue very important recommendations were issued before 2009[7]. No critical recommendation is outstanding. The APC was regularly
informed of critical or very important recommendations overdue by more than six
months and reminded services of their responsibility to implement, where
necessary. The total number of accepted recommendations issued during 2009-2013
for which the IAS had conducted follow-up audits by the end of 2013, amounts to
686. The IAS follow-up work confirmed that recommendations were being
implemented satisfactorily, contributing to the improvement of control systems
in the audited services. The IAS closed 96% of the recommendations followed-up
during this period.
The accompanying
Staff Working Document provides more detailed information on acceptance rates
for new recommendations and the implementation of recommendations relating to
the period 2009-2013.

4.         
Principal findings and recommendations
4.1.           
Horizontal engagements
4.1.1.     
Management letter on the delegation of new
tasks to Executive Agencies (multi-DG)

This management letter addressed
the main issues of a horizontal nature raised in the 2010 IAS overview report
on executive agencies and subsequent audits conducted in this field. It aimed
to support management in delegating tasks to executive agencies and mitigate
the attendant risks. It was not intended to provide an assessment of the state
of play or to provide an opinion.
A first issue raised was that the cost-benefit
analysis used to assess the various options should be based on a well-defined
and consistent methodology, including the use of appropriate tools and
methodologies to support the staff allocation process. In addition, the
selected option should be regularly confirmed throughout the life of the
project.
As executive agencies grow in staff numbers and reach
a critical mass of programmes to be managed, consideration should be given to
alternative scenarios to achieve further cost savings and efficiency gains by
pooling together various agencies’ horizontal services such as IT, HR or
communication. Furthermore, greater focus should be placed
on improving their performance to meet the rising expectations of stakeholders.
The IAS also noted that, given the scale of the
delegation of programme management, appropriate steps should be taken to ensure
the continuous availability of sufficient staff with the required profile in
the long run together with a policy on the retention of agency staff.
For more details,
see section 2.1 of the annex.

4.1.2.      Performance Audit on the Effectiveness of HR management to support
the financial crisis in DG ECFIN, DG COMP, DG MARKT
(multi-DG)

In order to be able to
deal with the new challenging responsibilities resulting from the financial
crisis, the Commission provided DG ECFIN, DG COMP and DG MARKT with a
substantial increase in human resources
The audit's objective was
to assess whether the Human Resources Management (hereafter referred to as HRM)
of the respective DGs has been effective in responding to HR challenges
resulting from the policy responses to the financial crisis.
The IAS considered that the three DGs demonstrated a
very strong commitment to respond to the HR-related challenges, which enabled them
to pursue their political and operational objectives, including those arising
from the crisis itself.
However, the DGs, to varying degrees, still need to
further enhance their HR management tools to make the decision-making process
more efficient.
With respect to the HRM Strategy, the DGs should further develop their multi-annual HR strategy. In
particular they have to perform a qualitative and quantitative analysis of
staff needs and address the gap between needs and current situation. The
implementation of the HR strategy should be supported by tools to measure,
monitor and report on its effectiveness.
As for the HR planning,
they should implement tools to regularly assess staff workload and set the
priorities of its tasks. The staff allocations should be done on this basis. The
DGs should enhance their monitoring and reporting process on the HRM related
activities by developing a comprehensive HR report that covers the different
aspects of HRM, including the related Key Performance Indicators (KPIs). This
would enable the DGs to measure their HR management’s performance and
facilitate management decisions on HR.
All three DGs
established action plans which the IAS considered adequate to address the
identified issues.
For more details on
the findings related to the DGs concerned, see section 2.3 of the annex.

4.2.           
Agriculture, Natural Resources and Health

 (AGRI, ENV, CLIMA, MARE, EAHC, SANCO)

4.2.1.      Limited review of residual error rate calculations (pillar 1 and 2) (DG AGRI)

For the first time, the IAS carried out limited reviews
on the calculations of residual error rates (RERs) as reported by DG AGRI
(current section), DG RTD (see section 4.4.1) and DG DEVCO (see section 4.5) in
their draft annual activity reports (AARs) for the 2012 reporting year. 
In calculating its RERs, DG AGRI depends very heavily
on control statistics reported by MS, which are deemed unreliable by the
European Court of Auditors. Consequently, there is a risk that DG AGRI's RERs
will be incorrect.  
Looking beyond the 2012 AAR, the reliability of the MS
statistics should be improved.[8]
In addition, DG AGRI should ensure that the RERs are
calculated on the basis of correct and representative data. It should address
the inconsistencies noted and ensure that cross-compliance errors are included
in the calculation. If excluded, the impact should be explained.
Furthermore, DG AGRI
should consider adapting the procedure for making reservations where supported
by reliable MS control statistics. This would be more in line with the
materiality criteria used by other shared management DGs.
DG AGRI agreed with and
accepted all findings and recommendations of the limited review. It recognised
the urgency of the recommendations and committed itself to implementing them. 
DG AGRI established an
action plan which the IAS considered adequate to address the identified issues.
It was followed up in the context of the AAR for the 2013 reporting year  which
revealed that considerable progress had been made already for the 2012 AAR but
in particular for the 2013 AAR.
For more details, see section 3.1 of the annex.

4.2.2.      Audit on Control Strategy - Implementation in DG AGRI (DG AGRI)

These audits were a
continuation of the IAS's audit in 2012 on the design of the control strategy in
place in DG AGRI's Audit Directorate. The objective was to assess the execution
of the audit and control strategy, in particular the effective implementation
of audit engagements, their supervision and corrective measures to address
weaknesses in MS management and control systems.
The auditors
recognised the on-going efforts made by DG AGRI to reduce error rates and
protect the budget through a range of detective and corrective measures.
Nevertheless, there
is scope for improving the audit process which is essential to provide a solid
basis for the assurance process on the legality and regularity for the
underlying transactions: preparatory documents should be timely obtained and,
where necessary, translated and analysed; coordination with operational units
should be optimised in order to build on their knowledge and expertise and to
identify and address key issues properly; re-performance checks of controls
should be made on-the-spot; and a proper documentary trail of the key stages
should be ensured.
It is also essential
that DG AGRI can rely on a system to monitor real and sustainable improvements
of Member States' control systems. DG AGRI should finalise – including data
validation checks – and use its existing IT system, to better track and follow
up its audit recommendations. In addition, DG AGRI should use this system to
monitor its own audit progress, audit coverage and objective achievements.
DG AGRI established an
action plan which the IAS considered adequate to address the issues identified.
For more details,
see section 3.2 of the annex.

4.3.           
Cohesion

(REGIO, EMPL)

4.3.1.       Performance
Audit of DG REGIO Performance Measurement Systems (DG REGIO)

The audit's main objective was to assess the extent to
which DG REGIO has adequate performance measurement systems in place for
monitoring, reporting and evaluating the performance of activities both in
terms of its operational and administrative activities (internal) and the
delivery of policy objectives (external).
DG REGIO should better integrate its priorities into
the management plan (MP), and explain how they contribute to the specific
objectives. Furthermore targets should be well defined, accompanied by
appropriate milestones and indicators that are RACER[9]. For policy
implementation in 2014-20, indicators should be developed based on an
assessment of the overall performance of each operational programme (OP). It
should ensure that the evaluation strategy for 2014-20 draws upon the lessons
learnt from the current period, in particular on how to obtain evaluation
evidence over time and how this can contribute to the AAR and Article 318
report.
Additionally, DG REGIO should together with DG EMPL
(see below), develop a strategy to improve the reliability of performance information
reported by the MS while considering a multi-disciplinary approach. DG REGIO
should also continue to improve further the quality of data reported for the
2007-13 programming period.
Moreover, DG REGIO
should strengthen
the role of the geographical units in monitoring the performance of the OPs and
ensure that results are properly reflected in the Authorising Officer by
Sub-delegation (AOSD) management opinion. It should develop a clear approach
for building up assurance on the performance of Cohesion policy and how this
assurance can be delivered, including through monitoring, evaluation and audit.
DG REGIO established an
action plan which the IAS considers adequate to address the issues identified.
For more details,
see section. 4.2 of the annex.

4.3.2.      Performance Audit of DG EMPL Performance Measurement Systems (DG EMPL)

The main objective of the audit was to assess the
adequacy of the performance measurement systems in place.
DG EMPL should better integrate into its MP the
objectives and planned outputs for the DG's operational activities which
contribute to the European Social Fund's (ESF) specific objectives and the
objectives for the main horizontal and administrative activities. It should further
improve its indicators to meet the RACER criteria and ensure its targets to be
well defined. For ESF policy implementation in 2014-20, indicators should be
developed based on EMPL's assessment of the overall performance of each OP.
Furthermore, it should improve reporting on the achievements of the ESF by including
more qualitative analysis and more information on the context. 
Furthermore, building on its work done so far, it
should further develop its approach to workload assessments to cover the full
range of activities to improve the allocation of resources. It should ensure
that it has up-to-date information to further develop its HR plan accordingly.
DG EMPL should also, together with DG REGIO, develop a
strategy to improve the reliability of performance information. Although the focus
is on the next programming period, it should continue to improve data reported
for the 2007-13 period. 
Moreover, DG EMPL
should strengthen
the role of the geographical units in monitoring the performance of the OPs and
ensure that results are properly reflected in the AOSD management opinion. It
should develop a clear approach for building up assurance on the performance of
the ESF, including the need for performance audits making use of
multi-disciplinary teams. 
DG EMPL established an
action plan which the IAS considers adequate to address the identified issues.
For more details,
see section 4.3 of the annex.

4.4.           
Research, energy and transport

(EACI, ERCEA, CNECT, JRC, REA, RTD, TEN-T EA,
MOVE, ENER)

4.4.1.      Limited review of the calculation and the underlying methodology for
DG RTD's residual error rate for the 2012 reporting year (DG RTD)

The objective was to review the calculation and
underlying methodology of the RERs reported in the draft AAR 2012. The accuracy
of the RER calculation is affected by the incomplete audits of the Common
Representative Audit Sample (CRaS) (84%). While some of the reasons for the
delays of the audits are outside the DG's control, DG RTD should nonetheless
further improve its planning of the audits of the CRaS in order to increase the
completion rate of the audit sample at the reporting date.        
In addition, DG RTD should take a
more conservative approach when extrapolating ex-post results to reflect the
possibility that some of the extrapolated systematic errors will not be
implemented. DG RTD accepted the recommendation and corrected it for the 2013 AAR. 
For more details,
see section 5.1 of the annex.

4.4.2.     
Joint IAS-IAC Audit on Grant Management in
TEN-T EA (Call for proposals-Project Management) (TEN-T EA)

The audit's objective
was to assess the adequacy and effective application of the internal control
system related to the grants under direct management by the Trans-European
Transport Network Executive Agency (TEN-T EA). This joint engagement focused on the grant proposals evaluation process.
No significant risks that may
adversely affect the achievement of the business objectives for the process
reviewed were identified.
For more
details, see section 5.2 of the annex.

4.4.3.      Audit on EACI's Control Strategy (EACI)

The audit covered the main building blocks to obtain assurance
for the managed funds, ex-ante and ex-post controls, and the disclosure of the
assurance within the AAR.
The IAS recommended that the EACI
should comprehensively describe its Control Strategy and re-assess the internal
control system, including the link between key controls and their results and
the specific assurance objectives regarding legality and regularity. The Agency
should update its procedures for the reporting by the AOSDs by including
additional control related KPIs and should consider re-balancing the weight of
ex-ante and ex-post controls according to the assurance to be obtained. 
The EACI should also strengthen its ex-ante checks by
developing a risk-based approach, based on solid and consistent KPIs, reinforce
the verification of eligibility of costs and adopt formal decisions to empower
technically competent staff to provide the "passed for payment"
endorsements.
As regards the ex-post audit strategy, the EACI should
better define and justify global and specific objectives, and improve its
risk-based selection process of projects; the Agency's ex-post control sector should
be reorganised.
Finally, the EACI should develop an
anti-fraud strategy to ensure proper fraud awareness in its overall control
strategy.
EACI established an
action plan which the IAS considered adequate to address the identified issues.
For more details,
see section 5.4 of the annex.

4.4.4.     
Implementation of the Seventh Framework
Programme (FP7) Control Systems in REA (REA) 

The audit assessed whether the REA's control strategy
in the context of the FP7 had produced the expected results. Ex-post audits
carried out in 2010-2012 detected that the SMEs schemes managed by the Agency
were affected by significant errors.  The IAS recommended that the REA should
assess the risk of irregularity and potential fraud in these schemes and report
it in its AAR 2013, fully apply the corrective actions foreseen and launch a
specific intensified audit exercise. 
The REA, for the purpose of deciding on reservations
in its 2012 AAR, did not use the Common Representative Error Rate across all
FP7 operations as the Research DGs did. Instead, it opted for an alternative
approach. Furthermore, the REA substituted the error rate relating to legality
and regularity by an indicator of the financial budgetary impact of the errors.
The REA should therefore improve the disclosure of error rates and assurance in
its AAR. 
In addition, the REA should formalise a specific ex
post control strategy, defining objectives, priorities, KPIs for monitoring the
performance and an improved risk assessment approach to increase the number of
risk-based controls. The risk-based approach should also be developed for
ex-ante controls. 
Finally, the REA should address the actions included
in its Anti-fraud Approach document, initiate a reflection in the Research
family on how to perform a proper risk assessment on double funding and
coordinate efforts with other Research services on anti-plagiarism.
REA established an action plan which the IAS considered
adequate to address the identified issues.
For more details, see section 5.5 of the annex.

4.5.           
External Aid,
development and enlargement

(DEVCO, ECHO, ELARG, FPI)

4.5.1.     
Limited review of the methodology and
calculation of the residual error rate (DG
DEVCO) 

The objective was to review the calculation and
underlying methodology of the RER in the draft 2012 AAR. 
In 2011, DG DEVCO launched a study
on the calculation of its RER which was an important step towards the
improvement of its assurance-building process. 
However, the IAS review revealed
weaknesses on the reliability of the calculation of the estimated part of the
error rate such as the absence of a methodology that is consistently applied
for estimating errors in the absence of underlying documentation and on the
incorporation of the RER and other building blocks of assurance in the draft
AAR. 
Furthermore, the IAS concluded that the draft 2012 AAR
did not contain sufficient information to enable an assessment of the
cost-efficiency of the overall controls in place (including the RER study) to
be made. Such an assessment may enable DG DEVCO to identify opportunities for
cost efficiency and/or areas where controls could be redesigned.
The IAS recommended that for the next reporting year,
DG DEVCO should ensure that appropriate steps are taken to ensure the use of a
database of transactions extracted from the Common Relex Information system (CRIS)
where consistency checks have already been performed.
DG DEVCO established an
action plan which the IAS considered adequate to address the identified issues.
Subsequently, the IAS noted that DG DEVCO took appropriate steps to improve the
narrative part of the final 2012 AAR on the residual error rate.
For more details,
see section 6.1 of the annex.

4.5.2.     
DG DEVCO's state of preparedness for the revised
ECA DAS Methodology (DG DEVCO) (Performance Audit)

The ECA's new approach to its
Statement of Assurance audit is likely to increase reported error rates due to
the exclusion of less error-prone pre-financing transactions from the sample
and the quantification of serious irregularities in public tendering at 100%
for all management modes. In view of this, the IAS carried out an audit on DG
DEVCO's state of preparedness for the revised ECA DAS methodology.
The audit showed that DG DEVCO had
made adequate preparations in order to mitigate the discharge risk associated
with the revised ECA DAS Methodology.
DG DEVCO has prepared a
comprehensive action plan to address potential issues related to the revised
DAS methodology and also other issues identified by its external auditors or in
audits carried out by the IAC of DG DEVCO or the IAS. 
For more
details, see section 6.2 of the annex.

4.5.3.     
Procurement - decentralised (DG DEVCO)

The audit's objective was to assess the adequacy and
effective application of the internal control system, risk management and
governance processes related to procurement award and contracting processes of
the European Development Fund (EDF) and the EU budget which are implemented
under the decentralised management mode.
The audit highlighted two specific
cases related to the identification and implementation of the principles of
ethics and the prevention of conflicts of interest. Therefore, the IAS
recommended that DG DEVCO clarify these in its Practical Guide instructions.
DG DEVCO established an action plan
which the IAS considered adequate to address the issues identified.
For more details,
see section 6.4 of the annex.

4.6.           
Education and citizenship

(COMM, EAC, EACEA, HOME, JUST)

4.6.1.      Performance audit of National Agencies (EAC)

National Agencies (NAs) have been
designated by the National Authorities of the participating countries to
implement the Lifelong Learning (LLP) and Youth in Action (YiA) programmes.
Externalisation, as a form of management, imposes additional risks in the
set-up of the supervisory system in a DG for the achievement of its policy
objectives. 
The audit's main objective was to
assess whether DG EAC has set up an effective performance measurement system to
monitor, report and evaluate the performance of NAs.
The audit showed that, although a
number of actions are currently ongoing in defining a performance measurement
system in DG EAC for the period 2014-2020, DG EAC should strengthen its
effectiveness, notably with regard to indicators which explicitly measure the
efficient and cost-effective use of the operating grant provided to NAs. In
addition, a clear link between the objectives of NAs and those of the
Commission should be established.
DG EAC established an
action plan which the IAS considered adequate to address the issues identified.
For more details,
see section 7.1 of the annex.

4.7.           
Economic and financial affairs

(COMP, ECFIN, ENTR, MARKT, OLAF, TAXUD, TRADE)

4.7.1.     
Performance Audit of GMES/Copernicus
Programme (DG ENTR)

The objective of the audit of the Global Monitoring
for Environment and Security (GMES) was to assess the effectiveness of the
governance arrangements, risk management and internal control systems to
support the management of GMES.  The audit took place in the transition period
between the GMES Initial Operations (GIO), implemented in 2011-2013, and the
operational phase of the programme, renamed Copernicus, which will increase the
total contribution from the EU budget by more than 3 times.
The IAS recommends improving the governance framework
for the Space component, enhancing monitoring systems and arrangements, and
carrying out thorough analyses in order to effectively support the transition
to Copernicus operational phase.
DG ENTR established an
action plan which the IAS considered adequate to address the issues identified.
For more details,
see section 8.1 of the annex.

4.8.           
General services and HR

(HR, BUDG, DGT, DIGIT, EPSO, ESTAT, SJ, OIB,
OIL, OP, PMO, SCIC, SG)

4.8.1.     
DG ESTAT's preparedness to fulfil its role in
the Economic Governance Framework (DG ESTAT) (Performance Audit)

The economic and financial crisis revealed a number of
key structural weaknesses in the economic governance of the EU's economic and
monetary union. As part of the response, DG ESTAT's responsibilities have been
reinforced and extended. Besides ensuring high quality data on government debt
and deficit figures, DG ESTAT has responsibility for establishing the rules and
procedures for investigating the manipulation of statistics. This was the
subject of the audit which looked at the state of preparedness of the DG.
The IAS recommended DG ESTAT to take immediate steps
to formalise its operational procedures and technical guidelines while
integrating the legal advices received.
DG ESTAT should also evaluate its requirements in
terms of human resources and competence in order to fulfil its new
investigations tasks. Consequently, it should reflect these needs in its Management
Plan.
In addition, DG ESTAT should ensure that its risk
model used for planning of its Upstream Dialogue Visits[10] is compliant with a
recognised Quality Management System (QMS). Moreover, it should ensure the
added value by disseminating its conclusions timely to the Economic and
Financial Committee (EFC).
Furthermore, the IAS recommends DG ESTAT to prepare a
clear justification for each ad hoc visit[11] and submit a summary of
its ad hoc visits to key stakeholders.
DG ESTAT established an
action plan which the IAS considers adequate to address the identified issues.
In a recent follow-up audit, the IAS noted the progress made. 
For more details,
see section 9.1 of the annex.

4.9.           
IT audits
4.9.1.      Performance Audit on the management of the security of the EU ETS IT system (EU ETS) (DG CLIMA, DG DIGIT and DG HR Security Directorate)

As responsible for managing the
European Emission Trading System (EU ETS) IT system, the Commission needs to
ensure that IT security vulnerabilities of the system are not unlawfully
exploited, which could result in dysfunction and distortion of the carbon
market, with reputational and financial consequences for the institution.
The audit's overall objective was
to assess whether the control system in place ensured
that adequate security measures were identified and effectively implemented for
the EU ETS system. The audit covered DG CLIMA, DG DIGIT and the Security Directorate of DG HR in
line with their respective roles and management responsibilities.
The IAS audit showed that the
security measures identified by DG CLIMA are reasonable, given the complexity
and the challenges facing the system. However, the resulting security controls
were not implemented to the full extent. 
This is the result, among others,
of the challenges of the existing governance structure of the ETS project[12] in taking binding
decision and ensuring that they are implemented and in settling participants'
conflicting positions and major disagreements, so to facilitate the cooperation
between key actors and the flow of information needed to take appropriate
decisions on the security measures required for the ETS IT system.
All three DGs
established action plans which the IAS considered adequate to address the
issues identified.
For more
details, see section 10.3 of the annex.

4.9.2.     
SYGMA - Phase 1 – Performance audit on
development process (DG CNECT, DG RTD)

DG CNECT (as System Owner) and DG RTD (as System
supplier) are the main actors involved in the development of SYGMA, which is an
inter-DG project currently managed within the Research family aiming at
providing an IT system supporting the grant management process for FP7/CIP, H2020 and other non-research grants operated by the
Research family.
SYGMA should become the corporate grant management system at the core of the
Grant Management rationalisation exercise[13].
The objective of the audit was to assess the effectiveness and efficiency of the
management of SYGMA with a specific focus on IT Project governance, Management
and readiness of IT Operations.
Overall, the IT development part of the SYGMA project
has been so far adequately managed, without any major deviations from the
original plan. 
However,
due to the pending approval of the sectorial legal base and the definition of
harmonised business processes, the IT development has not been based on stable
Business Processes and business requirements but rather on fair assumptions
Both DGs established
action plans for the accepted recommendations which the IAS considered adequate
to address the identified issues.
For more
details, see section 10.4 of the annex.

5.         
Consultation with the Commission's Financial
Irregularities Panel

No systemic problems were reported in 2013 by
the Financial Irregularities Panel under Article 73(6)[14] of the Financial Regulation applicable to the general budget of the
European Communities.

6.         
Conclusions 

The implementation
of action plans drawn up in response to IAS audits this year and in the past
contributes to the steady improvement of the Commission’s internal control
framework.
The IAS will conduct
follow-up audits on the execution of action plans that will be examined by the
Audit Progress Committee, which will inform the College as appropriate.
 The IAS will
continue to focus on financial, compliance and IT audits and will step up its
activities in performance auditing.
[1]       Audit
and consulting reports finalised by 1 February 2014 are included in this report.
[2]       The
report does not cover the decentralised European Agencies, the European
External Action Service, or other bodies audited by the IAS, which receive
separate annual reports.
[3]       Required
by Performance Standard 2060 of the International Standards for the
Professional Practice of Internal Auditing (Standards) promulgated by the
Institute of Internal Auditors (IIA).
[4]       Article 100 of the FR.
[5]       The Audit Progress Committee assists
the College of Commissioners by ensuring that the work of the IAS, Internal
Audit Capabilities (IACs) and of the ECA is properly taken into account by the Commission
services and receives appropriate follow-up
[6]
      The attached SWD provides an overview of all
completed audit and follow-up audit engagements.
[7]
      IAS - 2006 - DIGIT - 001 Data Center - Operations and Security, IAS -
2007 - DIGIT  - 001 Corporate Data network infrastructures & services and IAS.B
- 2008 - ADMIN  - 004 Audit on Security.
[8]       It is expected that the new legislation for the period
2014-2020 and its strengthened control framework will improve the situation in
the future.
[9]       RACER: Relevant,
Accepted, Credible, Easy, Robust (Internal Control Standard N° 5)
[10]     Upstream
Dialogue Visits are designed to identify risks or
potential problems arising from "upstream" data sources in an Excessive Deficit
Procedures context.
[11]     Ad hoc visits are conducted when a specific important issue
raised with a Member State cannot be resolved by any means other than by a
physical meeting in situ. Although these visits are not explicitly mentioned
in the revised Regulation 479/2009, DG ESTAT considers it has the same rights
of access as under the methodological visit.
[12]      The
governance structure comprises the ETS project steering Committee at
Director-General level, its preparatory group at Director level and the Security
Working Group (SWG) which represents the technical layer.
[13]      The
grant Management Rationalisation exercise was launched in March 2011 following
the Communication "Getting the Best from IT in the Commission" from
Vice president Sefčovič. The aim is to achieve an efficient use of the
Commission's resources and investments and to ensure that efficient IT tools
support the real business needs.
[14]      Art. 117, Rules of Application (RAP)
stipulates: "That annual report [i.e. 99(3) report] shall also mention any
systemic problems detected by the specialised panel set up pursuant to Article 73(6) of the Financial Regulation.