REPORT FROM THE COMMISSION TO THE EUROPEAN COURT OF AUDITORS, THE COUNCIL AND THE EUROPEAN PARLIAMENT Member States' Replies to the European Court of Auditors' 2016 Annual Report
Date: 2018-02-28
Institutions: Directorate-General for Budget, European Commission
Subjects: EU Member State, European Court of Auditors, European Structural and Investment Funds, activity report, budgetary expenditure, financial management, general budget (EU), implementation of the budget, management audit, public contract

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.2.2018  COM(2018) 117 final  REPORT FROM THE COMMISSION TO THE EUROPEAN COURT OF AUDITORS, THE COUNCIL AND THE EUROPEAN PARLIAMENT Member States' Replies to the European Court of Auditors' 2016 Annual Report {SWD(2018) 61 final}  
 
 
TABLE OF CONTENTS 

1 

Introduction ...................................................................................................................... 2 

2 

Key features of the ECA 2016 report .......................................................................... 2 

3 

Summary of the Member States' replies ..................................................................... 4 

3.1  Compliance with rules and regulations .......................................................................... 4 

3.2   Performance of the EU budget ........................................................................................ 7 

3.3   Sound Financial Management ....................................................................................... 11 

4  Conclusion ....................................................................................................................... 11 

1 

 
 
 
 
 
 
 
 
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN COURT OF 
AUDITORS, THE COUNCIL AND THE EUROPEAN PARLIAMENT 

MEMBER STATES' REPLIES TO THE COURT OF AUDITORS' 2016 ANNUAL 
REPORT 

1 

INTRODUCTION 

When  the  European  Court  of  Auditors  (ECA)  published  its  2016  Annual  report  on 
28 September  20171,  the  Commission  in  accordance  with  the  Financial  Regulation2  
immediately  informed  Member  States  of  the  details  of  the  report  which  relate  to  the 
management of funds for which they are responsible. 

Member States were also invited to reply to a questionnaire focusing on  three main themes: 
(1)  Compliance  with  rules  and  regulations  (2)  Reporting  on  performance  (3)  Follow-up  of 
ECA recommendations. 

This report provides a summary of the Member States' replies. It is accompanied by a Staff 
Working Document (SWD) which presents the Member States' replies in more detail. 

2 

KEY FEATURES OF THE ECA 2016 REPORT 

For the first time since 1994, ECA issued a qualified (rather than an adverse) opinion on the 
regularity  of  the  transactions  underlying  the  2016  accounts.  This  reflects  an  important 
improvement in the management of EU finances. 

A significant part of the 2016 expenditure audited by the ECA was not affected by a material 
level  of  error  and  there  was  a  sustained  improvement  in  the  estimated  level  of  error  in 
payments made from the EU budget over the past three years: from 4.4 % in 2014, to 3.8 % in 
2015 and 3.1 % in 2016. While, apart from MFF headings 5 (Administration) and 3 (Security 
and Citizenship), expenditure for all remaining headings were still affected by a material level 
of error, all these individual rates show a decrease from 2015 to 2016. Cohesion remained the 
biggest  contributor  to  the  overall  error  rate  followed  by  Natural  Resources,  Competiveness 
and  Global  Europe.  The  contribution  to  the  2016  overall  estimated  level  of  error  by  MFF 
heading is presented in Figure 1. 

Funds  in  the  cohesion  and  the  agriculture  headings  are  mainly  implemented  in  shared 
management mode and are therefore the focus of the questions posed to the Member States. 

1 https://www.eca.europa.eu/Lists/ECADocuments/annualreports-2016/annualreports-2016-EN.pdf 
2 Article 162(5) of Regulation (EU, Euratom) No 966/2012.  

2 

 
 
                                                 
Figure 1 - Contribution to the 2016 overall estimated level of error by MFF heading 

Cohesion

Natural Resources

Competitiveness

Global Europe

Administration

Security and Citizenship

Other

0%

10%

20%

30%

40%

50%

Source: ECA Annual report 2016 

The  results  of  ECA's  audit  for  2016  also  showed  that  the  accounts  were  not  affected  by 
material  misstatements  and  it  therefore  issued  a  clean  opinion  on  the  reliability  of  the 
accounts, as it has done since 2007. 

The  ECA  report  also  identified  two  types  of  expenditure  programmes  -  entitlement 
programmes  and  cost  reimbursement  schemes  -  which  involve  distinct  patterns  of  risks. 
According to the report, eligibility errors in cost reimbursement schemes dominated the errors 
detected  for  2016.  Errors  in  the  category  included  mostly  ineligible  costs  included  in  cost 
claims and ineligible projects, activities and beneficiaries. For entitlement programmes one of 
the  most  typical  error  type  was  the  incorrect  declarations  of  area  by  farmers.  At  the  same 
time,  the  ECA  found  that  eligible  areas  have  been  more  accurately  determined  than  in 
previous  years.  The  result  was  the  important  development  in  2016  that  ECA  did  not  find 
material error in entitlement-based expenditure on direct support to farmers. Figure 2 shows 
the breakdown of the overall estimated level of error by the types of error as applied by ECA. 

Concerning  performance,  the  Court  found  that  the  Commission  produces  a  vast  quantity  of 
information in comparison to Member States or international organisations. The Commission  
accepted  a  recommendation  to  provide  more  information  on  the  source  and  quality  of  data 
where available. 

3 

 
 
 
 
Figure 2 - Breakdown of the 2016 overall estimated level of error by the types of error 

Source: ECA Annual report 2016 

3 

SUMMARY OF THE MEMBER STATES' REPLIES 

3.1 

Compliance with rules and regulations 

The ECA 2016 Annual report identifies the main error types (based on their audits) 
in the two major EU shared management spending areas (common agricultural policy 
and economic, social and territorial cohesion policy). The questions aimed to assess 
whether Member States agree with the ECA's conclusion concerning the error types 
and their relative importance in these spending areas, and to what extent they have 
taken measures to prevent such errors from occuring. 

The  replies  indicated  that  the  vast  majority  of  the  Member  States  –  around  three-
quarters of them - agreed with the most common error classes identified by ECA in 
both policy areas. They also mostly confirmed the relative importance of error types 
identified  by  ECA;  the  lower  rate  of  agreement  observed  in  cohesion  (56%)  as 
opposed  to  rural  development  (67%)  in  this  respect  can  be  explained  by  the 
somewhat  more  divergent  error  typologies  characterizing  the  former  policy  area. 
Figure 3 gives details of the Member States' replies. 

4 

 
 
 
 
 
 
Figure  3  -  Member  States'  perceptions  of  the  Court's  conclusion  on  the  most  common 
error types 

Do you agree that these are the most common error types? 

Economic, social and territorial 
cohesion 

 Rural development, the environment, 
climate action and fisheries 

4%  4% 

3% 

11% 

11% 

4% 

11% 

Yes
No for ESF*
No reply

78% 

No
No for ERDF*

74% 

Yes

No Mostly yes

No reply

Do you agree with the relative importance of these error types? 

Economic, social and territorial cohesion 

Rural development, the environment, 
climate action and fisheries 

7% 

33% 

4% 

11% 

22% 

56% 

67% 

Yes

No

No for ERDF*

No reply

Yes

No

No reply

* Some Member States provided separate replies with regards to ERDF and ESF. 

Some Member States also indicated other types of error they frequently encounter in 
these  policy  fields.  For  cohesion,  Estonia  underlined  that  State  aid-related 
irregularities  tend  to  have  a  high  financial  impact,  while  Finland  mentioned  cost 
overruns.  Hungary  listed  three  additional  categories,  namely  the  failure  to  provide 
evidence of compliance with the market price, double financing of projects and the 
breach  of  sound  financial  management.  As  regards  rural  development,  Austria 
highlighted the risk of failure to comply with conditions governing the assistance and 
multiannual commitments.  

5 

 
 
 
 
 
 
Concerning  the  relative  importance  of  error  categories,  many  Member  States  (e.g. 
Bulgaria,  Czech  Republic,  Estonia,  Ireland)  reported  that  infringements  of  public 
procurement rules conintue to be the most important deficiency type. 

A few Member States also supplied detailed descriptions of the measures in place to 
prevent  these  errors.  Descriptions  indicated  that  checks  are  performed  and  controls 
are in place at the level of managing authorities, certifying authorities in compliance 
with  the  relevant  sectoral  legislations  governing  the  use  of  the  instruments.  The 
replies frequently state that managing authorities have developed manuals contaning 
rules of procedure which operate the internal control systems for the implementation 
and management of operational programmes which are in line with these rules. Audit 
authorities  adopted  strategies  focusing  on  on-the-spot  checks  of  operations  and 
systems audits to detect errors in the management of operations implemented under 
the European Structural and Investment Funds (ESIF).  

Many  Member  States  referred  to  the  simplification  of  rules  related  to  aid  schemes 
and the use of simplified cost options as means to address the frequent appearance of 
errors.  Almost  all  respondents  stressed  the  usefulness  of  organizing  training  events 
for  intermediate  bodies  and  for  beneficiaries  when  launching  calls  in  order  to  raise 
awareness  of  legal  requirements.  In  Spain,  the  managing  authorities  assess  the 
capacities of the intermediate bodies before allocating tasks to them. 

Many  measures  were  cited  in  cohesion  policy  targeted  at  reducing  errors  in  public 
procurement.  Croatia,  France  and  Slovakia  mentioned  that  they  set  up  online 
networking platforms for experts to discuss problems and for beneficiaries to easily 
access information. In Croatia, Latvia and Slovakia, the national authorities publish 
overviews  of  the  most  frequently  occurring  errors  in  procurement  procedures. 
Lithuania  has  created  a  Public  Procurement  Office  "which  is  responsible  for 
implementing  a  public  procurement  policy  and  enforcing  national  legislation  on 
public  procurement,  as  well  as  for  prevention,  for  giving  advice  on  public 
procurement  matters  and  for  administering  the  Central  Public  Procurement 
Information System."  

In  the  field  of  agriculture,  Poland  and  Latvia  introduced  an  electronic  application 
system that facilitates for applicants the indication of a correct land area. Describing 
similar procedures involving also automated checks, Sweden stated that the approach 
has led to substantially fewer errors than manual processing. Many respondents (e.g. 
Cyprus, Czech Republic and Greece) mentioned the usefulness of cross-referencing 
computer-held  information  between  various  (internal  and  external)  sources.  Malta 
maintains and regularly reviews a risk register. Taking a pragmatic approach, Ireland 
reminds aid scheme participants of deadlines by SMS.  

Coordination  at  a  central  level  was  also  identified  as  a  key  element  in  the 
management and control systems. In France, "(..) coordinating authorities are at the 
disposal  of  the  managing  authorities  and  certifying  authorities  to  answer  any 
questions  on  eligibility  and  public  procurement."  In  Germany,  "interpretation  of 
legislative  provisions  and  implementation  issues  are  discussed  at  regular  meetings 
with the ERDF managing authorities." Poland holds regular trainings in the area of 
public procurement for regional governments. 

6 

 
 
3.2  

Performance of the EU budget 

In  Chapter  3  of  its  2016  Annual  report  the  ECA  stressed  the  importance  of  the 
quality  of  information  provided  on  performance.  The  Commission  pledged  to 
provide information on the source and quality of data where available. Given that a 
significant amount of performance data concerning programmes financed by the EU 
budget  is  provided  by  Member  States,  the  Member  States  were  asked  in  the 
questionaire for information on the quality of performance data at national level. 

In some cases, Member States referred in their replies to not only data concerning the 
achievement of policy objectives but also data concerning the results of compliance 
checks. It is therefore not possible to draw conclusions on just one of these two types 
of data on the basis of the Member States' replies to the questionnaire.  

The replies of the Member States indicated that perfomance data may come from a 
number of sources which can be grouped into one of the following categories: 

 

 

Information held with national implementing bodies. In the case of cohesion, 
these  were  mainly  the  managing  authorities  (also  in  rural  development), 
certifying  authorities  and  intermediate  bodies.  In  agriculture,  this  category 
represented paying agencies.  

Information coming from third parties. These can be national or international 
authorities,  or  agencies  not  involved  in  the  management  of  projects  or 
programmes concerned. 

 

Information originating from beneficiaries. 

Several Member States provide performance data in cooperation with their national 
statistical offices which apply their own quality procedures. 

While  there  can  be  apparent  overlaps  and  interdependencies  among  the  above 
categories  (for  instance,  information  held  with  national  implementing  authorities 
may  originate  from  either  of  the  other  two  sources),  the  questions  and  the  analysis 
aimed  to  appraise  Member  States's  own  perceptions  from  the  way  they  formulated 
the  replies.  Figure  4  shows  the  share  of  each  category  in  the  total  number  of  error 
source citations in the replies. 

7 

 
 
Figure 4 – Share of information source categories mentioned in the replies of Member 
States 

Where does performance information reported to the Commission 
originate from? 

42% 

29% 

24% 

5% 

50%

40%

30%

20%

10%

0%

Information from
implementation
authorities

Information from
third parties

Information from
beneficiaries

No reply

Note: 25 Member States replied to the question 

Almost  all  Member  States  mentioned  a  national  IT  system  operated  by  the 
implementing  authorities  for  the  management  of  operational  programmes  under 
shared  management.  In  agriculture,  the  Land  Parcel  Identification  System  (LPIS) 
operated by the paying agencies was mentioned most frequently in this category. 

Concerning third party-generated information, Eurostat and national statistics offices 
were often cited as corroborating sources used to verify indicator data; Romania also 
gathered  information  from  independent  national  surveys  for  this  purpose.  Hungary 
mentioned  it  used  information  originating  from  the  National  Tax  and  Customs 
Administration and the National Bank, while Poland referred to consumer data from 
public utility companies. 

The  means  and  channels  of  gathering  performance  information  from  beneficiaries 
also  proved  to  be  versatile.  Most  Member  States  made  reference  to  standardized 
progress reports which are collected and checked at the level of intermediate bodies 
or directly by the managing authorities in the field of cohesion (Bulgaria, Romania, 
Slovenia  or  Latvia).  Documentation  generated  when  applying  for  funding  was  also 
identified as an important performance information source especially in the field of 
agriculture. 

Another  question  asked  for  information  about  the  various  actions,  procedures  and 
systems  designed  to  ensure  the  quality  of  the  reported  performance  data.  Few 
Member  States  provided  detailed  replies  with  respect  to  the  initial  definition, 
identification and collection of performance data. Respondents rather focused on the 
subsequent administrative cycles, i.e. those ranging from capturing performance data 
in the computerised systems to reporting.  

8 

 
 
 
 
In  the  analysis  of  the  replies,  such  measures  identified  in  the  Member  States' 
descriptions were grouped into the following categories: 

  Preventive measures: Management actions intended to prevent deficiencies or 
errors to appear in the systems, procedures and processes which produce the 
indicators to be reported, resulting in an impairment of their quality. 

  Corrective measures: Actions aiming to ensure that any error which may have 

still occurred are corrected before information is reported. 

  Detective  measures:  Measures  designed  or  are  most  effective  to  detect  and 
correct  any  errors  that  may  have  impacted  the  quality  of  performance 
information reported to the Commission. 

Similarly  to  the  first  set  of  groups  above,  possible  overlaps  and  interdependences 
among the categories render a certain limitation to the conclusions provided by the 
analysis (for instance, information held with national implementing authorities may 
originate  from  either  of  the  other  two  sources)  As  it  was  the  case  before,  Member 
States' own perceptions assessed from the way the different actions and controls were 
formulated  provided  the  yardstick  for  the  categorisation.  Figure  5  shows  the  share 
each of the above category represents in the Member States' replies. 

9 

 
 
Figure 5 - Share of measure types ensuring performance data quality 

How do you ensure the quality of reported performance data? 

Economic, social and territorial cohesion 

Common agriculture policy 

50%

40%

30%

20%

10%

0%

43% 

30% 

28% 

41% 

28% 

21% 

10% 

50%

40%

30%

20%

10%

0%

Preventive
measures

Corrective
measures

Detective
measures

Preventive
measures

Corrective
measures

Detective
measures

No reply

It  transpired  from  the  replies  from  many  Member  States  that  they  envisage  the 
establishment  of  an  integrated  eletronic  funds  management  system,  compliant  in 
design  with  the  relevant  EU  and  national  legislations,  as  the  most  important 
preventive  means  to  ensure  data  quality  in  both  policy  areas.  Another  such 
commonly  mentioned  preventive  measure  was  the  establishment  of  manuals  for 
administrative  checks  to  be  conducted  by  managing  authorities  and  intermediate 
bodies  (Bulgaria,  Croatia,  Romania  and  Slovenia).  Hungary  published  common 
methodologies  on  the  establishment  of  common  indicators  and  involved  experts  in 
defining  them.  In  Bulgaria,  in  the  field  of  cohesion,  the  certifying  authority 
conducted quality checks of verification systems established by managing authorities 
for  performance  indicator  monitoring.  Some  Member  States  (Bulgaria,  Croatia  and 
Greece) responded that they facilitated data supply by preparing standardized forms 
for  beneficiaries  to  report  on  project  implementation  progress  and  the  related 
indicators. 

Among corrective and detective measures cited, the most important type appeared to 
be the first level management verifications (involving a proper segregation of duties 
and  the  observance  of  the  four-eyes  principle).  The  Czech  Republic  in  particular 
mentioned  the  importance  of  performing  reasonableness  checks  of  the  reported 
indicator data with those in previously submitted reports. On-site checks performed 
by  implementing  authorities  at  beneficiaries  to  reconcile  information  in  beneficiary 
reports with source documents were also frequently mentioned. 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3  

Follow-up of ECA recommendations 

Each year ECA examines how the Commission follows up on the recommendations 
issued  by  ECA  to  the  Commission.  This  year’s  analysis  of  108  recommendations 
published  between  2010  and  2013  showed  that  the  Commission  implemented  90 
recommendations  fully  or  in  most  respects.  The  ECA  found  that  just  six 
recommendations  had  not  been  implemented  at  all  (of  which  one  was  not  initally 
accepted by the Commission). 

The  ECA  can  address  recommendations  to  specific  Member  State(s)  or  Member 
States in general. In the questionnaire Member States were therefore asked whether 
they  follow  up  recommendations  in  both  cases  and,  if  yes,  they  were  invited  to 
briefly describe the related arrangements; if not, they were asked to explain why not. 

Almost  every  respondent  Member  State  stated  that  they  follow  up  both  types  of 
recommendations. 

Member  States  usually  deal  with  specific  recommendations  by  identifying  the 
relevant  implementing  authorities  and  forwarding  them  (normally  via  the  audit 
authority)  the  ECA  reports  or  communications  concerned.  On  top  of  it,  several 
Member States make reference also to relevant monitoring procedures. In the case of 
agricultural  policy  in  France,  in  Denmark  and  in  Greece  this  is  assumed  by  the 
relevant implementing authorities, while in the case of Hungary, such monitoring is 
carried out in a specific department of the Prime Minister's Office. Greece mentioned 
that  they  maintain  a  National  Action  Plan  to  reduce  the  error  rate  in  EAFRD,  and 
specific  recommendations  are  assessed  with  a  view  to  a  possible  updating  of  the 
document.  Luxembourg  and  France  organise  regular  follow-up  meetings  with 
beneficiaries  and  maintain  and  centrally  monitor  detailed  and  specific  action  plans. 
Germany added that the most frequent sources of error found, inter alia, by the ECA, 
and  the  corresponding  measures  identified,  may  give  rise  to  setting  up  subject-
specific Federation-Länder working parties to address the weaknesses identified. 

Austria  and  Romania  provided  distinct  replies  with  regards  to  cases  where  the 
recommendation is of a general nature, potentially on the assumption that these may 
reveal shortcomings in the design of the systems which may be more overarching. In 
Romania, for example, specific recommendations are dealt with by the implementing 
authority concerned or may give rise to the initiation of recovery proceedings at  the 
level of the Member State on a case by case basis, and the underlying deficiency of 
the  more  general  ones  are  assessed  for  possible  improvement  of  the  legislative 
framework  for  the  next  programming  period.  With  a  view  to  a  possible  follow-up, 
Denmark mentioned that it analyses the relevance of the recommendations for their 
own  management  and  control  environment  even  where 
their  projects  and 
programmes did not form part of the audited population. 

4 

CONCLUSION 

The  ECA  acknowledged  that,  this  year  for  the  first  time,  all  Commission  DGs 
estimated  a level  of  error  in  'relevant  expenditure'.  Furthermore,  it stressed  that the 
figures disclosed in the Annual Activity Reports (AARs) are, in most cases, broadly 
in  line  with  its  own  estimates  of  the  level  of  error.  In  this  respect,  the  ECA  also 
continues to take account of corrective measures applied by the Member States and 

11 

 
 
 
the  Commission  where  these  are  made  prior  to  its  examination.  The  ECA  also 
indicated  that  management  and  control  systems  in  place  at  the  level  of  Member 
States  and  the  Commission  produced  sufficient  information  to  further  prevent  or 
detect  and  correct  many  errors.  The  President  of  the  ECA  stated  that  "This  means 
there  is  no need  for  additional  controls,  but  the  existing  controls  must  be  enforced 
properly."3 

This is corroborated by the replies received from the Member States this year. They 
demonstrate  a  continued  commitment  by  Member  States  to  sound  financial 
management  through  the  use  of  Simplified  Cost  Options  (SCOs),  improved 
management  verifications  and  efforts  to  streamline  administrative  procedures,  and 
strong  willingness  to  follow  up  on  deficiencies  found  by  external  auditors  and 
endorsed by national authorities. In the area of public procurement, Member States 
tackled  issues  by  offering  tailor-made  training  programmes  and  the  sharing  of  best 
practices  using  online  networking  facilities,  and  by  making  expert  advice  widely 
available. 

The  replies  show  that  Member  States  are  in  line  with  the  conclusions  of  the  High 
Level  Group  on  Simplification  for  the  beneficiaries  of  the  European  Structural  and 
Investment Funds (ESI Funds) which found that simplicity and flexibility are key to 
ensuring  the  success  of  ESI  Funds  investments  in  Europe  and  of  Cohesion  Policy 
after 2020. 

In  the  area  of  performance  management,  the  ECA  has  found  that  the  Commission 
makes available a lot of information in comparison to other countries or international 
organisations. 

The  replies  received  from  Member  States  demonstrated  that  they  are  aware  of  the 
need  to  have  a  performance  framework  in  place  in  the  2014-2020  programming 
period to ensure that resources are allocated to priorities that bring an added value to 
actions  financed  through the EU budget. Member States  replied that they rely  on a 
wide range of data sources for performance information, including national statistical 
offices.  The  Commission  will  continue  working  with  Member  States  to  improve 
information on performance data. 

3 Speech given by Klaus-Heiner Lehne, President of the European Court of Auditors during the plenary session 
of the European Parliament (Strasbourg, 4 October 2017).  

12