Report on the annual accounts of the European GNSS Agency for the financial year 2014, together with the Agency’s reply
Date: 2015-09-15
Institutions: European Court of Auditors
Subjects: European GNSS Agency, administration of the Institutions, auditing, budgetary control, financial control








C_2015409EN.01035301.xml










9.12.2015   


EN


Official Journal of the European Union


C 409/353





REPORT
on the annual accounts of the European GNSS Agency for the financial year 2014, together with the Agency’s reply
(2015/C 409/39)

INTRODUCTION









1.


The European GNSS (Global Navigation Satellite System) Agency (hereinafter ‘the Agency’, aka ‘GSA’), which was relocated from Brussels to Prague as of 1 September 2012 (1), was set up by Regulation (EU) No 912/2010 of the European Parliament and the Council (2), repealing Council Regulation (EC) No 1321/2004 (3) and amending Regulation (EC) No 683/2008 (4), to manage the public interests relating to the European GNSS programmes and to act as the regulatory agency for the programme during the deployment and operational phases of the Galileo Programme. Regulation (EC) No 683/2008 of the European Parliament and the Council reduced the responsibilities of the Agency to the control of the security of Galileo systems and to the preparation of their commercialisation (5). In addition, the Commission entrusted the exploitation of the European Geostationary Navigation Overlay Service (EGNOS) to the Agency through a delegation agreement.





INFORMATION IN SUPPORT OF THE STATEMENT OF ASSURANCE









2.


The audit approach taken by the Court comprises analytical audit procedures, direct testing of transactions and an assessment of key controls of the Agency’s supervisory and control systems. This is supplemented by evidence provided by the work of other auditors and an analysis of management representations.










STATEMENT OF ASSURANCE









3.


Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited:






(a)


the annual accounts of the Agency, which comprise the financial statements (6) and the reports on the implementation of the budget (7) for the financial year ended 31 December 2014; and










(b)


the legality and regularity of the transactions underlying those accounts.










The management’s responsibility










4.


The management is responsible for the preparation and fair presentation of the annual accounts of the Agency and the legality and regularity of the underlying transactions (8).






(a)


The management’s responsibilities in respect of the Agency’s annual accounts include designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies on the basis of the accounting rules adopted by the Commission’s accounting officer (9); making accounting estimates that are reasonable in the circumstances. The Executive Director approves the annual accounts of the Agency after its accounting officer has prepared them on the basis of all available information and established a note to accompany the accounts in which he declares, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the Agency in all material respects.










(b)


The management’s responsibilities in respect of the legality and regularity of the underlying transactions and compliance with the principle of sound financial management consist of designing, implementing and maintaining an effective and efficient internal control system comprising adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used.










The auditor’s responsibility










5.


The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council (10) with a statement of assurance as to the reliability of the annual accounts and the legality and regularity of the underlying transactions. The Court conducts its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require the Court to plan and perform the audit to obtain reasonable assurance as to whether the annual accounts of the Agency are free from material misstatement and the transactions underlying them are legal and regular.












6.


The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the underlying transactions. The procedures selected depend on the auditor’s judgement, which is based on an assessment of the risks of material misstatement of the accounts and material non-compliance by the underlying transactions with the requirements in the legal framework of the European Union, whether due to fraud or error. In assessing these risks, the auditor considers any internal controls relevant to the preparation and fair presentation of the accounts, as well as the supervisory and control systems that are implemented to ensure the legality and regularity of underlying transactions, and designs audit procedures that are appropriate in the circumstances. The audit also entails evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates and the overall presentation of the accounts. In preparing this report and statement of assurance, the Court considered the audit work of the independent external auditor performed on the Agency’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (11).












7.


The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its statement of assurance.





Opinion on the reliability of the accounts









8.


In the Court’s opinion, the Agency’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2014 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation and the accounting rules adopted by the Commission’s accounting officer.





Opinion on the legality and regularity of the transactions underlying the accounts









9.


In the Court’s opinion, the transactions underlying the annual accounts for the year ended 31 December 2014 are legal and regular in all material respects.














10.


The comments which follow do not call the Court’s opinions into question.





COMMENTS ON BUDGETARY MANAGEMENT









11.


The level of carry-overs for committed appropriations was high for title II, administrative expenditure, at 3,4 million euro, i.e. 54 % (2013: 1,8 million euro, i.e. 52 %). These carry-overs mainly concerned services provided to the Agency in 2014 for which invoices were not received until 2015, and a number of high value IT contracts signed at the end of 2014. These IT projects, originally planned for 2015, were started in 2014 to utilise funds released from savings on other budget lines.





OTHER COMMENTS









12.


In 2013 the Agency had awarded an 8-year (1 January 2014—31 December 2021) service contract for the exploitation of the European Geostationary Navigation Overlay Service (EGNOS) with a value of 436 million euro (initial contract) to a contractor. In 2014 following a direct negotiated procedure, GSA amended the initial contract for an amount of 6,3 million euro for the purchase and maintenance of 14 satellite signal receivers and 14 signal generators and some other equipment in relation to EGNOS. An arrangement between the contractor and its two subcontractors was set up, as under the initial contract, which led to an accumulation of overheads and profits. Out of the 6,3 million euro, only 3,2 million euro related to direct costs (materials, labour, transport and insurance, travel and subsistence). Overheads and other costs accounted for 1,4 million euro and profits and remuneration of (sub)contractors for 1,7 million euro.












13.


There is no insurance coverage for fixed tangible assets (net book value 1,0 million euro).





FOLLOW-UP OF PREVIOUS YEAR’S COMMENTS









14.


An overview of the corrective actions taken in response to the Court’s comments from the previous year is provided in Annex I.





This Report was adopted by Chamber IV, headed by Mr Milan Martin CVIKL, Member of the Court of Auditors, in Luxembourg at its meeting of 15 September 2015.


For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President





(1)  Decision 2010/803/EU taken by common accord between the Representatives of the Governments of the Member States (OJ L 342, 28.12.2010, p. 15).

(2)  OJ L 276, 20.10.2010, p. 11.

(3)  OJ L 246, 20.7.2004, p. 1.

(4)  OJ L 196, 24.7.2008, p. 1.

(5)  Annex II summarises the Agency’s competences and activities. It is presented for information purposes.

(6)  These include the balance sheet and the statement of financial performance, the cash flow table, the statement of changes in net assets and a summary of the significant accounting policies and other explanatory notes.

(7)  These comprise the budgetary outturn account and the annex to the budgetary outturn account.

(8)  Articles 39 and 50 of Commission Delegated Regulation (EU) No 1271/2013 (OJ L 328, 7.12.2013, p. 42).

(9)  The accounting rules adopted by the Commission’s accounting officer are derived from the International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, where relevant, the International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

(10)  Article 107 of Regulation (EU) No 1271/2013.

(11)  Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 298, 26.10.2012, p. 1).


ANNEX I
Follow-up of previous year’s comments







Year


Court's comment


Status of corrective action
(Completed/Ongoing/Outstanding/N/A)




2013


The Agency is in charge of organising and managing the exploitation of the European Geostationary Navigation Overlay Service (EGNOS) which is the first pan-European satellite navigation system. On the basis of a delegation agreement with the Commission, the Agency signed a contract for the exploitation of EGNOS for the 2014 to 2021 period for an amount of some 588 million euro. Although the competiveness of the procedure is not called into question, an eligibility criterion applied in the first phase of the procurement procedure excluding applications from consortia was not in accordance with the rules on implementation of the Financial Regulation (1)
 (2).


N/A




2013


The overall level of committed appropriations was close to 100 % for all titles. However, carry-overs of committed appropriations were high for title II (administrative expenditure) at 1,8 million euro (52 %). This is mainly due to specific contracts signed at year-end (0,9 million euro), following the late approval of an amending budget in September that provided additional funds to the Agency. Another 0,4 million euro relate to services rendered by suppliers but not invoiced in 2013.


N/A






(1)  Article 116(6) of Commission Regulation (EC, Euratom) No 2342/2002 (OJ L 357, 31.12.2002, p. 1).

(2)  Article 121(5) of Commission Delegated Regulation (EU) No 1268/2012 (OJ L 362, 31.12.2012, p. 1).



ANNEX II
European GNSS Agency (Prague)
Competences and activities







Areas of Union competence deriving from the Treaty



Competitiveness for growth and employment.





The Agency’s powers


(Regulation (EU) No 512/2014 amending Regulation (EU) No 912/2010 of the European Parliament and of the Council)




Objectives







—


To contribute to the achievement of fully operational European satellite navigation systems established under the EGNOS and Galileo programmes.





Tasks







—


To support the security accreditation of the programmes on behalf of the Security Accreditation Board,










—


to undertake the operations of the Galileo Security Monitoring Centre (GSMC),










—


to contribute to the preparation of the commercialisation of the systems, including the necessary market analysis,










—


to accomplish other tasks entrusted to it by the Commission through Delegation Agreements, in particular concerning the exploitation of EGNOS and Galileo and promoting applications and services in the satellite navigation market.









Governance




Administrative Board


Composition:







—


one representative per Member State,










—


four representatives from the Commission,










—


one non-voting representative of the European Parliament,










—


one representative of the HR and ESA each to be invited as observers.





Tasks:







—


appoints the Executive Director (ED),










—


exercises disciplinary authority over the ED,










—


adopts the multiannual work programme,










—


adopts the annual work programme,










—


performs budgetary functions,










—


oversees the operation of the Galileo Security Monitoring Centre,










—


adopts arrangements to implement Regulation (EC) No 1049/2001,










—


approves the arrangements concerning the participation of third countries and international organisations,










—


adopts the technical procedures necessary to perform its tasks,










—


adopts the special provisions necessary for implementing right of access to documents,










—


adopts the annual report on the activities and prospects of the Agency,










—


ensures adequate follow-up to the findings and recommendations stemming from evaluations and audits,










—


is consulted by the ED on the Galileo Exploitation and EGNOS Exploitation Delegation Agreements,










—


approves the working arrangements between the Agency and ESA,










—


approves an anti-fraud strategy,










—


approves the Agency’s organisational structures,










—


adopts and publishes its rules of procedure.





Executive Director

Appointed by the Administrative Board.

Security Accreditation Board


Composition:







—


one representative per Member State,










—


one representative from the Commission,










—


one representative from the HR,










—


one representative of ESA to be invited as observer.





Tasks:

To act as the security accreditation authority in relation to the European GNSS systems, i.e. inter alia it:






—


elects a chairperson and deputy chairperson,










—


has the power to dismiss the chairperson and deputy chairperson,










—


prepares and approves that part of the multiannual work programme concerning security accreditation, and the financial and human resources needed to accomplish it,










—


prepares and approves that part of the annual work programme concerning security accreditation, and the financial and human resources needed to accomplish it,










—


prepares and approves that part of the annual report concerning security accreditation, and the financial and human resources needed to accomplish it,










—


defines and approves a security accreditation strategy,










—


takes security accreditation decisions,










—


examines and approves documentation relating to security accreditation,










—


advises the Commission in the elaboration of texts for acts concerning security of the systems and their operation,










—


examines and approves the security risk assessment and cooperates with the Commission to define risk mitigation measures,










—


checks the implementation of security measures in relation to security accreditation,










—


endorses the selection of approved products and measures which protect against eavesdropping and of approved cryptographic products used to provide security,










—


approves, or participates in the joint approval of, the interconnection of the European GNSS systems with other systems,










—


agrees with the relevant Member States the template for access control,










—


informs the Commission of its risk assessment and provides advice to the Commission on residual risk treatment options,










—


assists, in close liaison with the Commission, the Council in the implementation of the Joint Action upon a specific request of the Council,










—


carries out the consultations which are necessary to perform its tasks,










—


adopts and publishes its rules of procedure.





External audit

Court of Auditors.

Discharge Authority

Parliament, acting on a recommendation from the Council.





Resources made available to the Agency in 2014 (2013)





Final Budget

EU subsidy of 25,3(53,3) million euro, which is the operating subsidy from the Commission for titles I (staff-related costs), II (administrative) and III (core operational activity).
In addition, the GSA manages under delegation from the European Commission operational activities linked to the exploitation and commercialization of the EGNOS and Galileo systems. For this type of activity, the level of open commitments managed by the Agency by the end of 2014 was of 694,3(66,8) million euro. Payments managed linked to delegated activity amounted to 130,7(9,8) million euro in 2014.

Staff as at 31 December 2014

Authorised posts: 96 (77)

Posts occupied: 96 (59)

Other posts: 35 (35)

Total: 131 (94), assigned to the following duties:
Allocated to:






—


operational tasks: 107 (43)











—


administrative and support tasks: 24 (37)










Products and services 2014




Security

Security (Security Accreditation of the systems and sites, Galileo System-specific Security requirements, Crypto Distribution Authority/Flight Key Cell activities).
Support to Public Regulated Service (PRS), including PRS Pilot Projects and procurement of pre-operational PRS receivers.

Galileo Security Monitoring Centre

Preparation of Galileo Security Monitoring Centre (GSMC).
Provision of the GSMC Nucleus.

Market development

Market analysis and publication of GNSS Market Reports.
Market readiness for the launch of Galileo early services.
Market development actions focused on receiver manufacturers to foster Galileo penetration in consumer and professional markets.
Implementation of adoption roadmaps for EGNOS in all priority markets with special focus on aviation and road transport.
Management of projects under the 7th Framework Programme for Research.
Maximisation of the projects’ results and achievement of strategic objectives.
Dissemination of the results of R & D.

EGNOS and Galileo Exploitation

Preparatory activities for Galileo exploitation,
EGNOS operations and services provision.
Operation of GNSS Service Centre helpdesk.

General Administration

Information and outreach including EGNOS market communications, PRS awareness-building and corporate communications activities.





Source: Annex supplied by the Agency.







THE AGENCY’S REPLY






11.


The commitment rate was close to 100 % for all titles indicating a timely signing of legal commitments. However, carry-overs of committed appropriations were high for title II (administrative expenditure) and reached around 3,4 million euro, i.e. 54 %, (2013: 1,8 million euro, i.e. 52 %).










12.


The GSA confirms that ESSP industrial organisation may lead to accumulation of overheads and profits.
However, this is in line with the 8-year EGNOS Service Provision contract (the ESP contract), which was awarded through a competitive tender to ESSP grouping — i.e. to industrial organisation with a freely established setup that was assessed to offer the best quality and at the best price offered (i.e. principle of economy) for the services procured. The difference between winner and runner-up in the final tender score was in the range of 10 million euro.
The ESP contract type -direct single service contract- was chosen in order to secure service continuity requirement for Safety-of-Life (SoL) service based on qualified/certified system; yet, it functions effectively as a framework contract (FWC): main ESP contract representing the FWC + specific contract #1 (for continuous service provision) and all amendments being further specific contracts, fitting within the scope of FWC. Therefore the ESP amendment for 6,3 million euro for the purchase and maintenance of 14 satellite receivers and 14 signal generators cannot be seen as a standalone procurement and ensuing contract but it must be considered as an intrinsic and non-separable part of the ESP contract necessary to secure the maintenance of the system as qualified and the delivery of the SoL service complying with the mandatory certification. It follows that the freely chosen industrial setup of main ESP contract also had to be respected.










13.


The Agency is currently analysing risks, value and criticality of each asset owned in order to conduct a first assessment of possible mitigation actions associated to risk of their ownership.
On the basis of the outcome of such assessment the Agency is planning, on one hand, to approach the insurance market to have quotations of possible premium and, on the other hand, to assess the available budget to follow a self-insurance approach.
The outcome of the abovementioned exercise will serve as a basis of a value for money judgement to decide whether to subscribe to an insurance.